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Free Questions › ACCA › Management Accounting
Free ACCA Management Accounting Practice Questions & Answers
400 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 31
Job costing is most appropriate for:
Select an option first.
Correct answer: C — Unique or customised orders produced to specific customer requirements
Explanation: C is correct: job costing accumulates costs for each individual customer order or job, making it suitable where each job is unique — such as a bespoke furniture maker or a construction project. A is wrong — mass production of identical units suits process costing. B is wrong — continuous homogeneous flow is process costing territory. D is wrong — while services can use job costing, the defining feature is uniqueness, not the service nature.
Question 32
Process costing is most suitable when:
Select an option first.
Correct answer: B — Large quantities of identical or similar products pass through the same processes
Explanation: B is correct: process costing is designed for continuous, repetitive production of homogeneous products (e.g. chemicals, paint, food processing) where individual units cannot be separately identified. A is wrong — individual specifications point to job costing. C is wrong — separately identified batches point to batch costing. D is wrong — one-off variety points to job costing.
Question 33
In process costing, a 'normal loss' is:
Select an option first.
Correct answer: B — The expected level of loss inherent in the production process
Explanation: B is correct: normal loss is the expected, unavoidable wastage that occurs during a production process (e.g. evaporation, trimming). It is anticipated and built into the cost per unit calculation. A is wrong — loss exceeding expectations is abnormal loss. C is wrong — machine breakdowns causing unexpected losses would be abnormal. D is wrong — normal loss is by definition unavoidable.
Question 34
An abnormal gain in process costing arises when:
Select an option first.
Correct answer: B — Actual output is higher than expected (actual loss is less than normal loss)
Explanation: B is correct: abnormal gain occurs when actual losses are less than the normal/expected loss — production performs better than anticipated. A is wrong — actual loss exceeding normal loss creates abnormal loss, not gain. C is wrong — exact budget performance means no abnormal element. D is wrong — selling price is unrelated to process losses.
Question 35
Which of the following describes a by-product in process costing?
Select an option first.
Correct answer: B — A secondary output of relatively minor value produced alongside the main product
Explanation: B is correct: by-products are incidental outputs with small value produced as a result of manufacturing the main product — for example, sawdust produced when milling timber. A is wrong — that is the main/joint product. C is wrong — zero-value waste is simply a loss or scrap. D is wrong — further processing describes a decision about joint products, not a definition of by-product.
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Question 36
Activity-Based Costing (ABC) differs from traditional costing primarily because:
Select an option first.
Correct answer: C — It identifies multiple cost drivers and allocates overheads based on activities that cause costs
Explanation: C is correct: ABC recognises that different activities drive different overhead costs and uses separate cost drivers for each activity pool, giving more accurate product costs especially when products use resources in different proportions. A is wrong — ABC can be applied to manufacturing and services. B is wrong — using a single rate is the traditional approach ABC was designed to improve upon. D is wrong — ABC very much includes overheads; it just allocates them more precisely.
Question 37
Target costing starts by:
Select an option first.
Correct answer: B — Identifying the market price and subtracting the required profit to set a maximum allowable cost
Explanation: B is correct: target costing works backwards from the market — target cost = competitive selling price minus desired profit margin. The business must then design/engineer the product to meet that cost. A is wrong — adding a margin to cost is cost-plus pricing, the opposite of target costing. C is wrong — standard costing uses historical or engineered standards, not market-driven targets. D is wrong — overhead allocation is a separate topic.
Question 38
Life-cycle costing considers costs:
Select an option first.
Correct answer: C — Across all stages from development through disposal
Explanation: C is correct: life-cycle costing accumulates costs over the entire life of a product — from R&D and design, through manufacturing and sales, to after-sales service and eventual disposal — giving a complete picture of true profitability. A is wrong — point-of-sale costs are just one element. B is wrong — manufacturing is only one phase. D is wrong — excluding development and disposal gives an incomplete picture.
Question 39
Which of the following best describes a cost object?
Select an option first.
Correct answer: B — Any activity, product, customer or process for which a separate measurement of cost is desired
Explanation: B is correct: a cost object is anything for which management wants to know the cost — it could be a product, a customer, a project, a department or a process. A is wrong — revenue generation is not the criterion for a cost object. C is wrong — that describes a budget holder or manager. D is wrong — that describes a variance report.
Question 40
Semi-variable costs (also called mixed costs) consist of:
Select an option first.
Correct answer: B — A fixed element and a variable element
Explanation: B is correct: semi-variable (mixed) costs contain a fixed component that exists regardless of activity and a variable component that increases with output — telephone bills with a fixed line rental plus a variable call charge are a classic example. A is wrong — two variable rates would still be a pure variable cost. C is wrong — two fixed elements at thresholds describe a stepped fixed cost. D is wrong — semi-variable costs are predictable and follow a formula.
Question 41
The high-low method is used to:
Select an option first.
Correct answer: B — Separate fixed and variable cost components from total cost data
Explanation: B is correct: the high-low method takes the highest and lowest activity levels from historical data and uses the difference in costs and units to calculate the variable cost per unit, then derives fixed costs. A is wrong — profit optimisation is not the purpose. C is wrong — pricing uses cost data but the high-low method itself is about cost separation. D is wrong — overhead allocation uses different methods.
Question 42
Which of the following is NOT a limitation of the high-low method?
Select an option first.
Correct answer: D — It requires complex statistical software to calculate
Explanation: D is correct (it is NOT a limitation): the high-low method is actually simple and requires no special software — you just need the highest and lowest data points. A is a genuine limitation — only two points are used. B is a genuine limitation — those two points may be outliers. C is a genuine limitation — real cost behaviour may not be perfectly linear.
Question 43
A company has fixed costs of $60,000 and variable costs of $8 per unit. If selling price is $20 per unit, what is the break-even point in units?
Select an option first.
Correct answer: B — 5,000 units
Explanation: B is correct: contribution per unit = $20 - $8 = $12. Break-even = fixed costs / contribution per unit = $60,000 / $12 = 5,000 units. A is wrong — 3,000 units would require $36,000 contribution, not $60,000. C is wrong — 7,500 units overstates the requirement. D is wrong — 2,500 units would only cover $30,000.
Question 44
What does the margin of safety represent?
Select an option first.
Correct answer: B — The amount by which budgeted or actual sales exceed break-even sales
Explanation: B is correct: margin of safety = actual/budgeted sales minus break-even sales. It shows how much sales can fall before the business makes a loss. A is wrong — that is contribution per unit. C is wrong — that describes the break-even concept. D is wrong — maximum capacity is a different concept.
Question 45
Using the previous question's data (FC=$60,000, VC=$8, SP=$20), if budgeted sales are 7,000 units, what is the margin of safety as a percentage?
Select an option first.
Correct answer: B — 28.6%
Explanation: B is correct: margin of safety = (7,000 - 5,000) / 7,000 × 100 = 2,000 / 7,000 × 100 = 28.6%. A is wrong — 14.3% would result from dividing by a different denominator. C is wrong — 71.4% is the inverse (break-even as a % of budget). D is wrong — 20% is not supported.
Question 46
In a make-or-buy decision, a company should buy externally if:
Select an option first.
Correct answer: B — The external price is lower than the relevant (incremental) cost of internal manufacture
Explanation: B is correct: the make-or-buy decision compares the external purchase price with the relevant cost of making — only the incremental costs that can be avoided by buying externally are relevant (fixed costs that remain regardless are irrelevant). A is wrong — you must compare with relevant costs, not total cost. C is wrong — location is not a financial criterion. D is wrong — high variable cost alone doesn't determine the decision.
Question 47
Which of the following costs is IRRELEVANT to a decision about whether to shut down a product line?
Select an option first.
Correct answer: C — Sunk costs already incurred that cannot be recovered
Explanation: C is correct: sunk costs are costs already spent in the past that cannot be recovered — they are irrelevant to future decisions. A is wrong — savings in variable labour are relevant future cash flows. B is wrong — avoidable fixed overheads are relevant because they can be eliminated. D is wrong — lost contribution is a relevant opportunity cost.
Question 48
What is a 'sunk cost'?
Select an option first.
Correct answer: C — A cost already incurred that cannot be changed by any future decision
Explanation: C is correct: sunk costs are past costs — they have already been paid and cannot be undone regardless of which option is chosen going forward, so they should be excluded from decision-making. A is wrong — future costs are relevant to decisions. B is wrong — that describes variable costs. D is wrong — that describes absorbed overheads.
Question 49
An opportunity cost is best defined as:
Select an option first.
Correct answer: B — The value of the best alternative foregone when a particular decision is made
Explanation: B is correct: opportunity cost is the benefit sacrificed by choosing one option over the next best alternative — it is a crucial concept in relevant cost analysis and decision-making. A is wrong — opportunity cost relates to what you give up, not what you took. C is wrong — it represents forgone benefit, not earned profit. D is wrong — that sounds like a variable cost.
Question 50
A product has a selling price of $50, variable cost of $30 and directly attributable fixed costs of $5. The general fixed overhead apportionment is $8. What is the relevant contribution for a short-term decision?
Select an option first.
Correct answer: A — $20
Explanation: A is correct: for short-term decisions, relevant contribution = selling price - variable costs = $50 - $30 = $20. Directly attributable fixed costs may also matter but general overhead apportionments are irrelevant as they are unavoidable. B is wrong — $15 deducts the directly attributable fixed cost; for contribution that is not deducted. C is wrong — $7 also deducts the overhead apportionment. D is wrong — $12 is not derivable from the data.
Question 51
When a business faces a single binding constraint (limiting factor), it should rank products by:
Select an option first.
Correct answer: C — Highest contribution per unit of the scarce resource first
Explanation: C is correct: when one resource is scarce, maximise total contribution by prioritising the product that generates the most contribution per unit of the limiting factor consumed (e.g. contribution per machine hour or per kg of material). A is wrong — selling price ignores variable costs and resource usage. B is wrong — total profit depends on volume, which is constrained. D is wrong — highest volume may waste the scarce resource on low-contribution products.
Question 52
Labour turnover rate is calculated as:
Select an option first.
Correct answer: B — Number of leavers in a period ÷ average number of employees × 100
Explanation: B is correct: labour turnover = (number of leavers during the period / average number of employees) × 100. It measures how frequently staff leave and must be replaced. A is wrong — that is a wage ratio, not turnover. C is wrong — that measures recruitment rate, not turnover. D is wrong — that is an absenteeism rate.
Question 53
Idle time in a labour context refers to:
Select an option first.
Correct answer: C — Time paid for but not productively worked, such as waiting for materials
Explanation: C is correct: idle time is the period during which workers are paid but unable to work productively — caused by machine breakdowns, material shortages or lack of orders. It represents an indirect labour cost. A is wrong — productive time is the opposite of idle time. B is wrong — overtime is extra productive time. D is wrong — that describes learning curve time.
Question 54
Under a piecework remuneration system, workers are paid:
Select an option first.
Correct answer: B — Based on the number of units they produce
Explanation: B is correct: piecework pays workers a set rate for each unit they produce — output drives earnings, incentivising productivity. A is wrong — a fixed wage is a time-based (salary) system. C is wrong — hourly rate is also a time-based system. D is wrong — that is an incentive/bonus scheme.
Question 55
The reciprocal method of service cost centre reapportionment is used when:
Select an option first.
Correct answer: B — Service cost centres provide services to each other as well as to production centres
Explanation: C is correct (answer B is the key): The reciprocal method is needed when service departments serve each other mutually (e.g. maintenance services HR and HR recruits for maintenance), requiring simultaneous equations or repeated distribution to fully apportion costs. A is wrong — one service centre doesn't require reciprocal allocation. C is wrong — whether costs are fixed or variable is unrelated to the reapportionment method. D is wrong — cost drivers affect absorption rates, not reapportionment method.
Question 56
Labour efficiency ratio is calculated as:
Select an option first.
Correct answer: B — Standard hours for actual output ÷ actual hours worked × 100
Explanation: B is correct: labour efficiency ratio = (standard hours for actual output / actual hours worked) × 100. A ratio above 100% means workers were more efficient than standard. A is wrong — that is close to a capacity ratio concept. C is wrong — that measures capacity utilisation. D is wrong — that inverts the efficiency measure.
Question 57
Which of the following would INCREASE the EOQ?
Select an option first.
Correct answer: C — An increase in the cost per purchase order
Explanation: C is correct: EOQ = √(2 × demand × ordering cost / holding cost). An increase in ordering cost raises the numerator, increasing the EOQ — meaning larger but less frequent orders minimise total cost. A is wrong — higher holding costs reduce EOQ (denominator increases). B is wrong — lower demand reduces EOQ. D is wrong — purchase price is not directly in the EOQ formula (unless it affects holding cost, which is usually separate).
Question 58
Which costing method is most appropriate for a law firm that bills clients separately for each case?
Select an option first.
Correct answer: B — Job costing
Explanation: B is correct: a law firm handles unique client matters — each case is different in scope and effort. Job costing accumulates costs per individual engagement, matching how the firm bills clients. A is wrong — process costing suits mass homogeneous production. C is wrong — batch costing suits groups of identical units. D is wrong — standard costing is about setting pre-determined unit costs, not a method of accumulating job costs.
Question 59
A service cost unit for a hospital might be:
Select an option first.
Correct answer: C — Patient-day or cost per bed per day
Explanation: C is correct: service cost units must reflect the service provided — in a hospital, the cost per patient-day or per bed occupied are meaningful measures for cost management and comparison. A is wrong — tonnes of material processed is irrelevant to hospital services. B is wrong — machine setups are a manufacturing concept. D is wrong — sales orders apply to a different type of service business.
Question 60
In ABC, a 'cost driver' is:
Select an option first.
Correct answer: B — The factor that causes changes in the cost of an activity
Explanation: B is correct: a cost driver is the factor that causes an activity's cost to change — for example, number of purchase orders drives procurement costs, number of machine setups drives setup costs. A is wrong — a manager is not a cost driver. C is wrong — selling price is a revenue concept. D is wrong — machine hours per labour hour is a traditional OAR basis, not an ABC cost driver.
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