ACCA AK Management Accounting 3 — Questions and Answers
Question 1: A favourable direct material price variance means:
- More materials were used than standard
- The actual price paid was less than the standard price (Correct answer)
- More units were produced than budgeted
- The supplier delivered early
Correct answer: The actual price paid was less than the standard price
Direct material price variance = (Standard price − Actual price) × Actual quantity. Favourable means actual price < standard price, so less was paid than expected.
Question 2: Which of the following would cause an adverse direct labour efficiency variance?
- Workers were paid a higher rate than standard
- Fewer hours were worked than standard
- More hours were worked than standard to produce the output (Correct answer)
- Production volume was higher than budgeted
Correct answer: More hours were worked than standard to produce the output
Labour efficiency variance = (Standard hours − Actual hours) × Standard rate. If actual hours exceed standard hours, the variance is adverse (more time taken than expected).
Question 3: Activity-based costing (ABC) differs from traditional absorption costing because it:
- Ignores fixed overheads entirely
- Uses multiple cost drivers to allocate overhead more accurately to products (Correct answer)
- Always produces lower product costs
- Is only suitable for service industries
Correct answer: Uses multiple cost drivers to allocate overhead more accurately to products
ABC uses multiple cost drivers (e.g., number of set-ups, machine hours, orders processed) to allocate overhead to products more accurately than a single volume-based OAR.
Question 4: In a standard costing system, a 'standard hour' represents:
- The average time taken by workers in the past year
- The time a task should take under efficient operating conditions (Correct answer)
- The maximum time allowed for any task
- The overtime threshold for a shift
Correct answer: The time a task should take under efficient operating conditions
A standard hour is the amount of work that should be performed in one hour under efficient (standard) operating conditions, used as the basis for efficiency variances.
Question 5: Which of the following best describes a 'cost centre'?
- A unit of the business that is charged with costs only, with no revenue responsibility (Correct answer)
- A division that must earn a target return on investment
- A department responsible for both costs and revenues
- A budget holder who approves capital expenditure
Correct answer: A unit of the business that is charged with costs only, with no revenue responsibility
A cost centre is a business unit accountable only for the costs it incurs; it has no direct revenue responsibility. Examples include HR and maintenance departments.
Question 6: The margin of safety expresses:
- The ratio of fixed costs to variable costs
- The difference between budgeted sales and break-even sales, as a percentage of budgeted sales (Correct answer)
- The profit earned per unit sold
- The maximum loss a business can sustain
Correct answer: The difference between budgeted sales and break-even sales, as a percentage of budgeted sales
Margin of safety = (Budgeted sales − Break-even sales) ÷ Budgeted sales × 100. It shows how much sales can fall before the business makes a loss.
ACCA AK Management Accounting 3
A favourable direct material price variance means: