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Management Accounting (Costing) Flashcards

6 cards from real AAT L3 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. Equivalent units in process costing are used to:

    Answer: Deal with closing work in progress that is partially complete

    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).

  2. By-products in process costing are:

    Answer: Minor, incidental outputs from a process with low sales value

    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.

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

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

    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.

  4. Overhead allocation means:

    Answer: Directly attributing a whole overhead cost to a single cost centre

    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.

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

    Answer: Repeated distribution method (continuous allotment)

    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.

  6. A favourable overhead expenditure variance means:

    Answer: Actual overhead incurred was less than the budgeted overhead

    Overhead expenditure variance = Budgeted overhead − Actual overhead. A favourable variance means the business spent less on overheads than budgeted.