AAT L3 Management Accounting (Costing) 3 — Questions and Answers
Question 1: The purpose of job costing is to:
- Average costs across all products produced
- Calculate the cost of a specific, individual job or batch (Correct answer)
- Measure the cost of continuous production
- Track overheads at departmental level only
Correct answer: Calculate the cost of a specific, individual job or batch
Job costing accumulates all direct and indirect costs for a specific job or customer order, enabling the business to determine the profitability of each individual job.
Question 2: Process costing is most appropriate for which type of production?
- One-off bespoke customer orders
- Batch production with individual pricing
- Continuous or mass production of a homogeneous product (Correct answer)
- Service businesses with variable inputs
Correct answer: Continuous or mass production of a homogeneous product
Process costing is used in industries with continuous production of identical products (e.g., chemicals, oil refining, food processing), where it is impractical to track costs per individual unit.
Question 3: Normal loss in process costing refers to:
- Output that fails quality inspection
- The expected level of waste or loss that is anticipated in the production process (Correct answer)
- Abnormal inefficiency in production
- Lost units due to machine breakdown
Correct answer: The expected level of waste or loss that is anticipated in the production process
Normal loss is the anticipated, expected level of loss or wastage inherent in the production process (e.g., evaporation, trimming, spoilage). It is built into the cost per unit calculation.
Question 4: Which of the following describes semi-variable costs?
- Costs that are always variable in nature
- Costs that have both a fixed element and a variable element (Correct answer)
- Costs that change in steps at capacity thresholds
- Costs that are fixed per unit of output
Correct answer: Costs that have both a fixed element and a variable element
Semi-variable (mixed) costs have a fixed component (incurred regardless of activity) and a variable component (increases with output) — for example, a telephone bill with a fixed line rental plus a variable call charge.
Question 5: The high-low method is used to:
- Calculate the average cost per unit
- Separate fixed and variable elements of a semi-variable cost (Correct answer)
- Calculate the maximum profit from a given output
- Determine the reorder level for inventory
Correct answer: Separate fixed and variable elements of a semi-variable cost
The high-low method uses the highest and lowest activity levels and their associated costs to estimate the variable cost per unit and total fixed cost component of a semi-variable cost.
Question 6: Which of the following is an indirect cost (overhead)?
- Direct labour on a specific product
- Raw material for a specific job
- Depreciation of factory machinery (Correct answer)
- Commission for a specific sale
Correct answer: Depreciation of factory machinery
Depreciation of factory machinery cannot be attributed to individual products — it is an indirect cost (overhead) shared across all products using the factory, absorbed using an OAR.
AAT L3 Management Accounting (Costing) 3
The purpose of job costing is to: