Question 1

A public water utility incurs a base maintenance cost of $10,000 per month for up to 5,000 gallons processed. For every additional 1,000 gallons processed (or part thereof), an extra step-fixed cost of $2,000 is incurred.

Calculate the total maintenance cost if 7,500 gallons are processed in a month. (Enter numbers only, no commas or currency symbols)

Accepted Answer

1. Identify the base cost for the first 5,000 gallons. 2. Calculate the excess gallons. 3. Determine how many 1,000-gallon steps are needed for the excess. 4. Multiply the steps by the step cost and add to the base cost.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating 2.5 * $2,000 = $5,000, failing to realize step costs apply in full for any part of the step.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 4

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