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CIMA BA2 study materials
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CIMA BA2 practice questions

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Question 1Costing and pricing

Which of the following is a direct cost of a manufactured product?

  1. Direct assembly labour Correct answer.
  2. Factory building rent
  3. Machinery depreciation
  4. Factory supervisor's salary

Explanation

A direct cost can be traced specifically and conveniently to the product being made. Assembly labour used on the product satisfies this test. Supervisor salaries, building rent and machinery depreciation support production generally and are indirect costs.

Question 2Costing and pricing

Total cost is £80,000 at an activity level of 10,000 units and £105,000 at 15,000 units. Using the high-low method, what is the variable cost per unit?

  1. £5 Correct answer.
  2. £7
  3. £6
  4. £4

Explanation

The high-low method divides the change in total cost by the change in activity. Here the change is £25,000 over 5,000 units, giving £5 per unit. Fixed cost is then found by substitution.

Question 3Costing and pricing

A product sells for £25 and has a variable cost of £15 per unit. What is the contribution per unit?

  1. £25
  2. £15
  3. £10 Correct answer.
  4. £5

Explanation

Contribution per unit is selling price less variable cost per unit. Subtracting £15 from £25 gives £10. This amount contributes towards fixed costs and then profit.

Question 4Costing and pricing

Fixed costs are £48,000 and contribution is £8 per unit. What is the breakeven point in units?

  1. 8,000 units
  2. 4,000 units
  3. 5,000 units
  4. 6,000 units Correct answer.

Explanation

Breakeven units equal fixed costs divided by contribution per unit. £48,000 divided by £8 gives 6,000 units. At this volume total contribution exactly covers fixed costs.

Question 5Costing and pricing

Budgeted sales are 10,000 units and the breakeven point is 6,000 units. What is the margin of safety in units?

  1. 6,000 units
  2. 10,000 units
  3. 4,000 units Correct answer.
  4. 2,500 units

Explanation

Margin of safety is budgeted sales minus breakeven sales. The calculation is 10,000 less 6,000, giving 4,000 units. It measures the fall in sales that can occur before a loss is made.

Question 6Costing and pricing

A product costs £60 to make. The company applies a mark-up of 20% on cost. What is the selling price?

  1. £80
  2. £72 Correct answer.
  3. £75
  4. £48

Explanation

A mark-up is calculated on cost, so profit is 20% of £60, which is £12. Adding this to cost gives a selling price of £72. Mark-up differs from margin, which is based on selling price.

Question 7Costing and pricing

Budgeted overheads are £240,000 and budgeted machine hours are 40,000. What is the predetermined overhead absorption rate per machine hour?

  1. £6 Correct answer.
  2. £4
  3. £8
  4. £5

Explanation

The predetermined absorption rate is budgeted overheads divided by budgeted activity. £240,000 divided by 40,000 machine hours gives £6 per hour. Actual overheads and hours are used later to find over- or under-absorption.

Question 8Costing and pricing

Which of the following is a variable cost in a factory?

  1. Supervisor's salary
  2. Building insurance
  3. Direct materials Correct answer.
  4. Factory rent

Explanation

Variable costs change in total with the level of output. Direct materials are used in proportion to production, so they are variable. Rent, a supervisor's salary and building insurance tend to be fixed over a relevant range.

Question 9Costing and pricing

Total cost is £96,000 at 12,000 units and £128,000 at 20,000 units. Using the high-low method, what is the total fixed cost?

  1. £32,000
  2. £48,000 Correct answer.
  3. £56,000
  4. £64,000

Explanation

Variable cost is (£128,000 - £96,000) divided by 8,000 units, which is £4 per unit. Fixed cost is then £96,000 minus 12,000 units at £4, giving £48,000. Substituting the high point gives the same fixed cost.

Question 10Costing and pricing

Budgeted overheads are £200,000, actual overheads are £210,000 and overheads absorbed are £195,000. What is the over- or under-absorption?

  1. Over absorbed by £15,000
  2. Under absorbed by £10,000
  3. Under absorbed by £15,000 Correct answer.
  4. Over absorbed by £5,000

Explanation

Under-absorption occurs when absorbed overheads are less than actual overheads. The difference is £210,000 minus £195,000, which is £15,000 under-absorbed. Budgeted overhead is not used in this comparison.

Question 11Costing and pricing

Opening inventory is 200 units and closing inventory is 500 units. The fixed overhead absorption rate is £3 per unit. How does absorption costing profit compare with marginal costing profit?

  1. Marginal profit is higher by £900
  2. Profits are equal
  3. Absorption profit is higher by £900 Correct answer.
  4. Absorption profit is higher by £2,100

Explanation

When closing inventory exceeds opening inventory, absorption costing carries fixed overhead forward in inventory. The increase is 300 units at £3, so absorption profit is £900 higher. Marginal costing treats all fixed overhead as a period cost.

Question 12Costing and pricing

Product A has a contribution of £12 per unit and uses 3 kg of material. Product B has a contribution of £10 per unit and uses 2 kg of material. Which product gives the higher contribution per kg, and what is that amount?

  1. B, £10 per kg
  2. B, £5 per kg Correct answer.
  3. A, £4 per kg
  4. A, £12 per kg

Explanation

With a scarce resource, products are ranked by contribution per unit of the limiting factor. Product A gives £12 ÷ 3 = £4 per kg, while Product B gives £10 ÷ 2 = £5 per kg. Product B is therefore preferred.

Question 13Costing and pricing

A company needs 10,000 units. Making each unit has a variable cost of £12 and would incur avoidable fixed costs of £25,000. Buying each unit costs £15. What should the company do?

  1. Make, saving £5,000 Correct answer.
  2. Buy, saving £5,000
  3. Make, saving £30,000
  4. Be indifferent between making and buying

Explanation

The relevant make cost is variable cost plus avoidable fixed cost: £120,000 + £25,000 = £145,000. Buying costs £150,000. Making therefore saves £5,000.

Question 14Costing and pricing

A company spent £8,000 on a market survey last month. For a decision about whether to launch the product, the survey cost is best described as:

  1. An incremental cost
  2. A sunk cost Correct answer.
  3. An avoidable cost
  4. An opportunity cost

Explanation

A sunk cost is a past cost that cannot be changed by a current decision. The survey has already been paid for, so it is irrelevant to the launch decision. Relevant costs must be future and differential.

Question 15Costing and pricing

A company has spare capacity and receives a one-off order for 2,000 units at £9 each. Variable cost is £7 per unit and normal sales are unaffected. What is the correct decision?

  1. Reject because the price is below the normal price
  2. Accept because contribution rises by £4,000 Correct answer.
  3. Reject because fixed costs will rise
  4. Accept because profit rises by £18,000

Explanation

With spare capacity, the relevant extra contribution is £9 minus £7, which is £2 per unit. At 2,000 units this adds £4,000 of contribution and profit. Comparison with the normal selling price is irrelevant when spare capacity exists.

Question 16Costing and pricing

In activity-based costing, the most appropriate cost driver for machine set-up costs is:

  1. Number of set-ups Correct answer.
  2. Direct labour hours
  3. Machine hours
  4. Number of units produced

Explanation

Activity-based costing charges costs using the factor that causes the activity. Set-up costs are caused by each set-up performed, so the number of set-ups is the logical driver. Units, labour hours and machine hours relate to other activities.

Question 17Costing and pricing

A product has a target selling price of £50 and the company requires a profit margin of 20% of selling price. What is the target cost?

  1. £45
  2. £10
  3. £60
  4. £40 Correct answer.

Explanation

Target cost is target selling price minus target profit. Target profit is 20% of £50, which is £10. Therefore the target cost is £50 - £10 = £40.

Question 18Costing and pricing

Under life cycle costing, the majority of a product's costs are committed at which stage?

  1. Maturity stage
  2. Decline stage
  3. Growth stage
  4. Design stage Correct answer.

Explanation

Life cycle costing recognises that most future costs are locked in by design decisions. At the design stage, choices about materials and processes commit later production and support costs. Later stages incur costs but have less scope to change them.

Question 19Costing and pricing

A process has input of 2,000 kg and a normal loss of 8% of input. Actual output is 1,800 kg. What is the abnormal loss?

  1. 0 kg
  2. 200 kg
  3. 160 kg
  4. 40 kg Correct answer.

Explanation

Normal loss is 8% of 2,000 kg, which is 160 kg, so expected output is 1,840 kg. Actual output is 1,800 kg. The shortfall of 40 kg is the abnormal loss.

Question 20Costing and pricing

A department has 600 units that are 40% complete for conversion costs. What are the equivalent units for conversion?

  1. 240 units Correct answer.
  2. 150 units
  3. 360 units
  4. 600 units

Explanation

Equivalent units measure partially completed output in terms of fully completed units. For conversion, 600 units at 40% completion equal 240 equivalent units. The degree of completion must be applied to the number of units.

Question 21Costing and pricing

A process has input of 4,000 kg and a normal loss of 5% of input. Actual output is 3,900 kg. What is the abnormal gain or loss?

  1. 200 kg abnormal loss
  2. 100 kg abnormal loss
  3. 100 kg abnormal gain Correct answer.
  4. 300 kg abnormal gain

Explanation

Normal loss is 5% of 4,000 kg, which is 200 kg, so expected output is 3,800 kg. Actual output is 3,900 kg. The excess of 100 kg over expected output is an abnormal gain.

Question 22Costing and pricing

Product X has a contribution of £15 per unit and uses 5 machine hours. Product Y has a contribution of £12 per unit and uses 3 machine hours. Machine capacity is 1,500 hours; maximum demand is 200 units of X and 300 units of Y. What is the maximum total contribution?

  1. £5,400
  2. £5,100 Correct answer.
  3. £6,000
  4. £4,800

Explanation

Contribution per machine hour is £15 ÷ 5 = £3 for X and £12 ÷ 3 = £4 for Y. Y is ranked first, so produce 300 units of Y using 900 hours. The remaining 600 hours make 120 units of X. Total contribution is £3,600 + £1,800 = £5,400.

Question 23Costing and pricing

A company absorbs overheads at £12 per direct labour hour. Actual overheads are £190,000 and actual direct labour hours are 15,500. What is the over- or under-absorption?

  1. £4,000 over absorbed
  2. £4,000 under absorbed Correct answer.
  3. £6,000 under absorbed
  4. £10,000 under absorbed

Explanation

Absorbed overhead is 15,500 hours at £12, which is £186,000. Actual overhead is £190,000. Since absorbed overhead is lower than actual overhead, £4,000 is under-absorbed.

Question 24Costing and pricing

A product costs £48 to make. The company requires a profit margin of 20% of selling price. What selling price should be set?

  1. £57.60
  2. £48.00
  3. £60.00 Correct answer.
  4. £62.50

Explanation

A margin of 20% of selling price means cost is 80% of selling price. Dividing £48 by 0.80 gives £60. Adding 20% to cost would be a mark-up, not a margin.

Question 25Costing and pricing

Product P has a contribution of £20 per unit and requires 4 skilled labour hours. Product Q has a contribution of £18 per unit and requires 3 hours. Available skilled labour is 3,000 hours; maximum demand is 500 units of P and 600 units of Q. What is the maximum total contribution?

  1. £16,200
  2. £16,800 Correct answer.
  3. £18,000
  4. £17,400

Explanation

Contribution per skilled hour is £5 for P and £6 for Q, so Q is ranked first. Producing 600 units of Q uses 1,800 hours, leaving 1,200 hours for 300 units of P. Total contribution is (600 × £18) + (300 × £20) = £16,800.

Question 26Costing and pricing

Which item is classified as a period cost for a manufacturing business?

  1. Factory supervisor salary
  2. Depreciation of factory machinery
  3. Office administration salary Correct answer.
  4. Direct material used in production

Explanation

Period costs relate to non-production functions and are expensed in the period incurred. Product costs include direct materials, direct labour and production overheads.

Question 27Costing and pricing

Prime cost is made up of which elements?

  1. Direct materials plus direct labour plus direct expenses Correct answer.
  2. Direct materials plus all overheads
  3. Production cost plus selling and distribution costs
  4. Direct materials plus direct labour plus production overhead

Explanation

Prime cost includes only the direct costs of production: direct materials, direct labour and direct expenses. Production overhead is added to prime cost to obtain production cost.

Question 28Costing and pricing

A product uses £18 of direct material and £12 of direct labour per unit. Production overhead is absorbed at £5 per unit. What is the production cost per unit?

  1. £30
  2. £50
  3. £35 Correct answer.
  4. £40

Explanation

Prime cost is £18 + £12 = £30 per unit. Adding production overhead of £5 gives a production cost of £35 per unit.

Question 29Costing and pricing

The economic order quantity is the order size at which:

  1. Ordering cost equals holding cost Correct answer.
  2. Stockout cost is maximised
  3. Holding cost is zero
  4. Total purchase cost is minimised

Explanation

The EOQ minimises the combined total of ordering costs and holding costs. This minimum occurs where ordering cost equals holding cost.

Question 30Costing and pricing

In a period of rising prices, which inventory valuation method usually reports the highest closing inventory value?

  1. Standard cost
  2. LIFO
  3. AVCO
  4. FIFO Correct answer.

Explanation

FIFO assumes older, cheaper units are issued first, leaving the more recent higher-cost purchases in closing inventory. This usually gives the highest closing inventory value when prices are rising.

Question 31Costing and pricing

When overtime is worked because of a general shortage of labour, the overtime premium is normally treated as:

  1. Selling and distribution cost
  2. Administration cost
  3. Direct labour cost of the specific job
  4. Production overhead Correct answer.

Explanation

The basic pay is charged as direct labour, but a premium caused by general labour conditions is not attributable to a specific job. It is therefore treated as production overhead.

Question 32Costing and pricing

Which basis is most appropriate for apportioning canteen costs to production departments?

  1. Direct material cost
  2. Number of employees Correct answer.
  3. Floor area
  4. Machine value

Explanation

Canteen costs are driven mainly by the number of employees who use the service. Floor area, machine value and material cost do not reflect canteen usage.

Question 33Costing and pricing

A cost centre is best described as:

  1. A unit of product for which costs are collected
  2. A location or function for which costs are collected Correct answer.
  3. The total of direct materials and direct labour
  4. Any cost that varies with output

Explanation

A cost centre is a location, function or activity for which costs are gathered and controlled. It is not the same as a cost unit, which is the product or service being costed.

Question 34Costing and pricing

A company uses a predetermined overhead absorption rate of £8 per machine hour. Actual machine hours were 24,000 and actual overheads were £195,000. What amount of overhead was absorbed?

  1. £208,000
  2. £195,000
  3. £192,000 Correct answer.
  4. £200,000

Explanation

Overhead absorbed equals the predetermined rate multiplied by the actual activity level. £8 × 24,000 machine hours = £192,000.

Question 35Costing and pricing

A process has input of 10,000 kg costing £50,000. Normal loss is 20% of input and scrapped units realise £1 per kg. There is no closing work in progress. What is the cost per kg of good output?

  1. £6.00 Correct answer.
  2. £6.25
  3. £5.56
  4. £5.00

Explanation

Normal loss is 2,000 kg with scrap value of £2,000. Net process cost is £48,000 and expected good output is 8,000 kg, giving £6.00 per kg.

Question 36Costing and pricing

Joint costs of £72,000 produce 6,000 kg of product A and 2,000 kg of product B. Sales values at split-off are £4 per kg for A and £6 per kg for B. Using sales value at split-off, what joint cost is apportioned to product A?

  1. £24,000
  2. £36,000
  3. £48,000 Correct answer.
  4. £32,000

Explanation

A has sales value of £24,000 and B has £12,000, so A is 24,000/36,000 of the total. Applying this to £72,000 gives £48,000 to A.

Question 37Costing and pricing

A by-product has a net realisable value of £3,000. In process accounting, this amount is normally:

  1. Added to the closing inventory value
  2. Treated as an administration expense
  3. Credited to the process account, reducing the cost of the main product Correct answer.
  4. Debited to the process account as an extra cost

Explanation

The net realisable value of a by-product is credited to the process account. This reduces the net cost that is allocated to the main product.

Question 38Costing and pricing

A company produced 10,000 units and sold 9,000 units. Fixed production overhead is £5 per unit and there was no opening inventory. Compared with marginal costing, absorption costing profit will be:

  1. Lower by £5,000
  2. Equal to marginal costing profit
  3. Higher by £5,000 Correct answer.
  4. Higher by £50,000

Explanation

Inventory increased by 1,000 units, so £5,000 of fixed production overhead is carried forward in inventory under absorption costing. This makes absorption profit £5,000 higher than marginal costing profit.

Question 39Costing and pricing

Fixed costs are £90,000, selling price is £20 per unit and variable cost is £12 per unit. What is the breakeven point in units?

  1. 11,250 units Correct answer.
  2. 4,500 units
  3. 7,500 units
  4. 15,000 units

Explanation

Contribution per unit is £20 − £12 = £8. Breakeven units are fixed costs divided by contribution per unit: £90,000/£8 = 11,250 units.

Question 40Costing and pricing

Budgeted sales are 20,000 units and breakeven sales are 12,000 units. What is the margin of safety as a percentage of budgeted sales?

  1. 40% Correct answer.
  2. 167%
  3. 60%
  4. 8%

Explanation

Margin of safety is 20,000 − 12,000 = 8,000 units. As a percentage of budgeted sales this is 8,000/20,000 = 40%.

Question 41Costing and pricing

Fixed costs are £40,000, contribution per unit is £10 and the target profit is £15,000. How many units must be sold?

  1. 5,000 units
  2. 5,500 units Correct answer.
  3. 1,500 units
  4. 4,000 units

Explanation

Required contribution is fixed costs plus target profit: £40,000 + £15,000 = £55,000. Dividing by £10 contribution per unit gives 5,500 units.

Question 42Costing and pricing

A machine currently standing idle could be rented out for £4,000. If it is used on a contract, the £4,000 rental income forgone is:

  1. A committed cost
  2. A sunk cost
  3. A non-relevant cost
  4. An opportunity cost Correct answer.

Explanation

An opportunity cost is the benefit lost by using a resource in one way rather than its next-best alternative. The rental income forgone is therefore an opportunity cost of using the machine.

Question 43Costing and pricing

A product has a variable cost of £18 per unit and a fixed cost of £6 per unit at budgeted volume. The company uses marginal cost-plus pricing with a 25% mark-up on marginal cost. What is the selling price?

  1. £22.50 Correct answer.
  2. £27.50
  3. £30.00
  4. £24.00

Explanation

Marginal cost-plus pricing uses variable cost as the base. £18 × 1.25 = £22.50; fixed cost is excluded from the mark-up base.

Question 44Costing and pricing

In activity-based costing, which cost driver is most appropriate for customer order processing costs?

  1. Machine hours
  2. Direct labour hours
  3. Number of production runs
  4. Number of customer orders Correct answer.

Explanation

Order processing costs are driven by the number of customer orders handled. Production runs, machine hours and labour hours relate to other activities.

Question 45Costing and pricing

Sales revenue is £200,000, direct material cost is £80,000, direct labour is £30,000 and factory overhead is £20,000. Using throughput accounting, what is throughput?

  1. £70,000
  2. £90,000
  3. £100,000
  4. £120,000 Correct answer.

Explanation

Throughput equals sales revenue less direct material cost: £200,000 − £80,000 = £120,000. Labour and overhead are treated as operating expenses in throughput accounting.

Question 46Costing and pricing

The standard is 2 kg of material per unit at £5 per kg. Actual production was 1,000 units, using 2,100 kg costing £10,800. What is the material price variance?

  1. £500 favourable
  2. £500 adverse
  3. £300 favourable
  4. £300 adverse Correct answer.

Explanation

The standard cost of the actual quantity is 2,100 kg × £5 = £10,500. Actual cost is £10,800, so the price variance is £300 adverse.

Question 47Costing and pricing

The standard is 3 labour hours per unit at £12 per hour. Actual output was 500 units, produced in 1,600 hours paid £19,200. What is the labour efficiency variance?

  1. £1,200 favourable
  2. £1,500 favourable
  3. £1,600 adverse
  4. £1,200 adverse Correct answer.

Explanation

Standard hours for actual output are 500 × 3 = 1,500 hours. Actual hours are 1,600, so the efficiency variance is 100 hours × £12 = £1,200 adverse.

Question 48Costing and pricing

Budgeted production is 5,000 units and actual production is 4,600 units. Fixed overhead is absorbed at £6 per unit. What is the fixed overhead volume variance?

  1. £27,600 favourable
  2. £600 adverse
  3. £2,400 favourable
  4. £2,400 adverse Correct answer.

Explanation

The volume variance compares budgeted and actual production at the absorption rate. (5,000 − 4,600) × £6 = £2,400 adverse because output was below budget.

Question 49Costing and pricing

A product has a target selling price of £80 and the company requires a profit margin of 25% of selling price. The current estimated cost is £65 per unit. What is the cost gap per unit?

  1. £15
  2. £5 Correct answer.
  3. £0
  4. £20

Explanation

Target cost is £80 × 75% = £60. The estimated cost is £65, so the cost gap is £65 − £60 = £5 per unit.

Question 50Costing and pricing

Opening work in progress is 1,000 units, 40% complete for conversion costs. During the period 9,000 units were started and 8,000 units were completed. Closing work in progress is 1,500 units, 60% complete for conversion costs. Using FIFO, what are the equivalent units for conversion costs?

  1. 7,600
  2. 8,000
  3. 9,100
  4. 8,500 Correct answer.

Explanation

Under FIFO, work done on opening WIP is 1,000 × 60% = 600 equivalent units. Units started and completed are 7,000, and closing WIP is 1,500 × 60% = 900, giving 600 + 7,000 + 900 = 8,500.