AAT Level 2 Basic Costing Assignment 1

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Before attempting this assignment you should have read chapters 1 and 2 of your Osborne Book ”BASIC COSTING" and attempted the chapter activities in your WORKBOOK.

The pass mark for the assignment is 70% - should you fail then please review the areas where you are weak. If you are still having problems then please do not hesitate to contact AATFree
Good Luck!


Questions and Answers
  • 1. 

    Raw materials, work in process and finished goods are the three types of inventory held by which of the following types of companies?

    • A.

      Manufacturing

    • B.

      Retailers

    • C.

      Wholesalers

    • D.

      Service Companies

    Correct Answer
    A. Manufacturing
    Explanation
    Manufacturing companies hold three types of inventory: raw materials, work in process, and finished goods. Raw materials are the basic materials used to produce goods, work in process refers to partially completed goods, and finished goods are the final products ready for sale. Since the question asks about the type of company that holds these types of inventory, the correct answer is manufacturing companies.

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  • 2. 

    Which types of company typically produces it's own inventory?

    • A.

      Manufacturer

    • B.

      Service company

    • C.

      Retailer

    • D.

      Wholesaler

    Correct Answer
    A. Manufacturer
    Explanation
    Manufacturers typically produce their own inventory because they are involved in the production of goods. They take raw materials and transform them into finished products. This is different from service companies, retailers, and wholesalers who do not typically produce their own inventory. Service companies provide intangible services rather than physical goods, retailers purchase goods from manufacturers or wholesalers to sell to consumers, and wholesalers purchase goods from manufacturers to sell to retailers or other businesses. Therefore, the correct answer is Manufacturer.

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  • 3. 

    What type of company resells products it previously purchased ready-made from suppliers?

    • A.

      Merchandise

    • B.

      Retailer

    • C.

      Wholesaler

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    The correct answer is "All of the above" because all three options - merchandise, retailer, and wholesaler - involve reselling products that were purchased ready-made from suppliers. A merchandise company resells products as a core part of its business, a retailer resells products directly to consumers, and a wholesaler resells products to other businesses. Therefore, all three types of companies fit the description of reselling products purchased from suppliers.

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  • 4. 

    Before these materials are used to manufacture its cars, Honda classifies steel, glass, and plastic as:

    • A.

      Finished goods inventory

    • B.

      Raw materials inventory

    • C.

      Work in process inventory

    • D.

      Merchandise inventory

    Correct Answer
    B. Raw materials inventory
    Explanation
    Honda classifies steel, glass, and plastic as raw materials inventory because these materials are used in the manufacturing process of its cars. Raw materials inventory refers to the materials that are purchased and held by a company to be used in the production of goods. Since steel, glass, and plastic are not yet processed or transformed into finished goods, they are considered raw materials. Once these materials are used in the manufacturing process, they will be classified as work in process inventory.

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  • 5. 

    How would Honda classify its partially completed vehicles?

    • A.

      Finished goods

    • B.

      Raw materials

    • C.

      Supplies

    • D.

      Work in process

    Correct Answer
    D. Work in process
    Explanation
    Honda would classify its partially completed vehicles as work in process. This classification is used for items that are still in the production process and have not yet been completed. Work in process represents the value of materials, labor, and overhead costs that have been incurred but have not yet been transferred to finished goods. Therefore, it is the most appropriate classification for Honda's partially completed vehicles.

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  • 6. 

    Intel Corporation makes computer chips. Intel Corporation would be classified as a:

    • A.

      Manufacturing company

    • B.

      Merchandising company

    • C.

      Service company

    • D.

      Simple company

    Correct Answer
    A. Manufacturing company
    Explanation
    Intel Corporation would be classified as a manufacturing company because it is involved in the production and manufacturing of computer chips. Manufacturing companies are involved in the physical production of goods and typically have facilities and equipment for production processes. In the case of Intel Corporation, they engage in the manufacturing of computer chips, which involves various processes such as design, fabrication, and testing of the chips.

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  • 7. 

    Which of the following items would NOT be found in raw materials inventory for a furniture manufacturer?

    • A.

      Wood

    • B.

      Fabric

    • C.

      Assembly worker wages

    • D.

      Steel framing

    Correct Answer
    C. Assembly worker wages
    Explanation
    Assembly worker wages would not be found in raw materials inventory for a furniture manufacturer because raw materials inventory typically includes only the materials and components that are directly used in the production process. Assembly worker wages are considered a labor cost and are not classified as raw materials.

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  • 8. 

    Delivery expenses are are charged to which of the following areas?

    • A.

      Customer service

    • B.

      Distribution

    • C.

      Production or purchases

    • D.

      Marketing

    Correct Answer
    B. Distribution
    Explanation
    Delivery expenses are charged to the distribution area because it involves the transportation and logistics of getting the products from the production or purchase location to the customers. Distribution encompasses activities such as warehousing, inventory management, and transportation, all of which incur costs related to delivery. Customer service focuses on addressing customer inquiries and concerns, production or purchases involve the actual manufacturing or procurement of goods, and marketing deals with promoting and advertising products.

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  • 9. 

    A product support hot line would be considered:

    • A.

      Customer service

    • B.

      Distribution

    • C.

      Production or purchases

    • D.

      Marketing

    Correct Answer
    A. Customer service
    Explanation
    A product support hot line would be considered customer service because it is a service provided to customers to assist them with any issues or questions they may have regarding the product. The hot line is dedicated to providing support and resolving customer concerns, ensuring their satisfaction with the product. This falls under the realm of customer service, which focuses on meeting the needs and ensuring the happiness of customers.

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  • 10. 

    Indirect costs incurred in manufacturing motor vehicles include all of the following EXCEPT:

    • A.

      Cost of the engines

    • B.

      Machinery depreciation in the factory

    • C.

      Plant cleaners wages

    • D.

      Plant supervisor salary

    Correct Answer
    A. Cost of the engines
    Explanation
    The cost of the engines is not considered an indirect cost incurred in manufacturing motor vehicles. Indirect costs are expenses that are not directly traceable to the production of a specific product, such as machinery depreciation, plant cleaners wages, and plant supervisor salary. The cost of the engines, on the other hand, is a direct cost as it directly contributes to the production of motor vehicles.

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  • 11. 

    Which of the following is an example of direct labor?

    • A.

      Salary of a production manager

    • B.

      Salary of the director of operations

    • C.

      Wages of assembly line personnel

    • D.

      Wages of factory security

    Correct Answer
    C. Wages of assembly line personnel
    Explanation
    Direct labor refers to the cost of labor directly involved in the production process. It includes the wages of workers who directly work on the assembly line or directly contribute to the manufacturing of a product. The wages of assembly line personnel are an example of direct labor because they are directly involved in the production process and contribute to the creation of the final product. On the other hand, the salary of a production manager or the director of operations may be considered indirect labor as they are not directly involved in the physical production process. The wages of factory security personnel are also not considered direct labor as they do not directly contribute to the production of goods.

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  • 12. 

    Which of the following are classifed as manufacturing overhead?

    • A.

      Direct materials and direct labor

    • B.

      Indirect labor and indirect materials

    • C.

      All materials

    • D.

      Factory rent and direct labor

    Correct Answer
    B. Indirect labor and indirect materials
    Explanation
    Manufacturing overhead refers to the indirect costs incurred in the production process that cannot be directly traced to a specific product. Indirect labor and indirect materials are both examples of manufacturing overhead. Indirect labor includes the wages of employees who support the production process but do not directly work on the product, such as supervisors or maintenance workers. Indirect materials refer to materials used in the production process that are not directly incorporated into the final product, such as lubricants or cleaning supplies. Therefore, the correct answer is indirect labor and indirect materials.

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  • 13. 

    Certain materials used in a manufacturing plant cannot be traced to a specific unit. These materials are called _________ materials.

    • A.

      General

    • B.

      Direct

    • C.

      Finished

    • D.

      Indirect

    Correct Answer
    D. Indirect
    Explanation
    Certain materials used in a manufacturing plant that cannot be traced to a specific unit are called indirect materials. These materials are typically used in the production process but are not directly incorporated into the final product. Instead, they support the production process indirectly by assisting in the manufacturing or assembly of the final product. Examples of indirect materials may include lubricants, cleaning supplies, or maintenance tools.

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  • 14. 

    Which of the following is an example of a fixed cost for a manufacturer?

    • A.

      Salary of the plant manager

    • B.

      Sales commissions

    • C.

      Direct materials

    • D.

      Delivery costs

    Correct Answer
    A. Salary of the plant manager
    Explanation
    The salary of the plant manager is an example of a fixed cost for a manufacturer because it does not vary with the level of production or sales. Regardless of how many units are produced or sold, the plant manager's salary remains the same. Fixed costs are expenses that are incurred by a business regardless of its level of production or sales volume.

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  • 15. 

    Which of the following describes the way in which total fixed costs behave?

    • A.

      They will remain the same throughout production levels.

    • B.

      They will decrease as production decreases.

    • C.

      They will decrease as production increases.

    • D.

      They will increase as production decreases

    Correct Answer
    A. They will remain the same throughout production levels.
    Explanation
    Total fixed costs are costs that do not change with the level of production. These costs include expenses like rent, insurance, and salaries that are incurred regardless of the amount of output produced. Therefore, regardless of whether production increases or decreases, total fixed costs will remain constant.

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  • 16. 

    Varible costs:

    • A.

      Are fixed in total as production levels change

    • B.

      Are fixed per unit and vary in total as productions levels change.

    • C.

      Decrease per unit as production volume increases

    • D.

      Vary per unit of output as production levels change

    Correct Answer
    B. Are fixed per unit and vary in total as productions levels change.
    Explanation
    Variable costs are costs that change in direct proportion to the level of production. In this case, the correct answer states that variable costs are fixed per unit, meaning that the cost per unit remains constant regardless of the production level. However, the total variable costs vary as production levels change, meaning that as production increases, the total variable costs also increase. This explanation clarifies that variable costs have a fixed per unit cost but vary in total as production levels change.

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  • 17. 

    A company's total costs are calculated by:

    • A.

      Subtracting total fixed costs from total variable costs

    • B.

      Subtracting total variable costs from total fixed costs

    • C.

      Adding total fixed costs to total variable costs

    • D.

      Subtracting total fixed costs and total variable costs from sales.

    Correct Answer
    C. Adding total fixed costs to total variable costs
    Explanation
    The correct answer is adding total fixed costs to total variable costs. This is because total costs are the sum of both fixed costs and variable costs. Fixed costs are expenses that do not change regardless of the level of production or sales, such as rent or salaries. Variable costs, on the other hand, vary with the level of production or sales, such as raw materials or direct labor. By adding these two components together, we can calculate the total costs incurred by the company.

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  • 18. 

    Budgets are the way that managers can express their:

    • A.

      Plans

    • B.

      Decision making

    • C.

      Control

    • D.

      Hiring practices

    Correct Answer
    A. Plans
    Explanation
    Managers express their plans through budgets. Budgets allow managers to outline their financial goals and objectives for a specific period. It helps them allocate resources, set targets, and determine the necessary actions to achieve those plans. By creating a budget, managers can effectively communicate their intended course of action to their team members and stakeholders, ensuring everyone is aligned and working towards the same objectives.

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  • 19. 

    Management accounting focuses on:

    • A.

      External reporting

    • B.

      Internal reporting

    • C.

      Tax preparation

    • D.

      Auditing

    Correct Answer
    B. Internal reporting
    Explanation
    Management accounting focuses on internal reporting, which involves the preparation and presentation of financial information to assist managers in making informed decisions. It includes the analysis of financial data, budgeting, forecasting, and performance evaluation. Internal reporting helps managers monitor and control the organization's operations, identify areas for improvement, and make strategic decisions. Unlike external reporting, which is primarily for stakeholders and regulatory compliance, internal reporting is tailored to meet the specific needs of management and is not required to follow generally accepted accounting principles.

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  • 20. 

    Which of the following types of information are used in managerial accounting?

    • A.

      Financial information

    • B.

      Nonfinancial information

    • C.

      Forecasts of future earnings

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Managerial accounting utilizes various types of information, including financial information, nonfinancial information, and forecasts of future earnings. Financial information includes data related to the company's financial performance, such as income statements, balance sheets, and cash flow statements. Nonfinancial information refers to qualitative data that may impact managerial decision-making, such as customer satisfaction surveys or employee feedback. Forecasts of future earnings involve making predictions about the company's future financial performance based on current trends and market conditions. Therefore, all of the mentioned types of information are used in managerial accounting.

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  • 21. 

    The primary goal of managerial accounting is to provide information to:

    • A.

      Shareholders

    • B.

      Creditors

    • C.

      Internal decision-makers

    • D.

      Both shareholders and creditors

    Correct Answer
    C. Internal decision-makers
    Explanation
    Managerial accounting is focused on providing information and data to internal decision-makers within an organization. These decision-makers include managers, executives, and other individuals who are responsible for making important decisions regarding the operations and performance of the company. The information provided by managerial accounting helps these decision-makers in areas such as budgeting, planning, controlling costs, and evaluating the profitability of different projects or departments. By providing relevant and timely information, managerial accounting enables internal decision-makers to make informed choices that can drive the success and growth of the organization.

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  • 22. 

    Which of the following groups are external users of financial information?

    • A.

      Customers of the company

    • B.

      Vendors of the company

    • C.

      Potential investors of the company

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    The correct answer is "All of the above." Customers, vendors, and potential investors are all external users of financial information. Customers use financial information to assess the company's financial stability and make decisions about purchasing products or services. Vendors use financial information to evaluate the company's creditworthiness and determine the terms of trade. Potential investors use financial information to assess the company's profitability and growth potential before making investment decisions. Therefore, all three groups mentioned are external users who rely on financial information for various purposes.

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  • 23. 

    Which of the following are the internal decision-makers of a company?

    • A.

      Vendors

    • B.

      Customers

    • C.

      Managers

    • D.

      Shareholders

    Correct Answer
    C. Managers
    Explanation
    Managers are the internal decision-makers of a company as they are responsible for making important decisions related to the day-to-day operations, strategic planning, resource allocation, and overall management of the company. They have the authority to make decisions that impact the company's goals and objectives, and they are accountable for the outcomes of those decisions. Vendors, customers, and shareholders, on the other hand, are external stakeholders who may influence or be affected by the decisions made by managers, but they are not the ones directly responsible for making internal decisions within the company.

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  • 24. 

    Which of the following groups are most likely to use a company's budget information?

    • A.

      Managers

    • B.

      Customers

    • C.

      Creditors

    • D.

      Suppliers

    Correct Answer
    A. Managers
    Explanation
    Managers are most likely to use a company's budget information because they are responsible for planning, controlling, and making decisions within the organization. Budget information helps managers in setting goals, allocating resources, and monitoring performance. They use this information to make informed decisions about resource allocation, cost control, and investment opportunities. Managers need to have a clear understanding of the company's budget to ensure that their department or division is operating within the allocated budget and to track the progress towards achieving financial objectives.

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  • 25. 

    Owners of a limited company  are its:

    • A.

      Creditors

    • B.

      Customers

    • C.

      Managers

    • D.

      Shareholders

    Correct Answer
    D. Shareholders
    Explanation
    The owners of a limited company are referred to as shareholders. Shareholders are individuals or entities that hold shares or stocks in the company, which represents their ownership interest. As owners, shareholders have certain rights and privileges, such as voting rights, dividends, and the ability to influence company decisions. They also bear the financial risk associated with the company's performance. Therefore, shareholders have a significant role in the company's governance and overall success.

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  • 26. 

    Information for external parties about past performance is provided by:

    • A.

      Budget reports

    • B.

      Financial accounting reports

    • C.

      Managerial accounting reports

    • D.

      Planning reports

    Correct Answer
    B. Financial accounting reports
    Explanation
    Financial accounting reports provide information to external parties about an organization's past performance. These reports are prepared in accordance with generally accepted accounting principles (GAAP) and provide a summary of the financial transactions and activities of the organization. They include financial statements such as the balance sheet, income statement, and cash flow statement, which provide a snapshot of the organization's financial health and performance. These reports are often used by investors, creditors, and other external stakeholders to make informed decisions about the organization.

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  • 27. 

    Information for internal parties about past performance is provided by:

    • A.

      Budget reports

    • B.

      Financial accounting reports

    • C.

      Managerial accounting reports

    • D.

      Planning reports

    Correct Answer
    C. Managerial accounting reports
    Explanation
    Managerial accounting reports provide information about past performance to internal parties. These reports are specifically designed for managers and decision-makers within an organization. They include detailed financial information such as budgets, cost analysis, and variance analysis, which help managers assess the company's performance and make informed decisions. Unlike financial accounting reports, which are prepared for external parties, managerial accounting reports focus on providing internal stakeholders with the necessary information to evaluate and improve the organization's performance.

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  • 28. 

    Managerial accountants perform which of the following tasks?

    • A.

      Ensure financial records are correct

    • B.

      Help design information systems

    • C.

      Provide decision support

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Managerial accountants perform all of the mentioned tasks. They ensure that financial records are accurate and up-to-date, which is crucial for making informed business decisions. They also play a role in designing information systems that help in collecting and analyzing financial data. Additionally, they provide decision support by utilizing their expertise to assist management in making strategic choices based on financial information and analysis. Therefore, the correct answer is "All of the above."

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  • 29. 

    Managerial accounts may be responsible for:

    • A.

      Analysing data

    • B.

      Communicating results

    • C.

      Providing decision support

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Managerial accountants are responsible for analyzing data to provide insights and help make informed decisions. They also communicate the results of their analysis to relevant stakeholders, such as management and other departments. Additionally, they provide decision support by offering recommendations and guidance based on their analysis. Therefore, the correct answer is "all of the above" as managerial accountants perform all these tasks.

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  • 30. 

    Which of the following skills are required of managerial accountants?

    • A.

      The ability to work as a team

    • B.

      Analytical skills

    • C.

      Oral and written communication skills

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Managerial accountants need to possess a variety of skills in order to effectively perform their job responsibilities. The ability to work as a team is important as they often collaborate with other departments and individuals within the organization. Analytical skills are necessary for analyzing financial data and making informed decisions. Oral and written communication skills are essential for effectively conveying financial information to stakeholders. Therefore, all of the skills mentioned in the options are required of managerial accountants.

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  • 31. 

    Managerial accounting is needed by which type of company?

    • A.

      Manufactures

    • B.

      Retailers

    • C.

      Service

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Managerial accounting is needed by all types of companies, including manufacturers, retailers, and service-based businesses. Managerial accounting involves the process of collecting, analyzing, and interpreting financial information to aid in decision-making and planning within an organization. Regardless of the industry or sector, all companies require managerial accounting to effectively manage their operations, control costs, evaluate performance, and make informed business decisions. Therefore, the correct answer is "All of the above."

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  • 32. 

    A company's Board of Directors meets:

    • A.

      Annually

    • B.

      Monthly

    • C.

      Periodically, as needs dictate

    • D.

      Quarterly

    Correct Answer
    C. Periodically, as needs dictate
    Explanation
    The correct answer is "periodically, as needs dictate" because the frequency of the Board of Directors' meetings is not fixed and depends on the specific needs and requirements of the company. This allows flexibility for the board to convene whenever important decisions or discussions need to take place, rather than being limited to a set schedule.

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