ACCA Applied Knowledge Exam — Questions and Answers

Question 1: Under IAS 2 Inventories, which of the following should be included in the cost of inventory?

Abnormal waste of materials
Costs of conversion including production overheads based on normal capacity (Correct answer)
Storage costs of finished goods awaiting sale
Selling costs

Correct answer: Costs of conversion including production overheads based on normal capacity

IAS 2 states that inventory cost includes costs of purchase, costs of conversion, and other costs incurred in bringing inventories to their present location and condition. Conversion costs include production overheads allocated based on normal capacity. Selling costs, post-production storage, and abnormal waste are excluded.

Question 2: Under the UK Bribery Act 2010, which of the following would constitute an offence?

Making a payment to a foreign official to secure a government contract (Correct answer)
Providing hospitality at a sporting event that is proportionate and reasonable
Offering a discount to a long-standing customer
Giving a promotional gift worth £5 at a trade fair

Correct answer: Making a payment to a foreign official to secure a government contract

The UK Bribery Act 2010 makes it an offence to bribe a foreign public official to obtain or retain business. Proportionate hospitality and modest promotional gifts are generally not offences.

Question 3: A company has trade receivables of £60,000 and estimates that 5% will be irrecoverable. The existing allowance for receivables is £2,000. What adjustment is needed?

No adjustment is required
Increase the allowance by £1,000 (Correct answer)
Increase the allowance by £3,000
Decrease the allowance by £1,000

Correct answer: Increase the allowance by £1,000

Required allowance = £60,000 × 5% = £3,000. Existing allowance = £2,000. Increase needed = £3,000 − £2,000 = £1,000. The irrecoverable debts expense in the income statement increases by £1,000.

Question 4: Under marginal costing, the sales volume variance is valued using:

Standard profit per unit
Standard selling price per unit
Actual contribution per unit
Standard contribution per unit (Correct answer)

Correct answer: Standard contribution per unit

Under marginal costing, sales volume variance = (Actual volume – Budgeted volume) × Standard contribution per unit, since fixed costs are treated as period costs.

Question 5: A suspense account is used when:

Trade receivables become irrecoverable
The business has excess cash that needs to be invested
The bookkeeper cannot determine the correct account for a transaction or the trial balance does not balance (Correct answer)
The business wants to hide transactions from auditors

Correct answer: The bookkeeper cannot determine the correct account for a transaction or the trial balance does not balance

A suspense account is a temporary account used when the bookkeeper is unsure where to post a transaction or when the trial balance does not balance and the error cannot be found immediately. It is cleared once the correct treatment is determined.

Question 6: Corporate social responsibility (CSR) encompasses:

Only the legal obligations a company must meet
The voluntary actions a company takes beyond legal requirements to address its impact on society and the environment (Correct answer)
The company's marketing and advertising strategy
Exclusively the company's obligations to its shareholders

Correct answer: The voluntary actions a company takes beyond legal requirements to address its impact on society and the environment

CSR refers to a company's voluntary commitment to managing its social, environmental, and economic impacts responsibly. It goes beyond mere legal compliance to include ethical behaviour, environmental stewardship, and community engagement.

Question 7: A 'boundary-less organisation' is one that:

Has no physical offices
Has no hierarchical structure at all
Operates across national borders
Removes traditional internal and external barriers to enable free information and resource flow (Correct answer)

Correct answer: Removes traditional internal and external barriers to enable free information and resource flow

A boundary-less organisation (coined by Jack Welch at GE) breaks down internal departmental barriers and external barriers with suppliers and customers to improve flexibility.

Question 8: Which of the following errors would be revealed by a trial balance?

An error of commission where a debit is posted to the wrong personal account
An error of omission where a transaction is completely left out
A compensating error where two errors of equal and opposite amount cancel out
A single-sided entry where only the debit has been recorded (Correct answer)

Correct answer: A single-sided entry where only the debit has been recorded

A single-sided entry means only one side of the double entry has been recorded, causing total debits to not equal total credits. The trial balance will not balance, revealing the error. The other three errors maintain equal debits and credits.

Question 9: In the context of information systems, what is the primary purpose of a Transaction Processing System (TPS)?

To record and process the organisation's routine daily transactions (Correct answer)
To support senior management strategic decisions
To manage employee performance appraisals
To generate long-term forecasting models

Correct answer: To record and process the organisation's routine daily transactions

A TPS handles the routine, day-to-day transactions of an organisation such as sales orders, payroll processing, and inventory updates. It forms the operational backbone of information systems.

Question 10: Which of the following adjustments is made at the year-end for an 'accrued expense'?

Debit prepayments, Credit expenses
Debit expenses, Credit accruals (liability) (Correct answer)
Debit income, Credit accruals
Debit accruals, Credit bank

Correct answer: Debit expenses, Credit accruals (liability)

An accrued expense is a cost incurred but not yet paid. The year-end adjustment is: Debit expenses (to recognise the cost) and Credit accruals (a current liability).

Question 11: The primary objective of a private sector company is generally considered to be:

Maximising shareholder wealth (Correct answer)
Maximising employee welfare
Minimising tax liabilities
Achieving the largest market share

Correct answer: Maximising shareholder wealth

In traditional financial theory, the primary objective of a company is to maximise shareholder wealth (value), though this must be balanced with stakeholder and ethical considerations.

Question 12: A customer pays £500 to settle an outstanding invoice. What is the double entry in the supplier's books?

Debit Revenue £500, Credit Cash £500
Debit Cash £500, Credit Trade Receivables £500 (Correct answer)
Debit Cash £500, Credit Revenue £500
Debit Trade Receivables £500, Credit Cash £500

Correct answer: Debit Cash £500, Credit Trade Receivables £500

When a customer settles an outstanding debt, Cash (asset) is debited to reflect the money received, and Trade Receivables (asset) is credited to remove the amount owed by the customer.

Question 13: A company's budgeted sales are £500,000. 60% of customers pay in the month of sale and 40% pay in the following month. Opening trade receivables are £80,000. What are the budgeted cash receipts for the month?

£340,000
£500,000
£300,000
£380,000 (Correct answer)

Correct answer: £380,000

Cash receipts from current month sales = £500,000 × 60% = £300,000. Cash receipts from prior month (opening receivables) = £80,000. Total cash receipts = £300,000 + £80,000 = £380,000.

Question 14: The UK Corporate Governance Code recommends that the board of a listed company should include:

Only executive directors to ensure operational expertise
Only family members of the founder
External auditors as board members
A sufficient number of independent non-executive directors to provide effective challenge (Correct answer)

Correct answer: A sufficient number of independent non-executive directors to provide effective challenge

The UK Corporate Governance Code recommends that at least half the board (excluding the chair) should be independent non-executive directors. They provide independent judgement, challenge executive management, and protect shareholder interests.

Question 15: Under IAS 1 Presentation of Financial Statements, which of the following is NOT a component of a complete set of financial statements?

Statement of financial position
Statement of cash flows
Statement of profit or loss and other comprehensive income
Tax computation (Correct answer)

Correct answer: Tax computation

IAS 1 requires five components: statement of financial position; statement of profit or loss and other comprehensive income; statement of changes in equity; statement of cash flows; and notes. A tax computation is not a required financial statement under IAS 1.

Question 16: In standard costing, what does a favourable material usage variance indicate?

Actual production was less than budgeted production
Less material was used than the standard allowed for the actual output (Correct answer)
More material was used than the standard allowed
Material was purchased at a price below standard

Correct answer: Less material was used than the standard allowed for the actual output

A favourable material usage variance means that actual quantity of material used was less than the standard quantity allowed for the actual level of output. This indicates efficient use of materials.

Question 17: What is the primary purpose of corporate governance?

To reduce the number of employees in an organisation
To provide a framework of rules and practices by which a board ensures accountability, fairness, and transparency (Correct answer)
To maximise short-term profits at all costs
To eliminate all business risk

Correct answer: To provide a framework of rules and practices by which a board ensures accountability, fairness, and transparency

Corporate governance establishes a system of rules, practices, and processes by which a company is directed and controlled. Its purpose is to balance the interests of stakeholders and ensure accountability, fairness, and transparency.

Question 18: The Nolan Principles (Seven Principles of Public Life) include all of the following EXCEPT:

Selflessness
Integrity
Profitability (Correct answer)
Accountability

Correct answer: Profitability

The seven Nolan Principles are: selflessness, integrity, objectivity, accountability, openness, honesty, and leadership. Profitability is a commercial objective and is not one of the principles governing conduct in public life.

Question 19: A self-interest threat to an accountant's objectivity arises when:

The accountant becomes too familiar with a long-standing client
The accountant has a financial interest in the outcome of an engagement (Correct answer)
A colleague pressures the accountant to change a report
The accountant is threatened with dismissal for reporting fraud

Correct answer: The accountant has a financial interest in the outcome of an engagement

A self-interest threat occurs when the accountant has a financial or other personal interest that could inappropriately influence their judgement — for example, owning shares in an audit client or being financially dependent on a single client's fees.

Question 20: What is the purpose of a trial balance?

To calculate the profit or loss for the period
To verify that total debits equal total credits in the ledger (Correct answer)
To record adjustments for accruals and prepayments
To prepare the statement of financial position

Correct answer: To verify that total debits equal total credits in the ledger

A trial balance lists all ledger account balances to check that total debits equal total credits. It is an arithmetic check on the double entry system, though it will not detect all types of errors (e.g., errors of commission, compensating errors).

Question 21: A business owner introduces £15,000 of personal savings into the business. What is the double entry?

Debit Capital £15,000, Credit Cash £15,000
Debit Cash £15,000, Credit Revenue £15,000
Debit Drawings £15,000, Credit Cash £15,000
Debit Cash £15,000, Credit Capital £15,000 (Correct answer)

Correct answer: Debit Cash £15,000, Credit Capital £15,000

When the owner introduces capital, the business receives cash (debit Cash to increase the asset) and the owner's claim on the business increases (credit Capital to increase equity).

Question 22: The closing inventory of a business is overstated by £4,000. What effect does this have on the financial statements?

Profit is overstated by £4,000 and assets are overstated by £4,000 (Correct answer)
Profit is understated by £4,000 and assets are overstated by £4,000
Profit is overstated by £4,000 and liabilities are overstated by £4,000
Profit is understated by £4,000 and assets are understated by £4,000

Correct answer: Profit is overstated by £4,000 and assets are overstated by £4,000

Closing inventory appears in two places: as a current asset on the statement of financial position and as a deduction from cost of sales. If overstated, cost of sales is too low (increasing profit) and the asset is too high. Both profit and net assets are overstated by £4,000.

Question 23: A company has a standard selling price of £40 per unit. Actual sales were 500 units at £38 per unit. What is the sales price variance?

£1,000 adverse (Correct answer)
£2,000 adverse
£500 adverse
£1,000 favourable

Correct answer: £1,000 adverse

Sales price variance = (Standard price – Actual price) × Actual units sold = (£40 – £38) × 500 = £1,000 adverse.

Question 24: A matrix organisational structure is best described as one where:

All authority flows from a single chief executive
Work is organised solely by geographic region
Divisions operate as independent profit centres
Employees report to both a functional manager and a project manager (Correct answer)

Correct answer: Employees report to both a functional manager and a project manager

In a matrix structure employees have dual reporting lines — to a functional head and a project/product manager — allowing flexible resource use.

Question 25: The variable overhead efficiency variance is most similar in structure to:

The direct material price variance
The fixed overhead volume variance
The direct labour efficiency variance (Correct answer)
The sales price variance

Correct answer: The direct labour efficiency variance

Both the variable overhead efficiency variance and the labour efficiency variance are driven by the difference between standard and actual hours, valued at the respective standard rate per hour.

Question 26: In project management, what does a Gantt chart primarily display?

The risk register for the project
The schedule of project activities against time (Correct answer)
The financial budget allocated to each project phase
The organisational hierarchy of project team members

Correct answer: The schedule of project activities against time

A Gantt chart is a horizontal bar chart that displays project tasks or activities along a timeline. It shows start dates, end dates, durations, and dependencies, making it a key tool for scheduling and tracking progress.

Question 27: Which of the following best describes the role of a mission statement in an organisation?

It sets out the organisation's purpose and reason for existence (Correct answer)
It details the specific financial targets for the next year
It provides a breakdown of departmental budgets
It lists the names of the board of directors

Correct answer: It sets out the organisation's purpose and reason for existence

A mission statement defines the fundamental purpose of an organisation — why it exists and what it seeks to achieve. It is distinct from financial targets, budgets, or governance structures.

Question 28: Which of the following best describes 'outsourcing'?

Merging two departments within the same organisation
Relocating a business function to another country
Contracting an external provider to perform a business activity previously done in-house (Correct answer)
Acquiring another company to gain its capabilities

Correct answer: Contracting an external provider to perform a business activity previously done in-house

Outsourcing means contracting an outside organisation to carry out a function or service that was previously performed internally.

Question 29: An error of commission occurs when:

The same error is made on both sides of a transaction
A transaction is completely omitted from the records
A transaction is posted to the correct type of account but the wrong account (Correct answer)
A transaction is posted to the correct account but on the wrong side

Correct answer: A transaction is posted to the correct type of account but the wrong account

An error of commission means an entry is made in the wrong account of the correct type (e.g., a sale to Jones posted to Smith's account). The trial balance still agrees.

Question 30: Zero-based budgeting (ZBB) requires managers to:

Justify every item of expenditure from a zero base for each new period (Correct answer)
Only budget for new projects and ignore ongoing activities
Simply adjust last year's budget by an inflation percentage
Set all budgets at zero and wait for actual costs to emerge

Correct answer: Justify every item of expenditure from a zero base for each new period

ZBB starts from scratch each budget period. Every activity and its associated costs must be justified as if it were new, rather than simply rolling forward last year's figures. This helps identify and eliminate unnecessary spending.

Question 31: According to Mendelow's matrix, stakeholders with HIGH power and HIGH interest should be:

Kept satisfied
Kept informed
Monitored
Managed closely (Correct answer)

Correct answer: Managed closely

Mendelow's matrix places high-power, high-interest stakeholders in the 'key players' quadrant, requiring close management and active engagement.

Question 32: Which of the following best describes a rolling (continuous) budget?

A budget that is continuously updated by adding a new period as the most recent period expires (Correct answer)
A budget that only covers capital expenditure
A budget that is set once and never revised
A budget prepared from scratch each year with no reference to previous budgets

Correct answer: A budget that is continuously updated by adding a new period as the most recent period expires

A rolling budget is continuously updated so that it always covers a fixed future period (e.g., 12 months). As one month or quarter passes, a new month or quarter is added at the end, keeping the budget current and forward-looking.

Question 33: A favourable direct material price variance means:

More units were produced than budgeted
The supplier delivered early
The actual price paid was less than the standard price (Correct answer)
More materials were used than standard

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 34: A business pays £1,200 for insurance covering the next 12 months. At the end of the first month, what adjusting entry is needed?

Debit Cash £1,200, Credit Insurance Expense £1,200
Debit Prepayments £100, Credit Insurance Expense £100
Debit Insurance Expense £100, Credit Prepayments £100 (Correct answer)
Debit Insurance Expense £1,200, Credit Prepayments £1,200

Correct answer: Debit Insurance Expense £100, Credit Prepayments £100

The £1,200 covers 12 months, so £100 per month. After one month, £100 has been used (debit Insurance Expense) and the prepaid asset reduces by £100 (credit Prepayments). The remaining £1,100 stays as a prepayment.

Question 35: Which of the following is a 'hygiene factor' in Herzberg's two-factor theory?

Achievement
Responsibility
Recognition
Salary (Correct answer)

Correct answer: Salary

Herzberg classified salary as a hygiene factor — its absence causes dissatisfaction, but its presence alone does not motivate. Motivators include achievement and recognition.

Question 36: What is the principal budget factor?

The cost that represents the highest proportion of total expenditure
The factor that limits the overall level of activity for the budget period (Correct answer)
The factor that has no impact on the budget
The budget that is prepared first in the budgeting process regardless of circumstances

Correct answer: The factor that limits the overall level of activity for the budget period

The principal budget factor (also called the limiting factor or key budget factor) is the factor that constrains the organisation's activities. It is identified first because all other budgets are built around this constraint — commonly sales demand, but could be labour, materials, or machine capacity.

Question 37: 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?

£6,000 favourable
£3,000 favourable
£6,000 adverse (Correct answer)
£3,000 adverse

Correct answer: £6,000 adverse

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 38: In Mintzberg's organisational configurations, which structure is characterised by a dominant strategic apex with centralised decision-making?

Simple structure (Correct answer)
Professional bureaucracy
Adhocracy
Machine bureaucracy

Correct answer: Simple structure

Mintzberg's simple structure features a dominant strategic apex (typically the owner/founder) who makes all key decisions centrally, with minimal middle management and little formalisation.

Question 39: Activity-based budgeting (ABB) focuses on:

Budgeting the costs of activities and the cost drivers that cause those costs (Correct answer)
Setting budgets based solely on prior year figures plus inflation
Preparing a single fixed budget for the year
Allocating all overhead costs based on direct labour hours

Correct answer: Budgeting the costs of activities and the cost drivers that cause those costs

ABB uses the principles of activity-based costing to budget costs. It identifies activities, determines cost drivers, and budgets the cost of each activity based on expected levels of the cost driver, providing a more accurate reflection of resource consumption.

Question 40: What is the purpose of a flexible budget?

To set individual employee performance targets
To remain unchanged regardless of actual activity levels
To adjust budgeted costs and revenues to reflect the actual level of activity achieved (Correct answer)
To forecast sales for the next five years

Correct answer: To adjust budgeted costs and revenues to reflect the actual level of activity achieved

A flexible budget adjusts the original budget figures to reflect the actual level of activity. This provides a more meaningful basis for comparing actual costs against what should have been spent at the actual activity level, improving cost control.

Question 41: A business receives a telephone bill for £350 but has not yet paid it. What is the correct double entry?

Debit Prepayments £350, Credit Cash £350
Debit Accruals £350, Credit Telephone Expense £350
Debit Telephone Expense £350, Credit Accruals £350 (Correct answer)
Debit Cash £350, Credit Telephone Expense £350

Correct answer: Debit Telephone Expense £350, Credit Accruals £350

The expense has been incurred (debit Telephone Expense) but not yet paid, creating a liability (credit Accruals). This applies the accruals concept — matching the expense to the period in which it was incurred regardless of payment timing.

Question 42: Which of the following best describes the agency problem in corporate governance?

The difficulty of finding a suitable advertising agency
The conflict arising when directors (agents) may pursue their own interests rather than those of shareholders (principals) (Correct answer)
The conflict between a company and its suppliers over payment terms
The challenge of recruiting new board members

Correct answer: The conflict arising when directors (agents) may pursue their own interests rather than those of shareholders (principals)

The agency problem arises because directors (agents) are entrusted to run the company on behalf of shareholders (principals), but may have different objectives — such as prioritising their own remuneration, job security, or empire-building over shareholder wealth maximisation.

Question 43: Under IAS 10 Events After the Reporting Period, which of the following is an adjusting event?

A major fire destroys a warehouse after the reporting date
The settlement after the reporting date of a court case that confirms an obligation existed at the reporting date (Correct answer)
The announcement of a major acquisition after the reporting date
A decline in market value of investments after the reporting date

Correct answer: The settlement after the reporting date of a court case that confirms an obligation existed at the reporting date

An adjusting event provides evidence of conditions that existed at the reporting date. Settlement of a court case confirms a liability that existed at year end, so the financial statements should be adjusted. The other events are non-adjusting — they relate to conditions arising after the reporting date.

Question 44: Under IAS 16 Property, Plant and Equipment, which of the following costs should be included in the initial measurement of a purchased machine?

Advertising costs for products made by the machine
Costs of relocating the machine to a different factory after initial installation
Import duties and non-refundable purchase taxes (Correct answer)
Staff training costs for operating the machine

Correct answer: Import duties and non-refundable purchase taxes

IAS 16 requires that the cost of an item of PPE includes its purchase price plus import duties and non-refundable taxes, plus any directly attributable costs of bringing the asset to working condition. Training, relocation after use, and advertising are not directly attributable.

Question 45: The direct labour rate variance is calculated as:

(Standard rate – Actual rate) × Standard hours
(Standard hours – Actual hours) × Actual rate
(Standard hours – Actual hours) × Standard rate
(Standard rate – Actual rate) × Actual hours worked (Correct answer)

Correct answer: (Standard rate – Actual rate) × Actual hours worked

Labour rate variance = (Standard rate – Actual rate) × Actual hours worked, measuring the cost impact of paying more or less per hour than standard.

Question 46: Which of the following items would appear in Other Comprehensive Income (OCI) rather than profit or loss?

A revaluation surplus on property under the revaluation model of IAS 16 (Correct answer)
Finance costs on a bank loan
Depreciation of office equipment
Revenue from contracts with customers

Correct answer: A revaluation surplus on property under the revaluation model of IAS 16

Under IAS 16, when an asset is revalued upwards for the first time, the revaluation surplus is recognised in other comprehensive income and accumulated in equity under a revaluation surplus reserve. It does not pass through profit or loss.

Question 47: Which of the following is the correct sequence for preparing functional budgets?

Production budget → Sales budget → Materials budget → Cash budget
Cash budget → Sales budget → Production budget → Materials budget
Sales budget → Production budget → Materials and labour budgets → Cash budget (Correct answer)
Materials budget → Production budget → Sales budget → Cash budget

Correct answer: Sales budget → Production budget → Materials and labour budgets → Cash budget

The budgeting process typically starts with the sales budget (assuming sales is the principal budget factor), then derives the production budget, followed by materials, labour, and overhead budgets. The cash budget is one of the last to be prepared as it draws on all other budgets.

Question 48: Which of the following best describes 'big data' in a business context?

A database containing only customer contact details
Any data stored on a company's local server
Extremely large and complex data sets that require advanced analytical methods to extract value (Correct answer)
Financial statements prepared under IFRS

Correct answer: Extremely large and complex data sets that require advanced analytical methods to extract value

Big data refers to extremely large, complex data sets — often characterised by volume, velocity, variety, veracity, and value — that cannot be processed effectively using traditional methods and require advanced analytics.

Question 49: A business purchases office furniture for £3,000 on credit. What is the correct double entry?

Debit Cash £3,000, Credit Furniture £3,000
Debit Furniture £3,000, Credit Trade Payables £3,000 (Correct answer)
Debit Furniture £3,000, Credit Capital £3,000
Debit Trade Payables £3,000, Credit Furniture £3,000

Correct answer: Debit Furniture £3,000, Credit Trade Payables £3,000

When an asset is acquired on credit, the asset account (Furniture) is debited to reflect the increase, and Trade Payables is credited to reflect the liability owed to the supplier.

Question 50: The reducing balance method of depreciation results in:

Equal depreciation charges each year
Lower depreciation in early years
A depreciation charge based on usage
Higher depreciation in early years and lower in later years (Correct answer)

Correct answer: Higher depreciation in early years and lower in later years

The reducing balance method applies a fixed percentage to the net book value each year. Since NBV falls, the depreciation charge is higher early on and declines over time.

Question 51: The sales price variance measures the effect on revenue of:

Selling more or fewer units than budgeted
Selling at a different price than the standard price (Correct answer)
Changes in product mix
Differences between cash received and invoiced amounts

Correct answer: Selling at a different price than the standard price

Sales price variance = (Actual price − Standard price) × Actual units sold. It isolates the impact of pricing decisions on revenue.

Question 52: A non-current asset cost £50,000, has a useful life of 10 years, and a residual value of £5,000. Using the straight-line method, what is the annual depreciation charge?

£4,500 (Correct answer)
£45,000
£5,000
£50,000

Correct answer: £4,500

Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£50,000 − £5,000) ÷ 10 = £4,500 per year.

Question 53: Which type of organisational culture, as described by Handy, is characterised by a dominant central figure and few rules or procedures?

Task culture
Role culture
Person culture
Power culture (Correct answer)

Correct answer: Power culture

Handy's power culture is characterised by a central power source (often a single dominant individual) with few formal rules. Decisions radiate from the centre, and the organisation depends on trust and personal communication.

Question 54: A company has a standard material usage of 5 kg per unit at £3/kg. Actual production was 100 units using 520 kg. What is the material usage variance?

£60 favourable
£60 adverse (Correct answer)
£156 favourable
£156 adverse

Correct answer: £60 adverse

Standard quantity for actual output = 100 × 5 = 500 kg; variance = (500 – 520) × £3 = £60 adverse.

Question 55: The break-even point in units is calculated as:

Variable costs ÷ Selling price
Fixed costs ÷ Contribution per unit (Correct answer)
Fixed costs ÷ Selling price per unit
Total costs ÷ Sales revenue

Correct answer: Fixed costs ÷ Contribution per unit

Break-even units = Fixed costs ÷ Contribution per unit. At this output level, total contribution exactly equals total fixed costs, so profit is zero.

Question 56: What does the acronym PESTEL stand for in the context of environmental analysis?

Production, Efficiency, Strategy, Technology, Employment, Logistics
Planning, Execution, Sourcing, Training, Evaluation, Leadership
Price, Earnings, Sales, Tax, Equity, Liability
Political, Economic, Social, Technological, Environmental, Legal (Correct answer)

Correct answer: Political, Economic, Social, Technological, Environmental, Legal

PESTEL analysis examines the macro-environmental factors affecting an organisation: Political, Economic, Social, Technological, Environmental, and Legal. It is a widely used framework in strategic analysis.

Question 57: Which of the following is most likely to cause a favourable direct labour efficiency variance?

Workers using a higher-grade material that is easier and faster to process (Correct answer)
A general wage rate increase agreed with trade unions
Workers being paid an overtime premium rate
An increase in the purchase price of raw materials

Correct answer: Workers using a higher-grade material that is easier and faster to process

Higher-grade material that is easier to work with reduces processing time, allowing workers to complete output faster than the standard time allows.

Question 58: In the context of budgeting, what is budgetary slack?

The variance between budgeted and actual fixed costs
An underestimate of revenues or overestimate of costs deliberately built into a budget by managers (Correct answer)
The time delay in preparing the budget
The gap between the budget period start and end dates

Correct answer: An underestimate of revenues or overestimate of costs deliberately built into a budget by managers

Budgetary slack occurs when managers deliberately underestimate revenues or overestimate costs to make targets easier to achieve. This is a behavioural problem that undermines the accuracy and usefulness of budgets.

ACCA Applied Knowledge Exam

The ACCA Applied Knowledge level comprises three computer-based exams: Business and Technology (BT), Management Accounting (MA), and Financial Accounting (FA), awarded by the Association of Chartered Certified Accountants. The exams introduce core knowledge in business operations and management, costing and budgeting, double entry bookkeeping, and preparation of financial statements, alongside business ethics and governance.

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