AAT Practice And Green Light Errors

Question 1

Is fixed cost
Decrease per unit as selling price increases.
Or
Decrease per unit as volume increases?

Answer 1

Decrease per unit as VOLUME increases

Question 2

Is stepped cost :
Variable for a certain volume range only
Or
Fixed for a certain volume range only

Answer 2

Fixed for a certain volume range only.

Question 3

Another name for Stepped cost?

Answer 3

Stepped FIXED cost

Question 4

Most important investment criteria?

Answer 4

NPV

Question 5

When being asked what variance caused the biggest change in profit for example what not to forget?

Answer 5

That ‘sales revenue’ variance is still a variance … don’t make the mistake thinking only costs are variances. Sales rev variance may be due to something like ‘less trade discounts given’ for example.

Question 6

Nb the question task 2 about posting JEs for payroll …
Watch out for overtime … practice assessment was confusing having overtime mentioned but no clarification whether ‘customer requested’ or not … I thought must be meant to transfer the amount to indirect costs but this wasn’t the case… it was all very simple .. the LSBF YouTube revision part 1 guy implied that this was confusing…

Answer 6

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Question 7

If calculating over/under absorption having worked out an OAR and rounded to 2 decimal places … use the ROUNDED amount to calc the absorbed amount and hence the difference to Actual

Answer 7

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Question 8

Contribution per limiting factor

Answer 8

Work out contribution per unit and then divide that by the amount of limiting factor required to make it. Then rank the products by these contributions and make as many as can (limited by demand) in order of ranking

Question 9

Contribution to sales ratio (CS ratio) - how to calculate?

Also called the profit to volume ratio (PV ratio

Answer 9

Contribution / selling price = CS ratio.
Can be either a decimal fraction or *100 to get a %

**Be careful not to do VarCosts/selling price !!!! **

Question 10

Margin of safety is:

Answer 10

Budgeted sales - breakeven / Budgeted sales

Can be either number of units or £ or %

Question 11

Know how to calc profit on given sales…

Just multiply sales by contribution and then deduct fixed costs

Answer 11

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Question 12

Know how to work out number of units to get given profit

Answer 12

Just add desired £profit on to £breakeven then divide by C/unit.

This will give number of units … can easily convert that into £sales rev.

Question 13

Payback period based on …

Answer 13

Undiscounted cash flows

Question 14

Break even analysis also known as

Answer 14

Cost Volume Profit analysis (CVP)

Question 15

Generally if a cost is variable it is also direct.

If a cost is fixed it is usually indirect

Answer 15

This would have pointed me in right direction for diesel fuel in a haulage company being direct (aat ass2)

Question 16

Which gives higher profit figure and why (marginal absorption)

Answer 16

Absorption because it has a lower COS since closing inventory is higher.

Question 17

Difference between product and period costs

Answer 17

Examples of Product Costs and Period Costs

Examples of product costs are direct materials, direct labor, and allocated factory overhead. Examples of period costs are general and administrative expenses, such as rent, office depreciation, office supplies, and utilities.

Question 18

Cons of using payback period as an investment appraisal?

Answer 18

1. It does not consider the cash flows after the PBP.

2. Ignores time value of money. (Can use DPB however)

Question 19

Advantages of NPV as investment appraisal

Answer 19

Net present value considers the time value of money and also takes care of all the cash flows till the end of life of the project.

Question 20

Be very careful with cost behaviour … look for tricks like in the AAT test

Answer 20

Eg look for wording about ‘selling’ price… red herring!!!!

Look at ALL the options carefully , don’t just pick the first one that looks correct… no COMPLACENCY

Question 21

When bookkeeping entries classifying costs watch out for tricky ones like diesel for haulage company … direct or indirect?

Answer 21

Direct

Question 22

Note that in a question on crediting over-absorbed to P & L when asked what happens to expenses the correct answer was that they decrease (ie the credit is not treated as income)

Answer 22

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Question 23

Note that the payback method does NOT use profits to determine payback …. it’s cash flow

Answer 23

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Question 24

Watch out for trick question about using FIFO etc….. remember method has no effect on what happens to PHYSICAL inventory !!!!!

Answer 24

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Question 25

I THINK you treat ‘contribution per’ amounts independently. Ie if given overall contribution is this per sales ?
If you want to then calc contribution per limiting factor you do that…

Answer 25

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Question 26

• Product costs are those costs that become part of the manufactured product.
• Period costs are those costs that cannot be assigned to the manufactured product.

Answer 26

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Question 27

Period costs vary with time rather than activity

Answer 27

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Question 28

Cant use different costing methods marginal and absorption to manipulate profit figure. Must use objectivity …

Answer 28

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Question 29

Profit from operations … includes

Answer 29

Sales rev - direct mat/lab - production overheads.