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ACCA MA: Management Accounting Practice Questions
45 original practice questions for ACCA Management Accounting (MA), written for this site with full explanations. They are original questions in the style of the syllabus - not taken from any official exam. Use them to test coverage, then confirm details against ACCA's official materials.
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As production volume increases within the relevant range, how do fixed costs behave?
Correct answer: C. By definition, total fixed costs such as rent are unchanged by activity levels within the relevant range, so spreading the same total over more units reduces the fixed cost per unit. A total that rises proportionately describes a variable cost, and a constant cost per unit also describes variable cost behaviour, not fixed cost behaviour. -
Which of the following best describes a direct cost?
Correct answer: A. A direct cost can be attributed in full to a particular cost unit, like the materials and labour that go into one specific product. Shared factory rent, a supervisor's salary spread over many products and head office depreciation cannot be traced to individual units, so they are indirect costs (overheads). -
Which of the following is an example of a stepped fixed cost?
Correct answer: D. A stepped fixed cost is constant over a range of activity and then jumps to a new, higher level when a capacity threshold is crossed, exactly like needing a second warehouse beyond a certain volume. Raw materials and per-unit royalties are variable costs, and a standing charge plus usage-based element is a semi-variable cost. -
A company's total production costs were $46,000 at 8,000 units and $58,000 at 12,000 units. Using the high-low method, what is the estimated total cost of producing 10,000 units?
Correct answer: B. Variable cost per unit = (58,000 - 46,000) / (12,000 - 8,000) = $3. Fixed cost = 46,000 - (8,000 x 3) = $22,000. Cost at 10,000 units = 22,000 + (10,000 x 3) = $52,000. $30,000 is only the variable element, $57,500 wrongly scales the low point proportionately, and $22,000 is only the fixed element. -
A cost amounts to $5,000 when activity is zero and increases by $2 for every unit produced. This cost is best classified as:
Correct answer: B. The cost has a fixed element ($5,000 incurred even at zero activity) plus a variable element ($2 per unit), which is the definition of a semi-variable or mixed cost. A purely fixed cost would not grow with output, a purely variable cost would be zero at zero activity, and a stepped fixed cost changes in discrete jumps rather than per unit. -
In a hotel, the 'occupied room-night' is best described as:
Correct answer: D. A cost unit is the unit of product or service for which costs are ascertained, and service businesses often use composite units such as the occupied room-night in hotels or the tonne-kilometre in haulage. A cost centre is a location or function to which costs are charged, a profit centre is a division responsible for both costs and revenues, and an indirect cost is a type of cost, not a measure of output. -
What does the term 'relevant range' mean in cost behaviour analysis?
Correct answer: A. Cost behaviour assumptions, such as fixed costs staying constant in total and variable cost per unit staying constant, only hold across a limited band of activity called the relevant range; outside it, fixed costs may step up and unit variable costs may change. The budget period, selling price limits and historical output extremes are unrelated to this concept. -
During a generally busy month, production workers are paid an overtime premium on top of their basic rate. The overtime was not worked at any specific customer's request. How is the overtime premium normally classified?
Correct answer: C. The basic pay for overtime hours worked on production is a direct labour cost, but the premium arising from general pressure of work is treated as production overhead, because it results from overall scheduling rather than any particular unit or job. Only if a customer specifically requested the overtime would the premium be charged as a direct cost of that job; it is not an administrative or selling cost because it arises in production. -
Total costs were $40,000 at 5,000 units and $54,000 at 9,000 units. Fixed costs are known to increase by $4,000 once output exceeds 7,000 units. Using the high-low method adjusted for the step, what is the estimated total cost of producing 6,000 units?
Correct answer: D. Removing the step from the high point makes the two observations comparable: variable cost per unit = (54,000 - 4,000 - 40,000) / (9,000 - 5,000) = $2.50. Fixed cost below the step = 40,000 - (5,000 x 2.50) = $27,500. At 6,000 units, which is below 7,000, total cost = 27,500 + (6,000 x 2.50) = $42,500. $43,500 comes from ignoring the step, $46,500 wrongly adds the $4,000 step to the correct answer, and $48,000 scales the low point proportionately. -
Which cost is included in inventory valuation under absorption costing but excluded from inventory valuation under marginal costing?
Correct answer: B. Absorption costing values inventory at full production cost, including a share of fixed production overhead, while marginal costing values inventory at variable production cost only and writes fixed production overhead off as a period cost. Direct materials and variable production overhead are included under both methods, and selling costs are excluded from inventory under both. -
Job costing is most appropriate for which type of business activity?
Correct answer: C. Job costing accumulates the costs of each separately identifiable job, so it suits work done to individual customer specification where every job differs. Oil refining, utility supply and high-volume bottling produce continuous, homogeneous output, for which process costing or service costing based on averages is appropriate. -
A company absorbs fixed production overhead on machine hours. Budgeted fixed production overhead is $120,000 and budgeted activity is 24,000 machine hours. How much overhead is absorbed by a job that uses 60 machine hours?
Correct answer: A. The overhead absorption rate = 120,000 / 24,000 = $5 per machine hour, so the job absorbs 60 x 5 = $300. $5 is the rate itself rather than the amount absorbed, and $600 and $120 do not follow from the given figures (they would require rates of $10 or $2 per hour). -
Budgeted fixed production overhead was $100,000 for 20,000 budgeted labour hours. Actual hours worked were 21,000 and actual fixed production overhead was $108,000. What is the over- or under-absorption for the period?
Correct answer: A. The absorption rate = 100,000 / 20,000 = $5 per hour, so overhead absorbed = 21,000 x 5 = $105,000 against actual overhead of $108,000, giving $3,000 under-absorbed. Absorption fell short of actual spending, so it is not over-absorption; $8,000 compares actual with the original budget, and $5,000 compares absorbed overhead with budget, neither of which measures absorption against actual cost. -
In a period when inventory levels increase, which statement about reported profit is correct?
Correct answer: D. When production exceeds sales, absorption costing defers part of the period's fixed production overhead into closing inventory, so less fixed cost hits the income statement and profit is higher than under marginal costing, which expenses all fixed production overhead immediately. The profits are equal only when inventory levels are unchanged, and marginal costing shows the higher profit only when inventory falls. -
A product sells for $40 per unit. Costs per unit are: direct materials $12, direct labour $9, variable overhead $4, and fixed overhead absorbed $6. What is the contribution per unit?
Correct answer: B. Contribution = selling price minus all variable costs = 40 - 12 - 9 - 4 = $15 per unit. $9 wrongly deducts the fixed overhead as well (that is the absorption costing profit per unit), $19 omits the variable overhead, and $28 deducts only the direct materials. -
In a process with no opening work-in-progress, 8,000 units were completed during the month and 2,000 units remain in closing work-in-progress, 100% complete for materials and 40% complete for conversion. Using the weighted average basis, what are the equivalent units for conversion costs?
Correct answer: C. Equivalent units for conversion = completed units + (closing WIP x degree of completion) = 8,000 + (2,000 x 40%) = 8,800. 8,000 ignores the work already done on closing WIP, 10,000 wrongly treats the WIP as fully complete (that is the materials figure), and 9,200 uses 60% instead of 40% completion. -
5,000 kg of material were input to a process. Normal loss is expected to be 10% of input, and actual output was 4,300 kg. What is the abnormal loss or gain for the period?
Correct answer: C. Normal loss = 10% x 5,000 = 500 kg, so expected output = 4,500 kg. Actual output of 4,300 kg fell short of expectation by 200 kg, which is an abnormal loss. 700 kg is the total loss including the normal element, 500 kg is the normal loss itself, and an abnormal gain would require actual output above 4,500 kg. -
During a period, inventory rose by 500 units. Fixed production overhead is absorbed at $6 per unit. Which statement about the period's profit is correct?
Correct answer: B. The profit difference equals the change in inventory units multiplied by the fixed overhead absorption rate per unit: 500 x 6 = $3,000, and because inventory increased, absorption costing carries that fixed overhead forward and reports the higher profit. Marginal costing would be higher only if inventory had fallen, equal profits require unchanged inventory, and $6,000 would need a 1,000-unit increase. -
In budgeting, what is the 'principal budget factor'?
Correct answer: D. The principal budget factor (or limiting factor) is whatever constrains the organisation's activity for the period, most commonly sales demand, though it can be a shortage of materials, labour or capacity; the budget for this factor must be prepared first because all other budgets depend on it. It is not defined by cost size, profit targets or the calendar. -
A fixed budget is best described as a budget that:
Correct answer: A. A fixed budget is set in advance for one expected activity level and remains unchanged regardless of actual volume, which makes it useful for planning but weak for control when volumes differ. A budget updated with actuals describes rolling or revised budgeting, a fixed budget still includes variable costs (estimated at the planned volume), and budgets are internal management tools, not regulator-imposed documents. -
Which of the following items should NOT appear in a cash budget?
Correct answer: B. A cash budget includes only cash inflows and outflows, and depreciation is a non-cash accounting adjustment that spreads an asset's cost over its life, so it never appears. Receipts from customers, wage payments and the cash purchase of a van all involve actual cash movements (the van appears in full when paid for, even though it will be depreciated in the income statement). -
The original budget for 10,000 units showed variable costs of $50,000 and fixed costs of $30,000. Actual output was 12,000 units. What is the total cost in the budget flexed to the actual activity level?
Correct answer: A. Flexing scales the variable costs to actual volume while keeping fixed costs unchanged: variable = 50,000 x (12,000 / 10,000) = $60,000, plus fixed $30,000, gives $90,000. $96,000 wrongly flexes the entire $80,000 including fixed costs, $80,000 is the unflexed original budget, and $100,000 does not follow from the figures. -
Budgeted sales are 9,000 units. Opening finished goods inventory is 1,200 units and the company wants closing finished goods inventory of 1,500 units. How many units must be produced?
Correct answer: C. Production = sales + closing inventory - opening inventory = 9,000 + 1,500 - 1,200 = 9,300 units, because the extra 300 units needed to build inventory must be produced on top of sales. 8,700 reverses the inventory adjustment, 9,000 ignores the inventory change, and 11,700 wrongly adds both inventory figures. -
Credit sales are $60,000 in April and $80,000 in May. Customers pay 30% in the month of sale and 70% in the following month. What cash is received from customers in May?
Correct answer: D. May receipts = 30% of May sales + 70% of April sales = (80,000 x 0.30) + (60,000 x 0.70) = 24,000 + 42,000 = $66,000. $80,000 assumes all May sales are collected immediately, $74,000 swaps the percentages between the two months, and $60,000 is simply April's sales figure. -
What is the defining feature of zero-based budgeting (ZBB)?
Correct answer: D. ZBB starts from a base of zero: each activity or 'decision package' must be justified on its costs and benefits before funding is approved, which challenges historical spending patterns. Adding an increment to last year's figures is incremental budgeting, the technique's opposite; ZBB has nothing to do with cash balances and applies to existing as well as new activities. -
Production is budgeted at 4,000 units, each requiring 3 kg of material. Opening raw material inventory is 2,000 kg and closing raw material inventory should be 2,600 kg. How many kg of material must be purchased?
Correct answer: C. Usage = 4,000 x 3 = 12,000 kg. Purchases = usage + closing inventory - opening inventory = 12,000 + 2,600 - 2,000 = 12,600 kg, since inventory is being built up by 600 kg. 12,000 ignores the inventory movement, 11,400 reverses it, and 16,600 wrongly adds both inventory levels to usage. -
Which of the following is a recognised behavioural drawback of allowing managers to participate in setting their own budgets?
Correct answer: A. When the people who will be judged against the budget also help set it, they have an incentive to understate revenue potential or overstate cost needs, creating slack that makes their later performance look better. Participation has genuine motivational benefits but is not free of drawbacks, senior management still reviews and approves budgets, and the approach works in any industry. -
A standard cost is best described as:
Correct answer: B. A standard cost is set in advance as a target: planned resource quantities (materials, hours) are priced at planned rates to build a cost card per unit, against which actual results are compared. Last year's actual average is history rather than a target, the product's market price is a selling value not a cost standard, and no law prescribes cost levels. -
What does a favourable variance mean?
Correct answer: A. A favourable variance arises when actual performance beats the standard, such as spending less than standard cost or earning more than standard revenue, and it improves profit compared with budget. Sales volume below budget would produce an adverse volume variance, the favourable/adverse label has nothing to do with a size threshold, and variances measure performance differences, not errors. -
The standard material cost of a product is 2 kg at $5 per kg. In a period, 2,400 units were produced and 5,000 kg of material were purchased and used at a total cost of $26,500. What is the material price variance?
Correct answer: B. The price variance compares what the actual quantity should have cost with what it did cost: (5,000 x $5) - $26,500 = $25,000 - $26,500 = $1,500 adverse, because the actual price averaged $5.30 per kg. It is adverse, not favourable, since more was paid than standard; $1,000 adverse is the usage variance, and $2,500 adverse is the total material cost variance. -
The standard material cost of a product is 2 kg at $5 per kg. In a period, 2,400 units were produced using 5,000 kg of material. What is the material usage variance?
Correct answer: D. Standard usage for actual production = 2,400 x 2 = 4,800 kg. The variance = (4,800 - 5,000) x $5 = 200 kg x $5 = $1,000 adverse, because more material was used than standard, and usage variances are valued at the standard price. It is adverse rather than favourable; $1,500 adverse is the price variance and $2,500 adverse is the total material variance. -
The standard labour cost of a product is 0.5 hours at $12.50 per hour. In a period, 6,000 units were produced; 3,100 hours were worked and paid at a total cost of $40,300. What is the labour rate variance?
Correct answer: C. The rate variance compares the standard cost of actual hours with actual pay: (3,100 x $12.50) - $40,300 = $38,750 - $40,300 = $1,550 adverse, since the actual rate averaged $13.00 per hour. $1,250 adverse is the efficiency variance, the variance is adverse rather than favourable because workers were paid above standard, and $2,800 adverse is the total labour cost variance. -
Under standard marginal costing, the sales volume variance is valued at:
Correct answer: C. In a marginal costing system, selling one extra unit adds the standard contribution to profit, because fixed costs do not change with volume, so the volume difference is valued at standard contribution per unit. Standard profit per unit is used under absorption costing, selling price ignores the variable costs of the extra units, and using actual figures would mix volume effects with price and cost effects. -
The standard labour requirement is 0.5 hours per unit at $12.50 per hour. In a period, 6,000 units were produced and 3,100 hours were worked. What is the labour efficiency variance?
Correct answer: D. Standard hours for actual output = 6,000 x 0.5 = 3,000 hours. The variance = (3,000 - 3,100) x $12.50 = 100 hours x $12.50 = $1,250 adverse, because 100 more hours were worked than standard, valued at the standard rate. It is adverse rather than favourable; $1,550 adverse is the rate variance and $2,800 adverse is the total labour variance. -
A company bought cheaper material of a lower grade than standard. Which pair of variances is the most likely direct result?
Correct answer: B. Paying less than the standard price produces a favourable price variance, but lower-grade material typically generates more waste, rejects and rework, so more material is consumed per unit, giving an adverse usage variance. This interrelationship is why variances should be investigated together: a purchasing 'saving' can cost more overall. The other combinations do not reflect the typical cause-and-effect of buying cheaper, lower-quality material. -
Budgeted fixed production overhead was $90,000 for budgeted output of 15,000 units. Actual output was 14,000 units and actual fixed production overhead was $86,500. What is the fixed overhead expenditure variance?
Correct answer: A. The expenditure variance compares budgeted with actual fixed overhead spending: $90,000 - $86,500 = $3,500 favourable, because the company spent less than budgeted. The output shortfall is captured separately by the volume variance of (15,000 - 14,000) x $6 = $6,000 adverse; $2,500 adverse is the total under-absorption (absorbed 84,000 versus actual 86,500), and the direction is favourable, not adverse. -
In the '3 Es' framework of performance measurement, 'efficiency' refers to:
Correct answer: B. Efficiency measures how well inputs are converted into outputs, for example units produced per labour hour. Obtaining inputs cheaply (at appropriate quality) is economy, and achieving objectives is effectiveness; together they form the 3 Es often used for value-for-money assessment. Employee satisfaction may be a useful indicator but is not one of the 3 Es. -
A divisional manager has authority over costs and revenues, but not over investment in assets. The division is best classified as a:
Correct answer: C. A profit centre is a responsibility centre whose manager controls both costs and revenues, so profit is the appropriate performance measure; investment decisions remain with head office. A cost centre manager controls only costs, a revenue centre manager only revenues, and an investment centre manager additionally controls the capital invested, so measures like ROCE become appropriate there. -
The four perspectives of Kaplan and Norton's balanced scorecard are:
Correct answer: A. The balanced scorecard supplements financial measures with customer, internal business process, and learning and growth perspectives so that short-term financial results do not crowd out the drivers of future performance. The 3 Es relate to value-for-money assessment, SWOT is a strategic position analysis, and plan-do-check-act is a continuous improvement cycle. -
A division has an operating profit margin of 7% and an asset turnover of 2 times. What is its return on capital employed (ROCE)?
Correct answer: D. ROCE can be decomposed as operating profit margin x asset turnover: 7% x 2 = 14%. This link shows that return can be improved either by widening margins or by generating more sales from the same capital base. 3.5% wrongly divides the margin by the turnover, 7% is just the margin, and 9% wrongly adds the two figures. -
Which of the following is a non-financial performance indicator relating to quality?
Correct answer: D. The rejection rate at inspection measures conformance quality directly and involves no monetary amounts, making it a non-financial indicator. Gross margin, ROCE and revenue growth are all financial measures derived from monetary figures, so they cannot serve as non-financial quality indicators. -
Which measure is most appropriate for assessing the performance of a cost centre manager?
Correct answer: A. A cost centre manager is responsible only for costs, so the fair test is controllable costs against a flexed budget, which removes both volume effects and costs outside the manager's influence. ROCE requires responsibility for profit and capital, and share price and earnings per share are whole-company measures far beyond a cost centre manager's control. -
A company has inventory of $24,000, trade receivables of $36,000, cash of $10,000 and current liabilities of $50,000. What is its current ratio?
Correct answer: C. Current ratio = current assets / current liabilities = (24,000 + 36,000 + 10,000) / 50,000 = 70,000 / 50,000 = 1.4 : 1. 0.92 : 1 is the quick (acid test) ratio, which excludes inventory (46,000 / 50,000), and 0.71 : 1 inverts the calculation; 2.0 : 1 does not follow from these figures. -
A division has operating profit of $75,000 and capital employed of $500,000. Head office imputes an interest charge of 12% on capital employed. What is the division's residual income?
Correct answer: B. Residual income = operating profit - (capital employed x imputed interest rate) = 75,000 - (500,000 x 12%) = 75,000 - 60,000 = $15,000. $60,000 is the imputed interest charge itself, $75,000 is the unadjusted profit, and $9,000 wrongly applies the 12% to the profit figure instead of to capital employed. -
A divisional manager evaluated on return on investment (ROI) rejects a project expected to earn 16%, when the division's current ROI is 20% and the company's cost of capital is 12%. Which statement best describes this outcome?
Correct answer: A. Because the manager is judged on the division's average ROI, accepting a 16% project pulls the average below 20%, even though any return above the 12% cost of capital benefits the company; this is the classic dysfunctional behaviour caused by ROI. Shareholders lose value from the rejection; residual income would show a positive figure (16% - 12% spread on the investment) and thus encourage acceptance, which is exactly why RI is often preferred; and company-wide acceptability depends on the cost of capital, not the division's existing average.
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