Question 1

Which of the following statements is TRUE about the activity based costing system when compared to absorption costing method?

Options :

A : ABC is easier to administer than an absorption costing system

B : ABC will be less detailed than an absorption costing system

C : ABC will provide more accurate overhead allocation than absorption costing

D : ABC will cost less to administer than an absorption costing system

Answer: C

Question 2

A company makes three products, E, F and G. Total overheads for the year are expected to be $1.2 million, with the following split between cost pools:

Cost driver information has been estimated as follows:

The company plans to make 10,000 units of product E in the year, with an expected direct cost of $0.60 per unit. This annual production of product E is expected to require 20 quality inspections, 28 purchase requisitions, and 400 kilogrammes of materials.
What is the overhead cost per unit of product E?

Options :

A : $0.10

B : $0.70

C : $3.57

D : $4.17

Answer: A

Question 3

Which of the following statements is correct in respect of the key feature of dual pricing?

Options :

A : The selling price recorded by the selling division is higher than the cost recorded by the receiving division.

B : Internal customers are offered trade discounts depending on the number of units they purchase.

C : Internal transfers are priced at marginal cost and a lump sum payment is made subsequently to contribute to fixed costs.

D : Internal customers are charged a lower price than external customers to reflect savings in distribution costs.

Answer: A

Question 4

One of an investment centre's products is sold on an external market. Output is limited because the specialist machine that manufactures the product is operating at full capacity.

Current data for the product are as follows.

Options :

A : $21,400

B : $17,800

C : $23,900

D : $26,160

Answer: A

Question 5

The following summarised financial statements have been prepared by JNM's North subsidiary for the year just ended:

Calculate the North subsidiary's Residual Income, assuming that JNM's cost of capital is 10%.
Give your answer to the nearest $ million.

Options :

A : A

Answer: A

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