AAT L2 Elements of Costing 5

Question 1

A time-based pay system means employees are paid based on:

Accepted Answer

The number of hours they work

Answer

Under a time-based pay system, employees are paid for the hours worked, regardless of the number of units produced. The hourly rate is agreed in advance, and total pay = hours worked × rate per hour.

Question 2

A manufacturing business has direct materials of £15,000, direct labour of £12,000, production overheads of £8,000, and administrative overheads of £5,000. What is the production cost?

Accepted Answer

£35,000

Answer

Production cost = Direct materials + Direct labour + Production overheads = £15,000 + £12,000 + £8,000 = £35,000. Administrative overheads are not part of production cost — they are period costs.

Question 3

If fixed costs per unit decrease as output increases, this demonstrates that:

Accepted Answer

Fixed costs are being spread over more units

Answer

Total fixed costs remain constant regardless of output. However, the fixed cost per unit decreases as output increases because the same total fixed cost is divided by more units. This is known as spreading fixed costs or economies of scale.

Question 4

Which of the following cost behaviours describes a royalty paid per unit of output?

Accepted Answer

Variable cost

Answer

A royalty paid per unit of output is a variable cost because the total cost changes in direct proportion to the number of units produced. If output doubles, the total royalty payment doubles.

Question 5

Contribution per unit is calculated as:

Accepted Answer

Selling price per unit minus variable cost per unit

Answer

Contribution per unit = Selling price per unit - Variable cost per unit. It represents the amount each unit contributes towards covering fixed costs and then generating profit.

AAT Level 2 Practice Test

AAT Level 2 Practice Test

AAT L2 Elements of Costing 5