Introduction to Management Accounting: Costing Overview
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Questions and Answers

Which method is used to allocate overheads directly to specific cost centres?

  • Absorption
  • Apportionment (correct)
  • Unit Costing
  • Activity-Based Costing

    • What is the basis for apportioning overheads for depreciation and insurance of machinery?

  • Carrying Amount of non-current assets (correct)
  • Machine Hours
  • Floor Area
  • Number of Employees

    • What is the formula for calculating the Overhead Absorption Rate (OAR)?

  • $OAR = Budgeted total of absorption basis/Floor Area$
  • $OAR = Budgeted production overhead/Number of Employees$
  • $OAR = Budgeted total of absorption basis/Budgeted production overhead$
  • $OAR = Budgeted production overhead/Budgeted total of absorption basis$ (correct)

    • Which basis is NOT commonly used for absorbing overheads into cost units?

    <p>Number of Employees</p> Signup and view all the answers

    In marginal costing, what is the main focus when making pricing decisions?

    <p>Variable Costs per unit</p> Signup and view all the answers

    What is the alternative to individual cost center Overhead Absorption Rate (OAR)?

    <p>Blanket OAR</p> Signup and view all the answers

    What is the formula to calculate full production cost of a unit?

    <p>Direct materials + Direct labour + Variable production overheads + Fixed production overheads</p> Signup and view all the answers

    What is the formula to calculate contribution in marginal costing?

    <p>Contribution = Sales price - All variable costs</p> Signup and view all the answers

    In activity-based costing (ABC), how are traditional overhead costs typically split?

    <p>Between variable overheads and fixed overheads</p> Signup and view all the answers

    What is the main problem with traditional costing methods according to the text?

    <p>Lack of detail on indirect overheads which are categorized together</p> Signup and view all the answers

    In absorption costing, what is the approach to determining selling price?

    <p>Selling price = Full cost per unit × (1 + mark-up percentage)</p> Signup and view all the answers

    What is the core principle underlying marginal costing?

    <p>Contribution should be maximized to enhance profitability</p> Signup and view all the answers

    What is the purpose of inventory valuation in management accounting?

    <p>To value inventory at production cost rather than purchase price.</p> Signup and view all the answers

    Which of the following is an example of a cost unit?

    <p>A room in a hotel</p> Signup and view all the answers

    What is the main purpose of a cost card in management accounting?

    <p>To show the breakdown of production costs for each unit or planned level of production.</p> Signup and view all the answers

    Which cost centre is an example of a function or activity for which costs can be ascertained?

    <p>A project</p> Signup and view all the answers

    In management accounting, what does pricing based on cost aim to achieve?

    <p>Ensure that the product is priced above its cost.</p> Signup and view all the answers

    How does understanding the cost aid decision-making in management accounting?

    <p>By helping decide whether to accept a large, one-off sales contract at a reduced selling price.</p> Signup and view all the answers

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