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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 91
A company produces 8,000 units but only sells 7,000. Under absorption costing, profit is $42,000. Fixed production overhead per unit is $5. What is the profit under marginal costing?
Select an option first.
Correct answer: C — $37,000
Explanation: C is correct: inventory increased by 1,000 units. Under absorption costing, 1,000 × $5 = $5,000 of fixed overhead is deferred in closing inventory. Marginal costing charges all fixed overhead immediately, so profit = $42,000 - $5,000 = $37,000. A is wrong — $47,000 adds rather than deducts. B is wrong — profits differ when inventory changes. D is wrong — $35,000 is not supported.
Question 92
What is the formula for the EOQ (Economic Order Quantity)?
Select an option first.
Correct answer: B — √(2 × Demand × Ordering cost ÷ Holding cost)
Explanation: B is correct: EOQ = √(2 × annual demand × cost per order / annual holding cost per unit). This minimises total inventory cost (ordering + holding). A is wrong — holding and ordering costs are inverted. C is wrong — missing the square root. D is wrong — entirely wrong formula.
Question 93
Annual demand is 10,000 units. Ordering cost is $50 per order. Holding cost is $2 per unit per year. What is the EOQ?
Select an option first.
Correct answer: B — 707 units
Explanation: B is correct: EOQ = √(2 × 10,000 × $50 / $2) = √(500,000) ≈ 707 units. A is wrong — 500 = √(250,000) which is wrong. C is wrong — 1,000 would require different cost parameters. D is wrong — 250 is far too low.
Question 94
Which of the following is an assumption of the basic EOQ model?
Select an option first.
Correct answer: C — Demand, ordering cost and holding cost are constant and known with certainty
Explanation: C is correct: the basic EOQ model assumes constant, certain demand; known, constant ordering cost; and constant holding cost per unit — simplifying assumptions that may not hold in practice. A is wrong — the model assumes constant demand. B is wrong — the basic model ignores discounts. D is wrong — the basic model assumes constant, known lead time.
Question 95
In a batch costing system, the cost per unit is calculated as:
Select an option first.
Correct answer: B — Total batch cost ÷ number of units in the batch
Explanation: B is correct: batch costing accumulates all costs for the entire batch and then divides by the number of units in the batch to give an average cost per unit. A is wrong — dividing by 1 treats the whole batch as a single job. C is wrong — standard cost is separate from batch costing. D is wrong — all costs (fixed and variable) are included.
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Question 96
Which of the following statements about service costing is correct?
Select an option first.
Correct answer: C — Service costing uses composite cost units such as passenger-km or room-night to measure output
Explanation: C is correct: service organisations often use composite cost units that reflect both volume and a second dimension — a hotel uses room-nights, an airline uses passenger-kilometres. These capture the nature of service delivery better than simple units. A is wrong — services are intangible and hard to trace to individual units. B is wrong — services are heterogeneous (variable quality, customisation). D is wrong — all organisations need cost information.
Question 97
Cost-plus pricing sets the selling price by:
Select an option first.
Correct answer: B — Adding a desired profit mark-up to the total cost of the product
Explanation: B is correct: cost-plus pricing calculates the full cost of a product and adds a percentage mark-up to ensure a profit — it is simple but ignores market demand and competitor pricing. A is wrong — that is target costing. C is wrong — variable cost as a price floor is contribution-based pricing. D is wrong — marginal cost pricing is used in specific economic contexts.
Question 98
Which costing method is most appropriate for a paint manufacturer producing large volumes of identical products in continuous processes?
Select an option first.
Correct answer: C — Process costing
Explanation: C is correct: process costing is designed for continuous, homogeneous production where output units are indistinguishable — chemicals, paint, food and beverages are classic examples. A is wrong — job costing is for unique orders. B is wrong — batch costing is for identifiable groups of similar items. D is wrong — ABC is an overhead allocation method, not a production costing type.
Question 99
In process costing, if normal loss is 10% and input is 5,000 kg, expected output is:
Select an option first.
Correct answer: C — 4,500 kg
Explanation: C is correct: expected output = input × (1 - normal loss %) = 5,000 × 0.90 = 4,500 kg. A is wrong — 5,500 adds rather than deducts loss. B is wrong — 500 kg is the expected loss, not the output. D is wrong — 4,000 would imply 20% loss.
Question 100
What is the cost per unit of expected output used in process costing?
Select an option first.
Correct answer: B — Total input cost (net of scrap value of normal loss) ÷ expected output units
Explanation: B is correct: cost per expected unit = (total input cost - scrap value of normal loss) / expected output. This builds the cost of expected losses into the unit cost of good output. A is wrong — dividing by input units ignores the cost of losses. C is wrong — using actual output changes every period and distorts the unit cost. D is wrong — all costs are included.
Question 101
Under the AVCO (weighted average cost) method, inventory is valued at:
Select an option first.
Correct answer: C — A weighted average of all units in stock, recalculated after each receipt
Explanation: C is correct: AVCO calculates a new weighted average cost each time a new delivery is received, and uses this average to value all subsequent issues until the next receipt changes the average. A is wrong — most recent purchase price is LIFO. B is wrong — oldest price is FIFO. D is wrong — standard cost is a separate system.
Question 102
Which of the following is a direct cost for an advertising agency producing a client campaign?
Select an option first.
Correct answer: C — Freelance copywriter hired specifically for the client's campaign
Explanation: C is correct: a freelance copywriter hired exclusively for one client's campaign is directly and specifically traceable to that cost unit (campaign). All other options are shared/indirect costs. A is wrong — office rent is shared across all activities. B is wrong — salary spread across clients is indirect. D is wrong — IT support is an overhead.
Question 103
The difference between standard cost and actual cost for materials is referred to as:
Select an option first.
Correct answer: C — Direct material total variance
Explanation: C is correct: the total direct material variance = standard cost of materials for actual output - actual cost of materials used. It is then sub-divided into price and usage variances. A is wrong — labour efficiency is a labour variance. B is wrong — sales volume variance relates to revenue. D is wrong — fixed overhead expenditure is an overhead variance.
Question 104
Which of the following best explains why fixed costs are excluded from product cost under marginal costing?
Select an option first.
Correct answer: C — Fixed costs do not change with output, so they are not relevant to the cost of producing one more unit
Explanation: C is correct: the marginal costing philosophy holds that only the costs that change with production (variable costs) are relevant to pricing decisions, contribution analysis and short-term decisions. Fixed costs are incurred regardless and managed separately. A is wrong — fixed costs are very real. B is wrong — fixed costs are often easier to measure than variable costs. D is wrong — fixed costs can be very large.
Question 105
A company has a C/S ratio (contribution to sales ratio) of 35%. If sales are $200,000, what is the total contribution?
Select an option first.
Correct answer: A — $70,000
Explanation: A is correct: contribution = C/S ratio × sales = 35% × $200,000 = $70,000. B is wrong — $35,000 = 35% × $100,000. C is wrong — $130,000 is 65% of sales (the variable cost portion). D is wrong — not supported.
Question 106
If contribution per unit is $8 and selling price is $20, what is the C/S ratio?
Select an option first.
Correct answer: B — 40%
Explanation: B is correct: C/S ratio = contribution / selling price = $8 / $20 = 40%. A is wrong — 60% is the variable cost ratio. C is wrong — 25% would require a $5 contribution. D is wrong — 80% is unsupported.
Question 107
Break-even sales revenue can be calculated as:
Select an option first.
Correct answer: B — Fixed costs ÷ C/S ratio
Explanation: B is correct: break-even revenue = fixed costs / C/S ratio. This is especially useful when a company sells multiple products with a constant sales mix. A is wrong — multiplying by C/S ratio gives contribution at a given revenue, not break-even. C is wrong — variable costs are not used here. D is wrong — selling price × units gives revenue, not break-even specifically, unless those are break-even units.
Question 108
A multi-product company sells three products in a fixed ratio. The weighted average C/S ratio is 30%. Fixed costs are $90,000. What is the break-even revenue?
Select an option first.
Correct answer: B — $300,000
Explanation: B is correct: break-even revenue = fixed costs / C/S ratio = $90,000 / 0.30 = $300,000. A is wrong — $270,000 = $90,000 / 0.333. C is wrong — $63,000 = $90,000 × 0.70. D is wrong — $27,000 is not supported.
Question 109
A make-or-buy decision should also consider which non-financial factor?
Select an option first.
Correct answer: B — Dependence on a single external supplier and the risk to quality or delivery reliability
Explanation: B is correct: beyond cost, make-or-buy decisions must consider supply chain risk — relying on one external supplier can create vulnerability to quality issues, late delivery or price increases. Maintaining in-house capability may preserve strategic flexibility. A is wrong — product colour is irrelevant to make-or-buy. C is wrong — machine age is a separate capital decision. D is wrong — building depreciation is a sunk/fixed cost.
Question 110
What is meant by a 'bottleneck' in throughput accounting?
Select an option first.
Correct answer: B — The resource that limits the overall output of the entire system
Explanation: B is correct: in the Theory of Constraints, a bottleneck (or constraint) is the resource — machine, worker, process — that is working at full capacity and thereby limits how much the whole system can produce. All improvement efforts should focus on exploiting and then elevating this constraint. A is wrong — highest contribution product is separate. C is wrong — high overhead does not make a bottleneck. D is wrong — selling price is unrelated to throughput constraints.
Question 111
Under ABC, if the cost per machine setup is $150 and Product Y requires 8 setups per production run of 200 units, what is the setup overhead per unit?
Select an option first.
Correct answer: B — $6.00
Explanation: B is correct: total setup cost = 8 × $150 = $1,200. Cost per unit = $1,200 / 200 = $6.00. A is wrong — $1,200 is the total cost, not per unit. C is wrong — $150 is the cost driver rate. D is wrong — $0.75 divides incorrectly.
Question 112
Value engineering (value analysis) is associated with which costing approach?
Select an option first.
Correct answer: C — Target costing
Explanation: C is correct: when a cost gap exists under target costing (current estimated cost > target cost), the business uses value engineering to redesign the product or process — eliminating features that cost more than customers value — to close the gap. A is wrong — value engineering is not specific to process costing. B is wrong — job costing does not drive value engineering. D is wrong — standard costing uses variance analysis to control existing costs.
Question 113
Which of the following is a committed cost?
Select an option first.
Correct answer: C — A cost arising from a past contractual obligation that cannot be changed in the short term
Explanation: C is correct: committed costs are future cash flows that are locked in because of past decisions or contracts — for example, lease payments on a signed rental agreement for a factory. They are irrelevant to short-term decisions as they cannot be avoided. A is wrong — variable costs are not necessarily committed. B is wrong — an avoidable future cost is a relevant cost. D is wrong — absorbed overhead is an accounting allocation.
Question 114
When a production process has two joint products at the split-off point, costs before split-off should be allocated to products for:
Select an option first.
Correct answer: C — Inventory valuation and financial reporting purposes
Explanation: C is correct: joint cost allocation (by physical quantity, sales value etc.) is done primarily for inventory valuation — it is NOT relevant to the decision of whether to process further or sell at split-off, because joint costs are sunk at that decision point. A is wrong — cash flow doesn't require joint cost allocation. B is wrong — joint costs are sunk and irrelevant to short-term pricing. D is wrong — the process-further decision uses only incremental revenue and incremental costs beyond split-off.
Question 115
At the split-off point, Product A can be sold for $40/unit or processed further at a cost of $15/unit and sold for $62/unit. Should it be processed further?
Select an option first.
Correct answer: B — Yes — the incremental revenue of $22 exceeds the incremental cost of $15, giving a $7/unit benefit
Explanation: B is correct: incremental revenue from further processing = $62 - $40 = $22. Incremental cost = $15. Net benefit = $22 - $15 = $7 per unit — so further processing adds value. A is wrong — selling at split-off foregoes $7/unit of value. C is wrong — additional cost is more than offset by additional revenue. D is wrong — higher selling price alone doesn't determine the decision without considering the incremental cost.
Question 116
A product's selling price is $45. Its variable cost is $27. Monthly fixed costs are $90,000. How many units are needed to achieve a profit of $18,000 per month?
Select an option first.
Correct answer: A — 6,000 units
Explanation: A is correct: contribution = $45 - $27 = $18. Units needed = (fixed costs + target profit) / contribution = ($90,000 + $18,000) / $18 = $108,000 / $18 = 6,000 units. B is wrong — 5,000 units only covers fixed costs (break-even). C is wrong — 7,000 units generates $126,000 - $90,000 = $36,000 profit. D is wrong — 4,000 units is below break-even.
Question 117
The learning curve applies most directly to:
Select an option first.
Correct answer: C — Labour time and cost estimates for new or complex products being produced for the first time
Explanation: C is correct: the learning curve captures the phenomenon that as workers gain experience producing a new product, the average time per unit falls predictably — this is especially important for cost estimating on complex new products where early production is slow. A is wrong — overhead rates are set separately. B is wrong — material prices are unaffected by learning. D is wrong — inventory costs are unrelated to production learning.
Question 118
Responsibility accounting is best supported by which reporting structure?
Select an option first.
Correct answer: B — A hierarchical system where each manager receives a report covering only the costs they control
Explanation: B is correct: responsibility accounting works by aligning reporting with organisational structure — each cost centre manager receives a report that includes only the costs within their authority, enabling meaningful performance evaluation and accountability. A is wrong — board-level only reporting removes operational accountability. C is wrong — summary reports hide individual accountability. D is wrong — annual reports are too infrequent for operational control.
Question 119
In service costing, which of the following is a suitable cost unit for a delivery company?
Select an option first.
Correct answer: C — Cost per tonne-kilometre
Explanation: C is correct: a tonne-kilometre (weight carried × distance) is a composite cost unit that captures both the volume and scale of delivery services — appropriate for a haulage or delivery business. A is wrong — kg of raw material is irrelevant for a service business. B is wrong — machine hours are an input measure, not an output unit. D is wrong — batch is a manufacturing concept.
Question 120
Which of the following is an advantage of absorption costing over marginal costing?
Select an option first.
Correct answer: C — It is required by accounting standards for external financial reporting (fixed overhead must be included in inventory value)
Explanation: C is correct: IAS 2 (Inventories) requires that inventory is valued including a proportion of fixed production overhead — making absorption costing necessary for external reporting. Marginal costing, while useful internally, does not comply with these standards. A is wrong — contribution analysis is cleaner under marginal costing. B is wrong — absorption costing includes fixed costs in inventory, which can actually be a vehicle for manipulation. D is wrong — short-term pricing is better supported by marginal costing.
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Strategic Business Leader300
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