18 Questions
Which method is used to allocate overheads directly to specific cost centres?
Apportionment
What is the basis for apportioning overheads for depreciation and insurance of machinery?
Carrying Amount of non-current assets
What is the formula for calculating the Overhead Absorption Rate (OAR)?
$OAR = Budgeted production overhead/Budgeted total of absorption basis$
Which basis is NOT commonly used for absorbing overheads into cost units?
Number of Employees
In marginal costing, what is the main focus when making pricing decisions?
Variable Costs per unit
What is the alternative to individual cost center Overhead Absorption Rate (OAR)?
Blanket OAR
What is the formula to calculate full production cost of a unit?
Direct materials + Direct labour + Variable production overheads + Fixed production overheads
What is the formula to calculate contribution in marginal costing?
Contribution = Sales price - All variable costs
In activity-based costing (ABC), how are traditional overhead costs typically split?
Between variable overheads and fixed overheads
What is the main problem with traditional costing methods according to the text?
Lack of detail on indirect overheads which are categorized together
In absorption costing, what is the approach to determining selling price?
Selling price = Full cost per unit × (1 + mark-up percentage)
What is the core principle underlying marginal costing?
Contribution should be maximized to enhance profitability
What is the purpose of inventory valuation in management accounting?
To value inventory at production cost rather than purchase price.
Which of the following is an example of a cost unit?
A room in a hotel
What is the main purpose of a cost card in management accounting?
To show the breakdown of production costs for each unit or planned level of production.
Which cost centre is an example of a function or activity for which costs can be ascertained?
A project
In management accounting, what does pricing based on cost aim to achieve?
Ensure that the product is priced above its cost.
How does understanding the cost aid decision-making in management accounting?
By helping decide whether to accept a large, one-off sales contract at a reduced selling price.
Learn about the purpose of costing in management accounting, including inventory valuation and profit calculation. Explore the importance of knowing the cost of producing products or providing services.
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