Absorption and Activity Based Costing

Which of the following is an example of a cost unit?

• a unit of production from a factory

• a direct labour hour

• The amount of raw materials used

• the gross profit of a business

What is a cost centre?

• The middle of the profit and loss account

• the section of a business to which costs can be charged eg factory

• a unit of service eg a transaction in a bank

• the number of set-ups

Which of the following is NOT a costing method used in accounting?

• Activity Based Costing

• Marginal Costing

• Expenses costing

• Standard Costing

What is absorption costing?

• Absorbs only the production overheads amonst the cost units

• Absorbs only direct costs and production overheads amongst the cost units

• Absorbs only the direct costs amongst the cost units

• Absorbs the total costs of the whole business amongst the cost units

What is the main use of marginal costing?

• to identify what causes overheads to be incurred for a given activity

• to help with short term decision making

• to calculate the value of inventory for the financial statements

• to calculate selling prices using cost-plus profit

What is the main use of absorption costing?

• to identify what causes overheads to be incurred for a given activity

• to help with short term decision making

• to calculate the value of inventory for the financial statements

• to help make decisions such as make or buy a product

What is the main use of activity based costing?

• to identify what causes overheads to be incurred for a given activity

• to help with short term decision making

• to calculate the value of inventory for the financial statements

• to help make decisions such as make or buy a product

Which of the following is NOT a feature of marginal costing?

• costs are classified as either fixed or variable

• contribution to fixed costs is calculated as selling price less varaible costs

• focuses on product costs only

• cost drivers are identified

Which of the following is not a feature of activity based costing?

• production overheads are charged to production on the basis of overhead absorption rate (often based on direct labour hours or machne hours)

• focuses on product costs

• cost drivers are identified

• production overheads allocated on the basis of activities

Which of the following is a benefit of using absorption costing?

• acceptable under IAS2, Inventories for the calculation of value of inventory in the financial statements

• concept of contribution is easy to understand

• more accurate calculation of selling prices because overheads are analysed by activities which generate the costs

• useful for short-term decision making