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Free ACCA Management Accounting Practice Questions & Answers
401 exam-style Management Accounting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 1
What is the primary purpose of management accounting?
Select an option first.
Correct answer: B — To support internal decision-making, planning and control
Explanation: B is correct: management accounting exists to provide information that helps managers inside the organisation plan, make decisions and control operations. A is wrong — reporting to shareholders is a financial accounting function. C is wrong — tax is handled by tax accounting. D is wrong — compliance with external standards is financial accounting's domain.
Question 2
Which of the following best distinguishes 'data' from 'information'?
Select an option first.
Correct answer: B — Data is raw and unprocessed; information is data that has been processed to be meaningful
Explanation: B is correct: data consists of raw, unprocessed facts and figures; once processed and given context, it becomes information useful for decisions. A is wrong — both data and information can be numerical or non-numerical. C is wrong — data is collected first and then processed into information. D is wrong — they are distinct concepts.
Question 3
Which of the following is a DIRECT cost?
Select an option first.
Correct answer: C — Timber used to manufacture a specific table
Explanation: C is correct: a direct cost can be specifically and exclusively traced to a particular cost unit — timber used in making a specific table is traceable directly to that product. A is wrong — factory rent is an indirect overhead allocated using a basis. B is wrong — depreciation on shared machinery is an indirect cost. D is wrong — supervisor wages shared across products are indirect.
Question 4
A fixed cost is best described as a cost that:
Select an option first.
Correct answer: C — Remains constant in total regardless of output level within the relevant range
Explanation: C is correct: fixed costs stay constant in total across different output levels within the relevant range (e.g. factory rent). A is wrong — fixed cost per unit actually FALLS as output rises because the total is spread over more units. B is wrong — that describes a variable cost. D is wrong — fixed costs do not decrease in total with more output.
Question 5
Which cost behaves as a variable cost per unit and a fixed cost in total?
Select an option first.
Correct answer: B — Variable cost
Explanation: B is correct: variable costs are constant per unit (e.g. $5 per unit) and therefore increase in total as more units are produced. A is wrong — fixed costs are constant in total, not per unit. C is wrong — semi-variable costs have both fixed and variable components. D is wrong — stepped fixed costs are fixed across ranges but jump at certain activity levels.
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Question 6
A cost that is fixed up to a certain level of activity but then increases to a new fixed level is called a:
Select an option first.
Correct answer: C — Stepped fixed cost
Explanation: C is correct: stepped fixed costs remain constant within a range of output, then increase in a 'step' to a new fixed level when a capacity threshold is crossed — for example, hiring an additional supervisor when output exceeds a threshold. A is wrong — semi-variable has both fixed and variable parts at all times. B is wrong — a variable cost changes continuously with each unit. D is wrong — marginal cost is the cost of one additional unit.
Question 7
Production costs include which of the following?
Select an option first.
Correct answer: B — Materials, direct labour and production overheads
Explanation: B is correct: production costs (also called manufacturing costs) comprise direct materials, direct labour and production overheads — all costs incurred in converting raw materials into finished goods. A is wrong — advertising and sales commission are selling/distribution costs. C is wrong — interest, legal and audit are finance or administrative costs. D is wrong — administrative costs are non-production costs.
Question 8
What is a 'cost unit'?
Select an option first.
Correct answer: B — A quantitative unit of product or service to which costs are assigned
Explanation: B is correct: a cost unit is a unit of output — such as one car, one meal, or one hour of consulting — to which costs are attached. A is wrong — that describes a management function, not a cost unit. C is wrong — total period cost is not a cost unit. D is wrong — that describes a cost centre.
Question 9
A cost centre is best defined as:
Select an option first.
Correct answer: B — A section of a business for which costs are collected and controlled
Explanation: B is correct: a cost centre is any part of an organisation (department, machine, location) where costs are collected for control purposes, without necessarily generating revenue. A is wrong — that is a cost unit. C is wrong — a centre generating revenue is a revenue or profit centre. D is wrong — cost centres track all types of costs, not just variable.
Question 10
Which type of responsibility centre is evaluated on both costs AND revenues?
Select an option first.
Correct answer: C — Profit centre
Explanation: C is correct: a profit centre manager is responsible for both generating revenue and controlling costs, so performance is measured by the profit earned. A is wrong — cost centres only track costs. B is wrong — revenue centres only track income, not costs. D is wrong — investment centres go further by also being assessed on the return from capital employed.
Question 11
An investment centre differs from a profit centre in that it:
Select an option first.
Correct answer: B — Is assessed on profit relative to the capital employed in the centre
Explanation: B is correct: investment centre managers are accountable for the profit they earn AND the assets/capital base used to generate it — typically measured using ROCE or RI. A is wrong — investment centres do track both costs and revenues. C is wrong — investment centre managers have extensive control over spending and investment. D is wrong — these are internal management tools.
Question 12
Which of the following is an example of a non-production cost?
Select an option first.
Correct answer: C — Delivery costs to customers
Explanation: C is correct: delivery costs to customers are distribution costs — a non-production cost incurred after goods have been manufactured. A is wrong — raw materials are a direct production cost. B is wrong — factory supervisor wages are production overhead. D is wrong — factory machine depreciation is a production overhead.
Question 13
What does the term 'relevant range' mean in cost accounting?
Select an option first.
Correct answer: B — The range of output within which cost behaviour assumptions hold true
Explanation: B is correct: cost behaviour (fixed, variable, semi-variable) is only predictable within the relevant range — beyond it, fixed costs may step up or variable cost rates may change. A is wrong — profit margin is unrelated to cost behaviour assumptions. C is wrong — maximum capacity is a separate concept. D is wrong — selling prices are not part of cost classification.
Question 14
Direct labour cost is classified as:
Select an option first.
Correct answer: B — A variable cost and direct cost
Explanation: B is correct: direct labour (e.g. wages paid to workers who physically make a product) is typically variable (changes with output) and direct (traceable to specific units). A is wrong — direct labour is usually variable, not fixed. C is wrong — direct labour varies with production levels. D is wrong — direct labour is traceable to specific cost units, making it a direct cost.
Question 15
Which statement about marginal cost is correct?
Select an option first.
Correct answer: B — It is the cost of producing one additional unit of output
Explanation: B is correct: marginal cost is the incremental cost of producing one extra unit — typically just the variable costs, since fixed costs do not change with the additional unit. A is wrong — average cost divides total cost by all units. C is wrong — fixed costs are irrelevant to the marginal cost of an extra unit. D is wrong — that defines average total cost, not marginal cost.
Question 16
If total costs are $40,000 at 1,000 units and $55,000 at 2,500 units, what is the variable cost per unit?
Select an option first.
Correct answer: A — $10.00
Explanation: A is correct: change in cost = $55,000 - $40,000 = $15,000; change in units = 2,500 - 1,000 = 1,500; variable cost per unit = $15,000 / 1,500 = $10. B is wrong — $16 would imply incorrect calculation. C is wrong — $15 per unit would mean zero fixed cost. D is wrong — $22 is not supported by the data.
Question 17
Using the data above (Q16), what is the total fixed cost?
Select an option first.
Correct answer: B — $30,000
Explanation: B is correct: fixed cost = total cost minus variable cost = $40,000 - (1,000 × $10) = $40,000 - $10,000 = $30,000. A is wrong — $15,000 is the change in cost, not the fixed cost. C is wrong — $25,000 results from incorrect calculation. D is wrong — $10,000 is the variable portion at 1,000 units.
Question 18
Which inventory valuation method issues stock at the oldest purchase price?
Select an option first.
Correct answer: C — FIFO
Explanation: C is correct: FIFO (First In, First Out) assumes the oldest inventory is used/sold first, so issues are priced at the earliest purchase cost. A is wrong — LIFO (Last In, First Out) issues at the most recent price. B is wrong — AVCO uses a weighted average price. D is wrong — standard costing uses a pre-determined standard cost.
Question 19
In a period of rising prices, which inventory valuation method gives the highest closing inventory value?
Select an option first.
Correct answer: B — FIFO
Explanation: B is correct: when prices are rising, FIFO leaves the most recently purchased (higher-priced) stock in closing inventory, giving the highest balance sheet value. A is wrong — LIFO leaves the oldest (cheapest) stock in closing inventory, giving a lower value. C is wrong — AVCO gives a middle value. D is wrong — the three methods differ when prices change.
Question 20
What is the Economic Order Quantity (EOQ) designed to minimise?
Select an option first.
Correct answer: C — Total inventory ordering and holding costs combined
Explanation: C is correct: EOQ is the order quantity that minimises the sum of ordering costs (cost per order × number of orders) and holding costs (cost to store inventory), giving the lowest total inventory cost. A is wrong — selling price is unrelated to EOQ. B is wrong — production time is not part of the EOQ model. D is wrong — labour costs are not considered in the EOQ formula.
Question 21
Which of the following is an ordering cost?
Select an option first.
Correct answer: C — Freight and delivery charges per order
Explanation: C is correct: ordering costs are incurred each time an order is placed — freight and delivery charges are a clear example. A is wrong — warehouse space is a holding cost. B is wrong — insurance on held stock is a holding cost. D is wrong — deterioration is a holding cost.
Question 22
Just-In-Time (JIT) inventory management aims to:
Select an option first.
Correct answer: B — Receive materials only when needed for production, minimising inventory holding
Explanation: B is correct: JIT is a philosophy where materials arrive exactly when needed, eliminating the need for large inventories and reducing holding costs. A is wrong — JIT reduces safety stock to near zero. C is wrong — JIT avoids large batch ordering. D is wrong — holding months of stock is the opposite of JIT.
Question 23
Which of the following best describes an overhead cost?
Select an option first.
Correct answer: C — An indirect cost that cannot be traced directly to a specific cost unit
Explanation: C is correct: overheads are indirect costs — they support production but cannot be economically traced to individual cost units (e.g. factory lighting, rent). A is wrong — that defines a direct cost. B is wrong — variable costs may be direct or indirect. D is wrong — raw material cost is a direct cost.
Question 24
Overhead absorption rate (OAR) is calculated as:
Select an option first.
Correct answer: B — Budgeted overhead divided by budgeted activity level
Explanation: B is correct: OAR = Budgeted overhead ÷ Budgeted activity (e.g. machine hours or labour hours). It is set in advance to charge overheads to products at a pre-determined rate. A is wrong — using actual figures gives an actual rate, not a pre-determined OAR. C is wrong — that is a variance calculation. D is wrong — employees are not the standard denominator.
Question 25
If budgeted overheads are $180,000 and budgeted machine hours are 60,000, what is the OAR per machine hour?
Select an option first.
Correct answer: A — $3.00
Explanation: A is correct: OAR = $180,000 ÷ 60,000 = $3.00 per machine hour. B is wrong — $0.33 inverts the calculation. C is wrong — $30 would result from dividing by 6,000 hours. D is wrong — $18 is unsupported.
Question 26
Under-absorption of overheads means:
Select an option first.
Correct answer: B — Fewer overheads were absorbed into products than were actually incurred
Explanation: B is correct: under-absorption occurs when the overhead absorbed (OAR × actual activity) is LESS than actual overhead incurred — a shortfall that is written off as an expense. A is wrong — that is over-absorption. C is wrong — higher actual activity would tend to cause over-absorption. D is wrong — a reduction in actual costs does not define under/over absorption.
Question 27
Which of the following is a characteristic of absorption costing?
Select an option first.
Correct answer: C — Fixed production overheads are included in unit product cost
Explanation: C is correct: under absorption costing, fixed production overheads are absorbed into the cost of each unit, meaning they are included in inventory values and cost of sales. A is wrong — that describes marginal costing. B is wrong — treating fixed overheads as period costs is a feature of marginal costing. D is wrong — contribution focus is a marginal costing feature.
Question 28
Under marginal costing, which costs are included in the cost of a unit?
Select an option first.
Correct answer: B — Variable production costs only
Explanation: B is correct: marginal costing includes only variable production costs in unit cost. Fixed production overheads are written off as period costs in the income statement. A is wrong — fixed costs are excluded from unit cost under marginal costing. C is wrong — that is absorption costing. D is wrong — variable selling costs are not included in the cost of a production unit.
Question 29
When inventory levels increase over a period, which costing method reports HIGHER profit?
Select an option first.
Correct answer: B — Absorption costing
Explanation: B is correct: when inventory rises, absorption costing carries more fixed overhead into closing inventory (deferring it), resulting in lower cost of sales and higher profit compared to marginal costing which expenses all fixed costs immediately. A is wrong — marginal costing charges all fixed costs to the period regardless of inventory movement. C is wrong — the two methods give different profits when inventory levels change. D is wrong — selling price does not determine which method gives higher profit.
Question 30
Contribution is calculated as:
Select an option first.
Correct answer: B — Sales revenue minus variable costs
Explanation: B is correct: contribution = selling price per unit minus variable cost per unit (or total sales minus total variable costs). It represents what each unit 'contributes' towards covering fixed costs and generating profit. A is wrong — that is net profit. C is wrong — that calculation doesn't define contribution. D is wrong — fixed costs are subtracted after contribution to arrive at profit.
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