ACA Management Information 2 — Questions and Answers
Question 1: A standard cost is best described as:
- The actual cost incurred during the period
- The predetermined unit cost based on expected usage and prices (Correct answer)
- The lowest possible cost of production
- The historical average cost over several years
Correct answer: The predetermined unit cost based on expected usage and prices
A standard cost is a carefully predetermined unit cost based on expected material quantities, labour times, and overhead rates under efficient operating conditions.
Question 2: The adverse sales volume variance indicates:
- Actual sales exceeded budgeted sales
- Actual sales were below budgeted sales in volume terms (Correct answer)
- The selling price was lower than standard
- Production exceeded the sales budget
Correct answer: Actual sales were below budgeted sales in volume terms
Sales volume variance = (actual volume − budgeted volume) × standard profit per unit. An adverse variance means fewer units were sold than budgeted, reducing profit.
Question 3: In throughput accounting, the key constraint is managed using the ratio:
- Contribution per unit / selling price
- Throughput per unit / time on bottleneck resource (Correct answer)
- Profit per unit / total cost
- Variable cost / fixed cost
Correct answer: Throughput per unit / time on bottleneck resource
Throughput accounting ranks products by throughput (sales revenue minus direct materials) per unit of the bottleneck resource, maximising return from the constraint.
Question 4: Life cycle costing considers:
- Only production costs of a product
- All costs from design through production, sale, and after-sale support to disposal (Correct answer)
- Only variable costs over the product's life
- The cost of replacing the product at end of life
Correct answer: All costs from design through production, sale, and after-sale support to disposal
Life cycle costing accumulates all costs associated with a product across its entire life — from development and launch through to decommissioning — to understand true profitability.
Question 5: Which performance measure is used in a profit centre?
- Return on investment
- Profit (contribution and net profit) (Correct answer)
- Revenue only
- Cost per unit
Correct answer: Profit (contribution and net profit)
A profit centre manager is responsible for both revenues and costs, and is therefore assessed on profit (or contribution) rather than just costs or return on assets.
Question 6: Transfer pricing in management accounting refers to:
- The price charged to external customers
- The internal price set for goods or services transferred between divisions (Correct answer)
- The price at which assets are revalued
- The standard cost of production transfers
Correct answer: The internal price set for goods or services transferred between divisions
Transfer pricing is the mechanism by which one division of an organisation charges another division for goods or services supplied internally, affecting each division's reported performance.
ACA Management Information 2
A standard cost is best described as: