AAT L3 Management Accounting (Costing) 4

Question 1

Equivalent units in process costing are used to:

Accepted Answer

Deal with closing work in progress that is partially complete

Answer

Equivalent units convert partially completed units of closing WIP into a notional number of complete units for cost allocation purposes (e.g., 100 units 60% complete = 60 equivalent units).

Question 2

By-products in process costing are:

Accepted Answer

Minor, incidental outputs from a process with low sales value

Answer

By-products are secondary outputs of a process that have a relatively low value. Their net realisable value is typically deducted from the process cost before calculating the main product's cost.

Question 3

The difference between absorption costing profit and marginal costing profit is explained by:

Accepted Answer

The change in inventory levels multiplied by the fixed overhead per unit

Answer

The difference = change in inventory (units) × fixed overhead absorption rate per unit. When inventory rises, absorption costing reports higher profit (fixed OH deferred in inventory); when it falls, marginal costing reports higher profit.

Question 4

Overhead allocation means:

Accepted Answer

Directly attributing a whole overhead cost to a single cost centre

Answer

Overhead allocation is the direct attribution of an entire overhead cost to a single cost centre when the cost is wholly incurred by and can be traced to that centre — as opposed to apportionment which involves sharing.

Question 5

Which of the following methods is used to reapportion service department costs to production departments?

Accepted Answer

Repeated distribution method (continuous allotment)

Answer

The repeated distribution (continuous allotment) method reapportions service department costs iteratively between production departments and other service departments until the service department balances reach zero.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Management Accounting (Costing) 4