ACCA AK Management Accounting (MA) Costing

Question 1

A company produces a single product. Fixed production overheads for the period are £120,000 and budgeted output is 40,000 units. Actual output is 38,000 units. What is the fixed overhead volume variance under absorption costing?

Accepted Answer

£6,000 adverse

Answer

The overhead absorption rate is £120,000 ÷ 40,000 = £3 per unit. Actual output is 38,000 units, so absorbed overhead = 38,000 × £3 = £114,000. Variance = £114,000 − £120,000 = £6,000 adverse (under-absorption because fewer units were produced than budgeted).

Question 2

Which of the following is a direct cost of producing a table?

Accepted Answer

Wood used in the table

Answer

A direct cost is one that can be specifically traced to a cost unit. Wood used in making a table is directly attributable to that table. Factory rent, supervisor salary, and machinery depreciation are indirect costs (overheads).

Question 3

Under marginal costing, how are fixed production overheads treated?

Accepted Answer

Treated as a period cost and charged in full to the income statement

Answer

Under marginal costing, only variable production costs are included in inventory valuation. Fixed production overheads are treated as period costs and written off in full against revenue in the period they are incurred.

Question 4

A product passes through two processes. The output of Process 1 becomes the input of Process 2. This is an example of which costing method?

Accepted Answer

Process costing

Answer

Process costing is used where production is continuous and products pass through a series of processes. The output of one process becomes the input of the next, and costs are averaged over units produced.

Question 5

In absorption costing, if actual production exceeds budgeted production, what happens to fixed overheads?

Accepted Answer

They are over-absorbed

Answer

When actual production exceeds budget, more overhead is absorbed (actual units × OAR) than was actually incurred. This results in over-absorption — a favourable situation that increases reported profit.

ACCA Applied Knowledge Practice Test

ACCA Applied Knowledge Practice Test

ACCA AK Management Accounting (MA) Costing