Please note that workings provided for MCQs are not marked.

You work as a senior financial controller for Alpha, a company that produces consumer goods for the health care industry. The company uses absorption costing system for both financial reporting purposes and management decisions.

At a most recent management meeting you presented the monthly profit and loss statement to the participants. In the previous month the company increased the volume of production without selling more. This caused a huge over-absorption in the profit and loss statement.

The CEO of the company could not fully understand the issue around under-/overabsorption and turned to you for further explanation.

(a) Explain what we mean by absorption costing. (1 mark)

(b) What is the predetermined overhead absorption rate and how is it calculated? (2 marks)

(c) Explain what we mean by under-/overabsorption? (3 marks)

Which one of the below true statements is / are true?

(i) Management accounting prepares detailed reports on a daily, weekly, or monthly basis, primarily for external investors and creditors.

(ii) Management accounting focuses on the past, present and future.

Which of the following statements about costing is/are FALSE?

(i) Production costs (manufacturing costs) include all costs incurred from the purchase of raw materials until the completion of finished goods.

(ii) Non-manufacturing costs include the warehousing cost of raw materials, work-in-progress inventory, and finished goods.

(iii) Non-manufacturing costs are also called period costs because they are expensed in the period they are incurred, rather than being capitalized into inventory.

(iv) All manufacturing costs are classified as direct costs.

The following balances were extracted from the books of Titan Manufacturing Ltd., a manufacturing business, on 31 December 2026:

Additional notes

a) Stocks (inventories) at 31 December were:

• Raw materials: 14,000
• Work in progress: 3,000
• Finished goods: 26,000

b) Two-thirds of the rent charge relates to the factory.

The purpose of management accounitng is

Which of the following statements is CORRECT?

A company uses an overhead absorption rate of $3.50

per machine hour, based on 32 000 budgeted machine hours for the period. During

the same period the actual total overhead expenditure amounted to $108 875 and

30 000 machine hours were recorded on actual production.

The over or under absorbed overhead

for the period was:

Plant-wide (Blanket) overhead rates can be

relevant if:

If the balance on the overhead control account is

$1,200