Free ICAEW ACA Certificate Level Business Insight and Performance Practice Questions

Sample Practice Questions

Try these 10 sample questions from the ICAEW ACA Certificate Level Business Insight and Performance practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A factory wants to locate opportunities to reduce expenditure. Which use of cost information most directly serves this objective?

   1. A.Analysing expenditure by production activityCorrect answer: A
   2. B.Valuing finished goods held in closing inventory
   3. C.Setting a selling price by adding a mark-up
   4. D.Comparing the profit earned by different products

   Explanation: The source states: "Identify where cost savings can be made". Analysing where expenditure arises helps locate activities for cost-reduction investigation. Inventory valuation, price setting and product-profit comparison serve the other stated costing purposes.

   Reference: AAT Understanding Costing and Cost Classifications — Introduction, uses of cost information

2. 2At 1,000 units, total cost is £18,000; at 3,000 units it is £34,000. Assuming a linear mixed cost with unchanged fixed costs, what variable cost per unit does the high-low method estimate?

   1. A.£8Correct answer: A
   2. B.£16
   3. C.£18
   4. D.£34

   Explanation: The source states: "£24 / 80 minutes = £0.30". Divide the cost change by the activity change: (£34,000−£18,000)/(3,000−1,000)=£8per unit. £16 divides the change by only the low activity;£18uses low total average cost;£34uses the high total with the low activity.

   Reference: AAT High-Low Technique — Step1, variable element

3. 3A manufacturer used 2,000 kg of material costing £9,600. The standard price is £5 per kg. What is the material price variance?

   1. A.£400 favourableCorrect answer: A
   2. B.£400 adverse
   3. C.£2,000 favourable
   4. D.£2,000 adverse

   Explanation: The source states: "Standard cost of actual materials used". At actual usage the standard cost is 2,000 × £5 = £10,000. Actual cost is £9,600, giving £400 favourable. Reversing the sign produces the adverse answer; the £2,000 answers confuse kilograms with the monetary variance.

   Reference: AAT Material Variance Analysis — Calculating the direct material price variance

4. 4A product sells for £75 per unit. Variable production cost is £38 and variable selling cost is £7 per unit. Allocated fixed overhead is £12 per unit. What is contribution per unit?

   1. A.£18
   2. B.£30Correct answer: B
   3. C.£37
   4. D.£45

   Explanation: The source states: "sales price less variable costs". Contribution = £75 − £38 − £7 = £30 per unit. £18 wrongly deducts fixed overhead, £37 omits variable selling cost, and £45 is total variable cost rather than contribution.

   Reference: ACCA Cost-volume-profit Analysis — Introductory explanation, contribution per unit

5. 5A customer database codes payment methods as 1 for cash, 2 for card and 3 for bank transfer. What type of variable does this code represent?

   1. A.A continuous quantitative variable
   2. B.A categorical qualitative variableCorrect answer: B
   3. C.A discrete count of payments
   4. D.A numerical measure of transaction value

   Explanation: The source states: "may be represented by a name, symbol, or a number code.". The numbers label payment categories; they do not measure quantity or value. Numeric-looking labels remain categorical. Neither averaging these codes nor treating them as counts gives a meaningful measure of payment amount.

   Reference: Australian Bureau of Statistics Quantitative and Qualitative Data — What are quantitative and qualitative data?

6. 6An accountant is assigned to prepare management forecasts using unfamiliar technology. They cannot yet understand the tool's material assumptions or limitations. Which response addresses professional competence and due care?

   1. A.Release the forecast because the software is widely used
   2. B.Let the vendor's reputation substitute for understanding
   3. C.Assume a correct spreadsheet total proves the model is suitable
   4. D.Obtain relevant training or expert support before relying on the outputCorrect answer: D

   Explanation: The source states: "continuing awareness and understanding". Competence includes relevant technology developments and a level of understanding appropriate to the activity. Training or expert support addresses the identified gap. Popularity, reputation and arithmetic checks do not establish understanding of material assumptions.

   Reference: ICAEW Code of Ethics: Impact of Technology — Professional competence and due care

7. 7Two products have equal selling prices and sales volumes. What information is needed to compare their product profitability?

   1. A.Cash receipts without matching them to production
   2. B.The production costs attributable to each productCorrect answer: B
   3. C.Factory overhead totals without assigning them to products
   4. D.Sales revenue before deducting either product’s costs

   Explanation: The source states: "Compare the profitability of different products". With selling prices and volumes equal, attributable product costs distinguish the profits. Cash receipts need not equal matched profit; unassigned overhead and undeducted revenues do not complete the product comparison.

   Reference: AAT Understanding Costing and Cost Classifications — Introduction, uses of cost information

8. 8Monthly sales are 36, 42 and 48 thousand units. What is the three-point moving average centred on the middle month?

   1. A.36 thousand units
   2. B.42 thousand unitsCorrect answer: B
   3. C.48 thousand units
   4. D.126 thousand units

   Explanation: The source states: "finding the average of the data in small batches". The centred average=(36+42+48)/3=42thousand units.36and48are individual observations;126is the sum without averaging.

   Reference: AAT Trend Analysis — Further note, moving averages

9. 9Actual output is 500 units, each with a standard material requirement of 3 kg at £4 per kg. Actual material usage is 1,600 kg. What is the material usage variance?

   1. A.£100 adverse
   2. B.£400 adverseCorrect answer: B
   3. C.£400 favourable
   4. D.£6,400 adverse

   Explanation: The source states: "Actual quantity of material at standard price". Allowed usage is 500 × 3 = 1,500 kg. The extra 100 kg costs 100 × £4 = £400 adverse. £100 omits valuation, £400 favourable reverses the direction, and £6,400 is actual usage valued at standard price rather than the difference.

   Reference: AAT Material Variance Analysis — Calculating the direct material usage variance

10. 10A single product sells for £50 per unit with variable cost of £32. Total fixed costs are £72,000 within the relevant range. How many units must be sold to break even?

    1. A.1,440 units
    2. B.2,250 units
    3. C.4,000 unitsCorrect answer: C
    4. D.879 units

    Explanation: The source states: "divide them by our unit contribution margin". Contribution per unit = £50 − £32 = £18; break-even units = £72,000/£18 = 4,000. 1,440 divides fixed cost by price, 2,250 divides by variable cost, and 879 wrongly divides by price plus variable cost (£82) and rounds up.

    Reference: ACCA Cost-volume-profit Analysis — The contribution margin method