C Cost accounting techniques

Written by Mahnoor Sheikh (ACCA)

ACCA · Management Accounting · 15 questions

Name: ____________________ Date: ____________

Annual demand is 10,000 units, the cost of placing an order is $50 and holding one unit for a year costs $4. What is the economic order quantity?
- A 250 units
- B 1,000 units
- C 500 units
- D 5,000 units
Usage is 40 units a day, the lead time is 6 days and demand is constant. What is the reorder level?
- A 46 units
- B 40 units
- C 240 units
- D 6 units
In a period of rising prices, which inventory method gives the highest profit?
- A FIFO
- B They all give the same profit
- C Weighted average cost
- D LIFO
8 employees left during the year and the average number of employees was 160. What is the labour turnover rate?
- A 20%
- B 0.05%
- C 8%
- D 5%
Standard hours produced were 900 and the actual hours worked were 1,000. What is the efficiency ratio?
- A 100%
- B 111%
- C 90%
- D 10%
Budgeted overheads are $120,000 for 40,000 machine hours. Actual hours were 38,000 and actual overheads were $118,000. What is the result?
- A $6,000 under-absorbed
- B $4,000 over-absorbed
- C $4,000 under-absorbed
- D $2,000 over-absorbed
Which is the most suitable basis for apportioning a factory's rent between cost centres?
- A Number of employees
- B Machine hours
- C Floor area
- D Direct material cost
Production was 10,000 units, sales 8,000 units, and there was no opening inventory. Fixed overhead absorbed is $5 a unit. By how much does the absorption costing profit exceed the marginal costing profit?
- A $0
- B $10,000
- C $40,000
- D $50,000
When closing inventory is lower than opening inventory, which statement is correct?
- A The profits are equal
- B Absorption costing gives a higher profit
- C Marginal costing gives a loss
- D Absorption costing gives a lower profit than marginal costing
The selling price is $20 and the variable cost is $12. What is the contribution per unit?
- A $12
- B $32
- C $20
- D $8
Input of 1,000 units costs $9,000. The normal loss is 10 percent of input and the actual output is 880 units. What is the cost of the abnormal loss?
- A $1,000
- B $200
- C $0
- D $900
Further processing of a joint product is worthwhile if:
- A The extra revenue equals the joint cost
- B The product has a large share of total sales
- C The joint cost is high
- D The extra revenue exceeds the extra processing cost
Which method is most suitable for a one-off order made to a customer's own specification?
- A Service costing
- B Job costing
- C Process costing
- D Batch costing
Activity-based costing assigns overheads to products using:
- A Direct labour hours only
- B The activities that cause the costs
- C The selling price
- D An equal share for each product
A product's target selling price is $50 and the required profit margin is 20 percent of the selling price. What is the target cost?
- A $30
- B $10
- C $40
- D $60

Answer key

1. C, 2. C, 3. A, 4. D, 5. C, 6. C, 7. C, 8. B, 9. D, 10. D, 11. B, 12. D, 13. B, 14. B, 15. C

EOQ = square root of (2 x 50 x 10,000 / 4) = square root of 250,000 = 500.
Reorder level = daily usage x lead time = 40 x 6.
FIFO charges the older, lower costs to cost of sales, so cost of sales is lower and profit is higher.
8 / 160 = 5 percent.
Efficiency = standard hours produced / actual hours worked.
The rate is $3 an hour, so 38,000 hours absorb $114,000. Incurred overheads of $118,000 are $4,000 more.
Rent relates to space.
Inventory rose by 2,000 units, each carrying $5 of fixed overhead: $10,000.
Fixed overhead from the earlier period is released into cost of sales.
Contribution = selling price less variable cost.
Cost per good unit = 9,000 / 900 = $10. Abnormal loss = 20 units x $10.
Joint costs are incurred anyway, so only the extra revenue and extra costs matter.
Job costing records the costs of each separate order.
ABC uses cost drivers linked to activities.
Target cost = $50 less profit of $10.