QN1. Which of the following statements is/are true?
a) Cost accounting is not a part of management accounting.
b) Cost accounting is a system to record, summarize and report cost information.
c) Cost accounting is a post mortem of past costs.
d) Cost accounting is not necessary if financial accounting provides necessary analysis.
Answer
Answer: b) Cost accounting is a system to record, summarize and report cost information.
QN2. Which of the following is least likely to be an objective of cost accounting system?
(a) Product costing
(b) Optimum sales mix determination
(c) Maximization of profit
(d) Sales commission determination
Answer
Answer: (d) Sales commission determination
QN3. Costing Technique in which all costs, variable as well as fixed, are charged to product, operations or services is
(a) Historical costing
(b) Absorption costing
(c) Marginal costing
(d) Direct costing
Answer
Answer: (b) Absorption costing
QN4. The costing approach wherein actual costs are ascertained after they have been incurred is
(a) Marginal costing
(b) Direct costing
(c) Standard costing
(d) Historical costing
Answer
Answer: (d) Historical costing
QN5. The cost which reflects the policies of the top management which result in periodic appropriations are called as
(a) Future cost
(b) Discretionary cost
(c) Committed cost
(d) Programmed cost
Answer
Answer: (d) Programmed cost
QN6. In a given situation if a product is not produced the company can save on the salary of workers to the tune of Rs. 1,00,000. In this case the salary of the worker is
(a) Imputed cost
(b) Unavoidable cost
(c) Avoidable cost
(d) None of the above
Answer
Answer: (c) Avoidable cost
QN7. Depreciation charged on Plant & Machinery is
(a) Future cost
(b) Discretionary cost
(c) Committed cost
(d) Programmed cost
Answer
Answer: (c) Committed cost
QN8. Costs that are not relevant for decision-making and are not affected by increase or decrease in volume are
(a) Out of pocket cost
(b) Sunk cost
(c) Differential cost
(d) Imputed cost
Answer
Answer: (b) Sunk cost
QN9. Which of the following statements is not true of pricing of inventories?
a) In FIFO method, the issue of material from the stores will be in the order which it was received.
b) In LIFO method, the material issued will be priced based on the material that has been purchased recently.
c) Under current price method, material is priced at the value that is realizable at the time of issue.
d) Under standard price method, material is priced based on the current market price.
Answer
Answer: d) Under standard price method, material is priced based on the current market price.
QN10. Which of the following statements is false?
a) In an inflationary period the FIFO method of inventory pricing tends to inflate reported profits.
b) LIFO method of inventory pricing causes reported profits to be low in an inflationary period.
c) The weighted average cost method of inventory pricing tends to smooth out price luctuations.
d) None of the above.
Answer
Answer: d) None of the above.
QN11. A cost centre is:
(a) The part of the business where all costs are paid to suppliers
(b) A production department where all production costs are aggregated
(c) An area of the business accountable for both costs and revenues
(d) An area for which costs are accumulated
Answer
Answer: (d) An area for which costs are accumulated
QN12. An investment centre is a responsibility centre where the manager has control of:
(a) Costs, profits and product quality
(b) Costs
(c) Costs and profits
(d) Costs, profits and assets
Answer
Answer: (d) Costs, profits and assets
QN13. Responsibility accounting aims to:
(a) Ensure that a manager is punished if things go wrong
(b) Reduce the costs that a department incurs
(c) Allocate costs to all areas of a business
(d) Ensure that costs become the responsibility of a specific manager
Answer
Answer: (d) Ensure that costs become the responsibility of a specific manager
QN14. Prime cost can be defined as:
(a) The total costs of operating the production department where the product is made
(b) The total direct costs of manufacturing a product
(c) The total costs of manufacturing a product
(d) The cost of the first stage of the manufacture of a product
Answer
Answer: (d) The cost of the first stage of the manufacture of a product
QN15. Which of the following best describes a fixed cost?
(a) Has a direct relationship with output
(b) Increases proportionately with output
(c) Remains constant irrespective of the level of activity
(d) Represents a fixed proportion of total costs
Answer
Answer: (c) Remains constant irrespective of the level of activity
QN16. A business has the following transactions in a month:
2 Jan Bought 80 units at a total cost of £160
12 Jan Bought 50 units at a total cost of £150
19 Jan Sold 90 units earning total revenue of £540
22 Jan Bought 70 units at a total cost of £280
29 Jan Sold 80 units earning a total revenue of £480
Using the first-in, first-out (FIFO) method of stock valuation the cost of sales is:
(a) £470
(b) £510
(c) £1,020
(d) £120
Answer
Answer: (a) £470
QN17. A business has bought and sold identical items of stock during 2006 as follows:
1/6/06 Bought 1,000 units @ £10 each 1/9/06 Bought 1,000 units @ £16 each 5/9/06 Sold 1,200 units @ £20 each
Using the first-in, first-out (FIFO) method what is the value of the 800 units of stock left unsold at 31/12/06?
(a) £10,400
(b) £8,000
(c) £16,000
(d) £12,800
Answer
Answer: (d) £12,800
QN18. The weighted average method of stock valuation would be most appropriate for:
(a) A food retailer
(b) A motor components retailer
(c) A building contractor
(d) A chemical manufacturer
Answer
Answer: (c) A building contractor
QN19. Direct labour costs will include:
(a) Total direct labour hours at the normal hourly rate of pay
(b) All labour costs attributable to a product
(c) Direct labour costs plus any bonuses
(d) Direct labour costs plus any bonuses and overtime premiums
Answer
Answer: (d) Direct labour costs plus any bonuses and overtime premiums
QN20. An example of a production overhead would be:
(a) Labour costs
(b) Rent
(c) Supervisory costs
(d) Materials
Answer
Answer: (c) Supervisory costs
QN21. Absorption costing is closely related to which of the following cost elements?
(a) Overheads
(b) Direct labour
(c) Total costs
(d) Prime costs
Answer
Answer: (a) Overheads
QN22. Which of the following would not be classed as a service department?
(a) The assembly department
(b) The finance department
(c) The canteen
(d) The maintenance department
Answer
Answer: (c) The canteen
QN23. Cost apportionment involves:
(a) The sharing out of costs to products
(b) The sharing out of common costs to departments
(c) The allocation of direct costs to departments
(d) The sharing out of overheads to service departments
Answer
Answer: (b) The sharing out of common costs to departments
QN24. Which of the following would be an inappropriate method of apportioning service department costs?
(a) Apportioning on the basis of service department activity
(b) Apportioning on the basis of floor area
(c) Sharing costs out equally between departments
(d) Apportioning on the basis of number of employees
Answer
Answer: (c) Sharing costs out equally between departments
QN25. Which of the following is an unsatisfactory method of dealing with reciprocal service costs?
(a) Ignore the service department costs
(b) Use mathematical apportionment techniques
(c) Apportion the service costs over production departments only
(d) Use a specified order of apportioning service department costs
Answer
Answer: (a) Ignore the service department costs
QN26. The most appropriate method of apportioning the rent of a building would be:
(a) On the basis of value of assets
(b) To share them out equally amongst all departments
(c) On the basis of number of employees
(d) On the basis of area of each department
Answer
Answer: (d) On the basis of area of each department
QN27. Absorption costing refers to the process of:
(a) Absorbing the direct costs of production and service departments into products
(b) Absorbing direct costs of production into products
(c) Absorbing only production service cost centre costs into product costs
(d) Absorbing both production and non-production service cost centre costs into product costs
Answer
Answer: (d) Absorbing both production and non-production service cost centre costs into product costs
QN28. Which of the following would not normally be a suitable method of absorbing costs into products
(a) Total cost centre overhead / Number of employees
(b) Total cost centre overhead / Number of units processed in department
(c) Total cost centre overhead / Cost centre total machine hours
(d) Total cost centre overhead / Total cost centre direct labour cost
Answer
Answer: (a) Total cost centre overhead / Number of employees
QN29. The following details relate to a particular company:
i. Machining Assembly
ii. Total cost centre overhead £120,000 £180,000
iii. Machine hours 15,000 9,000
iv. Labour hours 2,000 8,000
The most appropriate overhead rate to use for the machining department would be:
(a) £5 per direct machine hour
(b) £7.06 per hour
(c) £8 per direct machine hour
(d) £60 per direct labour hour
Answer
Answer: (c) £8 per direct machine hour
QN30. The following details were extracted from the cost records of a company:
Machining Assembly Maintenance Administration Area sq/m 5,000 6,000 2,000 1,200 No. of employees 6 13 2 3
If it cost £3,500 to insure the buildings, the amount that would be apportioned to the assembly department would be:
(a) £1,479
(b) £72
(c) £1,896
(d) £372
Answer
Answer: (a) £1,479
QN31. Which of the following is true?
(a) Overhead absorption rates will normally be based on estimates of what costs are expected to be
(b) Once set, overhead absorption rates will not change from one year to the next
(c) Absorption rates will change continuously to reflect changes in output and costs
(d) Overhead absorption rates will only be calculated when all actual costs are known
Answer
Answer: (a) Overhead absorption rates will normally be based on estimates of what costs are expected to be
QN32. The total cost of a product will include:
(a) Prime cost only
(b) Prime cost plus non production overhead
(c) Prime costs plus direct production overhead plus indirect production overhead plus tax
(d) Prime costs plus direct production overhead plus indirect production overhead
Answer
Answer: (d) Prime costs plus direct production overhead plus indirect production overhead
QN33. Overhead absorption exercises will be most useful where:
(a) The market determines the selling price of a product
(b) The total direct cost of a department is needed
(c) Selling prices can be based on costs
(d) A departmental manager will be held responsible for the costs that are apportioned to them
Answer
Answer: (b) The total direct cost of a department is needed
QN34. .A company has a budgeted level of fixed overheads of £385,000 and the overhead recovery rate is £4.25 per machine hour, What is the number of machine hours we expect to use?
(a) 90,600
(b) 4,250
(c) 385,000
(d) 1,636,25
Answer
Answer: (a) 90,600
QN35. .Under-recovery of overheads occurs when:
(a) The overhead charged to production is lower than the actual overhead incurred
(b) The basis of apportioning overheads has changed during the period
(c) Actual overheads have fallen in relation to what they were expected to be
(d) The actual overhead incurred is less than the overhead that has been charged to production
Answer
Answer: (a) The overhead charged to production is lower than the actual overhead incurred
QN36. A semi variable cost would:
(a) Be more than zero if no products were made and would then increase in direct proportion to output
(b) Be zero if output were zero and would change erratically as output increased
(c) Be zero when output is zero and would increase in direct proportion to output
(d) Be a fixed amount when output was zero and would not increase in direct proportion to output
Answer
Answer: (a) Be more than zero if no products were made and would then increase in direct proportion to output
QN37. An example of a semi variable cost would be:
(a) The costs of insuring assets
(b) The costs of material to be used for production
(c) The salaries of supervisors in a department
(d) Electricity costs
Answer
Answer: (d) Electricity costs
QN38. If actual units produced are lower than the budgeted level of production which of the following types of cost would you expect to be lower than the budget?
(a) Variable costs per unit
(b) Fixed costs per unit
(c) Total fixed costs
(d) Total variable costs
Answer
Answer: (d) Total variable costs
QN39. In the long run a business must:
(a) Charge a price that covers its variable costs only
(b) Charge a price that covers both fixed and variable costs
(c) Charge a price that covers its fixed costs only
(d) Charge a price that leads to a positive contribution
Answer
Answer: (b) Charge a price that covers both fixed and variable costs
QN40. The break even point in units is represented by the equation:
(a) (Sales revenue – Fixed costs) / Contribution per unit
(b) Fixed costs / selling price per unit
(c) Fixed costs / Contribution per unit
(d) Fixed costs / Variable costs
Answer
Answer: (c) Fixed costs / Contribution per unit
