ACCA F5 Certification Exam: Trivia Quiz

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ACCA F5 Certification Exam: Trivia Quiz - Quiz


Here we bring you an ACCA F5 Certification exam practice test. One of the basic skills needed, regardless of the type of business opened, is to do proper accounting for either reporting or record-keeping purposes. ACCA is a worldwide recognition of one's accountant skills. In this quiz, you will test out the application of your management accountant skills before the exam starts. Do give it a shot and see how well you do!


Questions and Answers
  • 1. 

    The following costs have arisen in relation to the production of a product:  
    1. (i) Planning and concept design costs
    2. (ii) Testing costs
    3. (iii) Production costs
    4. (iv) Distribution and customer service costs
     
    1. In calculating the life cycle costs of a product, which of the above items would be included? 

    • A.

      ​​​​​(iii) only

    • B.

      (i), (ii) and (iii) only

    • C.

      (i), (ii) and (iv) only

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    A product's life cycle costs are incurred from its design stage through development to market launch, production and sales, and finally to its eventual decline and withdrawal from the market.

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  • 2. 

    In which of the following ways might financial returns be improved over the life cycle of a product?
    1. (1) Maximising the breakeven time
    2. (2) Minimising the time to market
    3. (3) Minimising the length of the life cycle

    • A.

      1 and 2 only

    • B.

      1 and 3 only

    • C.

      2 only

    • D.

      2 and 3 only

    Correct Answer
    C. 2 only
    Explanation
    Financial returns can be improved over the life cycle of a product by minimising the breakeven time,
    minimising the time to get a new product to market and maximising the length of the product life
    cycle.

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  • 3. 

    One of the products manufactured by a company is Product X, which sells for $40 per unit and has a material cost of $10 per unit and a direct labour cost of $7 per unit. The total direct labour budget for the year is 50,000 hours of labour time at a cost of $12 per hour. Factory overheads are $2,920,000 per year.
    1. The company is considering the introduction of a system of throughput accounting. It has identified that machine time as the bottleneck in production. Product X needs 0.01 hours of machine time per unit produced. The maximum capacity for machine time is 4,000 hours per year.
     
    1. What is the throughput accounting ratio for Product X?
     

    • A.

      $3,41

    • B.

      $2.80

    • C.

      $2.10

    • D.

      $1.90

    Correct Answer
    A. $3,41
    Explanation
    Throughput per unit of Product X = $(40 – 10) = $30
    Throughput per bottleneck hour = $30/0.01 hours = $3,000
    Factory costs per year = $2,920,000 + (50,000 × $12) = $3,520,000
    Factory cost per bottleneck hour = $3,520,000/4,000 hours = $880
    Throughput accounting ratio = $3,000/$880 = 3.41

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  • 4. 

    The following statements have been made about material flow cost accounting.
    1. (1) In material flow cost accounting, waste is treated as a negative product and given a cost.
    2. (2) Material flow cost accounting should encourage management to focus on ways of achieving the same amount of finished output with less material input.
     
    1. Which of the above statements is/are true?

    • A.

      1 only

    • B.

      2 only

    • C.

      Neither 1 nor 2

    • D.

      Both 1 and 2

    Correct Answer
    D. Both 1 and 2
    Explanation
    In MFCA, a distinction is made between good finished output (positive output) and waste and emissions (negative output). Both types of output are given a cost. Performance can be improved by finding ways to reduce the amount of negative output – and so achieve the same amount of output with less input materials.

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  • 5. 

    Which of the following statements about activity based costing are true?  

    • A.

      The cost driver for quality inspection is likely to be batch size.

    • B.

      The cost driver for materials handling and despatch costs is likely to be the number of orders handled.

    • C.

      In the short run, all the overhead costs for an activity vary with the amount of the cost driver for the activity.

    • D.

      A cost driver is an activity based cost.

    Correct Answer
    B. The cost driver for materials handling and despatch costs is likely to be the number of orders handled.
    Explanation
    The cost driver for quality inspection costs is likely to be either the number of units produced or the number of batches produced, depending on whether quality inspection is linked to batches produced or total production output. The batch size is not a factor that drives total inspection costs. Some costs of activities may vary with the volume of the activity, but other costs of the activity will be fixed costs. A cost driver is not the cost itself; it is a measure of the volume or quantity of an activity.

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  • 6. 

    The following information relates to the expected cost of a new product over its expected three-year life. 

    • A.

      $35.95

    • B.

      $46.25

    • C.

      $48.00

    • D.

      $50.95

    Correct Answer
    D. $50.95
    Explanation
    Variable costs $
    Year 1: $(30 + 6 + 4) × 25,000 1,000,000
    Year 2: $(25 + 5 + 3) × 100,000 3,300,000
    Year 3: $(20 + 4 + 2) × 75,000 1,950,000
    R&D costs 940,000
    Other fixed costs 3,000,000
    Total life cycle costs 10,190,000
    Total units made and sold 200,000
    Average life cycle cost per unit $50.95

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  • 7. 

    The following statements have been made about throughput accounting.
    1. (1) Inventory has no value and should be valued at $0.
    2. (2) Efficiency is maximised by utilising direct labour time and machine time to full capacity.
    3.  
    4. Which of the above statements is/are true?

    • A.

      1 only

    • B.

      2 only

    • C.

      Neither 1 nor 2

    • D.

      Both 1 and 2

    Correct Answer
    C. Neither 1 nor 2
    Explanation
    In throughput accounting, all inventory, including work in progress and finished goods, should be valued at the cost of their materials. They should not include any other costs (labour or overhead costs). The aim should not be to maximise the use of all available resources, because this will simply create unwanted inventory. The aim should be to maximise the use of the bottleneck resource and efficiency is achieved by meeting production schedules and delivery dates to customers.

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  • 8. 

    In environmental costing, the future cost of cleaning up operations for a product or activity may be classified as which of the following?

    • A.

      Carbon footprint

    • B.

      Contingent cost

    • C.

      Hidden cost

    • D.

      Relationship cost

    Correct Answer
    B. Contingent cost
    Explanation
    The US Environment Protection Agency in 1998 suggested classifying environmental costs into four types: conventional costs, hidden costs (costs hidden because they are included in general overheads and not identified separately), contingent costs and image and relationship costs.

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  • 9. 

    The following statements have been made about throughput accounting.
    1. (1) Direct labour should always be treated as a factory cost when measuring throughput.
    2. (2) If machine time is the bottleneck resource, there is no value in taking measures to improve direct labour efficiency.
    3.  
    4. Which of the above statements is/are true?

    • A.

      1 only

    • B.

      2 only

    • C.

      Neither 1 nor 2

    • D.

      Both 1 and 2

    Correct Answer
    D. Both 1 and 2
    Explanation
    Factory labour costs are always treated as a part of the factory cost/conversion cost of a product. Throughput accounting does not make a distinction between direct and indirect costs. It is also assumed that labour costs are a fixed cost, so if machine time is the bottleneck resource, nothing is gained by improving labour efficiency, because this will not increase throughput.

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  • 10. 

    The following statements have been made about traditional absorption costing and activity based costing.
    1. (1) Traditional absorption costing may be used to set prices for products, but activity based costing may not.
    2. (2) Traditional absorption costing tends to allocate too many overhead costs to low volume products and not enough overheads to high-volume products.
    3. (3) Implementing ABC is expensive and time consuming
    4.  
    5. Which of the above statements is/are true?

    • A.

      1 only

    • B.

      2 only

    • C.

      3 only

    • D.

      1 and 2 only

    Correct Answer
    C. 3 only
    Explanation
    ABC can be used for cost-plus pricing. Traditional absorption costing tends to allocate insufficient overhead costs to low volume products that use up a disproportionate amount of time for order handling, production runs and set-ups. ABC is expensive and time consuming to implement. It is therefore important to assess whether the benefits will outweigh the costs before implementing ABC.

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  • 11. 

    The following data refers to a soft drinks manufacturing company that passes its product through four processes and is currently operating at optimal capacity.

    • A.

      Washing

    • B.

      Filling

    • C.

      Capping

    • D.

      Labelling

    Correct Answer
    C. Capping
  • 12. 

    In which of the following ways might financial returns be improved over the life cycle of a product?
    1. 1. Maximising the time to market
    2. 2. Minimising the breakeven time
    3. 3. Maximising the length of the life cycle

    • A.

      (1) and (2) only

    • B.

      (1) and (3) only

    • C.

      (2) only

    • D.

      (2) and (3) only

    Correct Answer
    D. (2) and (3) only
    Explanation
    Environmental management accounting measures physical quantities as well as monetary amounts.

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  • 13. 

    In material flow cost accounting (MFCA), input manufacturing costs are categorised into material costs, waste treatment costs and which of the following?

    • A.

      System costs and energy costs

    • B.

      Positive product costs

    • C.

      Negative product costs

    • D.

      Positive products costs and negative product costs

    Correct Answer
    D. Positive products costs and negative product costs
    Explanation
    'Input' costs consist of material costs, waste management costs, energy costs and system costs (labour and overhead costs).

    Output costs are allocated between positive products (good finished output) and negative product costs (cost of waste and emissions).

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  • 14. 

    In the theory of constraints and throughput accounting, which of the following methods may be used to elevate the performance of a binding constraint?
    1. (Method 1) Acquire more of the resource that is the binding constraint
    2. (Method 2) Improve the efficiency of usage of the resource that is the binding constraint

    • A.

      Method 1 only

    • B.

      Method 2 only

    • C.

      Method 1 and Method 2

    • D.

      Neither method would be effective

    Correct Answer
    C. Method 1 and Method 2
    Explanation
    The aim should be to improve the output capacity of the binding constraint. This can be done by achieving more output per unit of binding resource (improving efficiency) or obtaining more of the resource that is the binding constraint. By increasing output through the binding constraint, a point will eventually be reached where it ceases to be the binding constraint, and another resource becomes the binding constraint.

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  • 15. 

    ABC Company uses throughput accounting. Machine time is the current binding constraint on production output, and management are looking for ways to increase the throughput accounting (TA) ratio for a product that the machine is used to manufacture.
    1. Which of the following will have NO effect on the TA ratio?

    • A.

      Increasing the selling price of the product

    • B.

      Obtaining a lower purchase price for materials for the product

    • C.

      Reducing factory costs

    • D.

      Reducing the machine time per unit to make the product

    Correct Answer
    D. Reducing the machine time per unit to make the product
    Explanation
    Reducing material costs or increasing the sales price will increase throughput per machine hour. Reducing factory costs will reduce the factory cost per machine hour. These will increase the TA ratio. Reducing the machine time per unit will increase throughput per hour and factory cost per hour by the same proportion, leaving the TA ratio unchanged.

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  • 16. 

    The following statements have been made about environmental management accounting.
    1. (1). A system of environmental management accounting provides environmental information for internal use by management, but not for external reporting.
    2. (2). Environmental management accounting systems typically make use of life cycle costing.

    • A.

      Statement 1 is true

    • B.

      Statement 2 is false

    • C.

      Statement 2 is true

    • D.

      Statement 2 is false

    Correct Answer(s)
    A. Statement 1 is true
    C. Statement 2 is true
    Explanation
    A system of environmental management accounting provides environmental information for internal use by management, but not for external reporting. It is distinct from environmental accounting, which is concerned with external reporting (as well as internal reporting). Environmental management accounting systems typically make use of life cycle costing, given that there may be substantial clean-up and disposal costs at the end of the life of an activity or operation.

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  • 17. 

    Which two of following statements about throughput accounting and the theory of constraints are true?

    • A.

      A principle of throughput accounting is that a buffer inventory should be built up for output from the bottleneck resource.

    • B.

      Unless output capacity is greater than sales demand, there will always be a binding constraint.

    • C.

      The production capacity of a bottleneck resource should determine the production schedule for the organisation as a whole.

    • D.

      Idle time should be avoided in areas of production that are not a bottleneck resource.

    Correct Answer(s)
    B. Unless output capacity is greater than sales demand, there will always be a binding constraint.
    C. The production capacity of a bottleneck resource should determine the production schedule for the organisation as a whole.
    Explanation
    'Unless output capacity is greater than sales demand, there will always be a binding constraint' and 'The production capacity of a bottleneck resource should determine the production schedule for the organisation as a whole'.

    Output from a binding constraint should be used immediately, not built up as inventory, because it is the factor that constrains output and sales. Some inventory may build up before the binding constraint, but the general principle in throughput accounting is that any inventory is undesirable. The production capacity of a bottleneck resource should determine the production schedule for the organisation as a whole. This means inevitably that there will be idle time in other parts of production where capacity is greater.

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  • 18. 

    Which of the following statements about target costing is not true?

    • A.

      Target costing is better suited to assembly orientated industries than service industries that have a large fixed cost base.

    • B.

      Costs may be reduced in target costing by removing product features that do not add value.

    • C.

      A target cost gap is the difference between the target cost for a product and its projected cost.

    • D.

      Products should be discontinued if there is a target cost gap.

    Correct Answer
    D. Products should be discontinued if there is a target cost gap.
    Explanation
    Products should be discontinued if there is a target cost gap

    For services that have a large fixed cost based, other methods of cost control may be more appropriate, such as activity based management, and a key to reducing costs is often increasing sales volumes rather than reducing expenditures. To achieve a target cost, one approach is to remove design features from a product specification that do not add value for customers (so do not affect the price that customers are willing to pay). If there is a target cost gap that cannot be eliminated, management may consider whether or not to continue with the product, since it will not be achieving the required profit margin. However, a decision to discontinue a product on whether to continue making it should not be based on target costs or profit margins alone.

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  • 19. 

    Which two of the following statements about activity based costing are true?

    • A.

      Implementation of ABC is unlikely to be cost effective when variable production costs are a low proportion of total production costs.

    • B.

      In a system of ABC, for costs that vary with production levels, the most suitable cost driver is likely to be direct labour hours or machine hours

    • C.

      Activity based costs are the same as relevant costs for the purpose of short-run decision making.

    • D.

      Activity based costing is a form of absorption costing.

    Correct Answer(s)
    B. In a system of ABC, for costs that vary with production levels, the most suitable cost driver is likely to be direct labour hours or machine hours
    D. Activity based costing is a form of absorption costing.
    Explanation
    'In a system of ABC, for costs that vary with production levels, the most suitable cost driver is likely to be direct labour hours or machine hours' and 'Activity based costing is a form of absorption costing'

    Implementation of ABC is likely to be cost effective when variable production costs are a low proportion of total production costs and overhead costs, traditionally assumed to be fixed costs, are a large proportion of total production costs. At a unit level, the cost driver for production-related overheads is likely to be direct labour hours or machine hours. It is a mistake to associate activity based costs with the variable costs of an activity. Some of the costs may be variable in the short run, but others are not. So ABC costs should not be treated as relevant costs for the purpose of short-term decision making. It is more appropriate to think of ABC as a form of absorption costing, where overheads are allocated to activities and products on a more meaningful basis than with traditional absorption costing.

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  • 20. 

    Which of the following statements about target costing true?
    1. (1). A risk with target costing is that cost reductions may affect the perceived value of the product.
    2. (2). An effective way of reducing the projected cost of a new product is to simplify the design.
    3. (3). The value of target costing depends on having reliable estimates of sales demand.
    4. (4). Target costing may be applied to services that are provided free of charge to customers, such as costs of call centre handling.

    • A.

      None of the above

    • B.

      1 and 2 Only

    • C.

      1, 2 and 3 Only

    • D.

      All Statements are true

    Correct Answer
    C. 1, 2 and 3 Only
    Explanation
    'Target costing may be applied to services that are provided free of charge to customers' is false and the others are true.

    Cost reduction measures may reduce the perceived value of a product to customers, so that the target selling price becomes unachievable for the sales volume required. The projected cost of a new product may be reduced by simplifying the design (such as using more standard components, fewer components in total and removing design features that do not add value), but simplification of the design should not reduce the value of the product for customers. Overhead costs are usually a large proportion of total costs; therefore it is important to have reliable estimates of sales demand at a given target sales price in order to establish a target cost. Target costing is dependent on identifying a target selling price for an item, so it is not appropriate for costing services provided free of charge. Call centre costs, for example, should be managed using other methods of cost control.

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  • 21. 

    Which two of the following statements about life cycle costing are true?

    • A.

      A product is usually most profitable during the growth phase of its life cycle.

    • B.

      Life cycle costing is useful for deciding the selling price for a product.

    • C.

      An important use of life cycle costing is to decide whether to go ahead with the development of a new product.

    • D.

      Life cycle costing encourages management to find a suitable balance between investment costs and operating expenses.

    Correct Answer(s)
    C. An important use of life cycle costing is to decide whether to go ahead with the development of a new product.
    D. Life cycle costing encourages management to find a suitable balance between investment costs and operating expenses.
    Explanation
    'An important use of life cycle costing is to decide whether to go ahead with the development of a new product ' and 'Life cycle costing encourages management to find a suitable balance between investment costs and operating expenses'.

    A product is usually most profitable during the maturity phase of its life cycle. Life cycle costing is not particularly useful for deciding the selling price for a product, because the appropriate selling price changes over the life of a product. By looking at the costs over the entire life cycle of a product, and comparing these with expected sales revenues, a decision can be taken at an early stage, before too much cost has been committed, about whether to go ahead with developing a new product. Life cycle costing also helps management to consider the merits of investing more money at the design stage for a new product if this will reduce operating costs over the product life cycle.

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  • 22. 

    The selling price of Product X is set at $550 for each unit and sales for the coming year are expected to be 800 units. A return of 30% on the investment of $500,000 in Product X will be required in the coming year.
    1. What is the target cost for each unit of Product X? - ________

    Correct Answer(s)
    362.50
    Explanation
    The correct answer is $362.50

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  • 23. 

    Which of the following statements about environmental cost accounting are true?

    • A.

      The majority of environmental costs are already captured within a typical organisation's accounting system. The difficulty lies in identifying them

    • B.

      Input/output analysis divides material flows within an organisation into three categories: material flows; system flows; and delivery and disposal flows

    Correct Answer
    A. The majority of environmental costs are already captured within a typical organisation's accounting system. The difficulty lies in identifying them
    Explanation
    'The majority of environmental costs are already captured within a typical organisation's accounting system. The difficulty lies in identifying them' is true. ' Input/output analysis divides material flows within an organisation into three categories: material flows; system flows; and delivery and disposal flows' is false.

    Statement 2 refers to flow cost accounting rather than input/output analysis. Under the flow cost accounting technique, material flows within an organisation are divided into three categories: material
    flows; system flows; and delivery and disposal flows.

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  • 24. 

    Budget information relating to a company that manufactures four products is as follows. ________ Units

    Correct Answer
    500
    Explanation
    The correct answer is: 500 units.

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  • 25. 

    The following estimates have been produced for a new product with an expected life of four years. ________

    Correct Answer
    92
    Explanation
    The correct answer is $92

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  • 26. 

    Product YZ2 is made in a production process where machine time is a bottleneck resource. Production of one unit of Product YZ2 takes 0.25 machine hours. The costs and selling price of Product YZ2 are as follows: In a system of throughput accounting, what is the return per factory hour? ________

    Correct Answer
    80
    Explanation
    The return per factory hour is measured using the bottleneck resource as a measure of factory hours.

    Return = Throughput

    Return per machine hour = $(30 – 10)/0.25 hours = $80.

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  • 27. 

    A company manufactures Product Q, which sells for $50 per unit and has a material cost of $14 per unit and a direct labour cost of $10 per unit. The total direct labour budget for the year is 18,000 hours of labour time at a cost of $10 per hour. Factory overheads are $1,620,000 per year. The company has identified machine time as the bottleneck in production. Product Q needs 0.05 hours of machine time per unit produced. The maximum capacity for machine time is 6,000 hours per year.
    1. What is the throughput accounting ratio for Product Q (to 1 dp)?________

    Correct Answer
    2.40
    Explanation
    Throughput per unit of Product X = $(50 – 14) = $36.
    Throughput per bottleneck hour = $36/0.05 hours = $720
    Factory costs per year = $1,620,000 + (18,000 × $10) = $1,800,000
    Factory cost per bottleneck hour = $1,800,000/6,000 hours = $300
    Throughput accounting ratio = $720/$300 = 2.40.

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  • 28. 

    Which two of the following statements about activity based costing are true?

    • A.

      ABC recognises the complexity of modern manufacturing by the use of multiple cost drivers

    • B.

      ABC establishes separate cost pools for support activities

    • C.

      ABC reapportions support activity costs

    • D.

      BC is an appropriate costing system when overheads vary with time spent on production

    Correct Answer(s)
    A. ABC recognises the complexity of modern manufacturing by the use of multiple cost drivers
    B. ABC establishes separate cost pools for support activities
    Explanation
    The correct answers are:
    ABC recognises the complexity of modern manufacturing by the use of multiple cost drivers
    ABC establishes separate cost pools for support activities

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  • 29. 

    ABC is felt to give a more useful product cost than classic absorption costing (with overheads absorbed on labour hours) if which of the following two apply?

    • A.

      Labour costs are a relatively minor proportion of total costs

    • B.

      Overheads vary with many different measures of activity

    • C.

      Overheads are difficult to predict

    • D.

      Cost drivers are difficult to identify

    Correct Answer(s)
    A. Labour costs are a relatively minor proportion of total costs
    B. Overheads vary with many different measures of activity
    Explanation
    The correct answers are:
    1. Labour costs are a relatively minor proportion of total costs
    2. Overheads vary with many different measures of activity
    That overheads are difficult to predict and cost drivers difficult to identify are not reasons to prefer ABC.

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  • 30. 

    Which two of the following costs are likely to rise when just in time (JIT) manufacturing is introduced?

    • A.

      Set-up costs

    • B.

      Raw material handling costs

    • C.

      Raw material storage costs

    • D.

      Customer order costs

    Correct Answer(s)
    A. Set-up costs
    B. Raw material handling costs
    Explanation
    The correct answers are:
    Set up costs.
    Raw material handling costs.

    These two costs are likely to increase, as batch sizes get smaller. Remember, the whole aim of JIT is to hold no inventory. Thus raw material storage costs should fall, not rise. Customer order costs will not be changed by the introduction of JIT.

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  • 31. 

    Calculate the cost per unit for product D using traditional methods, absorbing overheads on the basis of machine hours. ________

    Correct Answer(s)
    65
    Explanation
    The correct answer is:

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  • 32. 

    Calculate the total amount of machining overhead that would be allocated to Product C for the period. ________

    Correct Answer(s)
    7000
    Explanation
    The correct answer is $7000

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  • 33. 

    Calculate the overhead assigned to Product D in respect of materials handling. ________

    Correct Answer(s)
    9818
    Explanation
    The correct answer is 9818

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  • 34. 

    Triple Co is attempting to identify the correct cost driver for a cost pool called quality control. Which of the following would be the correct figure to use?________

    • A.

      Number of units produced

    • B.

      Number of inspections

    • C.

      Labour hours

    • D.

      Number of machine set ups

    Correct Answer
    B. Number of inspections
    Explanation
    Number of inspections
    The number of inspections per product is likely to be the main driver of quality control costs. The number of set ups is unlikely to have an effect on the quality control costs. Some product lines may require more inspections than others, therefore, number of units produced is not sufficient to use as the cost driver. Labour hours will not reflect the quality control aspect of individual products.

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  • 35. 

    If Triple Co decide to adopt ABC, which of the following is a disadvantage that Triple Co may encounter as a result of this decision. ________

    • A.

      ABC can only be applied to production overheads

    • B.

      The cost per unit may not be as accurate as it was under traditional absorption costing.

    • C.

      The benefits obtained from ABC might not justify the costs.

    • D.

      It will not provide much insight into what drives overhead costs.

    Correct Answer
    C. The benefits obtained from ABC might not justify the costs.
    Explanation
    The benefits obtained from ABC might not justify the costs.
    Some companies find the costs of implementing ABC to be prohibitive. If Triple Co believe that the difference in cost per unit of each product under ABC and traditional based costing systems is not material, they should not adopt ABC.
    Distractors:
     ABC can be applied to all overheads, not just production overheads.
     The cost per unit provided under ABC principles will be more accurate.
     ABC costing will provide much better insight into what drives overhead costs.

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  • 36. 

    Calculate the total overheads assigned to a GC using labour hours to absorb the overheads. ________

    Correct Answer
    3000
    Explanation
    The correct answer is $3,000
    Overhead absorption rate is calculated as $400,000/40,000hrs = $10/hr
    A GC takes 300 labour hours to complete - 300 × $10/hr = $3,000

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  • 37. 

    Calculate the total overheads assigned to a GC using ABC principles in respect of supervisors costs. ________

    Correct Answer
    180
    Explanation
    The correct answer is:

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  • 38. 

    Calculate the total overheads assigned to a GC using ABC principles in respect of supervisors costs. ________

    Correct Answer
    1400
    Explanation
    The correct answer is:

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  • 39. 

    The absorption cost and ABC cost per service have now been correctly calculated as follows:
    1. GC EX Absorption cost $11,000 $20,500
    2. ABC cost $10,260 $20,980
    3.  
    4. Which of the following statements are true?
    5. (1) Changing to a system of ABC costing should lead to a more competitive price being charged for the GC.
    6. (2) Using ABC would cause total overhead costs to increase

    • A.

      1 only

    • B.

      2 only

    • C.

      Neither 1 nor 2

    • D.

      Both 1 and 2

    Correct Answer
    A. 1 only
    Explanation
    1 only
    Statement 1 is true. ABC leads to more competitive pricing of the GC because it is allocated a fairer proportion of the total overheads. This will reflect the reality of the overheads that the GC is actually generating. Traditional absorption costing is more arbitrary which can lead to uncompetitive pricing.
    Statement 2 is false. Total overhead costs will be the same no matter which method of allocation is used.

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  • 40. 

    The absorption cost and ABC cost per service have now been correctly calculated as follows:

    • A.

      The traditional absorption approach gives a better indication of where cost savings can be made

    • B.

      ABC is a cheaper system for BBB than absorption costing

    • C.

      ABC eliminates the need for cost apportionment

    • D.

      ABC improves pricing decisions

    Correct Answer
    D. ABC improves pricing decisions
    Explanation
    The correct answer is: ABC improves pricing decisions
    It is ABC which gives a better indication of where cost savings can be made. BBB uses cost plus pricing and so more accurate costs will lead to better pricing decisions. ABC is expensive to implement and BBB currently has an absorption costing system set up. ABC does not eliminate the need for cost apportionment. It may still be required at the cost pool stage for shred items such as rent.

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  • 41. 

    Calculate the overhead cost per unit of the CB using the current system of absorption costing. ________

    Correct Answer
    2.57
    Explanation
    The correct answer is: $2.57 per unit
    Number of units produced per year = 1,000,000 + (12 × 10,000) = 1,120,000 units
    Overhead absorption rate is calculated as $2,880,000/1,120,000 units = $2.57/unit

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  • 42. 

    Jola Publishing Co has decided to adopt ABC. Management has put together a list of steps. Please put this list in the order it should be carried out.
    1. 1 Calculate the overhead cost per unit of CB and TJ
    2. 2 Calculate the absorption rate for each 'cost driver'
    3. 3 Determine what causes the cost of each activity – the 'cost driver'
    4. 4 Identify major activities within each department which create cost
    5. 5 Create a cost centre/cost pool for each activity – 'the activity cost pool'

    • A.

      4, 5, 3, 2, 1.

    • B.

      5, 3, 2, 1, 4.

    • C.

      4, 2, 1, 3, 5.

    • D.

      4, 1, 2, 3, 5.

    Correct Answer
    A. 4, 5, 3, 2, 1.
    Explanation
    Identify major activities within each department which create cost 4
    Create a cost centre/cost pool for each activity – 'the activity cost pool' 5
    Determine what causes the cost of each activity – the 'cost driver' 3
    Calculate the absorption rate for each 'cost driver' 2
    Calculate the overhead cost per unit of CB and TJ 1

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  • 43. 

    ________

    Correct Answer
    1800000
    Explanation
    The correct answer is:

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  • 44. 

    Calculate the total activity based allocation of quality control overheads for production of the TJ. ________

    Correct Answer
    66800
    Explanation
    The correct answer is:

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  • 45. 

    If Jola Publishing Co decides to introduce an ABC costing system, which of the following is an advantage of ABC that they can expect to benefit from?  

    • A.

      A reduction in overhead costs

    • B.

      Cost savings compared to absorption costing

    • C.

      Simplification of the costing process

    • D.

      More accurate costs per unit

    Correct Answer
    D. More accurate costs per unit
    Explanation
    The correct answer is: More accurate costs per unit.
    Distractors:
    There will not be a reduction in overhead costs as a result of the adoption of ABC. However, management of Jola Publishing Co may benefit from improved decision making regarding cost control, if they understand the cost drivers better. ABC tends to be a more expensive approach to absorption costing ABC is a more complex form of costing

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Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 27, 2018
    Quiz Created by
    Ronnie Chine

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