ACCA Management Accounting 3 — Questions and Answers
Question 1: A company manufactures two products, X and Y, using the same machine. Machine hours are limited to 10,000 hours per period. Product X contributes $8 per machine hour and product Y contributes $12 per machine hour. Which product should be prioritized?
- Product X, because it has a higher total contribution
- Product Y, because it has a higher contribution per limiting factor unit (Correct answer)
- Product X, because it uses fewer machine hours
- Both should be produced equally
Correct answer: Product Y, because it has a higher contribution per limiting factor unit
When a resource is scarce, products should be ranked by contribution per unit of limiting factor; Product Y at $12/hour ranks higher.
Question 2: Which of the following statements about throughput accounting is CORRECT?
- It treats all costs except direct materials as period costs (Correct answer)
- It values inventory at full absorption cost
- It focuses on maximizing contribution per machine hour
- It ignores the concept of a bottleneck resource
Correct answer: It treats all costs except direct materials as period costs
Throughput accounting treats only direct material as a truly variable cost; all other costs (including labor) are considered fixed period costs.
Question 3: What does a positive sales volume variance indicate?
- Actual selling price was higher than standard
- Actual units sold exceeded budgeted units sold (Correct answer)
- Fixed costs were lower than budgeted
- Variable costs were lower than standard
Correct answer: Actual units sold exceeded budgeted units sold
A favorable sales volume variance means the company sold more units than budgeted, resulting in higher total contribution or profit than planned.
Question 4: In target costing, the target cost is calculated as:
- Actual cost plus desired profit margin
- Market price minus desired profit margin (Correct answer)
- Standard cost plus overhead absorption
- Budgeted cost minus cost reduction target
Correct answer: Market price minus desired profit margin
Target cost = target selling price − desired profit margin, so cost reduction efforts focus on achieving that target.
Question 5: Which costing method is most appropriate for a company that produces large, unique items such as ships or custom machinery?
- Process costing
- Batch costing
- Job costing (Correct answer)
- Service costing
Correct answer: Job costing
Job costing is used when each unit or contract is unique and costs need to be tracked individually for each specific job.
Question 6: A company's total costs are $80,000 at 4,000 units and $100,000 at 6,000 units. Using the high-low method, what is the variable cost per unit?
- $10.00 (Correct answer)
- $13.33
- $20.00
- $25.00
Correct answer: $10.00
Variable cost per unit = change in cost ÷ change in volume = ($100,000 − $80,000) ÷ (6,000 − 4,000) = $20,000 ÷ 2,000 = $10.
Question 7: Which of the following best describes life cycle costing?
- Costing each product stage from raw material to finished goods
- Tracking costs and revenues over the entire life of a product from development to abandonment (Correct answer)
- Allocating costs based on the useful life of fixed assets
- Calculating the depreciation charge over an asset's economic life
Correct answer: Tracking costs and revenues over the entire life of a product from development to abandonment
Life cycle costing accumulates all costs (including pre-production and post-production) over the entire life of a product to assess total profitability.
ACCA Management Accounting 3
A company manufactures two products, X and Y, using the same machine.
Machine hours are limited to 10,000 hours per period.
Product X contributes $8 per machine hour and product Y contributes $12 per machine hour.
Which product should be prioritized?