These are ACCA F2 (MA/FMA) Management Accounting MCQs for Part-C of the Syllabus “Cost accounting methods and systems”.

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INFORMATION ABOUT THESE MCQs Test

Course: ACCA – Associations of Chartered Certified Accountants
Fundamental Level: Knowledge, FIA – Foundation in Accounting
Subject: Management Accounting
Paper: F2 – MA/FMA
Chapter: Accounting for overheads, and Absorption and marginal costing
Chapter Number: 7 of the Practice and Exam Kit
Syllabus Area: C – Cost accounting methods and systems
Questions Type: CBE MCQs
Exam Section Type: Section A

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Number of the Questions

There are 26 Questions in this F2 MCQ Test that cover Chapter 7a; Accounting for overheads of ACCA F2 (MA/FMA) Management Accounting Module.

Time

This MCQs test is not time-bound. Take your time and solve them without stress. Pay proper attention and focus. Do not rush or hesitate.

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Students will get their F2 CBE MCQ result after they finish the entire test. They will also be able to see the score in percentage, correct and incorrect answers, as well as explanations for the incorrect questions.

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F2 - Chapter 7 - Part A - MCQs

Course: ACCA - FIA
Subject: F2 (MA/FMA) Management Accounting
Chapter: 7 - Accounting for overheads, and Absorption and marginal costing
Syllabus Area: C - Cost accounting methods and systems
Exam Section: Section A
Questions type: MCQs
Time: No Time Limit

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1 / 46

CTF Co has two service centres serving two production departments. Overhead costs apportioned to each department are as follows.

Production
departments

Service
centres

	Mixing $	Stirring $	Stores $	Canteen $
Allocated and apportioned overheads	216,400	78,800	181,600	47,200
Estimated work done by the service centres for other departments
Stores	50%	30%	–	20%
Canteen	45%	40%	15%	–

The business uses the direct method of apportionment.

After the apportionment of the service centres to the production departments, what will the total overhead cost be for the mixing department?

$354,888

$351,416

$342,041

$328,440

2 / 46

Over-absorbed overheads occur when ________________

Actual overheads exceed budgeted overheads

Absorbed overheads exceed actual overheads

Absorbed overheads exceed budgeted overheads

Actual overheads exceed absorbed overheads

3 / 46

The following data is available for period 9.

Opening inventory	10,000 units
Closing inventory	8,000 units
Absorption costing profit	$280,000

What would be the profit for period 9 using marginal costing?

$280,000

$278,000

$282,000

Impossible to calculate without more information

4 / 46

Under absorption costing, the total cost of a product will include:

All direct and indirect costs excluding a share of fixed overhead

Direct costs only

All direct and indirect costs

Variable costs only

5 / 46

The overhead absorption rate for product T is $4 per machine hour. Each unit of T requires 3 machine hours. Inventories of product T last period were:

	Units
Opening inventory	2,400
Closing inventory	2,700

Compared with the marginal costing profit for the period, the absorption costing profit for product T will be which of the following?

$1,200 lower

$3,600 lower

$1,200 higher

$3,600 higher

6 / 46

The following data is available on the production and sales for the first three years of a company’s new product.

	Year 1	Year 2	Year 3
Production units	5,000	6,000	4,000
Sales units	4,000	6,000	5,000

Variable costs per unit, selling price and total fixed costs per year were constant over the three-year period. The company is considering the use of either marginal or absorption costing.

Which of the following statements is/are true?

Absorption costing will show a lower profit than marginal costing in Year 1
Marginal costing will show a lower closing inventory valuation than absorption costing in Year 2
Total profit over the three-year period will be the same under both methods

2 only

3 only

2 and 3

1 only

7 / 46

The following extract of information is available concerning the four cost centres of EG Co.

Production cost centres

Service cost center

	Machinery	Finishing	Packing	Canteen
Number of direct employees	7	6	2	–
Number of indirect employees	3	2	1	4
Overhead allocated and apportioned	$28,500	$18,300	$8,960	$8,400

The overhead cost of the canteen is to be re-apportioned to the production cost centres on the basis of the number of employees in each production cost centre.

After the re-apportionment, what is the total overhead cost of the packing department, to the nearest $?

$9,968

$1,200

$10,160

$10,080

8 / 46

Budgeted overheads	$690,480
Budgeted machine hours	15,344
Actual machine hours	14,128
Actual overheads	$679,550

Based on the data above, what is the machine hour absorption rate (to the nearest $)?

$45 per machine hour

$44 per machine hour

$48 per machine hour

$49 per machine hour

9 / 46

A company manufactures and sells a single product. For this month the budgeted fixed production overheads are $48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units.

The company currently uses absorption costing.

If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit?

$3,920 lower

$3,920 higher

$1,120 lower

$1,120 higher

10 / 46

A company uses a blanket overhead absorption rate of $5 per direct labour hour. Actual overhead expenditure in a period was as budgeted.

The under/over absorbed overhead account for the period have the following entries:

Production overhead control account

	DR		CR
	$		$
Production overhead	4,000	Profit or loss account	4,000
	4,000		4,000

Which of the following statements is true?

Production overhead was over absorbed by $4,000

Actual direct labour hours were 4,000 less than budgeted

Actual direct labour hours were 800 less than budgeted

Actual direct labour hours were 800 more than budgeted

11 / 46

The production overhead control account for R Co at the end of the period looks like this.

Production overhead control account

	$		$
Stores control	22,800	Work in progress	404,800
Wages control	180,400	Statement of profit or loss	8,400
Expense creditors	210,000
	413,200		413,200

Which TWO of the following statements are correct?

Overhead absorbed during the period was $210,000

Indirect wages costs incurred were $180,400

Overhead for the period was over absorbed by $8,400

Indirect material issued from inventory was $22,800

12 / 46

A company has established a marginal costing profit of $72,300. Opening inventory was 300 units and closing inventory is 750 units. The fixed production overhead absorption rate has been calculated as $5/unit.

What was the profit under absorption costing? $________

13 / 46

A company has over-absorbed fixed production overheads for the period by $6,000. The fixed production overhead absorption rate was $8 per unit and is based on the normal level of activity of 5,000 units. Actual production was 4,500 units.

What was the actual fixed production overheads incurred for the period?

$42,000

$36,000

$30,000

$40,000

14 / 46

A company produces and sells a single product whose variable cost is $6 per unit.

Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been calculated as $2 per unit.

The current selling price is $10 per unit.

How much profit is made under marginal costing if the company sells 250,000 units?

$600,000

$500,000

$1,000,000

$900,000

15 / 46

Which of the following would be the most appropriate basis for apportioning machinery insurance costs to cost centres within a factory?

The value of the machinery in each cost centre

The operating hours of the machinery in each cost centre

The floor area occupied by the machinery in each cost centre

The number of machines in each cost centre

16 / 46

Which of the following are acceptable bases for absorbing production overheads?

Direct labour hours
Machine hours
As a percentage of the prime cost
Per unit

Methods (iii) and (iv) only

Methods (i) and (ii) only

Methods (i), (ii) or (iii) only

Methods (i), (ii), (iii) and (iv)

17 / 46

Factory overheads can be absorbed by which of the following methods?

Direct labour hours
Machine hours
As a percentage of prime cost
$x per unit

(ii), (iii) and (iv) only

(i) and (ii) only

(i), (ii), (iii) and (iv)

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

18 / 46

Last month a manufacturing company's profit was $2,000, calculated using absorption costing principles. If marginal costing principles has been used, a loss of $3,000 would have occurred. The company's fixed production cost is $2 per unit. Sales last month were 10,000 units.

What was last month's production (in units)?

10,500

12,500

7,500

9,500

19 / 46

Budgeted information relating to two departments in a company for the next period is as follows.

Department	Production overhead	Direct material cost	Direct labour cost	Direct labour hours	Machine hours
	$	$	$
1	27,000	67,500	13,500	2,700	45,000
2	18,000	36,000	100,000	25,000	300

Individual direct labour employees within each department earn differing rates of pay, according to their skills, grade and experience.

What is the most appropriate production overhead absorption rate for department 1?

$10 per direct labour hour

$0.60 per machine hour

200% of direct labour cost

40% of direct material cost

20 / 46

The following data is available for a paint department for the latest period.

Budgeted production overhead	$150,000
Actual production overhead	$150,000
Budgeted machine hours	60,000
Actual machine hours	55,000

Which of the following statements is correct?

Overhead was $13,636 over absorbed

There was no under or over absorption of overhead

Overhead was $12,500 under absorbed

Overhead was $12,500 over absorbed

21 / 46

Budgeted information relating to two departments in a company for the next period is as follows.

Department	Production overhead	Direct material cost	Direct labour cost	Direct labour hours	Machine hours
	$	$	$
1	27,000	67,500	13,500	2,700	45,000
2	18,000	36,000	100,000	25,000	300

Individual direct labour employees within each department earn differing rates of pay, according to their skills, grade and experience.

What is the most appropriate production overhead absorption rate for department 2?

50% of direct material cost

18% of direct labour cost

$60 per machine hour

$0.72 per direct labour hour

22 / 46

A company uses standard absorption costing to value inventory. Its fixed overhead absorption rate is $12 per labour hour and each unit of production should take four hours. In a recent period where there was no opening inventory of finished goods, 20,000 units were produced using 100,000 labour hours. 18,000 units were sold. The actual profit was $464,000.

What profit would have been earned under a standard marginal costing system?

$560,000

$368,000

$344,000

$440,000

23 / 46

HMF Co produces a single product. The budgeted fixed production overheads for the period are $500,000. The budgeted output for the period is 2,500 units. Opening inventory at the start of the period consisted of 900 units and closing inventory at the end of the period consisted of 300 units.

If absorption costing principles were applied, the profit for the period compared to the marginal costing profit would be which of the following?

$120,000 higher

$125,000 higher

$120,000 lower

$125,000 lower

24 / 46

A company absorbs overheads on machine hours. In a period, actual machine hours were 22,435, actual overheads were $496,500 and there was over absorption of $64,375.

What was the budgeted overhead absorption rate per machine hour (to the nearest $)?

$ ________

25 / 46

Cost and selling price details for product Z are as follows.

	$ per unit
Direct materials	6.00
Direct labour	7.50
Variable overhead	2.50
Fixed overhead absorption rate	5.00
	21.00
Profit	9.00
Selling price	30.00

Budgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of $27,400.

What is the marginal costing profit for the month?

$46,800

$53,800

$45,400

$72,800

26 / 46

A company has the following actual and budgeted data for year 4.

	Budget	Actual
Production	8,000 units	9,000 units
Variable production overhead per unit	$3	$3
Fixed production overheads	$360,000	$432,000
Sales	6,000 units	8,000 units

Overheads are absorbed using a rate per unit, based on budgeted output and expenditure.

Using the drop down list select, how much the fixed production overhead was under or over absorbed.

27 / 46

A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated and apportioned overhead for each is as follows:

P	Q	X	Y
$95,000	$82,000	$46,000	$30,000

It has been estimated that each service cost centre does work for the other cost centres in the following proportions:

	P	Q	X	Y
Percentage of service cost centre X to	40	40	–	20
Percentage of service cost centre Y to	30	60	10	–

After the reapportionment of service cost centre costs has been carried out using a method that fully recognises the reciprocal service arrangements in the factory, what is the total overhead for production cost centre P?

$126,000

$124,716

$122,400

$127,000

28 / 46

Which TWO of the following statements about predetermined overhead absorption rates are true?

Using a predetermined absorption rate avoids fluctuations in unit costs caused by abnormally high or low overhead expenditure or activity levels

Using a predetermined absorption rate avoids problems of under/over absorption of overheads because a constant overhead rate is available

Using a predetermined absorption rate avoids the problems associated with choosing an appropriate absorption base

Using a predetermined absorption rate offers the administrative convenience of being able to record full production costs sooner

29 / 46

CTF Co has two service centres serving two production departments. Overhead costs apportioned to each department are as follows.

Production
departments

Service
centres

	Mixing $	Stirring $	Stores $	Canteen $
Allocated and apportioned overheads	216,400	78,800	181,600	47,200
Estimated work done by the service centres for other departments
Stores	50%	30%	–	20%
Canteen	45%	40%	15%	–

The business uses the step down method of apportionment.

After the apportionment of the service centres to the production departments, what will the total overhead cost be for the mixing department?

$354,888

$351,416

$325,968

$344,784

30 / 46

A company uses an overhead absorption rate of $3.50 per machine our, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to $108,875 and 30,000 machine hours were recorded on actual production.

By how much was the total overhead under or over absorbed for the period?

Under absorbed by $7,000

Over absorbed by $7,000

Under absorbed by $3,875

Over absorbed by $3,875

31 / 46

A company has the following actual and budgeted data for year 4.

	Budget	Actual
Production	8,000 units	9,000 units
Variable production overhead per unit	$3	$3
Fixed production overheads	$360,000	$432,000
Sales	6,000 units	8,000 units

Overheads are absorbed using a rate per unit, based on budgeted output and expenditure.

What was the fixed production overhead absorbed amount during year 4? $_________

32 / 46

In a period, a company had opening inventory of 31,000 units and closing inventory of 34,000 units.
Profits based on marginal costing were $850,500 and on absorption costing were $955,500.

If the budgeted total fixed costs for the company was $1,837,500, what was the budgeted level of activity in units?

32,500

52,500

65,000

105,000

33 / 46

Cost and selling price details for product Z are as follows.

	$ per unit
Direct materials	6.00
Direct labour	7.50
Variable overhead	2.50
Fixed overhead absorption rate	5.00
	21.00
Profit	9.00
Selling price	30.00

Budgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of $27,400.

What is the absorption costing profit for the month?

$48,400

$46,800

$45,200

$45,400

34 / 46

A company’s total operating cost is semi variable. It flexes its profit budget from an output level of 1,000 units to an output level of 2,000 units?

Which of the following statements is true?

Operating profit will double between the two output levels

Contribution per unit will increase between the two output levels

Total contribution will double between the two output levels

Fixed cost per unit at the two output levels will be the same

35 / 46

A company has the following budgeted costs and revenues:

	$ per unit
Sales price	50
Variable production cost	18
Fixed production cost	10

In the most recent period, 2,000 units were produced and 1,000 units were sold. Actual sales price, variable production cost per unit and total fixed production costs were all as budgeted. Fixed production costs were over-absorbed by $4,000. There was no opening inventory for the period.

What would be the reduction in profit for the period if the company has used marginal costing rather than absorption costing?

10,000

6,000

4,000

14,000

36 / 46

Actual overheads	$496,980
Actual machine hours	16,566
Budgeted overheads	$475,200

Based on the data above, and assuming that the budgeted overhead absorption rate was $32 per hour, what were the budgeted number of hours (to the nearest hour) budgeted to be worked?

______ hours

37 / 46

In a period where opening inventories were 15,000 units and closing inventories were 20,000 units, a firm had a profit of $130,000 using absorption costing.

If the fixed overhead absorption rate was $8 per unit, the profit using marginal costing would be which of the following?

$90,000

Impossible to calculate without more information

$170,000

$130,000

38 / 46

A company had opening inventory of 48,500 units and closing inventory of 45,500 units. Profits based on marginal costing were $315,250 and on absorption costing were $288,250.

What is the fixed overhead absorption rate per unit?

$5.94

$6.34

$6.50

$9.00

39 / 46

A company operates a standard marginal costing system. Last month its actual fixed overhead expenditure was 10% above budget resulting in a fixed overhead expenditure variance of $36,000.

What was the actual expenditure on fixed overheads last month?

$360,000

$396,000

$324,000

$400,000

40 / 46

A company which uses marginal costing has a profit of $37,500 for a period. Opening inventory was 100 units and closing inventory was 350 units.

The fixed production overhead absorption rate is $4 per unit.

What is the profit under absorption costing?

$38,500

$35,500

$39,300

$35,700

41 / 46

Consider the following statements, regarding the reapportionment of service cost centre overheads to production cost centres, where reciprocal services exist.

Which TWO statements are correct?

The direct method results in costs being reapportioned between service cost centres

If the step down method is used, the order in which the service cost centre overheads are reapportioned is irrelevant

The step down method results in costs being reapportioned between service cost centres

If the direct method is used, the order in which the service cost centre overheads are reapportioned is irrelevant

42 / 46

Last month, when a company had an opening inventory of 16,500 units and a closing inventory of 18,000 units, the profit using absorption costing was $40,000. The fixed production overhead rate was $10 per unit.

What would the profit for last month have been using marginal costing?

$_______

43 / 46

A company manufacturers two products, X and Y, in a factory divided into two production cost centres, Primary and Finishing. The following budgeted data are available:

Cost centre	Primary	Finishing
Allocated and apportioned fixed overhead costs	$96,000	$82,500
Direct labour minutes per unit:
– Product X	36	25
– Product Y	48	35

Budgeted production is 6,000 units of product X and 7,500 units of product Y. Fixed overhead costs are to be absorbed on a direct labour hour basis.

What is the budgeted fixed overhead cost per unit for product Y?

$12

$15

$14

$11

44 / 46

A company absorbs fixed production overheads in one of its departments on the basis of machine hours. There were 100,000 budgeted machine hours for the forthcoming period. The fixed production overhead absorption rate was $2.50 per machine hour.

During the period, the following actual results were recorded:

Standard machine hours	110,000
Fixed production overheads	$300,000

What was the fixed production overhead under/over absorption amount?

Under absorbed by $25,000

Under absorbed by $50,000

Over absorbed by $25,000

Over absorbed by $50,000

45 / 46

An accountant is using the repeated distribution method to reapportion service department costs. The following table shows the work she has done so far. Figures that are yet to be calculated are shown as “???”

	Production department	Production department	Service department	Service department
	1	2	X	Y
	$	$	$	$
Apportioned and allocated Production overheads	60,000	80,000	20,000	10,000
Service department X	8,000	10,000	–20,000	2,000
Service department Y	7,200	4,200	600	–12,000
Service department X	???	???	–600
Total production overhead	???	???	0

What is the total production overhead for production department 1 after the remaining reapportionment of the overheads of service department X?

$74,600

$75,440

$75,200

$75,467

46 / 46

Which of the following is correct when considering the allocation, apportionment and reapportionment of overheads in an absorption costing situation?

Costs may only be reapportioned from production centres to service centres

Only production related costs should be considered

Allocation is the situation where part of an overhead is assigned to a cost centre

Any overheads assigned to a single department should be ignored