ACCA MA · Chapter 3
Cost classification and cost behaviour MCQs with Answers
10 multiple-choice questions on Cost classification and cost behaviour for ACCA MA Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
For a furniture manufacturer, which of the following is a direct cost?
- A) Rent of the factory
- B) Salary of the production supervisor
- C) Timber used to make tables
- D) Depreciation of factory machinery
Show answer & explanation
Answer: C) Timber used to make tables
A direct cost can be traced in full to a specific cost unit. The timber in each table can be identified with that table. Factory rent, supervisor salaries and machinery depreciation are shared across all products, so they are indirect costs (production overheads).
Question 2
A company has the following costs for a period: Direct materials $12,000; Direct labour $8,000; Direct expenses $1,500; Production overheads $6,000; Administration overheads $3,000 What is the prime cost?
- A) $20,000
- B) $27,500
- C) $30,500
- D) $21,500
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Answer: D) $21,500
Prime cost is the total of all direct costs: 12,000 + 8,000 + 1,500 = $21,500. Adding production overheads would give production cost ($27,500), and adding administration overheads as well would give total cost ($30,500).
Question 3
A telephone bill consists of a fixed monthly line rental plus a charge for each call made. How would this cost be classified?
- A) Semi-variable
- B) Fixed
- C) Variable
- D) Stepped fixed
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Answer: A) Semi-variable
A semi-variable (mixed) cost has a fixed element (line rental) that is paid whatever the activity level, plus a variable element (call charges) that rises with use.
Question 4
A factory needs one supervisor for every 12 production workers. As the workforce grows, how would supervisor salaries be classified?
- A) Variable cost
- B) Stepped fixed cost
- C) Semi-variable cost
- D) Fixed cost that is constant at all levels of activity
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Answer: B) Stepped fixed cost
Supervisor costs stay fixed across a range of activity (up to 12 workers) and then jump to a new level when another supervisor is needed. This gives a 'staircase' pattern, so it is a stepped fixed cost.
Question 5
A company recorded the following total costs: 4,000 units: $46,000 5,500 units: $53,900 7,000 units: $61,000 Using the high-low method, what is the expected total cost of producing 8,000 units?
- A) $69,714
- B) $66,000
- C) $40,000
- D) $92,000
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Answer: B) $66,000
The high-low method uses only the highest and lowest activity levels. Variable cost per unit = (61,000 - 46,000) / (7,000 - 4,000) = 15,000 / 3,000 = $5. Fixed cost = 46,000 - (4,000 x 5) = $26,000. Total cost at 8,000 units = 26,000 + (8,000 x 5) = $66,000.
Question 6
Fixed costs increase by $10,000 when activity goes above 6,000 units. Total costs were $38,000 at 3,000 units and $90,000 at 9,000 units. The variable cost per unit is constant. What is the expected total cost at 7,500 units?
- A) $77,000
- B) $79,500
- C) $69,500
- D) $89,500
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Answer: B) $79,500
First remove the step from the higher cost: 90,000 - 10,000 = $80,000. Variable cost per unit = (80,000 - 38,000) / (9,000 - 3,000) = 42,000 / 6,000 = $7. Fixed cost below 6,000 units = 38,000 - (3,000 x 7) = $17,000. At 7,500 units (above the step): 17,000 + 10,000 + (7,500 x 7) = $79,500. Ignoring the step gives a variable cost of $8.67 and a total of $77,000.
Question 7
As the level of activity increases within the relevant range, what happens to fixed cost per unit?
- A) It increases
- B) It decreases
- C) It stays the same
- D) It increases and then decreases
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Answer: B) It decreases
Total fixed cost does not change within the relevant range, so the same total is spread over more units as activity rises. The fixed cost per unit therefore falls.
Question 8
Which of the following would be the most appropriate cost unit for a hotel?
- A) The housekeeping department
- B) The hotel manager's salary
- C) Occupied room-night
- D) Total floor area of the hotel
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Answer: C) Occupied room-night
A cost unit is a unit of product or service for which costs are worked out. For a hotel, the occupied room-night is a suitable measure of output. The housekeeping department is a cost centre, and the manager's salary is a cost, not a unit.
Question 9
In a manufacturing company, how should the salary of the factory canteen manager be classified?
- A) Direct labour
- B) Administration overhead
- C) Selling and distribution overhead
- D) Production overhead
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Answer: D) Production overhead
The factory canteen supports production workers, but the manager's salary cannot be traced to specific products. It is therefore an indirect production cost (production overhead). It is not direct labour because the manager does not work on the product itself.
Question 10
Under absorption costing, which of the following costs would be included in the value of finished goods inventory?
- A) Sales staff commission
- B) Depreciation of production machinery
- C) Rent of the head office
- D) Costs of delivering goods to customers
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Answer: B) Depreciation of production machinery
Inventory is valued at production cost, which includes direct costs and production overheads such as depreciation of production machinery. Selling, administration and distribution costs are period costs and are charged to profit or loss in the period they are incurred.