You’re on a roll
Create a free account to save your ACCA progress, track your accuracy by topic, and pick up right where you left off.
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 61
The difference between a cost centre and a profit centre is that a profit centre:
Select an option first.
Correct answer: B — Is responsible for both revenues and costs, whereas a cost centre only controls costs
Explanation: B is correct: the distinguishing feature of a profit centre is accountability for both revenue generation and cost control. A cost centre manager only controls costs with no revenue responsibility. A is wrong — the distinction is responsibility, not cost level. C is wrong — profit centres are common in all types of organisations. D is wrong — profit centres exist across manufacturing, retail and services.
Question 62
If a company uses FIFO for inventory and prices are rising, compared to AVCO, FIFO will give:
Select an option first.
Correct answer: B — Higher closing inventory and higher profit
Explanation: B is correct: with rising prices, FIFO leaves the most recently (higher) priced stock in closing inventory, giving higher inventory values and lower COGS — resulting in higher reported profit compared to AVCO. A is wrong — FIFO gives higher, not lower, closing inventory in rising price conditions. C is wrong — FIFO gives higher inventory but also higher profit (lower COGS). D is wrong — FIFO gives higher closing inventory, not lower.
Question 63
What is the purpose of a reorder level in inventory management?
Select an option first.
Correct answer: B — To identify when a new order should be placed to avoid stockouts
Explanation: B is correct: the reorder level is the inventory quantity at which a replenishment order must be placed so that stock does not run out before the new order arrives during the lead time. A is wrong — that describes a maximum inventory level. C is wrong — reorder level has nothing to do with selling price. D is wrong — it is not about write-offs.
Question 64
Buffer (safety) stock is held to:
Select an option first.
Correct answer: B — Guard against unexpected increases in demand or delays in delivery during lead time
Explanation: B is correct: buffer/safety stock is a cushion held above the average requirement to protect against demand spikes or supplier delays — it prevents stockouts when things don't go to plan. A is wrong — buffer stock does not affect EOQ. C is wrong — the purpose is protection, not maximisation of inventory. D is wrong — buffer stock is not intended for premium pricing.
Question 65
Which of the following is a holding cost of inventory?
Select an option first.
Correct answer: B — Insurance premium on stored goods
Explanation: B is correct: insurance on stored goods is a holding cost — costs incurred while inventory is in storage also include warehousing, obsolescence risk, and financing cost of capital tied up. A is wrong — clerical ordering costs are ordering costs. C is wrong — delivery charges are ordering costs. D is wrong — stocktaking is an administrative cost, not a holding cost.
Get the full ACCA question bank — free
Drop your email and we'll send you fresh ACCA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 66
A business operates a time-based remuneration system. An employee works 42 hours in a week; standard hours are 40. Overtime is paid at time and a half. Basic rate is $12/hour. What is the total gross pay?
Select an option first.
Correct answer: B — $516
Explanation: B is correct: basic pay = 40 × $12 = $480; overtime = 2 hours × $12 × 1.5 = $36; total = $480 + $36 = $516. A is wrong — $504 = 42 × $12 with no overtime premium. C is wrong — $480 ignores the overtime hours. D is wrong — $528 overstates the overtime premium.
Question 67
In process costing, expected output is calculated as:
Select an option first.
Correct answer: A — Total input minus normal loss
Explanation: A is correct: expected output = total input units minus the normal (expected) loss percentage. For example, if input is 1,000 units and normal loss is 10%, expected output = 900 units. B is wrong — abnormal gain is not added to expected output in its calculation; it arises when actual exceeds expected. C is wrong — that is a formula for expected output derived from actual figures, not the primary definition. D is wrong.
Question 68
Under absorption costing, if actual overheads are $90,000 and absorbed overheads are $95,000, the result is:
Select an option first.
Correct answer: B — Over-absorption of $5,000
Explanation: B is correct: over-absorption = absorbed ($95,000) minus actual ($90,000) = $5,000 over-absorbed. More overhead was charged to products than was actually incurred — the excess is credited back to the income statement. A is wrong — under-absorption occurs when actual exceeds absorbed. C is wrong — $90,000 is the actual overhead, not the difference. D is wrong — there is clearly a $5,000 difference.
Question 69
What is the main advantage of Activity-Based Costing over traditional absorption costing?
Select an option first.
Correct answer: B — It produces more accurate product costs by linking overhead to the activities that cause them
Explanation: B is correct: ABC improves cost accuracy by identifying what activities consume resources and charging products based on how much of each activity they use, avoiding the distortions of arbitrary single-rate absorption. A is wrong — ABC is actually more complex and expensive to implement. C is wrong — ABC includes all costs including fixed overheads. D is wrong — ABC is a costing method, not a cost reduction tool.
Question 70
Which inventory control system records every movement of inventory in real time?
Select an option first.
Correct answer: B — Perpetual (continuous) inventory system
Explanation: B is correct: a perpetual inventory system updates records immediately after every receipt and issue, giving a real-time balance of inventory at all times. A is wrong — periodic systems only count and update at intervals (e.g. year end). C is wrong — JIT is a procurement philosophy, not an inventory recording system. D is wrong — FIFO is a valuation method, not a recording system.
Question 71
A company has two products, X and Y. X contributes $6 per machine hour and Y contributes $9 per machine hour. Machine hours are limited to 10,000. Demand is 4,000 units of X (2 hrs each) and 3,000 units of Y (2 hrs each). Optimal plan gives profit of $54,000 fixed cost $18,000. How many units of Y are produced?
Select an option first.
Correct answer: A — 3,000
Explanation: A is correct: Y has higher contribution per machine hour ($9 vs $6). Satisfy full demand for Y first: 3,000 × 2 hrs = 6,000 hrs. Remaining hours = 4,000 hrs for X = 2,000 units of X. All 3,000 units of Y are produced. B is wrong — 2,000 units of Y would leave unused capacity for the higher-contribution product. C is wrong — 1,500 under-utilises capacity. D is the combination answer — correct production of both, but A specifically answers units of Y.
Question 72
A joint process costs $120,000 and produces Product A (4,000 kg) and Product B (6,000 kg). Using the physical quantity method, what cost is allocated to Product A?
Select an option first.
Correct answer: B — $48,000
Explanation: B is correct: Product A proportion = 4,000 / (4,000 + 6,000) = 40%. Allocated cost = 40% × $120,000 = $48,000. A is wrong — $72,000 = 60% × $120,000 which is Product B's share. C is wrong — $60,000 is an equal split. D is wrong — $80,000 is not supported.
Question 73
Which of the following statements about lifecycle costing is correct?
Select an option first.
Correct answer: C — All costs over a product's entire life are captured to assess true profitability
Explanation: C is correct: lifecycle costing captures ALL costs from concept to disposal — design, development, manufacturing, marketing, distribution, support and end-of-life — providing a complete profitability picture. A is wrong — R&D, marketing and disposal costs are included. B is wrong — R&D costs are included even though spent early. D is wrong — lifecycle costing applies to any product type.
Question 74
A company absorbs overheads on the basis of labour hours. Budgeted overheads = $500,000, budgeted labour hours = 100,000. Actual overheads = $520,000, actual labour hours = 98,000. What is the under/over absorption?
Select an option first.
Correct answer: B — $10,000 under-absorbed
Explanation: B is correct: OAR = $500,000 / 100,000 = $5/hr. Absorbed = 98,000 × $5 = $490,000. Actual = $520,000. Under-absorption = $520,000 - $490,000 = $30,000. Wait — let me verify: $520,000 - $490,000 = $30,000 under-absorbed. Correction: D is correct: under-absorption = $520,000 - $490,000 = $30,000. A is wrong — there is no over-absorption. B is wrong — $10,000 understates the shortfall. C is wrong — $20,000 is not the correct difference.
Question 75
A company's actual overheads are $520,000 and absorbed overheads (OAR $5 × 98,000 hrs) are $490,000. The correct conclusion is:
Select an option first.
Correct answer: B — Under-absorbed by $30,000 — debit to income statement as additional expense
Explanation: B is correct: under-absorption of $30,000 means costs were under-charged to products. The shortfall is treated as an additional overhead expense in the income statement (debit). A is wrong — $30,000 is under-absorbed, not over-absorbed. C is wrong — $20,000 is not the correct figure. D is wrong — there is clearly a $30,000 difference.
Question 76
Target costing requires a 'cost gap' to be addressed when:
Select an option first.
Correct answer: B — The current estimated cost exceeds the target cost
Explanation: B is correct: a cost gap exists when the cost engineers can currently produce at is HIGHER than the target cost derived from market price. The gap must be closed through value engineering, process improvement or design changes. A is wrong — if target cost exceeds estimated cost, no gap exists and the product is already commercially viable. C is wrong — price equalling profit has no meaning. D is wrong — lifecycle stage is separate.
Question 77
In an ABC system, if the cost driver rate for machine setups is $200 per setup and Product X requires 15 setups per batch of 500 units, what is the setup cost per unit?
Select an option first.
Correct answer: A — $6.00
Explanation: A is correct: total setup cost = 15 × $200 = $3,000 per batch. Cost per unit = $3,000 / 500 = $6.00. B is wrong — $3.00 halves the correct answer. C is wrong — $0.60 divides incorrectly. D is wrong — $1.50 is unsupported.
Question 78
When inventory levels DECREASE during a period, which costing method reports higher profit?
Select an option first.
Correct answer: B — Marginal costing
Explanation: B is correct: when inventory falls, absorption costing releases previously deferred fixed overhead into cost of sales, increasing expenses and reducing profit. Marginal costing always charges all fixed overheads in the current period, so profits are higher under marginal costing when inventory declines. A is wrong — absorption costing reports LOWER profit when inventory decreases. C is wrong — they differ when inventory levels change. D is wrong — the variable cost ratio doesn't determine which is higher.
Question 79
The reconciliation of marginal and absorption costing profits uses which adjustment?
Select an option first.
Correct answer: A — Fixed overhead per unit × change in inventory units
Explanation: A is correct: the difference between absorption and marginal costing profit = fixed production overhead per unit × change in inventory units. If inventory rises by 500 units and fixed OH per unit is $4, absorption profit exceeds marginal profit by $2,000. B is wrong — variable overhead does not create the difference. C is wrong — the production volume ratio is a management ratio, not a reconciliation tool. D is wrong — selling price is unrelated to the costing method difference.
Question 80
Which of the following BEST describes the concept of a cost pool in ABC?
Select an option first.
Correct answer: B — A group of costs that are all caused by the same activity or cost driver
Explanation: B is correct: in ABC, a cost pool groups together all costs associated with a particular activity (e.g. all procurement costs form a procurement cost pool) so they can be charged to products based on their use of that activity. A is wrong — total budget is not a cost pool. C is wrong — individual departmental rates are traditional OARs. D is wrong — maximum allowable cost is a target costing concept.
Question 81
A company produces 5,000 units and has: fixed production overhead $40,000, variable production cost $12/unit, selling price $25/unit. Closing inventory is 500 units. What is the difference in profit between absorption and marginal costing?
Select an option first.
Correct answer: A — $4,000 higher under absorption costing
Explanation: A is correct: fixed overhead per unit = $40,000 / 5,000 = $8. Inventory increased by 500 units. Profit difference = 500 × $8 = $4,000 higher under absorption costing (fixed costs deferred in closing inventory). B is wrong — it is absorption costing that gives higher profit when inventory increases. C is wrong — $400 understates the difference. D is wrong — the methods differ when inventory changes.
Question 82
In process costing, scrap with no sales value is treated as:
Select an option first.
Correct answer: B — Normal loss with zero value
Explanation: B is correct: if the expected loss from a process has no recoverable value, it is recorded as normal loss with zero scrap value — it simply reduces expected output without generating any recovery. A is wrong — abnormal loss is unexpected, not the routine expected scrap. C is wrong — a by-product has some saleable value. D is wrong — joint products are valuable main outputs.
Question 83
A cost of $10,000 was incurred last year on market research for a new product that is now being evaluated. This cost is:
Select an option first.
Correct answer: C — A sunk cost and irrelevant to the current decision
Explanation: C is correct: the $10,000 market research cost was spent in the past, cannot be recovered, and does not change regardless of the current decision — making it a sunk cost, irrelevant to future analysis. A is wrong — past costs are not relevant. B is wrong — opportunity cost is the benefit of a forgone alternative. D is wrong — sunk costs are not variable future costs.
Question 84
Which of the following accurately describes the concept of a 'relevant cost'?
Select an option first.
Correct answer: B — A future, incremental cash cost that will differ between decision alternatives
Explanation: B is correct: relevant costs must be (1) future — arising from the decision, (2) incremental — additional as a result of the choice, and (3) cash — not notional accounting entries. Sunk, committed and non-cash costs are irrelevant. A is wrong — appearing in accounts does not make a cost relevant. C is wrong — budgeted costs may be sunk or committed. D is wrong — fixed costs that don't change between options are irrelevant.
Question 85
The learning curve effect suggests that as cumulative output doubles, the average time per unit:
Select an option first.
Correct answer: C — Falls by a constant percentage
Explanation: C is correct: the learning curve theory holds that each time cumulative production doubles, the average time (and therefore average labour cost) per unit falls by a fixed percentage (the learning rate, e.g. 80% means average time becomes 80% of what it was). A is wrong — the whole point is that time changes with experience. B is wrong — time falls, it doesn't double. D is wrong — average time per unit decreases, it does not increase.
Question 86
If the learning rate is 80% and the first unit takes 100 hours, what is the average time per unit for the first 4 units?
Select an option first.
Correct answer: B — 64 hours
Explanation: B is correct: at 80% learning — 1 unit = 100 hrs; 2 units (cumulative) = 100 × 80% = 80 hrs average; 4 units = 80 × 80% = 64 hrs average per unit. A is wrong — 80 hours is the average at 2 units, not 4. C is wrong — 51.2 hours is the average at 8 units. D is wrong — 100 hours is only for the first unit alone.
Question 87
Which of the following is a limitation of lifecycle costing?
Select an option first.
Correct answer: B — It requires accurate forecasts of costs and revenues over the entire product life, which can be uncertain
Explanation: B is correct: the main practical limitation of lifecycle costing is that it requires reliable long-term forecasts of costs, revenues and market conditions — which can be very difficult to estimate accurately, especially for innovative products. A is wrong — lifecycle costing includes all costs, not just variable. C is wrong — it is an entirely different concept from standard costing. D is wrong — lifecycle costing can be applied to services.
Question 88
A business receives a bulk purchase discount of 5% if it orders 2,000 units at a time instead of its EOQ of 1,000 units. Unit purchase price is $20 and holding cost is 10% of purchase price. Annual demand is 6,000 units. Order cost is $80. Should the discount be taken?
Select an option first.
Correct answer: A — Yes, the total savings exceed the extra holding costs
Explanation: A is correct: at EOQ 1,000 units — ordering cost = (6,000/1,000) × $80 = $480; holding = (1,000/2) × $2 = $1,000; purchase = 6,000 × $20 = $120,000; total = $121,480. At 2,000 units with 5% discount ($19/unit) — ordering = (6,000/2,000) × $80 = $240; holding = (2,000/2) × $1.90 = $1,900; purchase = 6,000 × $19 = $114,000; total = $116,140. Saving = $121,480 - $116,140 = $5,340 — discount should be taken. B is wrong — the $6,000 saving on purchase price more than offsets the higher holding and lower ordering costs. C is wrong — location is irrelevant to this financial decision. D is wrong — the data is sufficient.
Question 89
Which statement correctly describes the difference between direct and indirect costs?
Select an option first.
Correct answer: B — Direct costs can be specifically traced to a cost unit; indirect costs cannot
Explanation: B is correct: the direct/indirect distinction is about traceability — direct costs (like materials used in a product) can be specifically and economically attributed to a cost unit, while indirect costs (overheads) support multiple cost units and cannot be directly traced. A is wrong — direct costs can be fixed (e.g. a dedicated machine depreciation) and indirect costs can be variable. C is wrong — this depends on the industry. D is wrong — direct/indirect and fixed/variable are two separate and independent classifications.
Question 90
Which of the following would be classed as a period cost under marginal costing?
Select an option first.
Correct answer: C — Fixed production overhead
Explanation: C is correct: under marginal costing, fixed production overheads are treated as period costs — charged in full to the income statement in the period they are incurred rather than being absorbed into unit costs. A is wrong — direct materials are product costs under both methods. B is wrong — direct labour is a product cost. D is wrong — variable production overhead is a product cost under marginal costing.
More free ACCA topics
Financial Accounting400
Corporate and Business Law400
Performance Management400
Financial Reporting400
Financial Management400
Strategic Business Reporting400
Advanced Financial Management400
Advanced Performance Management400
Advanced Taxation400
Business and Technology300
Taxation300
Audit and Assurance300
Strategic Business Leader300
Advanced Audit and Assurance296
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.