ACCA AK Management Accounting

Question 1

Which of the following is an example of a 'fixed cost'?

Accepted Answer

Factory rent paid monthly regardless of output

Answer

A fixed cost remains constant in total regardless of the level of activity within the relevant range. Factory rent does not change with output volume.

Question 2

Prime cost is calculated as:

Accepted Answer

Direct materials + Direct labour + Direct expenses

Answer

Prime cost (or direct cost) = Direct materials + Direct labour + Direct expenses. It excludes all indirect costs (overheads).

Question 3

Which cost classification is most relevant when deciding whether to shut down a product line?

Accepted Answer

Relevant (incremental) cost

Answer

Relevant costs are future incremental cash flows that change as a result of a decision; sunk costs are past and irrelevant. Shutdown decisions focus on relevant costs and revenues.

Question 4

A production overhead absorption rate (OAR) is typically calculated as:

Accepted Answer

Budgeted overhead ÷ Budgeted activity

Answer

The OAR is set at the start of the period using budgeted figures: Budgeted overhead ÷ Budgeted activity level (e.g., machine hours or labour hours).

Question 5

If actual overhead incurred is £50,000 and absorbed overhead is £45,000, the result is:

Accepted Answer

Under-absorption of £5,000

Answer

Under-absorption occurs when absorbed overhead is less than actual overhead (£45,000 < £50,000). The £5,000 shortfall is added back to cost of sales.

ACCA Applied Knowledge Practice Test

ACCA Applied Knowledge Practice Test

ACCA AK Management Accounting