Marginal, Absorption & Activity Based Costing

Question 1

………. costing helps with short-term decision making ?

(Marginal/Absorption)

Answer 1

Marginal

Question 2

………. costing is used to calculate inventory valuations and profit or loss in financial statements

(Marginal/Absorption)

Answer 2

Absorption

Question 3

To work out the contribution you need to know the selling price and the variable cost of the product, what is the equation ?

Answer 3

selling price - variable cost

Question 4

Marginal costing

When you take away the fixed production overheads from the contribution what do you end up with ?

Answer 4

Operating profit

Question 5

What does absorption costing absorb amongst the cost units ?

Answer 5

The cost of the business

Question 6

What four pieces of information do you need to be able to work out the absorption cost ?
* Direct………
* Direct………..
* Direct…………
* P………… O…………

Answer 6

• Direct materials
• Direct Labour
• Direct expenses
• Production overheads

Question 7

To comply with international accounting standards, do we use marginal costing or absorption costing for financial statements ?

Answer 7

Absorption costing

Question 8

Activity based costing overheads to production on the basis of what ?

Answer 8

On the basis of activities

Question 9

Activity based costing

Cost drivers are activities that cause what ?

Answer 9

Costs to be incurred

Question 10

Activity based costing

What are cost pools ?

Answer 10

Cost pools are a group of overhead costs that are incurred by the same activity