ACCA - Association of Chartered Certified Accountants Management Accounting Techniques Questions and Answers

Question 1

A company is developing a new product in a highly competitive market. The marketing department has determined a likely selling price of $150 per unit. The company requires a profit margin of 30% on the selling price. What management accounting technique is being described, and what is the target cost per unit?

Accepted Answer

Target Costing; $105

Answer

Target costing is a market-driven approach that starts with a competitive market price and a desired profit margin to establish a target cost. The calculation is: Target Cost = Selling Price - Desired Profit. In this scenario, the Target Cost is $150 - (30% of $150) = $150 - $45 = $105.

Question 2

Which of the following statements best describes a key principle of Throughput Accounting?

Accepted Answer

In the short term, only direct material costs are considered truly variable.

Answer

A fundamental concept of Throughput Accounting is that in the short run, most factory costs (including direct labor and overheads) are considered fixed. Only direct material costs are treated as truly variable. The focus is on maximizing throughput, which is sales revenue minus total direct material cost.

Question 3

A manufacturing company is reviewing its overhead allocation. It produces a standard, high-volume product and a customized, low-volume product. The customized product requires frequent machine setups and significant engineering support, which are currently absorbed into a single, volume-based overhead rate. Which management accounting technique would provide a more accurate product cost for the customized product?

Accepted Answer

Activity-Based Costing (ABC)

Answer

Activity-Based Costing (ABC) is designed to address the shortcomings of traditional costing systems. It allocates overheads based on the specific activities that drive those costs (e.g., machine setups, engineering hours). This provides a more accurate cost for products that consume a disproportionate amount of these activities, such as the customized, low-volume product.

Question 4

A company is evaluating a special one-time contract. In considering the costs associated with the contract, which of the following would be considered a 'relevant cost'?

Accepted Answer

The future cost of additional materials that need to be purchased specifically for this contract.

Answer

Relevant costs for decision-making are future, incremental cash flows that arise as a direct consequence of the decision. The future cost of purchasing new materials is a direct cash outflow caused by accepting the contract. Depreciation is a non-cash expense, the cost of materials already in inventory is a sunk cost (unless they have an opportunity cost), and the manager's salary is a committed cost that will be paid regardless of this contract.

Question 5

The management of a technology company wants to assess the total profitability of its new tablet device, from the initial research and development phase through to the costs of disposal and environmental cleanup at the end of its useful life. Which management accounting technique is most appropriate for this purpose?

Accepted Answer

Lifecycle Costing

Answer

Lifecycle costing tracks and accumulates all costs and revenues attributable to a product over its entire life, from inception to abandonment. This includes costs from the design, manufacturing, operation, and end-of-life phases, providing a comprehensive view of the product's total profitability.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Management Accounting Techniques Questions and Answers