ACCA Management Accounting Techniques 4 — Questions and Answers
Question 1: Which budgeting approach requires every line item to be justified from scratch each period, regardless of prior spending?
- Zero-based budgeting (Correct answer)
- Incremental budgeting
- Rolling budgeting
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires managers to justify all expenditures anew each period, eliminating the assumption that prior budgets are a valid baseline.
Question 2: A company produces 10,000 units and absorbs overheads at $5 per unit. Actual overheads are $48,000. What is the over/under absorption?
- $2,000 over-absorbed (Correct answer)
- $2,000 under-absorbed
- $48,000 over-absorbed
- $2,000 over-spent
Correct answer: $2,000 over-absorbed
Absorbed overheads = 10,000 × $5 = $50,000; actual = $48,000; so overheads are over-absorbed by $2,000.
Question 3: When comparing marginal and absorption costing profit, if inventory levels increase during the period:
- Absorption costing reports higher profit than marginal costing (Correct answer)
- Marginal costing reports higher profit than absorption costing
- Both methods report the same profit
- Absorption costing reports lower profit due to higher fixed costs
Correct answer: Absorption costing reports higher profit than marginal costing
When inventory rises, absorption costing defers more fixed costs in closing inventory, resulting in a higher profit than marginal costing.
Question 4: The margin of safety percentage is calculated as:
- (Actual sales − Breakeven sales) ÷ Actual sales × 100 (Correct answer)
- (Budgeted profit − Actual profit) ÷ Budgeted profit × 100
- Fixed costs ÷ Contribution per unit × 100
- (Actual sales − Target sales) ÷ Target sales × 100
Correct answer: (Actual sales − Breakeven sales) ÷ Actual sales × 100
Margin of safety % = (Actual or budgeted sales − Breakeven sales) ÷ Actual or budgeted sales × 100, showing the cushion before losses begin.
Question 5: In an ABC system, which of the following is a batch-level cost?
- Machine set-up costs incurred each time a new batch runs (Correct answer)
- Direct materials consumed per unit produced
- Factory rent paid monthly
- CEO salary allocated to product lines
Correct answer: Machine set-up costs incurred each time a new batch runs
Batch-level costs, like machine set-up, are incurred once per batch regardless of the number of units in that batch.
Question 6: A division has controllable profit of $200,000 and controllable investment of $1,000,000. Its controllable Return on Investment (ROI) is:
- 20% (Correct answer)
- 25%
- 15%
- 5%
Correct answer: 20%
ROI = Controllable profit ÷ Controllable investment = $200,000 ÷ $1,000,000 = 20%.
Question 7: Residual Income (RI) differs from ROI in that RI:
- Deducts an imputed interest charge on investment from divisional profit (Correct answer)
- Expresses performance as a percentage rather than an absolute figure
- Ignores uncontrollable fixed costs in its calculation
- Uses market value rather than book value of assets
Correct answer: Deducts an imputed interest charge on investment from divisional profit
RI = Controllable profit − (Cost of capital × Controllable investment), providing an absolute dollar measure after charging for the cost of capital.
ACCA Management Accounting Techniques 4
Which budgeting approach requires every line item to be justified from scratch each period, regardless of prior spending?