MCQ Booklet

Costing
(250 Questions)

1. What is the basis of valuation of stock in case of cost accounting?

 MCQ Booklet - Costing

a. Cost
b. NRV
c. Lower of Cost or NRV.
d. Market Value
e. Fair Value

2. State whether the following statements are true or false:

I. Standard formats are used in management accounting for preparation of reports.

II. Management Accounting reports are public documents.
III. Cost accounting cannot be installed without management accounting.
IV. Assisting shareholders in decision making is an objective of cost accounting.
V. Financial accounting is historical in nature and based on past records and
transactions.
Options:

a. I. True; II. False; III. True; IV. False; V. True

b. I. False; II. False; III. False; IV. False; V. True
c. I. False; II. False; III. True; IV. False; V. False
d. I. True; II. True; III. False; IV. False; V. True
e. I. False; II. False; III. True; IV. False; V. false

3. Which of the following is included in the cost sheet?

a. Interest Paid
b. Cash Discount
c. Dividends Paid
d. Income Tax Paid
e. None of the above

4. ___________ is regarded as a specialized branch of accounting which involves

classification, accumulation, assignment and control of costs.

a. Costing
b. Cost Accounting
c. Cost Accountancy
d. Cost
e. None of the above

5. Primary packaging material is an example of:

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a. Direct material
b. Indirect material
c. Direct expenses
d. Indirect expenses
e. Overheads

6. Which of the following is the social purpose of Cost Audit?

a. Detection and correction of abnormal losses

b. Detection of errors and frauds
c. Determination of inventory valuation
d. Pinpointing areas of inefficiency and mismanagement for the benefit of shareholders and
consumers
e. All of the above

7. Which section of me Companies Act, 2013 deals with audit of cost accounting records?

a. Section 158
b. Section 148
c. Section 168
d. Section 139
e. Section 140

8. What is the General information attached in the Annexure to Cost Audit Report?

a. Distribution of Earnings
b. Cost Accounting Policy
c. Details of Industry Specific Operating Expenses
d. Reconciliation of items
e. Summary report

9. The selling price of a product is Rs.32/ unit. The variable Cost ratio is 50%. Fixed Cost is
Rs.96,000. Units Sold are 10,000. Calculate Margin of safety in percentage.

a. 40%
b. 50%
c. 60%
d. 70%
e. Cannot be determined.

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10. If sales in an organization is Rs. 1,00,000. The fixed cost is Rs. 12,000 and profit is Rs.
8000, thus PV ratio is:

a. 80%
b. 8%
c. 20%
d. 12%
e. 6%

11. Activity based costing assigns costs to products by tracing expenses to

______________.

a. Products
b. Sales
c. Activities
d. Profits
e. Any of the above

12. Opening inventory Rs. 3,500; Closing inventory Rs. 1,500; Cost of goods sold Rs.
22,000. What is the amount of purchase?

a. Rs. 20,000
b. Rs. 24,000
c. Rs. 27,000
d. Rs. 17,000
e. Rs. 15,000

13. What is a "Cost Object" in cost accounting?

a. A method used to allocate costs effectively across products.

b. Anything for which a separate measurement of cost is desired.
c. The final price set for a product or service in the market.
d. A tool used for tracking the costs within a company.
e. None of the above

14. Match the following cost terms with their correct descriptions:

I. Differential Cost
II. Standard Cost
III. Opportunity Cost
Descriptions:

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A) The cost arising from the loss of alternative opportunities when one alternative is chosen
over another.

B) A cost estimated in advance to assess expected standards of efficient operation.

C) The cost difference between two alternative actions.

Options:

a. I. = C; II. = B; III. =A
b. II. = C; III. = B; I. =A
c. I. = B; II. = C; III. =A
d. III. = C; I. = B; II. =A
e. II. = B; III. = C; I. =A

15. Which method for segregating semi-variable costs uses an equation-based approach to
solve for variable and fixed cost components?

a. Graphical Equation Method

b. High and Low Equation Method
c. Linear Equation Method
d. Least Square Method
e. All of the above

16. A company is considering whether to continue renting machinery or to purchase it

outright. The cost of renting the machinery over the past year represents a(n) ______.

a. Explicit cost
b. Opportunity cost
c. Sunk cost
d. Incremental cost
e. None of the above

17. What is a "Cost Driver" in the context of cost accounting?

a. A principle guiding how costs are driven down in a company.

b. A factor or variable that directly influences the level of a cost.
c. A tool used to drive efficiency in production processes.
d. A type of cost that remains constant regardless of business activity.
e. None of the above

18. Read the below statements and state whether they are true or false:

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Statements:

A) Standard Cost is calculated before production starts.

B) Sunk costs should influence future business decisions.

C) Marginal cost is the cost of producing one more unit of a product.

Options:

a. True, True, True

b. True, False, True
c. False, True, False
d. False, False, True
e. False, False, False

19. Which method uses statistical analysis to find the best fit line for cost behavior?

a. Graphical Method
b. High and Low Method
c. Linear Equation Method
d. Least Square Method
e. None of the above

20. Read the below statements and state whether they are true or false:
Statements:

A) Opportunity cost is the cost of the best alternative that is foregone.

B) Differential cost is the cost difference between two similar products.

C) Discretionary costs are fixed and inevitable.

Options:

a. True, True, True

b. False, False, False
c. True, False, False
d. False, True, True
e. True, True, False

21. Which method for segregating semi-variable costs is described as being

straightforward but prone to inaccuracies due to its reliance on visual interpretation?

a. Graphical Method

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b. High and Low Method

c. Linear Equation Method
d. Least Square Method
e. None of the above

22. Which of the following best describes a "Cost Unit"?

a. The total amount spent on the manufacturing process.

b. A measurement unit related to cost determination for a product, service, or time.
c. The department within an organization that handles cost accounting.
d. The software used to calculate costs in industrial settings.
e. All of the above

23. The application of the principles of accounting and financial management to create,
protect, preserve and increase value for stakeholders is known as ________.

a. Cost accounting
b. Management accounting
c. Financial Accounting
d. Value accounting
e. Audit and accounting

24. Read the below statements and state whether they are true or false:
Statements:

A) Imputed costs involve cash outflows and are recorded in the books of accounts.

B) Period costs are charged to expense as incurred and are related to specific time periods.

C) The Least Square Method is used for finding the best line of fit in segregating fixed and
variable costs.

Options:

a. False, True, True

b. True, False, False
c. False, False, True
d. True, True, True
e. False, False, False

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25. Which of the following methods is commonly used to separate the fixed and variable
components of semi-variable costs?

a. Graphical Method - Utilizes historical data and visual interpretation but is subject to
inaccuracies and human error.
b. High and Low Method - Uses the cost and output at the highest and lowest activity levels
to calculate variable costs per unit and derive fixed costs.
c. Linear Equation Method - Employs a straight-line equation to solve for variable cost per
unit and fixed costs using different levels of output.
d. Least Square Method - Applies statistical analysis to determine the line of best fit for cost
behavior, also known as the Simple Regression Method.
e. All of the above

26. What is a pre-determined cost?

a. A cost that is estimated after production.

b. A cost which is computed in advance before production based on all influencing factors.
c. A variable cost that changes with production.
d. The actual cost incurred after production is completed.
e. None of the above

27. Which of the following best describes "Standard Cost"?

a. The cost incurred during the actual manufacturing process.

b. A historical cost that is used for record-keeping.
c. A pre-determined cost calculated from management’s expected standard of efficient
operation.
d. The lowest cost at which a product can be manufactured.
e. The average cost at which a product can be manufactured.

28. Given the following data extracted from the records of BCG Ltd., calculate the fixed
cost. Machine hours range from a maximum of 800,000 to a minimum of 300,000.
Manufacturing overheads are ₹52 lakh at maximum and ₹32 lakh at minimum. Which of
the following is the fixed cost?

a. ₹5 lakh
b. ₹52 lakh
c. ₹20 lakh
d. ₹40 lakh
e. ₹50 lakh

29. What kind of cost is opportunity cost?

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a. Variable cost
b. Fixed cost
c. Marginal cost
d. Average cost
e. Sunk cost

30. Irrelevant and historical cost is _______.

a. Sunk cost.
b. Variable cost.
c. Notional cost.
d. Shut down cost.
e. Capitalized cost.

31. Which of the following correctly describes the scope of cost accounting?

a. presentation of cost and financial statements

b. ascertaining, presenting and controlling costs
c. ascertaining costs and tax planning
d. financial accounting and cost control
e. All the above

32. Using the Percentage of Overheads on Material Cost method, calculate the overheads
chargeable to the job if the material cost for the job was Rs. 6,000. The total overheads
are Rs. 25,000, and total material costs are Rs. 36,000. What is the overhead charged to
the job?

a. Rs. 3,500
b. Rs. 4,166.4
c. Rs. 5244.6
d. Rs. 5,854.2
e. Rs. 6,000

33. What does under-absorption of overheads indicate in a manufacturing cost system?

a. The actual overhead costs were less than the overheads allocated to production.
b. The overheads allocated to production exceeded the actual overhead costs.
c. The actual overhead costs were higher than the overheads allocated to production.
d. The overheads allocated are equal to the actual overheads.
e. None of the above..

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34. What does over-absorption of overheads imply?

a. It leads to an understatement of product costs.

b. It leads to an overstatement of product costs.
c. It has no impact on product costs.
d. It only affects the variable cost component of products.
e. None of the above.

35. Your company uses a historical cost system and applies overheads on the basis of
Predetermined rates. You need to calculated the amount of overheads under/over
absorbed. The following are the figures from the Trial Balance as at 31-03-2024:
Dr. Cr.

Manufacturing overheads: 4,26,544 -

Manufacturing overheads applied: 3,65,904

a. Over absorbed by 60,640

b. Under absorbed by 60,640
c. No under or over absorption
d. Over absorbed by 4,26,544
e. Under absorbed by 4,26,544

36. What are the recommended ways to handle over or under absorption of overheads?

a. Writing off to the Profit and Loss Account.

b. Carrying forward to the next period through a reserve account.
c. Using supplementary rates to adjust costs.
d. All of the above.
e. None of the above.

37. In case of rising prices (inflation), FIFO method will:

a. provide lowest value of closing stock and profit

b. provide highest value of closing stock and profit
c. provide highest value of closing stock but lowest value of profit
d. provide highest value of profit but lowest value of closing stock
e. None of the above

38. What is a blanket overhead rate?

a. One single overhead absorption rate for the whole factory.

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b. Rate which is blank or nil rate.

c. Rate in which multiple overhead rates are calculated for each production department,
service department etc.
d. Always a machine hour rate.
e. Department specific rate.

39. …………………….is a process to ensure that appropriate action is taken if costs exceed
a pre-set allowance (as budgeted/ estimated) or actions to be taken if costs are
expected to exceed the expected levels.

a. Cost Reduction
b. Cost Classification
c. Cost Control
d. Cost Determination
e. None of the above

40. ……………… is defined as the achievement of real and permanent reduction in the unit
cost of goods manufactured or services rendered without impairing their suitability for
the use intended or diminution in the quality of the product.

a. Cost Reduction
b. Cost Classification
c. Cost Control
d. Cost Determination
e. None of the above

41. The amount at any given volume of output by which aggregate costs are changed if
the volume of output is increased or decreased by one unit, is referred to as which
among the following?

a. Absorption Cost
b. Total Cost
c. Marginal Cost
d. Fixed Cost
e. Average Cost

42. The costs that are notional costs which do not involve any cash outlay are referred to
as which among the following?

a. Explicit Cost
b. Marginal Cost
c. Absorption Cost
d. Imputed Cost
e. Total Cost

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43. …………. are the costs, which are not assigned to the products but are charged as
expenses against the revenue of the period in which they are incurred.

a. Product Cost
b. Marginal Cost
c. Absorption Cost
d. Imputed Cost
e. Period Cost

44. Mr. A is addressing to a the costing technique of his product to Mr. C and says “Here
the cost of completing each stage of work is ascertained, like cost of making pulp and
cost of making paper from pulp.” Which type of costing technique is he referring to?

a. Job Costing
b. Batch Costing
c. Contract Costing
d. Process Costing
e. Standard Costing

45. ……………. Is the practice of charging all costs, both variable and fixed to operations,
processes or products.

a. Explicit Cost
b. Marginal Cost
c. Absorption Cost
d. Process Costing
e. Contract Costing

46. Which among the following is the relevant cost among the following?

a. Cost incurred for R&D (Research & Development)

b. Sunk Costs
c. Committed costs
d. Opportunity costs
e. None of the above

47. …………. is the cost incurred to convert raw materials into finished goods
a. Prime Cost
b. Manufacturing Cost
c. Conversion Cost

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d. Cost of Production
e. COGS

48. …………….. are expected future costs which are essential but differ for alternative course or action.
a. Implicit Cost
b. Explicit Cost
c. Marginal Cost
d. Relevant Cost
e. Differential Cost

49. The size of the order for which both ordering and carrying cost are at minimum is
known as:
a. Rational order Quantity
b. Optimal order Quantity
c. Standard Order Quantity
d. Economic Order Quantity
e. None of the above

50. Closing stock is valued at the oldest stock price in which among the following methods
of valuation of inventory?

a. LIFO
b. FIFO
c. Average Cost
d. b and c
e. None of the above

51. When Sales are 360000, and GP ratio is 50% and the average inventory is 90000, what is
the inventory turnover ratio?

a. 2
b. 0.5
c. 4
d. 2.5
e. 3

52. ……………….is a system of selective inventory control whereby the measure of control over an item of
inventory varies with its usage value.

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a. Marginal Costing
b. Absorption Costing
c. ABC Analysis
d. JIT system
e. Kaizen

53. ABC Company supplies plastic crockery to fast food restaurants in metropolitan city. One ofits
products is a special bowl, disposable after initial use, for serving soups to its customers. Bowls are
sold in pack 10 pieces at a price of Rs.50 per pack.
The demand for plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year.
The company purchases the bowl direct from manufacturer at Rs.40 per pack within athree days
lead time. The ordering and related cost is Rs.8 per order. The storage cost is 10% per annum of
average inventory investment. Calculate the EOQ.

a. 100
b. 200
c. 300
d. 400
e. 500

54. Labour cost that is specifically incurred for or can be readily chargedto or identified with
a specific job, contract, work order or any other unit of cost, will be classified as which
among the following?

a. Indirect Labor
b. Direct Labor
c. Overheads
d. B and c
e. A and b

55. Which of the following will be true if a company reduces its variable cost?

a. Contribution margin and break even point will increase

b. Contribution margin and break even point will decrease
c. Contribution margin will increase and break even point will decrease
d. Contribution margin will decrease and break even point will increase
e. Any of the above depending on level of production

56. Which of the following is incorrect?

a. A product, service, centre, activity or customer in relation to which costs are ascertained is
known as cost object

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b. Grouping of costs relating to a particular activity in an activity based costing system is known
as cost pool
c. Cost relating to a particular duration of time rather than to the output of products/service is
known as period costs
d. The cost that is used in product evaluation or decision making to reflect the use of resources
that have no actual cost are known as notional costs.
e. All are correct

57. The process of recovering overheads of a cost center from its output is known as _____?

a. Cost allocation
b. Cost appointment
c. Cost absorption
d. Cost apportionment
e. Cost re-appointment

58. State the type of cost in the following Case:

Withdrawing money from bank deposit for the purpose of purchasing new machine for
expansion purpose.

a. Imputed Cost
b. Opportunity Cost
c. Shut Down Cost
d. Product Cost
e. None of the above

59. State the type of cost in the following Case:

Interest paid on own capital not involving any cash outflow.

a. Imputed Cost
b. Opportunity Cost
c. Shut Down Cost
d. Product Cost
e. None of the above

60. When the amount of under absorbed and over absorbed overhead is significant or large,
which of the following accounting treatment is most suitable?

a. Application of supplementary rate

b. Carry over of overheads
c. Transfer to Costing Profit and Loss account
d. Charging to Profit and Loss account

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e. All of the above

61. The process of accounting for cost which begins with the recording of income and
expenditure or the bases on which they are calculated and ends with the preparation of
periodical statements and reports for ascertaining and controlling costs is known as
which among the following:

a. Management Accounting
b. Cost Accounting
c. Financial Accounting
d. Both a and b
e. Both a and c

62. ______ is defined as a location, person or an item of equipment (or group of these) for
which cost may be ascertained and used for the purpose of cost control.

a. Cost Object
b. Cost Element
c. Cost unit
d. Cost driver
e. Revenue driver

63. _________ is a process to ensure that appropriate action is taken if costs exceed a pre-
set allowance (as budgeted/ estimated) or actions to be taken if costs are expected to
exceed the expected levels.

a. Cost Reduction
b. Cost Control
c. Cost Ascertainment
d. Both A and b
e. Both a and c

64. _________ is defined as the achievement of real and permanent reduction in the unit cost
of goods manufactured or services rendered without impairing their suitability for the
use intended or diminution in the quality of the product.

a. Cost Reduction
b. Cost Control
c. Cost Ascertainment
d. Both A and b
e. Both a and c

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65. Which among the following is an incorrect classification of cost, if we classify costs on
the basis of nature of element?

a. Material Cost
b. Labour Cost
c. Prime Cost
d. Other Expenses
e. None of the above

66. _________ represents the change (increase or decrease) in total cost (variable as well as
fixed) due to change in activity level, technology, process or method of production, etc.

a. Marginal Cost
b. Differential Cost
c. Absorption Cost
d. Imputed Cost
e. None of the above

67. _________ are the costs, which are not assigned to the products but are charged as
expenses against the revenue of the period in which they are incurred.

a. Opportunity Cost
b. Sunk Costs
c. Relevant Cost
d. Product Cost
e. Period Cost

68. Historical costs incurred in the past are known as ______ costs. They play no role in
decision making in the current period.

a. Opportunity Cost
b. Sunk Costs
c. Relevant Cost
d. Product Cost
e. Period Cost

69. __________ among the following is also referred to as Economic Costs?

a. Sunk Cost

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b. Implicit Cost
c. Irrelevant Cost
d. Relevant Cost
e. None of the above

70. Costs which cannot be influenced by the action of a specified member of an undertaking
are known as?

a. Controllable Costs
b. Explicit Costs
c. Implicit Costs
d. Uncontrollable Costs
e. None of the above

71. Which among the following are the centres which are the part of a business which is
accountable for both cost and revenue?

a. Cost Centres
b. Profit Centres
c. Investment Centres
d. Both a and b
e. Both b and c

72. Which of the following statement regarding blanket overhead is NOT correct?

a. Blanket overhead rate is one single overhead absorption rate for the whole factory or plant
b. It can be computed by using the formula Total overhead costs divided by the total output or
total labour hours
c. Blanket rate should be used for factories which produce only one major product on a
continuous basis
d. Blanket rate should be used in those units in which all products utilise same amount of time
in each department
e. All are correct

73. Which of the following is the correct basis to apportion the following overhead cost items
to the production department?

A. Repair of machinery – machine hours

B. Maintenance of building – floor area
C. Executive salary – actual basis
D. Rent – floor area

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a. A and B
b. B and D
c. A, B and D
d. A, B and C
e. All of the above

74. Which of the following is an example of functional classification of cost:

a. Direct Material Cost

b. Fixed Cost
c. Administrative Overheads
d. Indirect Overheads.
e. Variable overheads

75. Ticket counter in a Railway Station is an example of

a. Cost Centre
b. Revenue Centre
c. Profit Centre
d. Investment Centre
e. None of the above

76. Which of the following is Not true about the cost control and cost reduction:

a. Cost control seeks to attain the lowest possible cost under best conditions.
b. Cost control emphasizes on past and present.
c. Cost reduction is a corrective function. It operates even when an efficient cost control
system exists.
d. Cost control ends when targets are achieved.
e. None of the above

77. Under Weighted Average (Average) Method:

a. The cost to complete the opening WIP is ignored.

b. The cost to complete the opening WIP and other completed units are calculated
separately.
c. The cost of opening work-in-process and cost of the current period are aggregated and
the aggregate cost is divided by output in terms of completed units.
d. Closing stock of work in process is valued at current cost.
e. None of the above

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78. Which of the following is not a relevant cost?

a. Replacement cost
b. Sunk cost
c. Marginal cost
d. standard cost
e. None of the above

79. Process cost is very much applicable in:

a. Construction industry
b. Pharmaceutical industry
c. Airline company
d. Customized Products
e. none of these

80. Opportunity cost is the best example of:

a. sunk cost
b. Standard cost
c. relevant cost
d. irrelevant cost
e. None of the above

81. Costs are classified into fixed costs, variable costs and semi-variable costs, it is known
as:

a. functional classification
b. behavioral classification
c. element wise classification
d. classification according to controllability
e. None of the above

82. In which of the following methods of pricing, costs lag behind the current economic
values?

a. Replacement price method

b. Last in first out price method
c. First in first out price method

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d. Weighted average price method

e. None of the above

83. Which of the following items is not excluded while preparing a cost sheet?

a. Goodwill written off

b. Provision for taxation
c. Property tax on factory building
d. Transfer to reserves
e. Interest paid

84. Variable costs are fixed:

a. for a period
b. per unit
c. depends upon the entity
d. for a particular process of production
e. None of the above

85. In behavioral analysis costs are divided into:

a. production and non-production costs

b. controllable and non-controllable costs
c. direct and indirect costs
d. fixed and variable costs
e. None of the above

86. The following is included in financial accounts, but not in cost accounts.
(a) carriage and freight

(b) Excise duty

(c) Royalty

(d) Dividend paid

(e) None of the above

87. Interest on own capital is:

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a. Cash cost
b. Notional cost
c. Sunk cost
d. Part of Prime Cost
e. Fixed Cost

88. A company employs three drivers to deliver goods to its customers. The salaries paid
to these drivers are:

a. a part of prime cost

b. a direct production expense

c. a production overhead

d. a selling and distribution overhead

e. None of the above

89. ________ is a method of dealing with overheads which involves spreading common
costs over cost centers on the basis of benefit received.

a. overhead absorption

b. overhead apportionment

c. overhead allocation

d. overhead analysis

e. None of the above

90. Absorption costing is also referred as _______

a. Historical costing
b. Traditional costing
c. Full costing
d. All of the above
e. None of the above

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91. A company has to pay a 1 per unit royalty to the designer of a product which it
manufactures and sells. The royalty charge would be classified in the company’s
accounts as a _______

a. Direct expense
b. Production overhead
c. Administrative overhead
d. Selling overhead
e. Indirect expense

92. When costing loss is 5,600, administrative overhead under-absorbed being 600, the
loss as per financial accounts should be _______.

a. 5,000
b. 5,600
c. 6,200
d. 8,500
e. None of the above

93. The guidance and regulation by executive action of the cost of operating an
undertaking is said to be

a. Budgetary control
b. cost control
c. cost analysis
d. Budget
e. None

94. Indirect material cost is a part of

a. Prime cost
b. Factory overhead
c. Chargeable expenses
d. Fixed Cost
e. None of these

95. A taxi provider charges minimum 80 thereafter 12 per kilometer of distance travelled,
the behaviour of conveyance cost is:

a. Fixed Cost
b. Semi-variable Cost

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c. Variable Cost
d. Administrative cost.
e. Overhead Cost

96. Which costing method is most appropriate for interior decoration projects?

a. Process costing
b. Batch costing
c. Job costing
d. Standard costing
e. Activity-based costing

97. Which costing method is typically used in the readymade garments industry?

a. Absorption costing.
b. Process costing.
c. Job costing.
d. Batch costing.
e. Job costing.

98. What document is prepared when surplus material from one job is directly utilized in
another job without being returned to stores first?

a. Material Requisition Note

b. Material Return Note
c. Material Transfer Note
d. Material Swift Note
e. Inventory Adjustment Note

99. Which costing method is best suited for the oil refining industry?

a. Absorption costing
b. Marginal costing
c. Process costing
d. Job costing
e. Activity-based costing

100. Which of the following are the main points of distinction between job costing and
contract costing?

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a. Length of time to complete.

b. Size of the job
c. Location of the work
d. All of the above
e. None of the above

101. Which of the following is not a method of costing?

a. Operating Costing
b. Standard Costing
c. Job Costing
d. Contract Costing
e. Batch Costing

102. Indirect cost is that cost incurred by a firm which:

a. has already been incurred and cannot be avoided.

b. can be easily traceable to a product.
c. are common to several products.
d. are aggregate of variable cost.
e. None of the above

103. Using the following data, calculate the Economic Order Quantity (EOQ) for the
consumption of materials:
Annual consumption: 10,000 kg

Cost per order: ₹50

Cost per kg of raw materials: ₹2

Storage cost: 8% of the average inventory

Which of the following is EOQ?

a. 2,600 kg
b. 2,510 kg
c. 2,500 kg
d. 2,700 kg

104. Which costing method is typically employed for road transport services?

a. Absorption costing

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 MCQ Booklet - Costing

b. Marginal costing
c. Job costing
d. Operating costing
e. Activity-based costing

105. If 16000 units are introduced in a process and normal loss is 5% of input, Closing WIP is
2000 units which is 60% complete and 13200 units are transferred to the next process,
what is the equivalent production for the period?

a. 13200
b. 13600
c. 14400
d. 15200
e. 16000

106. Calculate the prime cost from the following information:

Direct material purchased: Rs. 1,00,000

Direct material consumed: Rs. 90,000

Direct labour: Rs. 60,000

Direct expenses: Rs. 20,000

Manufacturing overheads: Rs. 30,000

a. Rs. 1,80,000
b. Rs. 2,00,000
c. Rs. 1,70,000
d. Rs. 2,10,000
e. Rs. 300,000

107. What is a Bin Card?

a. Quantitative as well as value wise records of material received, issued and balance;
b. Quantitative record of material received, issued and balance
c. Value wise records of material received, issued and balance
d. a record of labor attendance
e. None of the above

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 MCQ Booklet - Costing

108. If WIP value is 60000 and Contract price is 100000, and progress payments received are
50000, by how much the contract account be credited?

a. 50000
b. 60000
c. 100000
d. 80000
e. 120000

109. If the cost of work certified is 70000, cost of work uncertified is 30000. Similarly, value
of work certified is 90000 and value of work uncertified is 37000, by what amount will be
the contract account be credited?

a. 100000
b. 90000
c. 127000
d. 67000
e. 120000

110. If the Value of work certified is 250000 and the Value of Work uncertified is 100000, and
the contractee is paying 200000 to the contractor, then what is the retention ratio?

a. 25%
b. 20%
c. 42.86%
d. 40%
e. 35%

111. If the Contact price is agreed as a Cost +15%, and if the Initial estimated cost price is
500000. If the escalation clause is mutually agreed between the parties of the contract
and the country has experienced a uniform inflation of 5%, What is the new contract
price?

a. 600000
b. 750000
c. 603750
d. 525000
e. 575000

112. The architect has reported that the work certified is 300000, and the cost of Work
uncertified is 75000, the Contractee is paying 250000 to the contractor, and if the
contract price is 500000. What is the value with which the contract account will be
credited?

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 MCQ Booklet - Costing

a. 500000
b. 300000
c. 250000
d. 375000
e. 425000

113. In case of abnormal gain, the net gain transferred to the costing P&L account will be
with which amount among the following?

a. Abnormal Gain Qty * Cost/ unit

b. Abnormal Gain Qty * Scrap Value
c. Abnormal Gain Qty * (Cost/ unit – Scrap Value that would have been realized)
d. This will not be transferred to the costing P&L account
e. Lower of a and b

114. If the units introduced in a process is 50 and 6% is the normal loss. The actual loss is
8% and the 25% of the output is 50% complete. What is the quantity of equivalent
production units?

a. 40
b. 40.25
c. 46
d. 47
e. 50

115. In case the units introduced in a process are 100 and 10% is the normal loss. The actual
output is 92, what is the units of abnormal gain and abnormal loss?

a. 0,8
b. 0,2
c. 2,0
d. 2,8
e. 8,2

116. The value of which among the following will be absorbed by good production units?

a. Normal loss
b. Abnormal loss
c. Both a and b
d. Abnormal gain
e. All a, b and d

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 MCQ Booklet - Costing

117. Contract cost account will be debited by which among the following?

• Direct materials – 70000

• Direct Labour – 20000
• Total Rent incurred by head office – 100000
• Space of the head office used for this contract is 20%.

a. 70000
b. 90000
c. 190000
d. 120000
e. 110000

118. Mr. A has got a contract from Ram for a construction of a building and Mr. A has
delegated the task of getting the flooring done to Mr. Guru. Here, Mr. A, Ram and Mr
Guru will be referred to as which among the following?

a. Contractor, Contractee, Contractor

b. Contractee, Contractor, Contractee
c. Sub-contractor, Contractee, Contractor
d. Contractor, Contractee, Sub-contrcator
e. Sub-contractor, Contractee, Sub- contractor

119. What is the relation between Retention Ratio & Cash Ratio?

a. Retention ratio – Cash Ratio = 1

b. Retention ratio + Cash Ratio = 1
c. Retention ratio + Cash Ratio = 2
d. Retention ratio - Cash Ratio = 10
e. Retention ratio - Cash Ratio = 2

120. A factory incurred the following expenditure during the year 2021. Calculate the cost of production from
the following data.

(Rs.) (Rs.)
Direct material consumed 12,00,000
Manufacturing Wages 7,00,000
Manufacturing overhead:
Fixed 3,60,000
Variable 2,50,000 6,10,000

a. 1900000
b. 1510000
c. 2510000

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 MCQ Booklet - Costing

d. 2260000
e. 2150000

121. Which among the following formulae correctly calculates the value of work certified?

a. Cost of Contract * Degree of Work certified

b. Value of Contract * Degree of Work certified
c. Cost of Work certified + cost of work uncertified
d. Value of Contract * Degree of Work certified - cost of work uncertified
e. None of the above

122. Choose the correct option among the following?

a. Op Stock + Net Purchases + Direct Expenses + Closing Stock = COGS

b. Op Stock - Net Purchases + Direct Expenses + Closing Stock = COGS
c. - Op Stock + Net Purchases - Direct Expenses + Closing Stock = COGS
d. Op Stock + Net Purchases + Direct Expenses - Closing Stock = COGS
e. Op Stock + Net Purchases - Direct Expenses - Closing Stock = COGS

123. Total costs incur in a production process, is divided by total number of output units to
calculate which among the following?

a. unit costs
b. cost of direct material
c. cost of direct labor
d. cost of indirect labor
e. None of the above

124. Which of the following is true regarding Economic batch quantity?

A. The determination of economic batch quantity involves two types of costs - set up cost and
carrying cost.
B. With the increase in the batch size, there is a decrease in the carrying cost and an increase
in the set-up cost per unit.
C. With the decrease in the batch size, there is a increase in the carrying cost and a decrease
in the set-up cost per unit.
D. Economic batch quantity is that batch size for which both set up and carrying costs are
minimum.

a. A and B
b. A and C
c. A and D
d. B and D

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 MCQ Booklet - Costing

e. C and D

125. Mr A is teaching his son about a particular Costing technique and says:
“Here the cost of a product is ascertained, the product being the only one produced
like bricks, coals, etc.”
Mr A is referring to which among the following Costing techniques?

a. Job Costing
b. Batch Costing
c. Unit Costing
d. Process Costing
e. Contract Costing

126. Suppose a firm manufactures bicycles including its components; costing of the parts
will be done by the system of job or batch costing but the cost of assembling the bicycle
will be computed by the Single or output costing method. The whole system of costing
is known as ________.

a. Mixed Costing
b. Multiple Costing
c. Rotational Costing
d. A and b
e. None of the above

127. Which among the following costing technique is a technique of cost ascertainment and
cost control?

a. Job Costing
b. Standard Costing
c. Contract Costing
d. Uniform Costing
e. Marginal Costing

128. ________ is a practice of charging all costs, both variable and fixed to operations,
processes or products.

a. Marginal Costing
b. Absorption Costing
c. Standard Costing
d. Both a and b
e. None of the above

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 MCQ Booklet - Costing

129. Which of the following is not one of the differences between process and job costing?

a. Under job costing, a particular job is carried out as per specified orders while under process
costing, there is continuous flow of production of a homogenous product
b. Under job costing, cost is determined for each order while under process costing, costs are
compiled on time basis.
c. Under job costing, costs are computed when a job is completed while under process
costing, costs are calculated at the end of the cost period
d. Under job costing, the production is standardised and requires less control while under
process costing more effective control by management is required as production happens
in large quantity
e. All are correct

130. The production planning department prepares a list of materials and stores required for
the completion of a specific job order, this list is known as:

a. Bin card
b. Bill of material
c. Material requisition slip
d. Goods receipt note
e. None of the above

131. From the below information find out the Factory Cost.
Prime Cost = 33,500

Depreciation = 1,500

Factory rent is 200% of Depreciation.

a. 35000
b. 36500
c. 38000
d. 33,500
e. 43,000

132. Mr. Y has ₹ 1,50,000 investment in a business. He wants a 15% profit on his money.
From an analysis of recent cost figures, he finds that his variable cost of operating is
60% of sales; his fixed costs are ₹ 75,000 per year. What sales volume must be obtained
to break even?

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 MCQ Booklet - Costing

a. 1,28,600
b. 1,69,800
c. 1,97,600
d. 2,85,000
e. 1,87,500

133. Mr. Y has ₹ 1,50,000 investment in a business. He wants a 15% profit on his money.
From an analysis of recent cost figures, he finds that his variable cost of operating is
60% of sales; his fixed costs are ₹ 75,000 per year. What sales volume must be obtained
to his 15% return of investment?

a. 1,21,800
b. 2,43,750
c. 4,13,850
d. 1,34,250
e. 3,84,300

134. In case product produced are of diverse nature, the system of costing to be used
should be:

a. Process costing
b. Operating costing
c. Job costing’
d. Batch Costing
e. None of the above

135. The type of process loss that should not be allowed to affect the cost of good units is:

a. Abnormal loss
b. Normal loss
c. Seasonal loss
d. Standard loss
e. None of the above

136. Batch costing is a type of:

a. Process costing
b. Job Costing
c. Differential costing
d. Direct costing
e. Contract Costing

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 MCQ Booklet - Costing

137. Contract Costing is used usually In case of:

a. Short Term Contracts

b. Long Term Contracts
c. Very Short Term
d. Any of the above
e. None of the above

138. Lean Labs develops 55mm film using a four-step process that moves progressively
through four departments. The company specializes in overnight service and has the
largest drug store chain as its primary customer. Currently, direct labor, direct
materials, and overhead are accumulated by departments. The cost accumulation
system that best describes the system Lean Labs is using is:

a. Operation costing.
b. Activity-based costing.
c. Job-order costing.
d. Process costing.
e. Contract Costing

139. IC Limited uses process costing systems and inspects its goods post manufacturing.
An engineer noticed on May 31st the following:
Good units completed 15,000

Normal spoilage (units) 300

Abnormal spoilage (units) 100

Unit costs were: Material ` 2.50 and conversion costs (Labour & overheads) 6.00. The
number of units that company would transfer to its finished goods stock and the related
cost of these units are:

a. 15,000 units transferred at a cost of 127,500

b. 15,000 units transferred at a cost of 130,050
c. 15,000 units transferred at a cost of 135,000
d. 15,300 units transferred at a cost of 130,050
e. 12,000 units transferred at a cost of 121,000

140. Directors’ remuneration and expenses form a part of

a. Production overhead

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 MCQ Booklet - Costing

b. Administration overhead
c. Selling overhead
d. Distribution overhead
e. None of the above

141. The works cost plus administration expenses

a. Total Cost
b. Cost of production
c. cost of sales
d. Factory cost
e. None of the above

142. Prime cost plus factory overheads is known as

a. factory on cost
b. conversion cost
c. factory cost
d. marginal cost
e. None of the above

143. Which of the following is considered as accounting record?

a. Bind Card
b. Bill of Material
c. Store Ledger
d. Time Sheets
e. None of these

144. Prime cost may be correctly termed as

a. the sum of direct material and labour cost with all other costs excluded.
b. the total of all cost items which can be directly charged to product units.
c. The total costs incurred in producing a finished unit.
d. the sum of the large cost there in a product cost.
e. None of the above

145. The cost of normal process loss is -

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 MCQ Booklet - Costing

a. Absorbed by good units produced and amount realised by the sale of loss units should be
debited to the process account.
b. Debited to costing profit and loss account.
c. Absorbed by good units produced.
d. Debited to costing profit and loss account and amount realised by the sale of loss units
should be credited to the process account.
e. None of the above

146. Advertisements are treated as

a. direct expenses
b. cost of production
c. selling overheads
d. distribution overheads
e. factory overheads

147. Cost units used in power sector is:

a. Kilometer (K.M)
b. Kilowatt-hour (kWh)
c. Number of electric points
d. Number of hours
e. None of the above

148. Unit Costing is applicable where:

a. Product produced are unique and no 2 products are same

b. Dissimilar articles are produced as per customer specification
c. homogeneous articles are produced on large scale
d. Products made require different raw materials
e. All of the above

149. How many parties are there in contract costing:

a. 1
b. 2
c. 3
d. 4
e. Can be multiple

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 MCQ Booklet - Costing

150. Batch costing is similar to that under job costing except with the difference that a:

(a) Job becomes a cost unit.

(b) Batch becomes the cost unit instead of a job

(c) Process becomes a cost unit

(d) None of the above

151. A Ltd. Has three production department, and each department has two machines, which
of the following cannot be treated as cost centre for cost allocation:

(a) Machines under the production department

(b) Production departments

(c) Both Production department and machines

(d) A Ltd.

(e) None of the above

152. Job Costing is:

a. Applicable to all industries regardless of the products or services provided

b. Technique of costing
c. Suitable where similar products are produced on mass scale
d. Method of costing used for non- standard and non- repetitive products.
e. All of the above

153. The value of abnormal loss is equal to:

a. Total cost of materials

b. Total process cost less realizable value of normal loss
c. Total process cost less cost of scrap
d. Total process cost less realizable value of normal loss less value of transferred out goods.
e. None of the above

154. Which of the following are direct expenses?

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 MCQ Booklet - Costing

i. The cost of special designs, drawings or layouts

ii. The hire of tools or equipment for a particular job

iii. Salesman’s wages

iv. Rent, rates and insurance of a factory

a. (i) and (ii)

b. (i) and (iii)
c. (i) and (iv)
d. (iii) and (iv)
e. None of the above

155. Audit fees paid to cost auditors is part of:

a. Selling and distribution cost

b. Production cost
c. Administration cost
d. Not recorded in the cost sheet
e. Any of the above depending on management judgement

156. A company has set up a laboratory for testing of products for compliance with
standards. Salary of this laboratory stuffs are part of:

a. Direct expenses
b. Quality control cost
c. Works overheads
d. Research and development cost
e. Advertisement Cost

157. Canteen expenses for factory workers are part of:

a. Administration cost
b. Factory overhead
c. Marketing cost
d. Selling & Distribution Cost
e. None of the above

158. Which of the following does not form part of prime cost?

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 MCQ Booklet - Costing

a. GST paid on raw materials (input credit can be claimed)

b. Cost of transportation paid to bring materials to factory
c. Cost of packing
d. Overtime premium paid to workers
e. None of the above

159. A company pays royalty to State Government on the basis of production, it is treated
as:

a. Direct expenses
b. Factory overheads
c. Direct Material Cost
d. Administration Cost
e. None of the above

160. Calculate the amount of direct material if:

Prime cost = 50,000

Variable Production Overheads = 20,000

Fixed Production Overheads = 10,000

Direct labour = 70% of prime cost.

a. 35,000
b. 15,000
c. 21,000
d. 24,000
e. 22,000

161. From the following information, calculate Economic Batch Quantity for a company
using batch costing:
Annual Demand for the components 2,400 units

Setting up cost per batch ₹ 100

Manufacturing cost per unit ₹ 200

Carrying cost per unit 6% p.a.

a. 100 Units
b. 150 Units
c. 200 Units

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 MCQ Booklet - Costing

d. 250 Units
e. 300 Units

162. Which of the following items is not included in preparation of cost sheet?
a. Carriage inward
b. Purchase returns
c. Sales commission
d. Interest paid
e. Production Overheads

163. Calculate the Economic Order Quantity from the following information. Also state the
number of orders to be placed in a year.
Consumption of materials per annum: 10,000 kg

Order placing cost per order: 50

Cost per kg of raw materials: 2

Storage costs: 8% on average inventory

a. EOQ 2000 Units & 4 Orders per year

b. EOQ 2600 Units & 8 Orders per year
c. EOQ 2500 Units & 4 Orders per year
d. EOQ 3000 Units & 8 Orders per year
e. EOQ 2200 Units & 8 Orders per year

164. The main points of distinction between job and contract costing includes:

a. Length of time to complete.

b. Big jobs
c. Activities to be done outside the factory area
d. All of the above
e. None of the above

165. In job costing which of the following documents are used to record the issue of direct
material to a job:

a. Goods received note

b. Material requisition
c. Purchase order
d. Purchase requisition

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 MCQ Booklet - Costing

e. Goods receipt note

166. Which of the following statements is true:

a. Job cost sheet may be used for estimating profit of jobs.

b. Job costing cannot be used in conjunction with marginal costing.
c. A production order is an order received from a customer for particular jobs.
d. Batch costing is useful for long term projects
e. None of these.

167. ……………….. is anything for which a separate measurement is required.

a. Cost unit
b. Cost object
c. Cost driver
d. Cost centre
e. None of the above

168. A process account is debited by abnormal gain, the value is determined as:

a. Equal to the value of normal loss

b. Cost of good units less realizable value of normal loss
c. Cost of good units less realizable value of actual loss
d. Equal to the value of good units less closing stock
e. None of the above

169. 200 units were introduced in a process in which 20 units is the normal loss. If the actual
output is 150 units, then there is:

a. No abnormal loss
b. No abnormal gain
c. Abnormal loss of 30 units
d. Abnormal gain of 30 units
e. None of the above

170. Inter-process profit is calculated, because:

a. a process is a cost centres

b. each process has to report profit

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 MCQ Booklet - Costing

c. the efficiency of the process is measured

d. the wages of employees are linked to the process profitability.
e. None of the above

171. The most suitable cost system where the products differ in type of materials and work
performed is:

a. Job Costing
b. Process Costing
c. Operating Costing
d. Batch Costing
e. None of these.

172. Contract Account is _______ with contract Price?

a. Debited
b. Credited
c. Can be either a. or b.
d. None of the above

173. Find Cost of Goods Sold from the following information:

Cost of Sales = 37,416
Advertisement Expenses = 600
Discount on sales = 50% of advertising Expenses.

a. 37,716
b. 37,116
c. 38,316
d. 36,516
e. 37,416

174. Prime Cost is 41,000. Direct labor cost consists of skilled labor 6,000 and unskilled
labor 2,000. Variable works overhead is 100% of direct wages and fixed works overhead
is 60% of direct wages. The sale of scrap is 1,800. Find the works cost.

a. 52,000
b. 61,800
c. 50,600
d. 48,800
e. 48,200

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 MCQ Booklet - Costing

175. Which method of costing is used for determination of costs for printing industry?

a. process costing
b. operating costing
c. batch costing
d. job costing
e. None of the above

176. The average annual consumption of a material is 18,250 units at a price of ` 36.50 per
unit. The storage cost is 20% on an average inventory and the cost of placing an order
is ` 50. How much quantity is to be purchased at a time?

a. 500 Units
b. 31 Units
c. 800 Units
d. 750 Units
e. 1250 Units

177. Which of the following items is excluded from cost Accounts?

a. Income tax
b. interest on debentures
c. cash discount
d. All of these
e. None of these

178. A ______ is a booklet specifying the objectives of an organization in relation to its

spending strategy.

a. Budgetary control
b. Budget manual
c. Key factor
d. Budget Controller
Answer: b. Budget manual

179. A firm has total sales of Rs. 4,00,000 and variable cost of Rs. 2,00,000. If the firm has
made profit of Rs. 50,000, then the profit volume ratio of the firm is:

a. 50%
b. 30%
c. 20%
d. 40%

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 MCQ Booklet - Costing

e. 60%

180. XYZ Ltd. has a total fixed cost of Rs. 2,00,000. The selling price per unit is Rs. 50 and
the variable cost is Rs. 30. The break-even points are:

a. 12,000 units
b. 10,000 units
c. 5000 units
d. 4000 units
e. 3000 units

181. Standard costing is a technique which involves comparison of

a. variable cost with the total cost

b. fixed cost with the variable cost
c. actual cost with the competitor's cost to find variation
d. actual cost with the standard cost to find variation
e. variable cost with the total cost

182. Which of the following statements are true about marginal costing?

a. In marginal costing, fixed costs are treated as product costs

b. Marginal costing is not an independent system of costing
c. The elements of cost in marginal costing are divided into fixed and variable components
d. Both b and c
e. Only c option

183. Which of the following assumptions are made while calculating marginal cost?

a. Total fixed cost is constant at all levels of output

b. Total variable cost varies according to the volume of output
c. All elements of cost can be divided into fixed and variable components
d. All of the above
e. Only a & b

184. Contribution margin in marginal costing is also known as _________.

a. Net income
b. Gross profit
c. Marginal income
d. Incremental profit

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 MCQ Booklet - Costing

e. None of the above

185. Which of the following are NOT assumptions of Marginal Costing?

(1) The total cost can be segregated into fixed and variable costs.

(2) Fixed costs per unit of production remain constant.

(3) Variable cost remains constant per unit of output.

(4) The selling price per unit remains unchanged.

(5) Variable cost is variable per unit.

Choose the correct answer from the options given below:

a. (1) and (2) only

b. (2) and (5) only
c. (3) and (4) only
d. (2) and (3) only
e. (1) & (3) only

186. A company proposes to introduce a new product in the market. The company wants to
maintain the P/V Ratio at 25%. If the variable cost of the product is Rs. 300, what will be
the selling price?

a. Rs. 100
b. Rs 200
c. Rs. 300
d. Rs. 400
e. Rs. 500

187. The income or gain expected from the second-best use of resources lost due to the
best use of the scarce resources is known as:

a. Marginal Cost
b. Opportunity Cost
c. Explicit Cost
d. Incremental Cost
e. None of the above
Answer b. Opportunity cost.

188. What is the impact on profitability when sales exceed production, meaning the closing
stock is less than the opening stock?

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 MCQ Booklet - Costing

a. Absorption costing shows higher profitability.

b. Marginal costing shows higher profitability.
c. Profits remain unchanged under both costing methods.
d. Any of the above
e. None of the above

189. What happens to profitability under absorption and marginal costing when production
equals sales and there is no opening or closing stock?

a. Profitability under absorption costing is higher.

b. Profitability under marginal costing is higher.
c. Profitability is the same under both absorption and marginal costing.
d. Any of the above
e. None of the above

190. What is calculated by the formula: Standard Price × (Standard Quantity - Actual
Quantity)?

a. Material Price Variance

b. Material Cost Variance
c. Material Mix Variance
d. Material Usage Variance
e. Material Yield Variance

191. Given the sales turnover and profit for the years 2003 and 2004 as follows, what is the
P/V ratio?
Sales and Profit:

In 2003: Sales = Rs 1,40,000; Profit = Rs 15,000

In 2004: Sales = Rs 1,60,000; Profit = Rs 20,000

What is the P/V ratio for these two years?

Options:

a. 20%
b. 25%
c. 30%
d. 12.5%
e. 11.6%

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 MCQ Booklet - Costing

192. There can be variety of budget. Name the budget which relates to a particular function of
the business.
a. Flexible Budget
b. Fixed Budget
c. Functional Budget
d. Budget Centre
e. None of the above

193. What is the name for an order size that minimizes inventory ordering and carrying
costs?

a. Order point
b. Safety stock
c. EQO
d. EOQ
e. None of the above

194. Using the information below, determine the Ordering Level:

Minimum Stock: 1,000 units

Maximum Stock: 2,000 units

Time required for receipt of material: 15 days

Daily consumption of materials: 50 units

What is the correct ordering level?

Options:

a. 1,500 units
b. 1,750 units
c. 1,800 units
d. 1,850 units
e. 2,000 units

195. With the given information, calculate the Economic Ordering Quantity (EOQ):

Annual Demand: 1200 units

Unit Price: Rs 2.40

Ordering Cost per order: Rs 4.00

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 MCQ Booklet - Costing

Storage Cost: 12% per annum

What is the correct EOQ?

Options:

a. 129 units
b. 91 units
c. 109 units
d. 182 units
e. 196 units

196. If the PV ratio us 80% and MOS is 20000. Calculate FC if SP per unit is 5 and
Contribution is 40000.

a. 24000
b. 20000
c. 15000
d. 17500
e. 18000

197. ……………… cost is a criterion cost which may be used as a yardstick to measure the
efficiency with which actual cost has been incurred.

a. Marginal Cost
b. Standard Cost
c. Absorption Cost
d. Product Cost
e. Material Cost

198. Ascertain the value of inventory if the firm uses marginal costing:

Direct material per unit: 10

Direct labor per unit: 5
Variable overheads are absorbed as 50% of direct labor cost
Fixed production overheads 2,50,000
Budgeted production 40,000 Units

a. 15
b. 17.5
c. 20
d. 23.75
e. 24

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199. If the Fixed costs are Rs.30000 and the PV Ratio is 40% and sales are Rs.40000, what will
be the profit or loss?

a. Profit of Rs.12000
b. Loss of Rs.12000
c. Profit of Rs.14000
d. Loss of Rs.10000
e. Loss of Rs.14000

200. Calculate BEP from the below information:

Direct Material: 12 per unit

Direct Labor: 6 per unit

Variable Overheads: 80% of direct labor cost

Fixed Overheads: 60,000

Sales: Rs. 200,000

Units sold: 5000

a. 5000
b. 3500
c. 3488
d. 2727
e. 3500

201. Ascertain the value of inventory if the firm uses absorption costing:

Direct material per unit: 10

Direct labor per unit: 5
Variable overheads are absorbed as 50% of direct labor cost
Fixed production overheads 2,50,000
Budgeted production 40,000 Units

a. 15
b. 17.5
c. 20
d. 23.75
e. 24

Read the below mentioned information and answer question 202 & 203:

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The annual demand for an item is 8100 units. The unit cost is 10 and inventory carrying
charges is 20% p.a. If the cost of one procurement is 100. Determine Time between two
consecutive order.

202. Determine EOQ?

a. 284
b. 900
c. 402
d. 800
e. 1100

203. Determine Time between two consecutive order?

a. 3
b. 4
c. 4.5
d. 5
e. 6

204. In case the profit from selling an additional unit is less than 0, but the contribution is
more than 0, should the organisation sell that extra unit of output in the short term?

a. No, both Profit & Contribution has to be positive in order to sell an extra unit
b. Yes, both Profit & Contribution are irrelevant in order to sell an extra unit
c. Yes, both Profit & Contribution can even be negative in order to sell an extra unit
d. Yes, if contribution > 0, the organisation is able to cover its variable cost and it should
definitely sell in the short term
e. None of the above

205. If Margin of Safety is Rs.100,000 and PV ratio is 20% and Fixed Costs are Rs.60,000,
then what is the level of profits?

a. 120,000
b. 500,000
c. 20,000
d. 15,000
e. 300,000

206. If Margin of Safety is Rs.100,000 and PV ratio is 20% and Fixed Costs are Rs.60,000,
then what is the level of current sales?

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a. 400,000
b. 300,000
c. 200,000
d. 500,000
e. 100,000

207. Which among the following describes the MOS?

a. Level of current Profit over and above 0.

b. Level of Budgeted demand above our current sales level
c. Level of Sales over and above BE Sales
d. Level of concessions from suppliers as compared to the current cost
e. None of the above

208. Identify the orange line, blue line and the grey line indicated by the graph below?

100000
90000
80000
70000
Total Costs, Revenues

60000
50000
40000
30000
20000
10000
0
0 50 100 150 200 250 300 350 400 450 500
Units Manufactured
a. Total Fixed costs, Total Revenue and Total Cost
b. Total Variable costs, Total Revenue and Total Cost
c. Total Fixed costs, Total Cost and Total Revenue
d. Total Fixed costs, Total Revenue and Total Variable Cost
e. None of the above

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209. If the orange line and the blue line represents the fixed and total costs and the grey line
indicates the revenue, and if the current sales are 300 units, then what will be the value
of MOS?

100000
90000
80000
70000
Total Costs, Revenues

60000
50000
40000
30000
20000
10000
0
0 50 100 150 200 250 300 350 400 450 500
Units Manufactured
a. >0 but less than 100
b. <0
c. =1
d. 100 units
e. 400 units

210. PV ratio indicates which among the following?

a. Additional variable cost per unit of sales

b. Additional variable cost per unit of contribution
c. Additional fixed cost per unit of sales
d. Additional contribution per unit of sales
e. Additional profit per unit of sales

211. What is the correct relation between Total Cost and Total Profit, if the MOS is 25 units.

a. Total Revenues > Total Costs

b. Total Revenues < Total Costs
c. Any of the two can happen
d. None of the above
e. Total Revenues = Total Costs

212. If the total costs incurred is shown in the table below for the different levels of output
and if the selling price is 250, what s the break-even level of output?

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Units Rent Raw Material Total Costs Cost per unit

Manufactured Costs Costs (Total
cost/units)
0 20000 0 20000 -
1 20000 150 20150 20,150
2 20000 300 20300 10,150
3 20000 450 20450 6816.67
4 20000 600 20600 5150

a. 100
b. 150
c. 10
d. 120
e. 200

213. When the contribution exceeds the Fixed costs, what will be the value of MOS?

a. <0
b. >0
c. =0
d. =1
e. <1

214. If the following table indicates the cost behaviour and the total output produced is 200
units, out of which 20 units are left as closing stock, what would be the value of closing
stock as per Marginal Costing?
Units Rent Raw Material Total Costs Cost per unit
Manufactured Costs Costs (Total
cost/units)
0 20000 0 20000 -
1 20000 150 20150 20,150
2 20000 300 20300 10,150
3 20000 450 20450 6816.67
4 20000 600 20600 5150

a. 5000
b. 4000
c. 3000
d. 2000
e. 20000

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215. If the following table indicates the cost behaviour and the total output produced is 200
units, out of which 20 units are left as closing stock, what would be the value of closing
stock as per Absorption Costing?

Units Rent Raw Material Total Costs Cost per unit

Manufactured Costs Costs (Total
cost/units)
0 20000 0 20000 -
1 20000 150 20150 20,150
2 20000 300 20300 10,150
3 20000 450 20450 6816.67
4 20000 600 20600 5150

a. 5000
b. 4000
c. 3000
d. 2000
e. 20000

216. In case you are starting the business and you could not sell the entire produce, closing
stock value would be higher in which among the following methods?

a. Absorption Costing
b. Marginal Costing
c. Both a and b – the value would be the same
d. Depends on the value of opening stock
e. Depends on the units of production

217. If the value of Opening and Closing stock is given to you in the following table under
the marginal and absorption costing techniques, where will be the profit higher?

Marginal Costing Absorption Costing

Opening Stock 50 80
Closing Stock 60 50

a. Absorption Costing
b. Marginal Costing
c. Both a and b – the value would be the same
d. Depends on the units of production
e. None of the above

218. In case there is certain evaporation loss that generally happens in a process and is
non-controllable, then that will be referred as which among the following?

a. Abnormal Loss

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b. Normal Loss
c. Abnormal Gain
d. Any of the a or b
e. None of the above

219. To produce a particular batch of product, ABC Corporation paid its workers $12.00 per
hour for 4,000 hours of work. The standards for the quantity of work represented by the
batch were $12.50 per hour and 4,400 hours. What was the labor efficiency variance?

a. 2000F
b. 5000F
c. 5000A
d. 2000A
e. 4000A

220. The firm's direct-labor rate variance was $4,800 unfavorable. Actual labor was 24,000
direct labor hours, at a cost of $168,000 for 25,000 units of finished product requiring 1
hour of direct labor each, at standard. What is the standard rate per direct labor hour?

a. 7
b. 7.2
c. 6.8
d. 6
e. 7.5

221. The organization budgeted $400,000 for 40,000 hours of direct labor to complete 16,000
units of finished product. The firm used 42,000 direct labor hours and completed 17,000
units of finished product. What is the direct labor efficiency variance if the actual wage
rate is 11/hour?

a. 2000F
b. 5000F
c. 5000A
d. 2000A
e. 4000A

222. A budget report is prepared on the principle of exception and thus-

a. Only unfavorable variances should be shown

b. Only favorable variance should be shown
c. Both favorable and unfavorable variances should be shown

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d. Balanced approach
e. None of the above

223. The annual demand for an item is 3,200 units. The unit cost is ` 6 and inventory carrying
charges is 25% p.a. If the cost of one procurement is 150. Determine EOQ:

a. 400 Units
b. 500 Units
c. 700 Units
d. 800 Units
e. 1000 Units

224. The annual demand for an item is 3,200 units. The unit cost is ` 6 and inventory carrying
charges is 25% p.a. If the cost of one procurement is 150. Determine No. of orders per
year?

a. 3
b. 1
c. 4
d. 2
e. 5

225. The annual demand for an item is 3,200 units. The unit cost is ` 6 and inventory carrying
charges is 25% p.a. If the cost of one procurement is 150. Determine Time between two
consecutive order.

a. 3
b. 4
c. 4.5
d. 5
e. 6

226. Budget manual is a document:

a. Which contains different type of budgets to be formulated only.

b. Which contains the details about standard cost of the products to be made.
c. Setting out the budget organization and procedures for preparing a budget including
fixation of responsibilities, formats and records required for the purpose of preparing a
budget and for exercising budgetary control system.
d. None of the above

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227. “A favorable budget variance is always an indication of efficient performance”. Do you

agree, give reason?

a. A favorable variance indicates saving on the part of the organization hence it indicates
efficient performance of the organization.
b. Under all situations, a favorable variance of an organization speaks about its efficient
performance.
c. A favorable variance does not necessarily indicate efficient performance, because such a
variance might have been arrived at by not carrying out the expenses mentioned in the
budget.
d. None of the above.

228. The budget control organization is usually headed by a top executive who is known as:

a. General manager
b. Budget controller
c. Accountant of the organization
d. Internal Auditor
e. None of the above

229. Activity Ratio depicts:

a. Whether actual capacity utilized exceeds or falls short of the budgeted capacity
b. Whether the actual hours used for actual production were more or less than the standard
hours
c. Whether actual activity was more or less than the budgeted capacity
d. All of the above
e. None of the above

230. Process Costing method is suitable for

a. Transport sector
b. Chemical industries
c. Dam construction
d. Furniture making
e. Any of the above

231. Given data that:

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Finished goods Opening Inventory 30,000.

Finished goods Closing Inventory 50,000

Cost of goods sold 1,90,000

What will be the value of Cost of Production?

a. 1,70,000
b. 2,10,000
c. 2,40,000
d. 2,20,000
e. 1 80,000

232. The classification of fixed and variable cost is useful for the preparation of:

a. Master budget
b. Flexible budget
c. Cash budget
d. Capital budget
e. None of the above

233. If a company wishes to establish a factory overhead budget system in which estimated
costs can be derived directly from estimates of activity levels, it should prepare a:

a. Master budget
b. Cash budget
c. Flexible budget
d. Fixed budget
e. None of the above

234. Purchases budget and materials budget are same:

a. Purchases budget is a budget which includes only the details of all materials purchased
b. Purchases budget is a wider concept and thus includes not only purchases of materials
but also other item’s as well
c. Purchases budget is different from materials budget; it includes purchases of other items
only
d. Purchases budget is slightly different from materials budget
e. None of the above

235. Efficiency ratio is:

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a. The extent of actual working days avoided during the budget period
b. Activity ratio/ capacity ratio
c. Whether the actual activity is more or less than budgeted activity
d. Capacity ratio / Effectiveness ratio
e. None of the above

236. Which of the following is usually a short-term budget:

a. Capital expenditure budget

b. Research and development budget
c. Cash budget
d. Sales budget
e. All of the above

237. Period costs are:

a. Variable costs.
b. Fixed costs.
c. Prime costs.
d. Overheads costs.
e. None of the above

238. If the MOS = 20,000 units and PV ratio is 60%. Calculate profit if revenue per unit is 4.

a. 38000
b. 48000
c. 82000
d. 20000
e. 28000

239. What is an attainable standard?

a. A standard which includes no allowance for losses, waste and inefficiencies. It represents the
level of performance which is attainable under perfect operating conditions

b. A standard which includes some allowance for losses, waste and inefficiencies. It represents
the level of performance which is attainable under efficient operating conditions

c. A standard which is based on currently attainable operating conditions

d. A standard which is kept unchanged, to show the trend in costs

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e. None of the Above

240. Which of the following is not an element of master budget?

a. Capital Expenditure Budget

b. Production Schedule

c. Operating Expenses Budget

d. All above

e. None of the above

241. Which of the following is not a potential benefit of using a budget?

a. Enhanced coordination of firm activities

b. More motivated managers

c. Improved inter-departmental communication

d. More accurate external financial statements

e. All of the above

242. What is the primary goal of a Lean System in manufacturing?

a. To increase the size of the inventory.

b. To minimize waste without sacrificing productivity.
c. To maximize employee work hours.
d. To increase production output regardless of demand.
e. All of the above

243. Which stage is NOT part of the 5S methodology?

a. Sort (Seiri)
b. Systemize (Systematize)
c. Shine (Seiso)
d. Sustain (Shitsuke)
e. Seiketsu (Standardize)

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244. Match the following methodologies with their primary objectives:

I. Just-in-Time (JIT)
II. Kaizen Costing
III. 5 S Methodology
IV. Total Productive Maintenance (TPM)
Objectives:

A) Continuously improve and maintain production and quality systems.

B) Organize the workplace efficiently to enhance productivity.

C) Produce only what is needed, when it is needed, to minimize waste.

D) Achieve incremental improvements through employee involvement.

Options:

a. II = C; I – D; IV – B; III – A
b. I = A; II – B; III – C; IV – D
c. III = C; I – D; II – B; IV – A
d. I = D; II – A; III – C; IV – B
e. I = C; II – D; III – B; IV - A

245. A manufacturing plant has been facing challenges with machine downtime and
inconsistent product quality. They are considering adopting a new operational strategy.
Which methodology should the plant implement to improve equipment reliability and
product quality?

a. Just-in-Time (JIT)
b. Kaizen Costing
c. Total Productive Maintenance (TPM)
d. 5 S Methodology
e. Any of the above

246. Imagine a graphical depiction of a factory floor organized with clear labels, minimal
clutter, and designated places for tools. Which methodology is best reflected in the
image provided?

a. Kaizen Costing
b. 5 S Methodology
c. Just-in-Time (JIT)
d. Total Quality Management (TQM)
e. None of the above

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247. Which of the following is NOT a step in implementing Cellular Manufacturing?

a. Grouping parts into families based on design similarities.

b. Performing a systematic analysis of each part family.
c. Using a single mathematical model for all types of manufacturing setups.
d. Optimizing to minimize costs like inter-cell material handling and external transportation.
e. All are correct.

248. Which of the following best describes the Six Sigma methodology?

a. A process aimed at minimal cost reduction in production.

b. A methodology focusing solely on employee training and development.
c. A business strategy used to maximize the use of raw materials.
d. A quality improvement technique focused on achieving near-perfection and enhancing
customer satisfaction.
e. All the above

249. Which of the following is not a primary focus of Six Sigma?

a. Customer satisfaction
b. Decisions based on data-driven facts
c. Collaboration with in the business
d. Goal for perfection
e. Cost Reduction

250. Read the below statements and answer whether they are true or false:

I. Process Innovation (PI) primarily focuses on enhancing existing processes rather

than introducing new ones.
II. Business Process Re-engineering (BPR) involves a fundamental rethinking and
radical redesign of business processes to achieve dramatic improvements.
III. BPR typically aims for incremental improvements in the range of 10% or less.
Options:

a. True, True, True

b. False, True, False
c. True, False, True
d. False, False, False
e. True, True, False

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Answer Key:
1. Answer: a. Cost
In cost accounting, the basis of stock valuation is generally at cost. This valuation is
focused on the actual cost incurred to produce or purchase the goods. In Financial
accounting we need to comply with certain accounting standards which may require
consideration of the lower of cost or NRV.

2. Answer: b. I. False; II. False; III. False; IV. False; V. True

Refer Difference table in Notes

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3. Answer: e. None of the above

Items excluded in the cost sheet:

Cash Discount Income Tax Paid

Interest Paid Dividends Paid

Provision for Taxation Profit/ Loss on sale of fixed assets.

Provision for Bad debts Preliminary expenses written off.

Donations Goodwill written off.

Transfer to reserves.

4. Answer: b. Cost Accounting

Cost Accounting is a specialized branch of accounting that focuses on the classification,
accumulation, assignment, and control of costs. This discipline helps in determining the
costs of products, projects, processes, or services in order to report the correct amounts
on the financial statements, and to aid in budgeting, cost control, and decision-making.
This involves detailed record-keeping and variance analysis to manage and reduce costs
effectively within an organization.

5. Answer: a. Direct material

Primary packaging material is classified as a direct material. This type of material is
integral to the production of a product and can be directly associated with specific goods
or products being manufactured. For example, the bottle for a beverage, the box for a pair
of shoes, or the blister pack for pills are all considered primary packaging materials. These
materials are directly traceable to the end product; hence they are categorized as direct
materials.

6. Answer: d. Pinpointing areas of inefficiency and mismanagement for the benefit of

shareholders and consumers
The social purpose of a cost audit extends beyond the financial scope of ensuring
accuracy in the books. It is primarily concerned with pinpointing areas of inefficiency and
mismanagement, thereby ensuring that the business operates optimally for the benefit of
shareholders and consumers alike. This function of the cost audit helps in fostering
transparency and accountability in how resources are managed within a company, which
in turn protects the interests of shareholders and consumers by promoting fair pricing and
efficient use of resources.

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7. Answer: b. Section 148

Section 148 of the Companies Act, 2013, deals with the audit of cost accounting records.
This section mandates the maintenance and audit of cost records in certain classes of
companies, as prescribed, to ensure accuracy and compliance with the specified
standards. The provisions under this section empower the Central Government to specify
the industries or sectors that require cost audits, emphasizing the importance of
transparency and accuracy in cost management practices.

8. Answer: (b) Cost Accounting Policy

The Annexure to the Cost Audit Report typically includes the Cost Accounting Policy used
by the company. This section outlines the methodologies and principles applied in the
preparation and presentation of cost statements and records. Including the Cost
Accounting Policy is crucial as it provides clarity and transparency on how the cost data
are compiled and analyzed, ensuring that stakeholders understand the basis of the
financial information provided in the audit. This disclosure helps in maintaining
consistency and reliability in cost reporting.

9. Answer: a. 40%
Sales = 10,000 * 32 = 3,20,000

Variable Cost = 10,000 * 16 = 1,60,000

Contribution = 10,000 * 16 = 1,60,000

Fixed Cost = (96,000)

Profit = 64,000

PVR is 50% as variable cost ratio is 50%.

MOS % = MOS Sales / Total Sales

= 1,28,000 / 3,20,000 * 100

= 40%

MOS Sales = Profit / PVR

= 64000 / 50%

1,28,000

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10. Answer: c. 20%

Contribution = Profit + Fixed Cost

= 12,000+8,000

=20,000

PVR = Contribution/ Sales * 100

20,000 / 1,00,000 * 100

=20%

11. Answer: c. activities

Activity-based costing (ABC) is an accounting method that assigns costs to products
based on the activities involved in production and the extent to which the products use
those activities. By tracing expenses to specific activities (such as manufacturing, testing,
or packaging), ABC helps organizations more accurately allocate costs based on actual
usage, leading to better product costing and aiding in the identification of inefficiencies
and cost-saving opportunities. This approach contrasts with traditional costing methods,
which may allocate costs based simply on machine hours or labor costs, potentially
distorting the actual cost of producing a product.

12. Answer: a. Rs. 20,000

COGS = Opening inventory + Purchases - Closing inventory

22,000 = 3,500 + Purchases - 1,500

22,000 = 2,000 + Purchases

Purchases = 22,000 2,000

Purchases = 20,000

13. Answer: b. Anything for which a separate measurement of cost is desired.

A Cost Object in cost accounting is any item for which a specific cost measurement is
necessary. This can include products, services, projects, customers, brand categories,
activities, departments, or programs. Cost objects are essential for budgeting, costing, and
decision-making processes to ensure accurate financial analysis.

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MCQ Booklet - Costing

14. Answers: a. I. = C; II. = B; III. =A

I - C) The cost difference between two alternative actions.

II - B) A cost estimated in advance to assess expected standards of efficient operation.

III - A) The cost arising from the loss of alternative opportunities when one alternative is
chosen over another.

15. Answer: c. Linear Equation Method

This uses the straight-line equation of y = m x + c where y represents total cost, m is variable
cost per unit, x is the level of output and c is fixed costs. The total costs at two different
volumes are put into these equations which are solved for the values of m and c.

16. Answer: c. Sunk cost

The cost of renting the machinery in the past is a sunk cost as it has already been
incurred and cannot be recovered. It should not affect the decision-making process
regarding future investments.

17. Answer: b. A factor or variable that directly influences the level of a cost.
In cost accounting, a Cost Driver is any factor or variable that significantly affects the cost
of an activity or operation. Cost drivers are directly responsible for the incurrence of costs,
with examples including the number of machine setups, the hours of operation, or the
number of purchase orders. Identifying and managing cost drivers is crucial for effective
cost control and strategic planning.

18. Answer: b. True, False, True

A) True - Standard costs are indeed calculated before production to estimate expected
costs based on efficient operations.

B) False - Sunk costs are historical costs and should not influence future business
decisions since they cannot be recovered.

C) True - Marginal cost refers to the cost incurred by producing one additional unit of a
product.

19. Answer: d. Least Square Method

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MCQ Booklet - Costing

The Least Square Method, also known as the Simple Regression Method, applies
statistical tools to determine the line of best fit by minimizing the sum of the squares of the
errors between observed values and the values provided by the model. This method is
highly accurate for predicting cost behavior.

20. Answer: c. True, False, False

A) True - Opportunity cost represents the benefit lost when choosing one alternative over
another.

B) False - Differential cost represents the difference in total cost between two alternative
decisions, not just between similar products.

C) False - Discretionary costs arise from annual decisions made at the discretion of
management, such as advertising or research expenditures, and are not fixed or
inevitable.

21. Answer: a. Graphical Method

The Graphical Method involves plotting cost data on a graph to visually determine the
fixed and variable components. While simple and intuitive, it can lead to inaccuracies due
to subjective interpretations and the potential for human error.

22. Answer: b. A measurement unit related to cost determination for a product, service, or
time.
A Cost Unit is a standard measurement used in cost accounting to ascertain and express
costs. It can relate to units of a product, service, or time, such as cost per ton of steel, cost
per hour of labor, or cost per service provided. It allows organizations to quantify costs in a
uniform way, facilitating comparisons and financial analysis.

23. Ans b. Management accounting

As per CIMA official terminology, Management accounting is the application of the principles
of accounting and financial management to create, protect, preserve and increase value for
stakeholders of for-profit and not-for-profit enterprises in public and private sectors.
Management accounting is an integral part of management function. It assists management
by provision of relevant information for planning, organizing, controlling and decision
making.

24. Answer: a. False, True, True

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MCQ Booklet - Costing

A) False - Imputed costs do not involve cash outflows and are not recorded in the financial
statements as they represent notional costs.

B) True - Period costs are expensed in the period they are incurred and are not directly
tied to the production of goods.

C) True - The Least Square Method is a statistical tool used in cost accounting to
determine the best line of fit when segregating costs into fixed and variable components.

25. Answer: e. All of the above

All the methods listed are common techniques used to segregate the fixed and variable
elements of semi-variable costs:

Graphical Method is straightforward and intuitive but can be inaccurate due to subjective
interpretations and potential errors in plotting or visual analysis.

High and Low Method is simple and focuses on the extremes of activity to determine
variable cost behavior, though it can be distorted by outliers.

Linear Equation Method provides a more systematic approach by fitting total costs to a
linear equation, which is useful for predicting costs at various levels of production.

Least Square Method uses regression analysis to find the best statistical fit for cost data,
offering a more precise estimation of fixed and variable costs by minimizing the sum of the
squares of the errors.

Each method has its own advantages and limitations, making them suitable for different
situations depending on the accuracy required and the data available.

26. Answer: b. A cost which is computed in advance before production based on all
influencing factors.
Pre-determined cost is calculated before production starts, based on specifications of all
factors that affect the cost, providing a basis for budgeting and planning.

27. Answer: c. A pre-determined cost calculated from management’s expected standard of

efficient operation.
Standard Cost is a pre-determined cost which is derived from management's standards of
efficient operations and necessary expenditure. It's used as a basis for pricing and cost
control via variance analysis.

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28. Answer: c. ₹20 lakh

To determine the fixed cost from the data provided:

Calculate the change in manufacturing overheads: ₹52 lakh - ₹32 lakh = ₹20 lakh.

Calculate the change in machine hours: 800,000 - 300,000 = 500,000.

Change in Total Cost / Change in Hours

20,00,000 / 500,000

= 4 Rs. Per hour is the variable cost here.

Total Cost = Variable cost + Fixed Cost

5200,000 = (800,000*4) + Fixed Cost

= 20,00,000

29. Answer: c. Marginal cost.

Opportunity cost is the cost of foregone alternatives when a choice is made. Marginal
cost, on the other hand, is the cost of producing one additional unit of a product or service.

30. Ans. a. Sunk cost.

Sunk Cost is a cost that has already been incurred and that cannot be recovered. In
decision making, sunk costs are treated as bygone and are not taken into consideration
when deciding whether to continue an investment project, as such they are irrelevant for
decision making.

31. Ans. b. ascertaining, presenting and controlling costs

Cost accounting is the accounting method for ensuring cost-effectiveness by accumulating,
organizing, recording, calculating, analyzing and assessing the overall expenses incurred
on a product, process or project, etc.

Cost accounting aims at eliminating the loopholes in the production process and ensures
manufacturing of goods at the lowest possible cost.

The scope of cost accounting is wide and includes:

• Cost Analysis: Cost accounting determines the deviation of the actual cost as compared
to the planned expense, along with the reason for such variation.
• Cost Audit: To verify the cost sheets and ensure the efficient application of cost accounting
principles in the industries, cost audits are done.

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MCQ Booklet - Costing

• Cost Report: Cost reports are prepared from the data acquired through cost accounting to
be analysed by the management for strategic decision making.
• Cost Ascertainment: To determine the price of a product or service, it is essential to know
the total cost involved in generating that product or service.
• Cost Book Keeping: Similar to financial accounting; journal entries, ledger, balance sheet
and profit and loss account is prepared in cost accounting too. Here, the different cost
incurred is debited, and income from the product or service is credited.
• Cost System: It provides for time to time monitoring and evaluation of the cost incurred in
the production of goods and services to generate cost reports for the management.
• Cost Comparison: It examines the other alternative product line or activities and the cost
involved in it, to seek a better opportunity for generating high revenue.
• Cost Contol: Sometimes, the actual cost of a product or service becomes higher than its
standard cost. To eliminate the difference and control the actual cost, cost accounting is
required.
• Cost Computation: When the company is engaged in the production of bulk units of a
particular product or commodity, the actual per-unit cost is derived through cost accounting.
Cost Reduction: It acts as a tool in the hands of management to find out if there is any
scope of reducing the standard cost involved in the production of goods and services. Its
purpose is to obtain additional gain.

32. Answer: b. Rs. 4,166.40

The overhead recovery rate based on material cost is calculated as (25,000 / 36,000) ×
100 = 69.44%. Therefore, the overhead chargeable to the job using this method is Rs.
6,000 × 69.44% = Rs. 4,166.40.

33. Answer: c. The actual overhead costs were higher than the overheads allocated to
production.
Under-absorption occurs when the overheads allocated or absorbed into the products are
less than the actual overhead costs incurred. This typically results from either the actual
expenses exceeding estimates or the actual production output or hours worked being less
than estimated.

34. Answer: b. It leads to an overstatement of product costs.

Over-absorption occurs when the overheads allocated to production are more than the
actual overhead costs incurred. This can result from expenses being less than estimated
or from the output or hours worked exceeding estimates. Over-absorption typically results
in an overstatement of product costs, which may mislead the financial analysis of product
profitability.

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35. Answer: b. Under absorbed by 60,640

Overhead Incurred 4,26,544

Less: Overhead Absorbed (3,65,904)

Under-absorption 60,640

36. Answer: d. All of the above.

Three methods to handle over or under absorption include:

i) Writing off or back to the Profit and Loss Account, suitable for time-related overheads.

ii) Carrying forward through a reserve account, though not typically recommended due to
inconsistencies with accounting standards.

iii) Using supplementary rates to adjust the effect on the cost of sales and inventory levels,
which avoids carrying the variances forward into the next period entirely.

37. Answer: b. provide highest value of closing stock and profit

Under the FIFO method during periods of rising prices:

Closing Stock: Since the most recently acquired items (which are more expensive due to
inflation) remain in inventory, the closing stock is valued at higher prices. This results in a
higher value of closing stock.

Profit: With lower historical costs recorded as COGS (as older, cheaper items are
considered sold first), the remaining revenue after deducting COGS is higher, thus
increasing reported profit.

38. Answer: a. One single overhead absorption rate for the whole factory.
The blanket overhead rate is used to allocate overhead costs uniformly across all units
produced or across the entire factory, without differentiation by department or machine-
specific rates. It represents a single, overarching rate used for simplicity and efficiency in
overhead allocation.

39. Answer: c. Cost Control

Cost Control is a process to ensure that appropriate action is taken if costs exceed a pre-
set allowance (as budgeted/ estimated) or actions to be taken if costs are expected to
exceed the expected levels.
Cost Reduction is defined as the achievement of real and permanent reduction in the unit

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cost of goods manufactured or services rendered without impairing their suitability for the
use intended or diminution in the quality of the product.

40. Answer: a. Cost Reduction

Cost Control is a process to ensure that appropriate action is taken if costs exceed a pre-
set allowance (as budgeted/ estimated) or actions to be taken if costs are expected to
exceed the expected levels.
Cost Reduction is defined as the achievement of real and permanent reduction in the unit
cost of goods manufactured or services rendered without impairing their suitability for the
use intended or diminution in the quality of the product.

41. Answer: c. Marginal Cost

The amount at any given volume of output by which aggregate costs are changed if the
volume of output is increased or decreased by one unit, is referred to as Marginal Cost.

42. Answer: d. Imputed Cost

Imputed Costs are notional costs which do not involve any cash outlay. Interest on
capital, the payment for which is not actually made, is an example of imputed cost. These
costs are similar to opportunity costs.

43. Answer: e. Period Cost

Period Costs are the costs which are not assigned to the products but are charged as
expenses against the revenue of the period in which they are incurred.

Product Costs are the costs which are associated with the purchase and sale ofgoods (in
the case of merchandise inventory). In the production scenario, such costs are associated
with the acquisition and conversion of materials and all other manufacturing inputs into
finished product for sale. Hence, under marginal costing, variable manufacturing costsand
under absorption costing, total manufacturing costs (variable and fixed) constitute
inventoriable or product costs.

44. Answer: d. Process Costing

In process costing, the cost of completing each stage of work is ascertained, like cost of
making pulp and cost of making paper from pulp. In mechanical operations, the cost of
each operation may be ascertained separately.

45. Answer: c. Absorption Cost

Absorption Costing is a practice of charging all costs, both variable and fixed to
operations, processes or products. This differs from marginal costing where fixed costs
are excluded.

46. Answer: d. Opportunity costs

Historical costs or the costs incurred in the past are known as sunk [Link] play no role in the
current decision making process and are termed as irrelevant costs. For example, in the case of a
decision relating to the replacement of a machine, the written down value of the existing machine is a
sunk cost, and therefore, not considered. Opportunity cost refers to the value of sacrifice made or

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benefit of opportunity foregone in accepting an alternative course of action. For example, a firm financing
its expansion plan by withdrawing money from its bank deposits. In such a case the loss of interest on
the bank deposit is the opportunity cost for carrying out the expansion plan

47. Answer: c. Conversion Cost

Conversion Cost is the cost incurred to convert raw materials into finished goods. It is the
sum of direct wages, direct expenses and manufacturing overheads.

48. Answer: d. Relevant Cost

Relevant costs may be understood as expected future costs which are essential but differ
for alternative course or action. Relevant costs are affected by the decision being taken
by the management. A cost is relevant when it satisfies two conditions i.e. it should occur
in future and it should differ among the alternative courses of action. For example, while
considering a proposal for plant replacement by discarding the existing plant, the original
cost and the present depreciated book value of the old plant are irrelevant as they have
no impact on the decision for replacement just going to be taken place.

49. Answer: d. Economic Order Quantity

The size of the order for which both ordering and carrying cost are at minimum is known
as economic order quantity or E.O.Q.
E.O.Q is used in an optimizing stock control system

50. Answer: a. LIFO

Under LIFO method, the materials purchased last are to be issued first when material
requisition is received. Closing stock is valued at the oldest stock price.

51. Answer: a. 2
Inventory Turnover Ratio is COGS/ Average Inventory = 180000/90000 = 2

52. Answer: c. ABC Analysis

ABC Analysis is a system of selective inventory control whereby the measure of control
over an item of inventory varies with its usage value. It exercises discriminatory control
over different items of stores grouped on the basis of the investment involved. Usually the
items of material are grouped into three categories viz; A, B and C according to their use
value during a period. In other words, the high use value items are controlled more closely
than the items of low use value.

53. Answer: d. 400

Economic Order Quantity
2 A O
EOQ 4010%
2 A
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= 400 packs

54. Answer: b. Direct Labor

Labor cost that is specifically incurred for or can be readily charged to or identified with a
specific job, contract, work order or any other unit of cost is referred to as Direct Labor

55. Ans. c. Contribution margin will increase and break even point will decrease
Contribution margin = Sales - Variable Cost; so, reduction in variable cost will increase
contribution.
For example, if sale price is Rs.10 and variable cost is Rs.6, the contribution will be Rs.4
(10-6). If variable cost reduces to Rs. 5, the contribution will increase to Rs.5 (10-5)
BEP = Fixed Cost /Contribution; hence, increase in contribution will reduce BEP.
For example, if fixed cost is Rs.10,000, in the above example, initially the BEP will be 2500
(10,000/4) and after decrease in variable cost, the BEP will reduce to 2000 (10,000/5).

56. Answer a. All are correct

All of the above statements are correctly defined.

57. Ans. c. Cost absorption

Overheads represent expenditure on labour, materials or services that cannot be
economically identified with specific saleable cost unit.

The process of recovering overheads of a department or any other cost center from its
output is called recovery or absorption.

Cost allocation refers to assignment or allotment of an entire item of cost to a particular

cost center or cost unit. Cost Apportionment implies the allotment of proportions of items
of cost to cost centres or departments. The process of assigning service department
overheads to production departments is called reassignment or re-apportionment.

58. Answer b. Opportunity Cost

The above is the example is of Opportunity Cost - which refers to the value of sacrifice made
or benefit of opportunity foregone in accepting an alternative course of action.

59. Answer a. Imputed Cost

These costs are notional costs which do not involve any cash outlay. Interest on capital, the
payment for which is not actually made, is an example of Imputed Cost. These costs are
similar to opportunity costs.

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60. Answer: a. Application of supplementary rate

The overheads are absorbed based on predetermined overhead absorption rate according
to the actual production of goods throughout the accounting period or specific period.
Budgeted overheads and budgeted output are used to determine overhead rate. If budgeted
overhead and budgeted output differ from actual overhead and actual output, three is a
difference between predetermined overhead rate and actual overhead rate. If the overheads
absorbed are higher than the actual overheads incurred, it is called over absorption. If the
overhead absorbed is lower than the actual overheads incurred during the accounting
period, it is called under absorption.

The reasons for over or under absorption of overheads are as follows.

▪ The actual hours worked is more or less than the budgeted hours.
▪ The actual overhead costs are different from budgeted overheads.
▪ Both actual overhead costs and actual activity level are different from the budgeted costs
and level.
▪ The method of overhead absorption may be wrong.
▪ Unexpected expenses may be incurred during the accounting period.
▪ Extra ordinary expenses might have been included in the calculation of overhead absorption
rate.
▪ Major changes like replacement of manual labour with machines. This leads to increase in
capacity levels.
• Seasonal fluctuations in the overhead expenses from period to period.

The over or under absorbed overheads are treated in the cost accounts in any one of the
following ways:
• Supplementary rate – it is used when there is significant over or under absorption due to
budgeted and actual overhead rate differing due to normal errors in business planning and
not due to abnormal factors. The supplementary rate is calculated by dividing the under or
over absorbed amount by the actual base. The over/under absorbed amount is charged to
cost of sales, Finished goods and WIP goods. In case of under-absorption, the unrecovered
amount of overheads is added while in case of over-absorption, the excess amount is
deducted from cost of sales, Finished goods and WIP goods.
• Transfer to costing P&L account – this method can be used in following cases:
o Over or under absorption is very small or insignificant
o Over or under absorption arises due to abnormal factors like fire, strike, depression in
economy.
• Carry over of overheads – the over-under absorbed amount mat be carried over to the
next year through Overhead Reserve account. This method is used in following cases:
o In case of seasonal industries
o In case of cyclical industries
o In case of new projects

61. Answer: b. Cost Accounting

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The process of accounting for cost which begins with the recording of income and
expenditure or the bases on which they are calculated and ends with the preparation of
periodical statements and reports for ascertaining and controlling costs is known as Cost
Accounting.

62. Answer: a. Cost Object

• Cost object is anything for which a separate measurement of cost is required. Cost object
may be a product, a service, a project, etc. Cost Centre is also a type of cost object.
• Cost Unit is a unit of product, service or time (or combination of these) in relation to which
costs may be ascertained or expressed.
• Cost driver is the direct cause of a cost, and its effect is on the total cost incurred. It is used
to analyse the causes of overheads
• Revenue drivers are factors that directly influence revenue or on which revenues depend.

63. Answer: b. Cost Control

Cost Control is a process to ensure that appropriate action is taken if costs exceed a pre-
set allowance (as budgeted/ estimated) or actions to be taken if costs are expected to
exceed the expected levels, whereas, Cost Reduction is defined as the achievement of real
and permanent reduction in the unit cost of goods manufactured or services rendered
without impairing their suitability for the use intended or diminution in the quality of the
product.

64. Answer: a. Cost Reduction

Cost Reduction is defined as the achievement of real and permanent reduction in the unit
cost of goods manufactured or services rendered without impairing their suitability for the
use intended or diminution in the quality of the product.

65. Answer: c. Prime Cost

Classification of costs:
(i) By nature or element: (a) Material Cost (b) Labour Cost and
(c) Other Expenses
(ii) By functions: (a) Prime Cost (b) Factory/ Works Cost (c) Cost of Production (d) Cost of
Goods Sold (e) Cost of Sales.
(iii) By Behaviour: (a) Fixed Cost (b) Variable Cost and (c) Semi- variable Cost.
(iv) By Controllability: (a) Controllable and (b) Uncontrollable.
(v) By Normality: (a) Normal and (b) Abnormal.

66. Answer: b. Differential Cost

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Differential Cost represents the change (increase or decrease) in total cost (variable aswell
as fixed) due to change in activity level, technology, process or method of production, etc.
Marginal Cost is the amount at any given volume of output by which aggregate costs are
changed if the volume of output is increased or decreased by one unit.

67. Answer: e. Period Cost

Period Costs are the costs, which are not assigned to the products but are charged as
expenses against the revenue of the period in which they are incurred.

Product Costs are the costs which are associated with the purchase and sale of goods (in
the case of merchandise inventory). Opportunity Cost refers to the value of sacrifice made or
benefit of opportunity foregone in accepting an alternative course of action. Historical costs
incurred in the past are known as sunk costs. They play no role in decision making in the
current period.

68. Answer: b. Sunk Costs

Historical costs incurred in the past are known as sunk costs. They play no role in decision
making in the current period.

69. Answer: b. Implicit Cost

Implicit costs do not involve any immediate cash payment. They are not recorded in the
books of account. They are also known as economic costs.

70. Answer: d. Uncontrollable Costs

Costs which cannot be influenced by the action of a specified member of an undertaking
are known as uncontrollable costs. Example, Costs apportioned by head office

71. Answer: b. Profit Centres

Profit Centres are the part of a business which is accountable for both cost and revenue.
These are responsible for generating and maximizing profits. Performance of these centres
is measured with the volume of profit it earns.

Investment Centres are the profit centres with additional responsibility for capital investment
and possibly for financing. These centres are concerned with earning an adequate return
on investment as performance is measured by its returns on investment.

72. Ans. e. All are correct

Blanket overhead rate is one single overhead absorption rate for the whole factory.
It may be computed by using the following formula:

Blanket overhead rate = Overhead costs for the whole factory/ Total units of the
selected base*
*The selected base can be the total output; total labour hours; machine hours etc.

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Situation for using blanket rate:

The use of blanket rate may be considered appropriate for factories which produce only one
major product on a continuous basis. It may also be used in those units in which all products
utilise same amount of time in each department. If such conditions do not exist, the use of
blanket rate will give misleading results in the determination of the production cost, specially
when such a cost ascertainment is carried out for giving quotations for tenders

73. Ans. e. All of the above

Some of the bases used to apportion the overheads are as follows:

Item Bases of apportionment

(i) Supplies Actual supplies made to different departments

Repair Direct labour hours; Machine hours; Directlabour
wages; Plant value.
(iii) Maintenance of building Floor area occupied by each department
(iv) Executive salaries Actual basis; Number of workers.
(v) Rent Floor area
(vi) Power and light K W hours or H P (power)
Number of light points; Floor space; Meter readings (light)
(vii) Fire insurance Capital cost of plant and building; Value of stock
(viii) Indirect labour Direct labour cost.

74. Answer: c. Administrative Overheads

Functional classification of costs involves categorizing costs based on the function or
purpose they serve within the organization. Administrative overheads represent costs
associated with the general administration and management of the organization, including
salaries of administrative staff, office rent, utilities etc. These costs serve the function of
supporting the administrative activities necessary for running the organization.

75. Answer: b. Revenue Centre

Revenue Centre: A revenue center directly generates revenue for an organization. This
includes departments like sales, marketing, and, as in this case, the ticket counter. Their
primary focus is on bringing in income.

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76. Answer: (a) Cost control seeks to attain the lowest possible cost under the best
conditions.
Cost control seeks to manage costs efficiently within the organization's budgetary
constraints and operational limitations. It focuses on maintaining costs at an optimal level,
not necessarily the lowest possible cost under the best conditions. The emphasis is on
effectively managing costs within reasonable parameters, considering factors such as
quality, efficiency, and competitiveness.

77. Answer: c. The cost of opening work-in-process and cost of the current period are
aggregated and the aggregate cost is divided by output in terms of completed units.
Under the Weighted Average Method (or Average Method) of process costing, the costs of
the opening work-in-process (WIP) and the costs incurred during the current period are
aggregated or combined. This total cost is then divided by the total number of equivalent
units produced (completed units plus equivalent units in ending WIP) to calculate a
weighted average cost per equivalent unit. This average cost per equivalent unit is then
used to value both the units completed and transferred out during the period and the units
remaining in ending WIP.

78. Answer: (b) Sunk cost

Relevant costs are those costs that are directly affected by a particular decision and thus
influence the decision-making process. They are future-oriented and can differ among
alternative courses of action.

Sunk cost, on the other hand, is a cost that has already been incurred and cannot be
recovered or changed by any future action. Since sunk costs are not relevant to future
decision-making, they are not considered when making decisions.

79. Answer: (b) Pharmaceutical industry

In the pharmaceutical industry, products are often manufactured through standardized
processes where raw materials are processed and transformed into pharmaceutical
products following specific formulas and procedures. These processes are typically
continuous or repetitive, making process costing well-suited for tracking and allocating
costs.

80. Answer: (c) relevant cost

Opportunity cost refers to the value of the next best alternative foregone when a decision
is made. It represents the benefit that could have been obtained from choosing the next
best alternative. In decision-making, opportunity cost is considered a relevant cost

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because it influences the decision-making process by comparing the benefits and costs of
alternative courses of action. It helps in evaluating the true cost of choosing one option
over another.

81. Answer: (b) behavioral classification

Costs can be classified based on their behavior in relation to changes in activity levels.
Fixed costs remain constant regardless of changes in activity levels within a relevant
range. Variable costs vary in direct proportion to changes in activity levels. Semi-variable
costs (also known as mixed costs) have components that are fixed and variable. This
classification system is known as behavioral classification because it categorizes costs
based on how they behave or respond to changes in activity levels.

82. Answer: c. First in first out price method

In the First In, First Out (FIFO) method of pricing, costs do not necessarily reflect current
economic values because older costs (associated with the first units purchased or
produced) are used to value inventory or goods sold first. This means that the cost
assigned to inventory or goods sold reflects the earliest costs incurred, even if the current
economic conditions or replacement prices have changed.

83. Answer: C. Property tax on factory building

84. Answer: (b) per unit

Variable costs are costs that vary in direct proportion to changes in the level of activity or
production. These costs remain constant on a per-unit basis but change in total as the
level of activity changes. In other words, the total variable cost increases as production
increases and decreases as production decreases, but the cost per unit remains constant.

85. Answer: (d) fixed and variable costs

In behavioral analysis, costs are classified based on their behavior in relation to changes
in activity levels. The two main categories into which costs are divided are fixed costs and
variable costs.

86. Answer: (d) Dividend paid

Dividend paid is a financial transaction related to the distribution of profits to shareholders.
It represents a distribution of earnings and is recorded in the financial accounts as a

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reduction in retained earnings or equity. Cost accounts are concerned with recording and
analyzing costs directly related to the production of goods or services. Items such as
direct materials, direct labor, and manufacturing overheads are included in cost accounts
to determine the cost of producing goods. Dividend paid is not a production cost and
therefore is not included in cost accounts.

87. Answer: (b) Notional cost

Interest on own capital is not an actual cash expense paid out by the business; instead, it
is a hypothetical or notional cost that reflects the implicit cost of using the owner's funds in
the business. Therefore, it is considered a notional cost.

88. Answer: d. a selling and distribution overhead

Selling and distribution overhead: This category encompasses expenses incurred from the
point of product completion to the point of sale and delivery to the customer. Since the
drivers are directly involved in delivering goods to customers, their salaries fall under this
category.

89. Answer: b. overhead apportionment

Overhead apportionment is indeed the method of dealing with overheads by spreading
common costs over cost centers based on the benefits received by each cost center. This
method involves allocating indirect costs or overheads to different departments or cost
centers in a fair and equitable manner, considering factors such as usage, capacity, or
other appropriate allocation bases.

90. Answer: d. All of the above

Absorption costing is also known by various other terms, including historical costing,
traditional costing, and full costing. These terms are used interchangeably to refer to the
method of costing where all manufacturing costs, both variable and fixed, are absorbed or
assigned to products.

91. Answer: a. Direct expense

The royalty payment made to the designer of the product would typically be classified as a
direct expense. Direct expenses are costs that can be specifically attributed to the
production of a specific product or service. In this case, the royalty payment directly
relates to the manufacturing and sale of the product.

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92. Answer: C. 6,200

Financial Accounting Loss = Costing Loss of 5600 + under-absorbed 600 admin o/h

= 6,200

93. Answer: (b) cost control

Cost control refers to the process of managing and regulating the costs associated with
operating an undertaking or business. It involves monitoring, analyzing, and taking
corrective actions to ensure that costs are kept within planned or budgeted limits. Cost
control aims to minimize wastage, optimize resource utilization, and maintain efficiency in
cost management.

94. Answer: (b) Factory overhead

Indirect material costs refer to materials that are not directly traceable or easily identifiable
with specific units of production. These materials are used in the production process but
cannot be conveniently or economically traced directly to individual products. Indirect
material costs are considered part of factory overhead, also known as manufacturing
overhead or production overhead.

95. Answer: (b) Semi-variable Cost

The cost structure described includes a fixed component (the minimum charge of 80) and
a variable component (12 per kilometer of distance traveled). Semi-variable costs, also
known as mixed costs, have elements of both fixed and variable costs. In this scenario,
the fixed component (minimum charge) remains constant regardless of the distance
traveled, while the variable component (charge per kilometer) varies with the distance
traveled.

96. Answer: c. Job costing

Job costing is the appropriate costing method for interior decoration projects because
these projects are often unique and completed to customer specifications. Job costing
involves tracking all costs related to a specific job, which in the case of interior decoration
would include materials, labor, and overheads directly related to the project. This method
allows for a detailed cost assessment for each individual job or project, which is suitable
for industries where work is customized, such as interior decoration.

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97. Answer: d. Batch costing

Batch costing is a method used in the manufacturing industry, suitable for the ready made
garments sector, where similar items are produced together in batches. This method
involves assigning the costs of producing a batch to that batch and then calculating the
cost per unit by dividing the total batch costs by the number of units in the batch. This is
particularly effective in the garments industry where clothes are often produced in
batches, as it helps in determining the cost of each garment accurately.

98. Answer: c. Material Transfer Note

A Material Transfer Note is prepared when materials are transferred from one job to
another without going back into general inventory. This document is used to track the
movement of materials and maintain accurate cost records for each job. It ensures that
the costs associated with the materials are correctly allocated to the appropriate jobs,
which is essential for accurate job costing and inventory management.

99. Answer: c. Process costing

Process costing is the most appropriate costing method for industries like oil refining,
where production is continuous and the output is homogeneous. This method assigns
costs to each process or stage of production and then averages them over the units
produced. In oil refining, the production process is typically divided into different stages,
each with its own costs, and the final product of one process becomes the raw material for
the next. This characteristic makes process costing a fitting choice for tracking and
allocating costs in such industries.

100. Answer: d. All of the above

Job costing and contract costing differ in various aspects:

Length of time to complete: Job costing usually pertains to short-term projects, while
contract costing involves longer-term projects that could extend over months or years.
Size of the job: Job costing is typically used for smaller, discrete projects or production
runs, whereas contract costing is used for larger projects, often in construction, which are
substantial in scope.
Location of the work: Job costing is commonly conducted within the factory or workshop
premises, while contract costing jobs are usually performed outside the factory area, such
as on a construction site.
These differences make it clear that the nature, duration, and location of the work are the
main points of distinction between the two costing methods.

101. Answer: b. Standard Costing

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Standard Costing is not technically a method of costing in the same sense as Job Costing,
Contract Costing, or Operating Costing. Instead, it is a technique used within these
methods to compare the standard costs and revenues to the actual results to measure
performance.

102. Answer: c. are common to several products.

Indirect costs are those costs that are not directly traceable to a specific product but are
common to several products or cost objects. Examples include utilities, rent, and
management salaries, which benefit more than one project or product line and cannot be
directly assigned to one single product. This contrasts with direct costs, which can be
directly and wholly attributed to the production or acquisition of a specific product.

103. Answer: C) 2,500 kg

104. Answer: d. Operating costing

Service/Operating costing, also known as service costing, is the method used for costing a
service, like road transport. It involves the collection and analysis of operating costs with
the aim of establishing the total cost of providing the service. This method is suitable for
transport services because it helps to determine the cost per passenger, per ton of freight,
or per mile, which are key metrics for companies operating within the transportation
sector.

105. Ans. c. 14400

Equivalent production of WIP 2000 units = 60% of 2000 units = 1200 units
Complete units transferred = 13200 units

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Total equivalent production for the period = 1200+13200 = 14400 units

106. Answer: c. Rs. 1,70,000

DMC+DL+DE

= 90,000+60,000+20,000

=1,70,000

107. Answer: b. Quantitative record of material received, issued and balance

Bin Cards are used to track the quantity of stock for each type of material or component in
a storeroom but do not track the value of the stock. They are crucial in environments
where precise material tracking is required for production and inventory control.

108. Answer: b. 60000

Only when the contract is fully completed, the contract account will be credited by the
contract price. Otherwise, it will be credited by the value of WIP.
If work is not completed till the end of the accounting year, the architect is required to
value the WIP. Such WIP is classied into:
a. Work Certified – part of the WIP being approved by the contratee’s architect or engineer
for payemnts. Work Certified is valued at contract price and includes an element of profit.
b. Work Uncertified – part of the WIP not approved by the architect or engineer is valued at
costa and doesn’t include the element of profit.
Both the Work certified and work uncertified, appear on the credit side of the contract
account and also on asset side of the balance sheet.

109. Answer: e. 120000

Only when the contract is fully completed, the contract account will be credited by the
contract price. Otherwise, it will be credited by the value of WIP. And the value of WIP =
Value of work certified + Cost of work uncertified.
If work is not completed till the end of the accounting year, the architect is required to
value the WIP. Such WIP is classied into:
a. Work Certified – part of the WIP being approved by the contratee’s architect or engineer
for payemnts. Work Certified is valued at contract price and includes an element of profit.
b. Work Uncertified – part of the WIP not approved by the architect or engineer is valued at
costa and doesn’t include the element of profit.
Both the Work certified and work uncertified, appear on the credit side of the contract
account and also on asset side of the balance sheet.

110. Answer: b. 20%

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Usually the full amount amount of Work certified is not paid by the contractee and he may
pay a fixed %, say 80% or 90% of the Work Certified – depending on the terms of the
contract. This is known as Cash Ratio. The balance amount not paid is known as retention
Money. This acts as a type of security for any defective work which may be found in the
contract later on.

111. Answer: c. 603750

New Cost = 500000*(1+ Inflation) = =500000 *(1+0.05) = 5250000. New contract price,
therefore, becomes, (525000 + 15%) = 603750. In Cost Plus Contracts, the price is not fixed
at the time of entering into the contract and the contract price is determined by adding a
fixed amount or % of profits to the costs allowed in the contract. Escalation Clause is The
clause that provides to cover the likely changes in the price or utilization of materials and
labor. The contractor having this clause in the contract will be entitled to suitably enhance
the contract price, if the cost rises beyond a certain given % (mutually agreed in the
contract). The object of the clause is to safeguard the interest of the contractor.

112. Answer: d. 375000

Only when the contract is fully completed, the contract account will be credited by the
contract price. Otherwise, it will be credited by the value of WIP. And the value of WIP =
Value of work certified + Cost of work uncertified. = 300000 +75000 = 375000
If work is not completed till the end of the accounting year, the architect is required to
value the WIP. Such WIP is classied into:
a. Work Certified – part of the WIP being approved by the contratee’s architect or engineer
for payemnts. Work Certified is valued at contract price and includes an element of profit.
b. Work Uncertified – part of the WIP not approved by the architect or engineer is valued at
costa and doesn’t include the element of profit.
Both the Work certified and work uncertified, appear on the credit side of the contract
account and also on asset side of the balance sheet.

113. Answer: c. Abnormal Gain Qty * (Cost/ unit – Scrap Value that would have been realized)
Abnormal Gain Qty * (Cost/ unit – Scrap Value that would have been realized) would be
the amount at which the abnormal Qty gain would be transferred to the Costing P&L
account, because here, actual loss is less than the normal loss. Therefore, the quantity of
normal loss for which we will be able to realize the scrap value decreases.

114. Answer: b. 40.25

Equivalent Production represents the production in terms of completed units. Closing
Work in Progress are converted into Equivalent completed units.
Equivalent Production = Completed Production + (No. of Units of Work in Progress *
Degree of Completion in %)
Here, it will be (50*(1- actual loss%) = 50*92% = 46 units
But 46*25% are 50% completed so they will be taken as (11.5*50%) equivalent units =
5.75

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Therefore, Equivalent Production = (34.5) Completed Production + (5.75) (No. of Units of

Work in Progress * Degree of Completion in %)
= 40.25

115. Answer: c. 2,0

Here, normal loss is 100* 10% = 10 units and the actual output is 92. Since actual loss (8
units) < the normal loss (10 units) , the difference will be the abnormal gain, which will be
2 units and there is no abnormal loss.

116. Answer: a. Normal loss

Process Losses and Wastages – a certain amount of loss occurs at various stages of
production. Such loss may arise due to chemical reaction, evaporation, inefficiency etc.
Process Losses may be classified into:
a. Normal Losses – amount of loss which can’t be avoided because of the nature of
material or process. This loss is expected under normal conditions. Example –
unavoidable spoiled quantities.
b. Abnormal Losses – This type of loss consists of loss due to carelessness, machine
breakdown, accident, use of defective material etc. This loss arises because of abnormal
factors and represents a loss which is over and above the normal loss.

Accounting Treatment of Losses

i. Normal Loss

Cost of Normal Loss should be borne by good production, Normal Loss is generally
determined as a % of Input and If Normal Loss is physically present in the form of scrap, it
may have some value and will be credited to Process A/c.

ii. Abnormal Loss

Abnormal Loss is not absorbed by good production, rather it is transferred to Costing
Profit & Loss A/c and If Actual Loss > Normal Loss : the difference is abnormal loss
iii. Abnormal Gain
If Actual Loss < Normal Loss : the difference is abnormal gain and Abnormal Gain is
shown on the debit side of the Process A/c and the credit side of Abnormal Gain A/c. it is
Transferred to Costing Profit & Loss A/c

117. Answer: e. 110000

Contract account is debited by all the costs incurred for the contract. Since, the direct
costs amount to 90000 and the indirect costs are 100000*20% = 20000. Therefore, the
total costs apportioned for the contract that must be debited to the contract must be
110000.

118. Answer: d. Contractor, Contractee, Sub-contrcator

Parties in the contract
1. Contractor
2. Contractee – the client

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3. Sub- Contractor – if the contract requires facilities that are not available then the same
will be offered to a sub-contractor

119. Answer: b. Retention ratio + Cash Ratio = 1

Retention Money and Cash Ratio – Usually the full amount amount of Work certified is not
paid by the contractee and he may pay a fixed %, say 80% or 90% of the Work Certified –
depending on the terms of the contract. This is known as Cash Ratio. The balance amount
not paid is known as retention Money. This acts as a type of security for any defective
work which may be found in the contract later on.

Work Uncertified
Total
work to
be done Total Work Done
Cash Paid = Cash Ratio
Work Certified
Reserved = Retention Money

120. Answer: c. 2510000

DM + DL + Direct Expenses + Factory Overheads + office and Admin Overheads = Cost
of Production, here it will be 12 lakhs + 7 lakhs + 6.1 lakhs = 25.1 Lakhs

121. Answer: b. Value of Contract * Degree of Work certified

Value of work certified = Value of contract * degrees of work certified

122. Answer: d. Op Stock + Net Purchases + Direct Expenses - Closing Stock = COGS

123. Answer: a. unit costs

Total costs incur in a production process, is divided by total number of output units to
calculate unit cost .

124. Ans. c. A and D

The determination of economic batch quantity involves two types of costs viz, set up cost
and carrying cost.

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With the increase in the batch size, there is an increase in the carrying cost but the
set-up cost per unit of the product is reduced; this situation is reversed when the
batch size is reduced.

Thus there is one particular batch size for which both set up and carrying costs are
minimum. This size of a batch is known as economic or optimum batch quantity.

Economic batch quantity can be determined with the help of a table, graph or mathematical
formula. The mathematical formula usually used for its determination is as follows:

EBQ=

Where,
D = Annual demand for the product
S = Setting up cost per batch
C = Carrying cost per unit of production per annum

125. Answer: c. Unit Costing

Under Single output costing or unit costing, the cost of a product is ascertained, the
product being the only one produced like bricks, coals, etc. Under Job costing, cost of each
job is ascertained separately. It is suitable in all cases where work is undertaken on
receiving a customer’s order like a printing press, motor workshop, etc. Batch Costing is
the extension of job costing. A batch may represent a number of small orders passed
through the factory in batch. Each batch here is treated as a unit of cost and thus costing
is done separately. Here cost per unit is determined by dividing the cost of the batch by
the number of units produced in the batch. Under Contract Costing, the cost of each
contract is ascertained separately. It is suitable for firms engaged in the construction of
bridges, roads, buildings etc. Under Process Costing, cost of completing each stage of work
is ascertained, like cost of making pulp and cost of making paper from pulp

126. Answer: b. Multiple Costing

Suppose a firm manufactures bicycles including its components; costing of the parts will
be done by the system of job or batch costing but the cost of assembling the bicycle will
be computed by the Single or output costing method. The whole system of costing is known
as multiple costing.

127. Answer: b. Standard Costing

Standard Costing & variance analysis is the name given to the technique whereby standard
costs are pre- determined and subsequently compared with the recorded actual [Link] is thus
a technique of cost ascertainment and cost control. This technique may be used in
conjunction with any method of costing. However, it is especially suitable where the
manufacturing method involves production of standardised goods of repetitive nature.

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128. Answer: b. Absorption Costing

Absorption Costing is a practice of charging all costs, both variable and fixed to operations,
processes or products. This differs from marginal costing where fixed costs are excluded.

129. Ans. D
Under job costing, as production is not continuous and each job may be different, so more
managerial attention is required for effective control.
On the other hand, under process costing, process of production is usually standardized
and is therefore, quite stable. Hence control here is comparatively easier.

The differences are summarised below:

Job costing Process Costing
A Job is carried out or a product The process of producing the product has a
isproduced by specific orders continuous flow and the product produced is
homogeneous.
Costs are determined for each job. Costs are compiled on time basis i.e., for
production of a given accounting period for each
process or department
Each job is separate and independent Products lose their individual identity as they are
of other jobs manufactured in a continuous flow
Each job or order has a number and costs The unit cost of process is an average cost forthe
are collected against the same job period.
number.
Costs are computed when a job is Costs are calculated at the end of the cost period.
completed. The cost of a job may be The unit cost of a process may be computed by
determined by adding all costs against dividing the total cost for the period by the output
the job. of the process during that period
As production is not continuous and Process of production is usually standardized and is
each job may be different, so more therefore, quite stable. Hence control here is
managerial attention is required for comparatively easier
effective control

130. Answer: (b) Bill of material

The list of materials and components required for the completion of a specific job order is
known as the bill of material (BOM). It provides detailed information about the quantity,
description, and specifications of each item needed to manufacture or assemble the
product specified in the job order.

131. Answer: c. 38000

Prime Cost 33,500

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Add: Factory Overheads:

Depreciation: 1,500

Factory Rent (1,500 x 200%): 3,000

Factory Cost 38,000

132. Answer: e. 1,87,500

Variable Cost Ratio = 60%
P/V Ratio = 1 – Variable Cost Ratio = 1 – 60% = 40%
(a) Break Even Point (in ₹) = Fixed Cost / PV Ratio
= 75,000 / 40%
= ₹ 1,87,500

133. Answer: b. 2,43,750

Desired Profit = 1,50,000 × 15% = ₹ 22,500
Expected Sales = (Fixed Cost + Desired Profit) / P V Ratio
=
75,000 + 22,500 / 40%
= ₹ 2,43,750

134. Answer: (c) Job costing

When products produced are of diverse nature and each unit or batch is different from the
others, job costing is the most appropriate costing system to use. Job costing involves
assigning costs to each individual job, project based on its specific characteristics, such as
materials, labor, and overhead costs incurred.

135. Ans: (a) Abnormal loss

Abnormal loss refers to the loss of material or products that occurs due to unexpected or
unusual circumstances, such as accidents, equipment failures, or errors in production.
Unlike normal loss, which is inherent and predictable within the production process,
abnormal loss is not part of the normal operating conditions.

In cost accounting, abnormal losses are typically not allowed to affect the cost of good
units because they are considered abnormal or extraordinary occurrences that are beyond
the control of management. These losses are often treated separately and may be
charged as an expense in the period in which they occur rather than being included in the
cost of production.

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136. Answer: (b) Job Costing

Batch costing is a type of job costing where costs are accumulated and assigned to a
specific batch or group of similar products produced together. This method is used when
identical or similar products are produced in batches, rather than as individual units.

137. Answer: b. Long Term Contracts

Contract costing is a specific type of job costing used for long-term projects or contracts
where goods or services are produced according to customer specifications over an
extended period of time. These contracts typically involve significant financial
commitments and resources and can span several months or even years. Examples
include construction projects, infrastructure development, and large-scale manufacturing
contracts.

138. Answer: (d) Process costing.

Process costing is a cost accumulation system used by companies that produce
homogeneous products through a series of continuous or repetitive processes or steps.
Each department or process within the production system accumulates costs, and the
total costs are allocated to the units produced based on the number of units completed or
the equivalent units produced.

139. Answer: (b) 15,000 units transferred at a cost of 130,050.

The cost of normal loss will also be absorbed by the good units so:

Material Cost 2.50 * 15300 = 38,250

Conversion costs 6.00 * 15300 = 91,800

Total Cost: 1,30,050

This Cost will be absorbed by the good units 15000 so the correct answer is 15,000 units
transferred at a cost of 130,050.

140. Answer: (b) Administration overhead

Directors' remuneration and expenses typically fall under the category of administration
overhead. Administration overhead includes all indirect costs incurred for general
management and administrative functions within the organization.

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141. Answer: (b) Cost of production

Combining these two categories captures all the costs incurred in both manufacturing
(works cost) and running the business (administration expenses) that are necessary to
produce goods or services. This aligns perfectly with the definition of cost of production.

142. Answer: (c) factory cost

The prime cost covers all the raw materials and direct labor directly incorporated into the
product itself. However, running a factory involves more than just the direct costs. Rent,
utilities, and equipment depreciation contribute to the overall production environment but
can't be directly linked to each unit made. These indirect costs are bundled under factory
overheads.

143. Answer: c. Store Ledger

While all the options have some connection to production or inventory, only the store
ledger serves as a true accounting record documenting financial transactions and
inventory value.

144. Answer: (b) the total of all cost items which can be directly charged to product units.
Prime cost refers to the total of all costs directly attributed to the production of a product.
This includes direct material costs, direct labor costs, and any other direct costs that can
be specifically charged to the product units.

145. Answer: (c) Absorbed by good units produced.

In process costing, the cost of normal process loss is absorbed by the good units
produced. This means that the cost of the normal loss is included in the cost of the good
units that are successfully completed and transferred out of the process. The cost of the
normal loss is spread over the good units produced, and it is not separately accounted for
but is absorbed as part of the overall production costs.

146. Answer: (c) selling overheads

Advertisements are typically considered as part of selling expenses or selling overheads.
Selling overheads are costs incurred in promoting and marketing products or services to
customers. This includes expenses related to advertising, sales commissions, sales
salaries, sales promotion activities, and other selling-related costs.

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147. Answer: (b) Kilowatt-hour (kWh)

In the power sector, particularly in electricity generation, transmission, and distribution, the
commonly used cost unit is the kilowatt-hour (kWh). A kilowatt-hour represents the
amount of energy consumed by a load of one kilowatt over a period of one hour. This unit
is used to measure electricity consumption and is typically used for billing purposes by
utility companies.

148. Answer: (c) homogeneous articles are produced on large scale

Unit costing is a costing method applicable when homogeneous articles (items that are
identical or very similar) are produced on a large scale. This method calculates the cost
per unit of production by dividing the total cost of production by the total number of units
produced. It is commonly used in industries where mass production of standardized
products occurs.

149. Answer: b. 2
In contract costing, there are typically two parties involved: the contractor and the
contractee (or customer/client). The contractor is the entity responsible for executing the
project or providing the goods/services, while the contractee is the entity that commissions
the project or purchases the goods/services. These two parties enter into a contractual
agreement outlining the terms, specifications, and costs of the project or goods/services.

150. Answer: (b) Batch becomes the cost unit instead of a job
In batch costing, the batch itself serves as the cost unit instead of a job. While job costing
focuses on assigning costs to individual jobs or projects, batch costing aggregates costs
for a group or batch of similar products produced together.

151. Answer: (d) A Ltd.

In cost accounting, a cost center is any organizational unit or segment that incurs costs
and for which costs are accumulated and reported. Cost centers are typically used for
allocating and controlling costs within an organization.

In the scenario described:

Machines under the production department can be treated as cost centers because they
represent specific resources where costs are incurred.

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Production departments themselves can also be treated as cost centers because they
represent distinct segments of the organization where costs are incurred and can be
attributed.

However, "A Ltd." is the entire company or entity itself. It is not a specific segment or unit
within the organization where costs are incurred. Therefore, "A Ltd." cannot be treated as
a cost center for cost allocation purposes.

152. Answer: (d) Method of costing used for non- standard and non- repetitive products.
Job costing is a method of costing used for products or services that are non-standard and
non-repetitive. It involves tracking the costs of materials, labor, and overhead for each
individual job.

153. Answer: (d) Total process cost less realizable value of normal loss less value of
transferred out goods.
Abnormal loss refers to the loss of materials or products that occurs due to unexpected or
unusual circumstances beyond the normal process losses. To calculate the value of
abnormal loss, you subtract both the realizable value of normal loss and the value of
transferred out goods from the total process cost.

154. Answer: A. (i) and (ii)

155. Answer: C. Administration cost

Audit fees paid to cost auditors are typically considered administrative costs.
Administration costs include expenses related to the management and administration of
the business, such as salaries of administrative staff, office rent, utilities, and professional
fees. Since audit fees are related to the oversight and review of financial records, they fall
under administrative costs.

156. Answer: B. Quality control cost

The salary of laboratory staff responsible for testing products for compliance with
standards would typically be considered part of quality control costs. Quality control costs
are incurred to ensure that products meet specified standards and requirements, thereby
maintaining product quality and customer satisfaction. These costs include expenses
related to testing, inspection, and quality assurance activities.

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157. Answer: B. Factory overhead

Canteen expenses for factory workers are typically considered part of factory overhead.
Factory overhead includes indirect costs associated with the manufacturing process that
cannot be easily traced to specific units of production. These costs are incurred to support
production activities within the factory premises.

158. Answer: D. Overtime premium paid to workers

Prime cost includes direct costs directly attributable to the production of goods, such as
direct materials, direct labor, and other direct expenses directly related to production.
Overtime premium paid to workers, while a labor cost, is not part of prime cost because it
represents an additional cost incurred due to the extension of regular working hours
beyond standard hours.

159. Answer: A. Direct expenses

Royalties paid to the government based on production are most likely classified as direct
expenses. This is because the amount paid directly varies with the level of production,
similar to other direct costs like materials and labor.

160. Answer: b. 15,000

Prime Cost = 50,000.

Direct Labour = 70% of prime cost = 70% of 50,000 = 35,000.

Direct Material = (50,000 – 35,000) = 15,000.

161. Answer: c. 200 Units

2𝐴𝑆
EBQ = √ 𝐶

where, EBQ = Economic Batch Quantity

A = Annual Demand = 2,400 units

S = Set up cost per batch = ₹ 100

C = Carrying cost per unit per year = 200 × 6% = ₹12

2∗2400∗100
EBQ = √ 12

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= 200 Units

162. Answer: D. Interest paid

The preparation of a cost sheet typically includes the direct costs and indirect costs
associated with the production of goods or services. These costs are categorized into
various elements such as direct materials, direct labor, and production overheads.

163. Answer: c. EOQ 2500 Units & 4 Orders per year

2𝐴𝑂
EOQ = √ 𝐶

A = Annual Demand (Units Consumed during the year) = 10,000 kg

O = Ordering Cost per order =Rs. 50

C = Carrying Cost per unit per annum = 2 × 8% = Rs. 0.16

2 10,000∗50
EOQ = √ 0.16

= 2,500 units

Number of orders to be placed in a year = Total Consumption of Materials per annum /

EOQ

= 10,000 / 2500

= 4 orders per year

164. Answer: (d) All of the above

The main points of distinction between job and contract costing include differences in the
length of time to complete, the size of projects (ranging from small jobs to larger
contracts), and the involvement of activities to be done outside the factory area.
Therefore, the correct answer is: (d) All of the above.

165. Answer: b. Material requisition

Material requisition documents are used to record the issue of direct materials to a specific
job. When materials are needed for a particular job, a material requisition form is typically
filled out by the relevant department (such as production or manufacturing) to request the
necessary materials from the storeroom or warehouse. This document serves as an

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authorization for the materials to be issued and provides details such as the quantity,
description, and job to which the materials will be charged.

166. Answer: a. Job cost sheet may be used for estimating profit of jobs.
A job cost sheet contains details of all the costs incurred for a specific job, including direct
materials, direct labor, and overhead costs. By comparing these costs with the revenue
generated from the job, one can estimate the profit earned from that particular job.
Therefore, job cost sheets can indeed be used for estimating the profit of jobs.

Job costing can be used in conjunction with marginal costing. Marginal costing focuses on
segregating costs into fixed and variable components, which can be applied to individual
jobs in a job costing system to analyze their profitability. A production order is not
necessarily received from a customer. It is an internal document used to authorize the
production of a specific quantity of a product or batch of products.

167. Answer: (b) Cost object

A cost object is anything for which a separate measurement of costs is desired or
required. It can be a product, service, project, activity, or any other item for which costs
are accumulated and measured.

168. Answer: b. Cost of good units less realizable value of normal loss.
When abnormal gain occurs in a process, it means that more units are produced than
expected, resulting in a gain. The value of abnormal gain is determined by subtracting the
realizable value of normal loss from the cost of good units produced. This reflects the
additional value gained beyond the expected production.

169. Answer: (c) Abnormal loss of 30 units

To find out if there's any abnormal loss or gain, we compare the actual output with the
expected output (excluding normal loss).

Expected output (excluding normal loss) = Total units introduced - Normal loss

Expected output = 200 units - 20 units = 180 units

Actual output is given as 150 units.

Since the actual output (150 units) is less than the expected output (180 units), there is a
shortfall of 30 units. This shortfall of 30 units represents abnormal loss because it is
beyond the normal loss of 20 units.

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170. Answer: (c) the efficiency of the process is measured.

Inter-process profit arises when the output of one process is transferred to another at a
price exceeding its actual cost. This price can be a market price, a standard cost markup,
or another predetermined value. By comparing the transfer price with the actual cost of the
transferred units, we gain insights into the efficiency and effectiveness of each process.

171. Answer: (a) Job Costing

Job costing is the most suitable cost system when products differ in the type of materials
used and the work performed. This method allows for the accurate allocation of costs to
each unique job or project based on its specific requirements, such as materials, labor,
and overhead. Job costing is commonly used in industries where products are custom-
made or where each unit produced varies significantly from others.

172. Ans: b. Credited

The Contract Account accumulates all costs associated with fulfilling a specific contract.
These costs are debited to the account. Once the contract is completed and the agreed-
upon work is delivered, the customer pays the contract price. This revenue is credited to
the Contract Account. The balance in the Contract Account ultimately represents the profit
or loss made on the contract. This balance is then transferred to the Profit and Loss
Account.

173. Answer: d. 36,516

We Know, Cost of Goods Sold + Selling and Distribution Overheads = Cost of Sales.

Both Advertisement Expenses and Discount on sales together constitutes Selling and
Distribution Overhead

Cost of Sales 37,416

Less: Selling and Distribution Overheads

Advertisement Expenses 600

Discount on sales( 50% of `600) 300

Cost of Goods Sold 36,516

174. Answer: a. 52,000

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Prime Cost 41,000

Works Overhead:

Add: Variable 100% direct wages 8,000

Add: Fixed 60% direct wages 4,800

Less: Sale of scrap (1,800)

Works Cost 52,000

175. Answer: (d) job costing

Job costing is the most suitable method for the printing industry. In job costing, costs are
accumulated by specific jobs, projects, or orders. Each print job in the printing industry
typically represents a unique project with its own specifications, materials, and labor
requirements. Job costing allows printing companies to track and allocate costs accurately
to each print job, enabling them to determine the profitability of individual projects.

176. Answer: a. 500 Units

2𝐴𝑂
EOQ = √ 𝐶

A = Annual Demand (Units Consumed during the year) = 18,250 units

O = Ordering Cost per order =Rs. 50

C = Carrying Cost per unit per annum = 36.5 * 20% = Rs. 7.30

2∗18250∗50
EOQ = √ 7.30

=500 Units

177. Answer: (d) All of these

Cost accounts are concerned with recording and analyzing costs related to the production
of goods or services. Items such as income tax, interest on debentures, and cash
discounts are typically not considered as part of cost accounts. Instead, they are financial
expenses or transactions that are recorded in financial accounting statements such as the
income statement or balance sheet.

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178. Answer: b. Budget manual

A Budget manual is a crucial document within an organization that outlines the objectives
related to its spending strategy. It serves as a comprehensive guide that details the
procedures, controls, and responsibilities associated with the budgeting process. This
manual helps ensure that all departments within the organization align with the financial
goals and adhere to consistent budgeting practices, facilitating effective planning and
control of financial resources.

179. Answer: a. 50%

Calculation of the contribution of the firm:

Sales = Rs. 4,00,000

Variable cost = Rs. 2,00,000

Contribution = Sales - Variable cost

Contribution = Rs. 4,00,000 - Rs. 2,00,000

Contribution = Rs.2,00,000

P/V ratio = Contribution x100 / Sales

P/V ratio = (Rs.2,00,000 x 100) / Rs. 4,00,000

P/V ratio = 50%.

180. Answer b. 10,000 units.

Break-Even Point (units) = Fixed Costs (Sales price per unit - Variable costs per unit)
Break-even point in units = 2,00,000/(5030) = 2,00,000/20 = 10,000 units.

181. Answer d. actual cost with the standard cost to find variation.
Standard costing is a technique that compares the actual costs incurred to the standard
costs that have been set in advance for those costs. The purpose of this comparison is to
identify variances, which are differences between what was actually spent and what
should have been spent according to the standards. These variances help managers
understand where efficiencies or inefficiencies are occurring within the production
process, providing critical insights for cost control and budget management.

182. Answer: d. Both b and c

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Marginal costing is a costing technique in which variable costs are considered as product
costs and fixed costs are treated as period costs. They are not allocated or apportioned to
products or services but are charged against revenue in the period in which they are
incurred. This differentiates it from absorption costing, where fixed costs are allocated to
product costs. Marginal costing focuses on the additional costs of producing an additional
unit - hence it involves the division of costs into fixed and variable components.
Additionally, it is typically not used as an independent system of costing but rather as a
decision-making tool used alongside other accounting methods.

183. Answer: d. All of the above

Marginal costing is based on several key assumptions:

Total fixed cost is constant at all levels of output: Fixed costs do not change with the level
of production or output within a relevant range.

Total variable cost varies according to the volume of output: Variable costs change directly
with the level of production. More units produced means higher variable costs, and vice
versa.

All elements of cost can be divided into fixed and variable components: This assumption is
crucial for applying marginal costing as it allows for the clear separation of costs into those
that vary with output and those that do not, enabling precise calculation of the contribution
margin.

These assumptions allow businesses to effectively use marginal costing for decision-
making, particularly in short-term financial analysis and planning.

184. Answer: c
In marginal costing, the contribution margin refers to the amount remaining from sales
revenue after variable expenses have been deducted. This amount contributes toward
covering fixed costs and generating profit. It is often referred to as "marginal income"
because it reflects the incremental income generated by each additional unit sold. This
terminology highlights the focus of marginal costing on assessing how much each unit
contributes to fixed costs and overall profitability.

185. Answer: b. (2) and (5) only

Assumption of Marginal Costing:

• Total cost is segregated into fixed and variable costs: The total cost is segregated into
fixed and variable. Fixed costs are the one which does not change with the change in
production. The variable cost changes with the change in production.

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• Fixed cost per unit of production remains constant: The fixed cost per unit changes with
the change in production.

• Variable cost remains constant per unit of output: Variable cost remains the same at all
levels of production. However, the variable cost per unit may change with the change in
the output.

• Selling price per unit remains unchanged: Selling price per unit also remains constant
with per unit of production.

• Variable cost is variable per unit: Variable cost per unit does not change with the change
in production.

186. Answer d. Rs. 400

PV Ratio = (Sales - Variable Cost) / Sales

0.25 (Sales - 300) / Sales

0.25 Sales = Sales - 300

Sales - 0.25 Sales = 300

0.75 Sales = 300

Sales Rs. 400.

Therefore, if a company proposes to introduce a new product in the market. The company
wants to maintain P/V Ratio at 25%. If the variable cost of the product is Rs. 300, the
selling price will be Rs. 400.

187. Answer b. Opportunity cost.

Opportunity cost is an economic term that refers to the benefit a person or business
foregoes as a result of choosing one alternative over another. In this context, it specifically
refers to the income or gains expected from the second-best use of resources, which are
foregone when resources are allocated to their best use. This concept is crucial in
economics and decision-making, helping to ensure that resources are used efficiently to
maximize potential returns.

188. Answer: b. Marginal costing shows higher profitability.

When sales exceed production, and closing stock is less than opening stock, marginal
costing shows higher profitability compared to absorption costing.

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189. Answer: c. Profitability is the same under both absorption and marginal costing.

When production equals sales and there are no changes in inventory levels (no opening
or closing stock), both absorption and marginal costing methods report the same profit
because all costs incurred are matched with the revenue from all goods sold.

190. Answer: d. Material Usage Variance

The formula "Standard Price × (Standard Quantity - Actual Quantity)" is used to calculate
the Material Usage Variance. This variance measures the difference between the amount
of material that should have been used for production, according to the standard
quantities, and the actual amount used, valued at the standard price. It highlights
efficiency in material usage, where a positive variance indicates less material used than
planned (favorable), and a negative variance indicates more material used than planned
(unfavorable).

191. Answer: b.25%

PVR = Change in Profit / Change in Sales * 100

5000 / 20000 * 100

= 25%

192. Answer: c. Functional Budget

Functional Budgets – is one which relates to a particular function of the business. Example,
Sales Budget, Production Budget among others

193. Answer: d. EOQ

EOQ, or Economic Order Quantity, is a formula used in inventory management to
determine the optimal order size that minimizes the total costs of inventory—this includes
both the ordering costs and the carrying costs. The EOQ model finds the quantity that
reduces the sum of these costs to the least possible amount, thereby streamlining
inventory management and reducing excess expenditures.

194. Answer: b. 1,750 units

Ordering Level= (Daily Consumption × Lead Time) + Minimum Stock

Daily Consumption = 50 units

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Lead Time = 15 days

Minimum Stock = 1,000 units

Ordering Level= (50×15) +1,000

=750+1,000

=1,750 units

195. Answer: d. 182 units

√ (2*1200*4) / 2.4 * 12%

= 182.57 Units

196. Answer: a. 24000

Contribution/ PV ratio = Sales = 50000 and Sales – MOS = Break Even sales

Now, Variable Cost per unit = 5*(1-80%) = 1, therefore, contribution per unit = 4 and FC =
4*BE units = 4 * 30000/5 = 24000

197. Answer: b. Standard Cost

Standard cost is a criterion cost which may be used as a yardstick to measure the
efficiency with which actual cost has been incurred. Standard Costs are the predetermined
costs or the target costs that should be incurred under efficient operating conditions.

198. Answer: b. 17.5

DM + DW + Variable O/h

10 + 5 + 2.5

= 17.5

199. Answer. e. Loss of Rs.14000

PV Ratio = Contribution/Sales

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or 40% = Contribution / 40000

or Contribution = 40% of 40000 = Rs.16000
Profit / loss = Contribution - Fixed cost
= 16000-30000
= -14,000

200. Answer: c. 3488

SPPU: 200,000 / 5000

= 40 Rs per unit

Contribution Per unit = 40 – 12 - 6 - 4.8

= 17.2

BEP in units = FC / Contribution per unit

60,000 / 17.2

=3488

201. Answer: d. 23.75

DM + DW + Variable O/h + fixed cost per unit

10 + 5 + 2.5 + 6.25

=23.75

Read the below mentioned information and answer question 71 & 72:

The annual demand for an item is 8100 units. The unit cost is 10 and inventory
carrying charges is 20% p.a. If the cost of one procurement is 100. Determine Time
between two consecutive order.

202. Answer: b. 900

First We need to calculate the EOQ:

√ (2*8100*100) / 10 * 20%

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= 900 Units

203. Answer: a. 3
No of orders:

8100 / 900

= 9 orders

Time between two consecutive orders = 12 months/ [Link] orders

12 months / 4

=3

204. Answer: d. Yes, if contribution > 0, the organisation is able to cover its variable cost and it
should definitely sell in the short term
if contribution > 0, the organisation is able to cover its variable cost and it should definitely
sell in the short term since the extra contribution will lead to recovery of fixed costs and then
will lead to generation of profits. Contribution is the profitability level that deducts only the
variable costs from the selling price and very significant for short term decision making. If
the additional contribution for an additional unit of the shirt sold by an organization turns
negative, the organization must not sell that additional unit, because it will not even recover
the variable cost by that particular price on that unit.

205. Answer: c. 20,000

Margin of Safety (in amount) = Profit/ PV ratio
100,000 = Profit/20%
Or Profit = 100000*20% = 20,000

At Break Even Sales, the organization earns no profits, and beyond this point, the
organization earns profits because the entire costs are recovered at Break Even Point.
Therefore, this is the safety margin for an organization. Beyond, Break Even point, Total
Revenues exceed Total Costs, therefore contribution contributed by each additional unit,
contributes to the profit

206. Answer: a. 400,000

At Break Even Sales, the organization earns no profits, and beyond this point, the
organization earns profits because the entire costs are recovered at Break Even Point.
Margin of Safety is the difference between the actual sales and the Break Even point.
Margin of Safety (MoS) = Actual sales – Break-even Sales

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Now, Break Even sales in amount = Fixed Costs/ PV ratio

= 60,000/20%
= 300000

Current level of sales or actual sales = MoS + Breakeven sales

= 100000 +300,000

= 400,000

207. Answer: c. Level of Sales over and above BE Sales

Margin of Safety is the amount by which target (budgeted) or existing sales volume
exceeds (or falls short of) the break-even point.
At Break Even Sales, the organization earns no profits, and beyond this point, the
organization earns profits because the entire costs are recovered at Break Even Point.
Therefore, this is the safety margin for an organization.

208. Answer: c. Total Fixed costs, Total Cost and Total Revenue
here since irrespective of the change in the quantity, the orange line shows the fixed
amount, it is the fixed cost. The blue line starts from fixed costs and increases because of
variable cost, therefore, it is the Total cost and the Grey lie represents the total revenue.

209. Answer: b. <0

MOS is the additional sales over and above the break-even sales. Here, the break even
point is 400 units since total revenues are equal to total costs at this point. Therefore, the
MOS = 300-400 = - 100. Therefore, b is the correct option.

210. Answer: d. Additional contribution per unit of sales

PV Ratio is Profit Volume Ratio. The other name for it is Contribution to Sales Ratio.

Formula for PV Ratio is

 PV Ratio = Contribution/ Sales = Contribution per unit/ Selling Price per unit

211. Answer: a. Total Revenues > Total Costs

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MOS is the additional sales over and above the break-even sales. The break even sales
have already been arrived and the client is having MOS which is sales over and above the
break even point which implies the additional sales will give the additional contribution and
the entire additional contribution will lead to the profits.

212. Answer: e. 200

Here we can see that only the raw material cost is changing whereas the rent cost is
remaining the same. Therefore, the fixed cost is 20000. Break even point = FC/
Contribution per unit = 20000/(250-150) = 200 units.

213. Answer: b. >0

We know that contribution less fixed cost gives us profit. The condition mentioned in the
question states that contribution exceeds the Fixed costs implying profit to be greater than
0, which means we are selling over and above the break-even level of output which further
means that MOS >0.

214. Answer: c. 3000

Marginal costing values a unit of an output by using the marginal or variable costs only.
Here the only variable cost is that of raw material which is 150/unit. Therefore, the value of
closing stock = Value of per unit * no. of units = 150*20 = 3000.

215. Answer: a. 5000

Absorption costing values a unit of an output by using not only the marginal or variable
costs but also the fixed cost. Here the only variable cost is that of raw material which is
150/unit and the fixed cost per unit comes to be (20000/200) = 100/ unit. Therefore, the
value of closing stock = Value of per unit * no. of units = 250*20 = 5000.

216. Answer: a. Absorption Costing

Since it is the first year of operations, the quantity of opening stock would be 0. And we
know that Absorption costing values a unit of an output by using not only the marginal or
variable costs but also the fixed cost, whereas, Marginal costing values a unit of an output
by using the marginal or variable costs only. Therefore, the value of closing stock would
be higher in case of absorption costing.

217. Answer: b. Marginal Costing

Since Cost of Goods sold is calculated as opening stock +Production expenses – closing
stock and COGS and Profits are inversely related, we need to compare the costs. Here,
the opening – closing stock is more in case of absorption which implies profits would be
lower there as compared to marginal costing.

218. Answer: b. Normal Loss

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Normal Losses ae the amount of losses which can’t be avoided because of the nature of
material or process. This loss is expected under normal conditions. Example –
unavoidable spoiled quantities.

219. Answer: b. 5000F

LEV = (Actual Hours – Standard Hours) * Standard Rate .Here, LEV = (4000-4400)*12.5 =
5000F

220. Answer: 6.8

LRV =(Actual rate – Standard Rate) * actual hours
Here, 4800 = (7- SR)*24000 which gives SR = 6.8/ hour.

221. Answer: b. 5000F

LEV = (Actual Hours – Standard Hours) * Standard Rate .Here, LEV = (42000-42500)*10
= 5000F
Here, Standard rate = 400000/40000 = 10/ hour
And standard hours = 17000*40000/16000 = 42500.

222. Answer: (c) Both favorable and unfavorable variances should be shown
A budget report prepared on the principle of exception typically includes both favorable
and unfavorable variances. The principle of exception suggests that only significant
deviations from the budgeted amounts need to be highlighted. Both favorable and
unfavorable variances can provide valuable insights into areas where performance
deviates from expectations, allowing management to focus on areas that require attention.

223. Answer: d. 800 Units

2𝐴𝑂
EOQ = √ 𝐶

A = Annual Demand (Units Consumed during the year)

O = Ordering Cost per order

C = Carrying Cost per unit per annum

2∗3,200 ∗150
EOQ = √ 1.50
= 800 Units

224. Answer: c. 4

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Number of orders per year =

3,200 / 800
=4

225. Answer: a. 3
Time between two consecutive orders = 12 months/ [Link] orders

12 months / 4

=3

226. Answer: (c) Setting out the budget organization and procedures for preparing a budget
including fixation of responsibilities, formats and records required for the purpose of
preparing a budget and for exercising budgetary control system.
A budget manual is a comprehensive document that outlines the budgeting process within
an organization. It includes details such as the responsibilities of various individuals or
departments involved in the budgeting process, the procedures for preparing different
types of budgets, the formats to be used, and the records required for effective budgetary
control. Essentially, it provides guidance on how to create, implement, and manage
budgets within the organization.

227. Answer: (c) A favorable variance does not necessarily indicate efficient performance,
because such a variance might have been arrived at by not carrying out the expenses
mentioned in the budget.
While a favorable budget variance often suggests that actual performance exceeded
expectations and costs were controlled effectively, it does not always directly indicate
efficient performance. Sometimes, a favorable variance can result from underspending or
not carrying out planned expenses, which might not necessarily reflect efficient
performance in terms of utilizing resources optimally to achieve organizational goals.
Therefore, it's essential to analyze the reasons behind the variance to determine whether
efficient performance has been achieved.

228. Answer: (b) Budget controller

The budget control organization is typically overseen by a top executive known as the
budget controller. This individual is responsible for supervising the budgeting process,
ensuring adherence to budgetary guidelines, and overseeing the implementation of
budgetary control measures within the organization. While other executives like the
general manager or the organization's accountant may be involved in the budgeting
process, the budget controller typically holds the primary responsibility for budget control
functions.

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229. Answer: (c) Whether actual activity was more or less than the budgeted capacity.
Activity ratio compares the actual level of activity with the budgeted level of activity. It
provides insights into whether the actual activity (such as production or service output)
was higher or lower than what was budgeted. This helps in evaluating performance
against the planned capacity utilization.

230. Answer: (b) Chemical industries

Process costing is a costing method that is suitable for industries where products are
produced through a continuous or repetitive process, and the products are homogeneous
(similar) in nature. Chemical industries often involve continuous production processes
where products are manufactured in large quantities and are standardized or similar in
nature, making process costing a suitable method for cost allocation.

231. Answer: b. 2,10,000

We Know, Cost of Goods Sold = Cost of Production + Opening stock of finished goods –
Closing stock of finished goods.

Particulars `

Cost of Goods Sold 1,90,000

Add: Closing Stock of finished goods 50,000

Less: Opening stock of finished goods (30,000)

Cost of Production 2,10,000

232. Answer: (b) Flexible budget

The classification of costs into fixed and variable categories is particularly useful for the
preparation of a flexible budget. A flexible budget is designed to adjust to changes in
activity levels, and understanding the fixed and variable components of costs allows for
more accurate estimation of budgeted costs at different levels of activity.

233. Answer: (c) Flexible budget

A flexible budget is designed to adjust to changes in activity levels. It allows for the
estimation of costs based on different levels of activity. This type of budget is suitable for a
factory overhead budget system where estimated costs need to be derived directly from

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estimates of activity levels. Unlike fixed budgets, which remain unchanged regardless of
activity levels, flexible budgets can be adjusted to reflect variations in activity, making
them more adaptable to actual operational conditions.

234. Answer: (b) Purchases budget is a wider concept and thus includes not only purchases of
materials but also other item’s as well.
Materials budget: Focused only on the quantity and cost of materials needed for
production.

Purchases budget: Encompasses all purchases, including materials, finished goods etc.

Therefore, while the materials budget is contained within the purchases budget, they are
not identical.

235. Answer: (b) Activity ratio/ capacity ratio

The efficiency ratio compares the actual output achieved with the expected output based
on the available resources (usually measured in terms of activity or capacity). It indicates
how well resources are being used to achieve production goals. So, it is essentially a
combination of activity ratio and capacity ratio.

236. Answer: (c) Cash budget

A cash budget typically covers a short-term period, usually spanning a month, a quarter,
or a year. It forecasts the cash inflows and outflows of a business over this short-term
period, helping to manage cash flow effectively.

237. Ans: (b) Fixed costs.

Period costs are costs that are not directly tied to the production of goods or services and
are incurred over a specific period of time, regardless of the level of production or sales.
Period costs are typically considered fixed costs because they do not vary with changes in
production levels or activity. Instead, they are incurred regularly over time, regardless of
the company's level of output.

238. Answer: b. 48000

MOS in units * SP per unit *PV ratio = profit

20,000*4 * 60%

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= 48000

239. Answer: b. A standard which includes some allowance for losses, waste and
inefficiencies. It represents the level of performance which is attainable under efficient
operating conditions.
An attainable standard is a standard that considers normal levels of inefficiencies, waste,
and losses that can occur in the production process even under efficient operating
conditions. This standard reflects a realistic expectation of performance achievable by
well-trained and motivated workers using appropriate equipment and methods.

240. Answer: b. Production Schedule

A production schedule is not typically considered an element of the master budget. The
master budget typically consists of various financial plans and schedules that outline the
overall financial goals and activities of an organization for a specific period, such as a
fiscal year.

241. Answer: d. More accurate external financial statements

While budgets offer several potential benefits to an organization, such as enhanced
coordination of firm activities, more motivated managers, and improved inter-departmental
communication, they are not directly related to the accuracy of external financial
statements.

242. Answer: b. To minimize waste without sacrificing productivity.

Lean Systems aim to reduce waste while maintaining or enhancing productivity levels,
ensuring that all activities contribute directly to value creation without unnecessary
expenditures of resources or time.

243. Answer: b. Systemize (Systematize)

The 5S methodology includes Sort, Set in Order (Seiton), Shine, Standardize (Seiketsu),
and Sustain. Systemize is not a recognized stage within the 5S framework.

244. Answers: e. I. = C; II – D; III – B; IV - A

Just-in-Time (JIT) - C

Kaizen Costing - D

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5 S Methodology - B

Total Productive Maintenance (TPM) – A

245. Answer: c. Total Productive Maintenance (TPM)

TPM would be the most suitable choice as it focuses on maintaining and improving the
integrity of production and quality systems through proactive and preventative
maintenance, directly addressing the plant’s concerns about equipment reliability and
product quality.

246. Answer: b. 5 S Methodology

The 5 S Methodology is centered around workplace organization—Sort, Set in Order,
Shine, Standardize, and Sustain—which is clearly depicted in the organized and efficient
layout shown in the image.

247. Answer: c. Using a single mathematical model for all types of manufacturing setups.
Implementing Cellular Manufacturing involves multiple mathematical models and
algorithms tailored to account for a variety of variables, not a one-size-fits-all model.

248. Answer: d. A quality improvement technique focused on achieving near-perfection and

enhancing customer satisfaction.
Six Sigma is a quality improvement methodology that strives to reduce defects and
improve customer satisfaction by making processes close to "zero defects."

249. Answer: e. Cost Reduction

The primary focus of Six Sigma is on:

Customer satisfaction Decisions based on data-driven facts

Management, improvements, and Proactive management team
processes
Collaboration with in the business Goal for perfection

250. Answer: b. False, True, False

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• False - Process Innovation (PI) is about implementing new or significantly improved

production or delivery methods, not just enhancing existing processes.
• II. True - Business Process Re-engineering (BPR) indeed involves a fundamental
rethinking and radical redesign of business processes to achieve dramatic improvements.
False - BPR aims for much loftier objectives than mere incremental improvements; it
seeks quantum leaps in performance, not just minor enhancements.

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