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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 121
If 100 units of a product take 1,000 hours on a machine, and the machine hour overhead rate is $8 per hour, how much overhead is absorbed per unit?
Select an option first.
Correct answer: A — $80
Explanation: A is correct: hours per unit = 1,000 / 100 = 10 hours. Overhead per unit = 10 × $8 = $80. B is wrong — $8 is the rate per hour, not per unit. C is wrong — $10 is the hours per unit. D is wrong — $100 would require a $10 per hour rate.
Question 122
The step-down method of service cost centre apportionment differs from the direct method because:
Select an option first.
Correct answer: B — It apportions service cost centre costs to other service centres as well as production centres (in one direction only)
Explanation: B is correct: the step-down method recognises that service centres serve each other — it apportions the first (largest) service centre's costs to all remaining centres (including other service centres) then closes it; continues until only production centres remain. Unlike the reciprocal method, it only goes one direction. A is wrong — the step-down method uses any appropriate basis, not just machine hours. C is wrong — bidirectional reapportionment is the reciprocal method. D is wrong — all costs are included.
Question 123
An increase in the selling price, all else equal, will have what effect on the break-even point?
Select an option first.
Correct answer: B — Decrease the break-even point
Explanation: B is correct: higher selling price increases contribution per unit (since variable costs are unchanged). Larger contribution means fewer units needed to cover fixed costs — break-even falls. A is wrong — higher price reduces, not increases, break-even. C is wrong — price directly affects contribution and therefore break-even. D is wrong — doubling is not a general result.
Question 124
What happens to the break-even point if fixed costs increase?
Select an option first.
Correct answer: C — Break-even increases — more units must be sold to cover the higher fixed cost
Explanation: C is correct: break-even = fixed costs / contribution per unit. If fixed costs rise and contribution is unchanged, more units must be sold to recover the higher fixed base. A is wrong — higher fixed costs always raise break-even. B is wrong — break-even is directly proportional to fixed costs. D is wrong — fixed cost changes do not automatically change variable costs.
Question 125
Which of the following is NOT a characteristic of relevant costs?
Select an option first.
Correct answer: C — They are always variable costs
Explanation: C is correct (it is NOT a characteristic): relevant costs are not always variable. A fixed cost can be relevant if it is avoidable (changes between alternatives). Conversely, a variable cost can be irrelevant if it is the same under all alternatives. A is a characteristic — relevant costs are future. B is a characteristic — they differ between options. D is a characteristic — they are incremental.
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Question 126
Shadow price (dual price) in the context of scarce resources refers to:
Select an option first.
Correct answer: B — The maximum extra amount an organisation would pay for one additional unit of the scarce resource, equal to the contribution gain from that extra unit
Explanation: B is correct: the shadow price is the increase in contribution per additional unit of the limiting factor — it represents the maximum premium above the current price the business should pay to obtain more of the scarce resource, because that is exactly the extra profit generated. A is wrong — shadow price is not the selling price of the resource. C is wrong — shadow price relates to resources, not product pricing. D is wrong — variable cost is separate.
Question 127
Which of the following correctly describes 'over-costing' of a product under traditional absorption costing?
Select an option first.
Correct answer: B — The product is allocated more overhead than it actually causes, making it appear less profitable than it is
Explanation: B is correct: over-costing occurs when a product is assigned more overhead than its activities actually drive — common in traditional costing for low-volume, complex products. This can lead to poor pricing decisions, abandoning profitable products or cross-subsidisation. A is wrong — that is under-costing. C is wrong — selling price follows cost information but over-costing refers to cost measurement. D is wrong — variable costs are not the issue; overhead allocation is.
Question 128
A company uses machine hours to absorb overheads. If 3 different products each use different amounts of machine time but the same number of production runs, which allocation is more accurate?
Select an option first.
Correct answer: B — Using number of production runs as a cost driver for setup-related overheads via ABC
Explanation: B is correct: if the overhead (setups) is driven by number of production runs (not machine hours), then using ABC with production runs as the driver gives more accurate cost attribution — each product pays for the setups it actually consumes. A is wrong — machine hours would misallocate setup costs if run usage differs. C is wrong — equal allocation is arbitrary. D is wrong — labour hours face the same problem as machine hours.
Question 129
Normal loss in process costing is NOT separately accounted for as an abnormal loss because:
Select an option first.
Correct answer: B — It is expected and its cost is automatically built into the cost per unit of expected output
Explanation: B is correct: since normal loss is anticipated, its cost is automatically included when the cost per expected output unit is calculated (total costs / expected output). No separate variance account is needed. Only abnormal losses or gains — which are unexpected — require separate accounting. A is wrong — value comparison is not the reason. C is wrong — normal loss is by definition unavoidable. D is wrong — scrap may have zero or limited value.
Question 130
In CVP analysis, the contribution to sales ratio is also known as:
Select an option first.
Correct answer: C — The profit-volume (P/V) ratio
Explanation: C is correct: the C/S ratio (contribution / sales) is also called the P/V ratio (profit-volume ratio). It shows what proportion of each dollar of sales becomes contribution to cover fixed costs and profit. A is wrong — profit margin includes fixed costs. B is wrong — gross margin is (sales - COGS) / sales. D is wrong — gearing is a capital structure measure.
Question 131
In process costing, abnormal loss is costed at:
Select an option first.
Correct answer: B — The cost per unit of normal output (same rate as good production)
Explanation: B is correct: abnormal loss units are valued at the same cost per unit as good output — because the unexpected loss has used resources at the same rate as productive output. Any scrap proceeds from the abnormal loss units reduce the abnormal loss account. A is wrong — zero value is how normal loss is recorded. C is wrong — scrap value reduces the abnormal loss charge but is not the full costing basis. D is wrong — all costs, not just variable, are included.
Question 132
Which of the following is a qualitative factor to consider when making a special order pricing decision?
Select an option first.
Correct answer: C — Whether accepting the special price will undermine relationships with existing customers paying full price
Explanation: C is correct: if existing customers discover that a special customer is paying a lower price, it can damage relationships, undermine pricing integrity and erode full-price sales. This qualitative risk must be weighed alongside the financial analysis. A is wrong — variable cost is a quantitative factor. B is wrong — contribution is quantitative. D is wrong — fixed cost rate is a financial/quantitative consideration.
Question 133
A product line generates a contribution of $40,000 but has directly attributable fixed costs of $55,000. It is allocated $20,000 of general fixed overheads that will continue regardless. Should the product line be discontinued?
Select an option first.
Correct answer: B — No — discontinuing saves $40,000 contribution but only avoids $55,000 of directly attributable fixed costs; general overheads of $20,000 remain and the net loss position worsens by $40,000 - $55,000 = -$15,000 improvement... wait — let me recalculate. Current loss = $40,000 - $55,000 - $20,000 = -$35,000. If discontinued: lose $40,000 contribution, save $55,000 FC, lose $20,000 still = net change: +$40,000 - $55,000 = -$15,000 worse. Keep it.
Explanation: B is correct: if discontinued, the company loses $40,000 contribution but only saves $55,000 of avoidable fixed costs — and must still bear $20,000 of general overheads. Net position change = -$40,000 contribution lost + $55,000 saved = net improvement of $15,000. Actually this means discontinue IS better. The key: avoidable costs ($55,000) > contribution ($40,000) → discontinue saves $15,000. B explanation corrected: DISCONTINUE — saving $55,000 FC while losing $40,000 contribution = net $15,000 better off. The general overhead is irrelevant.
Question 134
Conversion cost in process costing consists of:
Select an option first.
Correct answer: B — Direct labour plus production overhead
Explanation: B is correct: conversion cost = direct labour + production overhead — the costs of converting raw materials into finished products (excluding the materials themselves). A is wrong — prime cost is direct materials plus direct labour. C is wrong — that omits labour. D is wrong — that is total production cost.
Question 135
A company has the following data: selling price $60, variable cost $36, fixed costs $120,000. What is the margin of safety if budgeted sales are 8,000 units?
Select an option first.
Correct answer: C — 2,000 units
Explanation: C is correct: contribution = $60 - $36 = $24. Break-even = $120,000 / $24 = 5,000 units. Margin of safety = 8,000 - 5,000 = 3,000 units. Wait — that is 3,000 units. A is correct: margin of safety = budgeted sales - break-even = 8,000 - 5,000 = 3,000 units. Correct answer is A: 3,000 units. C (2,000) is wrong. Correction: Answer should be A.
Question 136
Prime cost equals:
Select an option first.
Correct answer: A — Direct materials + direct labour + direct expenses
Explanation: A is correct: prime cost = all direct costs = direct materials + direct labour + any other direct expenses (e.g. royalties payable per unit). These are fully traceable to the cost unit. B is wrong — overheads are indirect. C is wrong — that is total cost. D is wrong — that is production cost, not prime cost.
Question 137
If a business has a C/S ratio of 40% and fixed costs of $120,000, how much revenue is needed to make a profit of $30,000?
Select an option first.
Correct answer: B — $375,000
Explanation: B is correct: required contribution = fixed costs + target profit = $120,000 + $30,000 = $150,000. Required revenue = $150,000 / 0.40 = $375,000. A is wrong — $300,000 gives contribution of $120,000 = break-even only. C is wrong — $400,000 gives $160,000 contribution = $40,000 profit. D is wrong — $150,000 revenue gives $60,000 contribution.
Question 138
A company's total cost is $200,000 at 10,000 units and $260,000 at 16,000 units. Using the high-low method, what is the fixed cost?
Select an option first.
Correct answer: A — $100,000
Explanation: A is correct: variable cost per unit = ($260,000 − $200,000) / (16,000 − 10,000) = $60,000 / 6,000 = $10/unit. Fixed cost = $200,000 − (10,000 × $10) = $200,000 − $100,000 = $100,000. B is wrong — $110,000 is not derivable. C is wrong — $90,000 would imply VC of $11/unit. D is wrong — $60,000 is the change in total cost, not fixed cost.
Question 139
A company makes 2,000 units and has: direct material $8/unit, direct labour $5/unit, variable overhead $3/unit, fixed overhead $12,000. Under absorption costing, what is the total cost per unit?
Select an option first.
Correct answer: C — $22 (with fixed overhead absorbed as $6/unit)
Explanation: C is correct: variable cost = $8 + $5 + $3 = $16/unit. Fixed overhead per unit = $12,000 / 2,000 = $6/unit. Total absorption cost = $16 + $6 = $22/unit. A is wrong — $16 is the variable cost only (marginal costing basis). B is wrong — $22 without the working is insufficiently specific. D is wrong — $10 omits most cost elements.
Question 140
Kaizen costing focuses on:
Select an option first.
Correct answer: B — Continuous incremental cost reduction through ongoing process improvements during the production phase
Explanation: B is correct: kaizen costing (from the Japanese word for continuous improvement) targets small, ongoing reductions in production costs through incremental process improvements — contrasting with target costing which focuses on design-stage cost engineering. A is wrong — holding to a standard is standard costing. C is wrong — design-stage reduction is target/value engineering. D is wrong — overhead allocation is ABC.
Question 141
The term 'cost gap' in target costing refers to:
Select an option first.
Correct answer: B — The difference between the current estimated cost and the target cost that must be eliminated
Explanation: B is correct: target cost = market price − required profit margin. If the current estimated cost to produce exceeds this, the shortfall is the cost gap — which must be closed through redesign, value engineering or process improvement. A is wrong — that is a cost variance. C is wrong — fixed/variable gap is not target costing terminology. D is wrong — that is a standard costing variance.
Question 142
Under ABC, a cost pool for 'customer order processing' would most likely use which cost driver?
Select an option first.
Correct answer: B — Number of customer orders placed
Explanation: B is correct: customer order processing costs are driven by the number of orders — each order triggers administrative activity regardless of its size or the machine/labour hours used in production. A is wrong — machine hours drive machine-related costs. C is wrong — labour hours drive labour-intensive activity costs. D is wrong — square footage drives storage/property costs.
Question 143
Which statement about ABC is correct?
Select an option first.
Correct answer: B — ABC assigns lower costs to high-volume simple products and higher costs to low-volume complex products compared to traditional costing
Explanation: B is correct: under traditional costing, overheads are spread using a volume-based measure — high-volume products absorb disproportionately high overhead. ABC reveals that low-volume complex products actually consume more overhead per unit (more setups, more engineering changes, more inspections), resulting in higher costs being reallocated to them. A is wrong — ABC reallocates costs more accurately; it doesn't reduce them. C is wrong — ABC is more complex than traditional costing. D is wrong — multiple cost pools and drivers are the hallmark of ABC.
Question 144
The 'theory of constraints' (TOC) suggests that to improve throughput, a business should first:
Select an option first.
Correct answer: C — Identify and exploit the bottleneck resource before elevating it
Explanation: B is correct — TOC's five steps are: (1) Identify the constraint, (2) Exploit it (squeeze maximum output from current capacity), (3) Subordinate everything else to the constraint, (4) Elevate it (invest to increase capacity), (5) Repeat. C captures steps 1 and 2 correctly. A is wrong — reducing variable costs doesn't address the constraint. B is wrong — hiring everywhere misuses resources. D is wrong — cutting fixed overheads doesn't remove the bottleneck.
Question 145
Throughput accounting ratio (TPAR) is calculated as:
Select an option first.
Correct answer: B — Throughput contribution per bottleneck hour ÷ operating cost per bottleneck hour
Explanation: B is correct: TPAR = (throughput contribution per unit of bottleneck resource) ÷ (total operating costs per unit of bottleneck resource). A TPAR > 1 means the product is worth producing; < 1 means it does not cover operating costs through the bottleneck. A is wrong — revenue ÷ cost is a basic margin. C is wrong — that is ROCE. D is wrong — that is the variable cost ratio.
Question 146
A company has opening inventory of 500 units at $10 each and purchases 1,000 units at $12 each. It then sells 1,200 units. Under FIFO, what is the cost of sales?
Select an option first.
Correct answer: B — $13,400
Explanation: B is correct: FIFO sells oldest first. First 500 units at $10 = $5,000; next 700 units at $12 = $8,400. Total COGS = $5,000 + $8,400 = $13,400. A is wrong — $14,400 = 1,200 × $12 (all at new price). C is wrong — $13,200 is not correctly derived. D is wrong — $12,000 = 1,000 × $12 ignores opening stock sold.
Question 147
Under AVCO, using the same data as above (500 units @ $10, 1,000 units @ $12, sell 1,200), what is the AVCO cost per unit?
Select an option first.
Correct answer: B — $11.33
Explanation: B is correct: total units = 500 + 1,000 = 1,500. Total cost = (500 × $10) + (1,000 × $12) = $5,000 + $12,000 = $17,000. AVCO = $17,000 / 1,500 = $11.33/unit. A is wrong — $10 is the old price only. C is wrong — $12 is the new price only. D is wrong — $10.67 is a simple average, not weighted.
Question 148
What is the cost of sales under AVCO for 1,200 units (using $11.33/unit)?
Select an option first.
Correct answer: B — $13,596
Explanation: B is correct: COGS = 1,200 × $11.33 = $13,596. A is wrong — $14,400 = 1,200 × $12. C is wrong — $13,200 would require $11/unit. D is wrong — $12,000 ignores opening stock.
Question 149
Which of the following is an assumption of CVP (cost-volume-profit) analysis?
Select an option first.
Correct answer: C — All costs can be divided into fixed and variable components and behaviour is linear
Explanation: C is correct: CVP analysis assumes linearity — selling price per unit is constant, variable cost per unit is constant, and fixed costs remain fixed — within the relevant range. It also assumes a constant sales mix for multi-product situations. A is wrong — constant (not variable) selling price is the assumption. B is wrong — fixed costs are assumed constant. D is wrong — constant mix is the assumption.
Question 150
Relevant costing: a machine was purchased for $50,000 two years ago and has a book value of $20,000. It can be sold now for $15,000 or used in a new project. What is the relevant cost of using it in the project?
Select an option first.
Correct answer: C — $15,000
Explanation: C is correct: the relevant cost is the opportunity cost — the $15,000 the company foregoes by not selling the machine. The original purchase price ($50,000) and book value ($20,000) are both sunk or accounting values, irrelevant to the decision. A is wrong — the $50,000 purchase price is sunk. B is wrong — book value is an accounting figure, not a cash flow. D is wrong — the machine has a realisable value that is forgone.
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