MATS Lesson 6 - Starter

Which of the following statements best describes features of management accounting

• Give estimates of future income and costs

• Has external stakeholders (e.g. HMRC)

• Is mainly used for internal purposes (e.g. Decision making and control)

• Reports on what has happened in the past

• Details expected costs for material, labour and expenses

The total of all direct costs is known as

• Prime cost

• Absolute cost

• Indirect cost

• Directly costed

• Production costs

Fixed costs (in total) will change in direct proportion to output

• True

• False

Answer explanation

Fixed costs remain the same - regardless of output!

Explain the term "step fixed cost" and provide an example of one

Indirect costs (overheads) can form a large proportion of the production/service centre. Provide an example of the following: Indirect materials, Indirect labour & Indirect expense

Total cost for 10,000 chocolate bars is as follows:

Direct materials: £2,500

Direct labour: £1,000

Variable production overheads: £500

Fixed production overheads: £500

Non-production overheads: £1,000

What is the PRIME cost of each unit of a chocolate bar?

• £3.50

• £3,500

• £0.55

• £0.35

• £5,500

Total cost for 10,000 chocolate bars is as follows:

Direct materials: £2,500

Direct labour: £1,000

Variable production overheads: £500

Fixed production overheads: £500

Non-production overheads: £1,000

What is the MARGINAL cost of each unit of a chocolate bar?

• £5.50

• £0.40

• £0.55

• £4.00

• £4,000

Total cost for 10,000 chocolate bars is as follows:

Direct materials: £2,500

Direct labour: £1,000

Variable production overheads: £500

Fixed production overheads: £500

Non-production overheads: £1,000

What is the ABSORPTION cost of each unit of a chocolate bar?

• £4.50

• £0.55

• £5.50

• £0.45

• £5,500