AAT Level 3 - Advanced Diploma in Accounting Management Accounting (Costing) 1

Question 1

In marginal costing, 'contribution' is defined as:

Accepted Answer

Sales revenue minus variable costs

Answer

Contribution is calculated as sales revenue minus variable costs. It represents the amount each unit of sale contributes towards covering fixed costs and, once those are covered, generating profit.

Question 2

A business has budgeted fixed production overheads of £90,000 and budgeted machine hours of 30,000. What is the overhead absorption rate (OAR) per machine hour?

Accepted Answer

£3.00

Answer

The OAR is calculated by dividing budgeted overheads by the budgeted activity level: £90,000 ÷ 30,000 hours = £3.00 per machine hour.

Question 3

During a period, actual fixed overheads incurred were £74,000 and overheads absorbed into production were £80,000. What is the result?

Accepted Answer

Over-absorption of £6,000

Answer

When absorbed overheads (£80,000) exceed actual overheads (£74,000), the difference of £6,000 is an over-absorption. This is credited to the income statement as it means too much overhead was charged to production.

Question 4

The break-even point is best described as the level of output at which:

Accepted Answer

Contribution equals fixed costs

Answer

At break-even, total contribution exactly equals total fixed costs, meaning there is neither a profit nor a loss. This is equivalent to saying total revenue equals total costs.

Question 5

In process costing, equivalent units are calculated in order to:

Accepted Answer

Value closing work-in-progress by converting partially complete units into a finished-unit equivalent

Answer

Equivalent units convert partially complete units into a notional number of fully complete units for each element of cost (materials, labour, overheads), allowing work-in-progress to be valued consistently.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT Level 3 - Advanced Diploma in Accounting Management Accounting (Costing) 1