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Question 1

Which costing system assigns costs to products based on the activities that drive those costs?

Accepted Answer

Activity-based costing (ABC)

Answer

ABC identifies cost drivers for each activity and assigns overhead costs to products based on their consumption of those activities, giving more accurate product costs than traditional volume-based absorption.

Question 2

Marginal costing values closing inventory at:

Accepted Answer

Variable cost per unit only

Answer

Under marginal costing, only variable costs are included in inventory valuation; fixed overheads are treated as period costs and written off to profit or loss in the period incurred.

Question 3

A favourable direct material usage variance means:

Accepted Answer

Less material was used than the standard amount for actual output

Answer

Direct material usage variance = (standard quantity for actual output − actual quantity used) × standard price. A favourable variance means actual usage was less than standard, saving material.

Question 4

In breakeven analysis, the contribution to sales (C/S) ratio represents:

Accepted Answer

The percentage of each pound of sales available to cover fixed costs and profit

Answer

The C/S ratio (contribution margin ratio) = contribution / sales revenue. It shows what proportion of every pound of sales contributes towards fixed costs and then profit.

Question 5

Which budgeting approach starts from a zero base each period, requiring all expenditure to be justified?

Accepted Answer

Zero-based budgeting (ZBB)

Answer

ZBB requires managers to justify every item of expenditure from scratch each period, eliminating the assumption that previous spending levels were appropriate, which helps identify waste.

ACA ICAEW Practice Test

ACA ICAEW Practice Test

ACA Management Information