15 A factory making soft toys uses a particular machine on each production line.

Each machine
costs £1,000 per month to hire. Each production line can make up to 100 toys per month.
Which of the following best describes the cost of hiring the machines?
A A step cost
B A variable cost
C A fixed cost
D A semi-variable cost LO 1b

16 The annual salary paid to a business's financial accountant would best be described as
A a variable administrative cost
B a fixed production cost
C part of prime cost
D a fixed administrative cost LO 1b

17 The following is a graph of cost against level of activity:

Cost

Level of activity
To which of the following costs does the graph correspond?
A Electricity bills made up of a standing charge and a variable charge
B Bonus payments to employees when production reaches a certain level
C Sales representatives' commissions payable per unit up to a maximum amount of
commission
D Bulk discounts on purchases, the discount being given on all units purchased LO 1b

18 A company's telephone bill consists of two parts:

(1) a charge of £40 per month for line rental
(2) a charge of £0.01 per minute of call time
Which of the following equations describes the total annual telephone cost, C, if the
company uses T minutes of call time in a year?
A C = 480 + 0.01T
B C = 40 + 0.01T
C C = 480 + 0.12T
D C = 40 + 0.01T/12 LO 1b

ICAEW 2019 Chapter 1: The fundamentals of costing 7

 19
1600

1400

1200

1000

800

600

400

200

0
0 20 40 60 80

In the graph above, the x-axis represents volume of output, and the y-axis represents total
costs. Which of the following could explain the shape of the graph?
A Fixed costs = 500. Variable costs per unit are constant until output is 30, then
additional costs per unit are higher.
B Fixed costs = 500. Variable costs per unit are constant until output is 30, then all costs
per unit (from the first unit onwards) are higher.
C Fixed costs cannot be determined, because the two parts of the line will intersect the
y-axis at different points. Variable costs per unit are constant until output is 30, then
additional costs per unit are higher.
D Fixed costs cannot be determined, because the two parts of the line will intersect the
y-axis at different points. Variable costs per unit are constant until output is 30, then all
costs per unit (from the first unit onwards) are higher. LO 1b

20 Which of the following statements is correct?

A The use of cost accounting is restricted to manufacturing operations.
B The format of management accounts is regulated by Financial Reporting Standards.
C Management accounts are usually prepared for internal use by an organisation's
managers.
D Financial accounts and management accounts are each prepared from completely
different sets of basic data. LO 1a

8 Management Information: Question Bank ICAEW 2019

 21 Which of the following would be most useful for monitoring and controlling the costs
incurred by a freight transport organisation?
A Cost per tonne carried
B Cost per kilometre travelled
C Cost per driver hour
D Cost per tonne-kilometre LO 1a

22 Which of the following items might be a suitable cost unit within the accounts payable
department?
(1) Postage cost
(2) Invoice processed
(3) Supplier account
A Item (1) only
B Item (2) only
C Item (3) only
D Items (2) and (3) only LO 1a

23 What is the correct description of the following graph?

Cost
(£)

0
Output (level of activity)
A The line with the constant upward slope represents fixed costs; D represents variable
cost per unit
B The line with the constant upward slope represents variable costs; D represents fixed
costs
C The line with the constant upward slope represents total costs; D represents fixed costs
D The line with the constant upward slope represents total costs; D represents variable
cost per unit LO 1b

ICAEW 2019 Chapter 1: The fundamentals of costing 9

 24 What is the correct description of the following graph?
Cost
(£)

Q
0
Output (level of activity)
A Total fixed costs fall after production reaches Q, but variable costs per unit increase.
B Fixed costs are constant until production reaches Q after which fixed costs step up to a
higher level.
C Variable costs per unit are constant until output reaches Q after which all production
(from the first unit onwards) incurs higher variable costs per unit.
D Variable costs per unit are constant until output reaches Q after which further
production incurs higher variable costs per unit. LO 1b

25 Select the cost classification that best describes each of the following:
Labour paid per hour worked
A Fixed
B Variable
C Semi-variable
Rent of a factory
D Fixed
E Variable
F Semi-variable
Salary plus profit-related pay
G Fixed
H Variable
I Semi-variable LO 1b

26 Which two of the following would be regarded as cost objects?

A Business rates paid on a factory
B An operating theatre in a hospital
C Labour used in cleaning offices
D A branch of a high street bank
E Glue used in making a chair LO 1a

10 Management Information: Question Bank ICAEW 2019

 27 Which two of the following would be regarded as elements of cost?
A A meal in a restaurant
B An operation in a hospital
C A branch of a high street building society
D Labour used in assembling a car
E Wood used in making a chair LO 1a

28 Adam is responsible for preparing a monthly analysis of total department costs for the
Managing Director of XYZ. Adam's boss, the Department Manager, has asked Adam to
exclude a number of costs from the monthly analysis to 'give a better impression' of the
department, and has threatened to start disciplinary proceedings against Adam for poor
work if he fails to do so.
Which threat does this represent?
A Familiarity
B Self-interest
C Intimidation
D Self-review LO 5a

29 The ICAEW Code of Ethics exemplifies which of the following theoretical approaches to
ethical codes?
A A rules-based approach
B A framework-based approach
C A compliance-based approach
D A tick box approach LO 5a

ICAEW 2019 Chapter 1: The fundamentals of costing 11