F5 ACCA Questions And Answers With Complete Solutions

Define Absorption Costing correct answer: Fixed production overheads included OAR calculation correct answer: Estimated overheads divided by estimated activity level Absorption Costing two advantages correct answer: Selling price made to cover all costs. Complies with IAS 2 Absorption costing two disadvantages correct answer: Profits manipulated by changing production levels. Assumes overheads are volume related. Contribution Calculation correct answer: Fixed costs plus profit (selling price less all variable costs) Marginal Costing Advantages over Absorption Costing (3) correct answer: Better decision making as highlights contribution. Fixed cost treated according to nature. Profit depends on sales not production levels. Marginal Costing Disadvantages (3) correct answer: Fail to cover fixed costs risk. Not IAS2 applicable. Seasonal Variation causes profit variances Saying to know if its AC or MC (3 parts) correct answer: Close > Open. Profit > Sales. AC > MC. Alphabetical left to right. When to use Activity Based Costing (ABC) (4) correct answer: High production overheads compared to prime costs. Diverse product range.