COST ACCOUTING

Cost accounting is a process of recording,

analyzing and reporting all of a company’s
costs (both variable and fixed) related to the
production of a product. This is so that a
company’s management can make better
financial decisions, introduce efficiencies and
budget accurately. The objective of cost
accounting is to improve the business’s net
profit margins. In simple words we can say
that It is a process by which we determine the
costs of goods and services.
Features of Cost Accounting
• It is a sub-field in accounting. It is the
process of accounting for costs
• Provides data to management for decision
making and budgeting for the future
• It helps to establish certain standard costs
and budgets which are compared with the
actual cost to find out deviations or
variances .
• It records income and expenditure relating
to production of goods and services
• It is concerned with cost ascertainment,
cost presentation , cost control and cost
reduction
• provides costing data that helps in fixing
prices of goods and services.
 COST
Cost is also defined as by the expenditure incurred to
produce a given good or service. The cost will be the
expenditure that is attributable to something.
 COSTING
Costing is essentially a technique or a system of
ascertaining costs.
 COST ACCOUTANCY
Cost accountancy is the application of the principles
of costing and accounting. It is the science, art, and
practice with which a cost accountant practices cost
ascertainment and cost control.
objectives of cost accounting:
• Ascertainment of the cost per unit of the different
products that a business concern manufacturers.
• Disclosure of sources for wastage of material, time,
expenses or in the use of the equipment and the
preparation of reports which may be necessary to
control such wastage.
• Provide requisite data and help in fixing the price
of products manufactured or services rendered.
• Determination of the profitability of each of the
products and help management in the
maximization of these profits.
• Present and interpret data for management
planning, decision-making, and control.
• Help in the preparation of budgets and
implementation of budgetary control.
• To provide specialized services for cost audit in
order to prevent errors and frauds.
• To facilitate prompt and reliable information to
management.
• Determination of costing profit or loss by linking
the revenues to costs of those products or services
by selling which the revenues have arisen.
Advantages of Accounting
1] Measuring and Improving Efficiency
2] Identification of Unprofitable Activities
3] Fixing Prices
4] Price Reduction
5] Control over Stock
6] Aids Future Planning
Limitations Of Cost Accounting
1. It is Expensive:
2. It is not Reliable: It is stated that cost accounting is
based on estimates and therefore cannot be relied
upon.
3.Not applicable to Small Concerns – A cost
accounting system is applicable only to large sized
business and not suitable for small sized business
because it is more expensive.
 ELEMENTS OF COST

The elements of cost are those elements which

constitute the cost of manufacture of a product. We
can broadly divide these elements of cost into three
categories. These services are Material, Labour and
Expenses.
Again, we can bifurcate these elements of cost into
two categories such as Direct Material and Indirect
Material, Direct Labour and Indirect Labour, Direct
Expenses and Indirect Expenses.
1. Direct Material
It represents the raw material or goods necessary to produce or
manufacture a product. The cost of direct material varies
according to the level of output. For example, wood is a direct
material for Table.
2. Indirect Material
It refers to the material which we require to produce a product
but is not directly identifiable. It does not form a part of a
finished product. For example, the use of nails to make a table.
The cost of indirect material does not vary in the direct
proportion of product.
3. Direct Labour
It refers to the amount which paid to the workers who are
directly engaged in the production of goods. It varies directly
with the level of output.
4. Indirect Labour
It represents the amount paid to workers who are indirectly
engaged in the production of goods. It does not vary directly
with the level of output.
5. Direct Expenses
It refers to the expenses that are specifically incurred by
the enterprises to produce a product. The production cannot
take place without incurring these expenses. It varies directly
with the level of production.
6. Indirect Expenses
It represents the expenses that are incurred by
the organization to produce a product. These expenses cannot
be easily identified accurately. For example, Power expenses for
the production of pens.
7. Overhead
It refers to all indirect materials, indirect labour, or and
indirect expenses.
8. Factory Overhead
Factory overhead or Production Overhead or Works
Overhead refers to the expenses which a firm incurs in the
production area or within factory premises.
Indirect material, rent, rates and taxes of factory, canteen
expenses etc.are example of factory overhead.
9. Administration Overhead
Administrative or Office Overhead refers to the expenses
which are incurred in connection with the general
administration of the organizations.
Salary of administrative staff, postage, telegram and
telephone, stationery etc.are examples of administration
overhead.
10. Selling Overhead
All expenses that a firm incurs in connection with sales are
selling overheads. Salary of sales department staff,
travelers’ commission, advertisement etc.are example of
selling overhead.
11. Distribution Overhead
It represents all expenses incurred in connection with the
delivery or distribution of finished goods and services from
the manufacturer to the consumer. F Delivery van expenses.
loading and unloading, customs duty, the salary of
deliverymen are examples of distribution overhead.
 COST SHEET
A cost sheet is a statement prepared at periodical
intervals of time, which accumulates all
the elements of the costs associated with a product or
production job. It is used to compile the margin earned
on a product or job and forms the basis for the setting
of prices on similar products in the future.
IN SIMPLE WORDS , it is a sheet which shows the total
cost of a product.

A Cost Sheet depicts the following facts:

• Total cost and cost per unit for a product.
• The various elements of cost such as prime cost,
factory cost, production cost, cost of goods sold, total
cost, etc.
• Compare the cost of any two periods and ascertain
the inefficiencies if any.
• Information to management for cost control
• Calculate and summarize the total cost of the
product.
 Objectives of Cost Sheet
1. For determining the selling price
2. Facilitating in managerial decision making
3. Preparation of budgets
 Elements of cost Sheet
• Prime Cost: It comprises of direct material, direct
wages, and direct expenses.
Prime Cost = Direct material + direct labour + direct
expense

• Factory Cost: Factory cost or works cost or

manufacturing cost or production cost includes in
addition to the prime cost the cost in indirect
material, indirect labor, and indirect expenses.
Factory cost = Prime Cost + Factory overheads

• Cost of Production: When Office and

administration cost at the end of the period are
added to the Factory cost, we arrive at the cost of
production or cost of goods sold.
Cost of Production = Works Cost + Administration
Overheads

• Total Cost: Total cost or alternatively cost of sales is

the cost of production plus selling and distribution
overheads.
Total cost or Cost of Sales = Cost of Production +
Selling and distribution overheads
Note – If profit is also calculated by deducting cost of sales from sales
in the statement of cost, then it is called Statement of Cost and Profit
 CLASSIFICATION OF COST
ON THE BASIS OF ELEMENTS
ON THE BASIS OF DEGREE OF TRACEABILITY
OF THE PRODUCT
ON THE BASIS OF CHANGE IN VOLUME
ON THE BASIS OF CONTROLLABILITY
ON THE BASIS OF NORMALITY
ON THE BASIS OF ACCOUTING PERIOD
ON THE BASIS OF PLANNING AND
CONTROL
ON THE BASIS OF ASSOCIATION WITH THE
PRODUCT
ON THE BASIS OF MANAGERIAL DECISION
 Classification by Traceability
This aspect one of the most important classification of costs,
into direct costs and indirect costs. This classification is based on
the degree of traceability to the final product of the firm.
Direct Costs: So these are the costs which are easily identified
with a specific cost unit or cost centers. Some of the most basic
examples are the materials used in the manufacturing of a
product or the labor involved with the production process.
Indirect Costs: These costs are incurred for many purposes, i.e.
between many cost centers or units. So we cannot easily identify
them to one particular cost center. Take for example the rent of
the building or the salary of the manager. We will not be able to
accurately determine how to ascertain such costs to a particular
cost unit.
 Classification by Normality
This classification determines the costs as normal
costs and abnormal costs..
Normal Costs: This is a part of the cost of production
and a part of the costing profit and loss. These are the
costs that the firm incurs at the normal level of
output in standard conditions.
Abnormal Costs: These costs are not normally
incurred at a given level of output in conditions in
which normal levels of output occur. These costs are
charged to the profit and loss account, they are not a
part of the cost of production.
 CLASSIFICATION BY ACTIVITY OR VARIABILITY
(i) Fixed costs are commonly described as those which remain
fixed in total amount with increase or decrease in the volume of
output or productive activity for a given period of time. Fixed
cost per unit decreases as production increases and increases as
production declines. Examples of fixed costs are rent, insurance
of factory building, factory manager’s salary etc.
(ii) Variable costs are those which vary in total in direct
proportion to the volume of output. These costs per unit
remain relatively constant with changes in production. Examples
are direct material costs, direct labour costs, power, repairs etc.
(iii) Semi-variable costs are those which are partly fixed and
partly variable. For example, telephone expenses included a
fixed portion of annual charge plus variable charge according to
calls; thus total telephone expenses are semi- variable.
 CLASSIFICATION BY CONTROLLABILITY
(i) Controllable Costs:
Controllable costs are those which can be influenced by the
action of a specified member of an undertaking, that is to say,
costs which are at least partly within the control of
management. Generally speaking, all direct costs including
direct material, direct labour and some of the overhead
expenses are controllable by lower level of management.
(ii) Uncontrollable Costs :
Uncontrollable costs are those which cannot be influenced by
the action of a specified member of an undertaking that it is to
say, which are not within the control of management. Most of
the fixed costs are uncontrollable. For example, rent of the
building is not controllable
 CLASSIFICATION BY NORMALITY
(a) Normal Cost:
It is the cost which is normally incurred at a given level of
output in the conditions in which that level of output is normally
attained. It is a part of cost of production.
(b) Abnormal Cost:
It is the cost which is not normally incurred at a given level of
output in the conditions in which that level of output is normally
attained. It is not a part of cost of production and charged to
Costing Profit and Loss Account.

 CLASSIFICATION BY ACCOUNTING PERIOD

• Capital Cost - The cost which is incurred in purchasing assets
either to earn income or increasing the earning capacity of
the business is called capital cost. For example, the cost of a
manufacturing machine, such cost is incurred at one point of
time but the benefits accruing from it are spread over a
number of accounting years.
• Revenue Cost - It any expenditure is done in order to
maintain the earning capacity of the concern such as cost of
maintaining an asset or running a business it is revenue
expenditure e.g. cost of materials used in production, labour
charges paid to convert the material into production, salaries,
depreciation, repairs and maintenance charges
 CLASSIFICATION BY PLANNING AND CONTROL
(a) Budgeted cost -Budgeted costs represent an estimate of
expenditure for different phases of business operations
such as manufacturing, administration, sales, research and
development etc. coordinated in a well-conceived framework
for a period of time in future which subsequently becomes
the written expression of managerial targets to be
achieved. Continuous comparison of actual performance (i.e.
actual cost) with that of the budgeted cost is made so as to
report the variations from the budgeted cost to the
management for corrective action.
(b) Standard cost- Standard cost is the predetermined cost
based on a technical estimate for materials, labour and
overhead for a selected period of time and for a prescribed
set of working conditions”. Thus, standard cost is a
determination, in advance of production of what should be
the cost.
 Association with the product
Product cost - Product cost is identifiable in any product. It
includes direct material, direct labor and direct overheads. Up to
sale, these products are shown and valued as inventory and they
form a part of balance sheet. Any profitability is reflected only
when these products are sold. The Costs of these products are
transferred to costs of goods sold account.
Time/Period base cost - Selling expenditure and Administrative
expenditure, both are time or period based expenditures. For
example, rent of a building, salaries to employees are related to
period only. Profitability and costs are depends on both, product
cost and time/period cost.
 By Managerial Decision
(a) Shut Down Cost :
A cost which is incurred irrespective of plant is in
operation or is shutdown, e.g., the cost of rent, rates,
depreciation, maintenance expenses, etc.
In simple words , it is the cost of temporary closure
during off season/ recession in your business.
(b) Sunk Cost:
A cost which is incurred in the past and is not
relevant to the current decision making, e.g., written
down value of plant is irrelevant for replacement of
machinery.
(c) Opportunity Cost:
It refers to that cost in which amount is lost when one
alternative is selected over another. The costs which
are related to the sacrifice made or the benefits
foregone are opportunity costs.
(d) Imputed Cost:
It is the notional cost to be considered for making
costs comparable. For example – rent of own
building, interest on own capital, etc., are not actually
paid but may be taken as costs notionally.
(e) Out-of-Pocket Cost:
This is the cost which is payable in cash as against
costs such as depreciation which do not involve cash
payment.
(f) Replacement Cost:
It is the ‘current cost’ at which an asset or material
can be ‘replaced’ with identical one from the market.
It reflects the present market price of such asset or
material.
(g) Marginal cost
Marginal cost refers to the change in total cost due to
the change in total cost due to the increase or
decrease in the volume of output by one unit.
 METHODS OF COSTING
Every business and organization has
different nature and characteristics. So
it also needs to employ different
costing systems to ascertain the cost of
their products.
Following are the various methods:
• Job costing
• Unit costing
• Contract costing
• Batch costing
• Process costing
• Operating costing
• Operation Costing
• Multiple Costing
1 Job Costing:
It is also called specific order costing. It is adopted by
industries where there is no standard product and each job or
work order is different from the others. The job is done strictly
according to the specifications given by the customer and
usually the job takes only a short time for completion. The
purpose of job costing is to ascertain the cost of each job
separately. Job costing is used by printing presses, motor
repair shops, automobile garages, film studios, engineering
industries etc.
2 Contract Costing:
It is also known as terminal costing. Basically, this method is
similar to job costing. However, it is used where the job is big
and spread over a long period of time. The work is done
according to the specifications of the customer.
The purpose of contract costing is to ascertain the cost
incurred on each contract separately. Hence a separate
account is prepared for each contract. This method is used by
firms engaged in ship building, construction of buildings,
bridges, dams and roads.
3 Batch Costing:
It is an extension of job costing. A batch is a group of identical
products. All the units in a particular batch are uniform in
nature and size. Hence each batch is treated as a cost unit and
costed separately. The total cost of a batch is ascertained and
it is divided by the number of units in the batch to determine
the economic batch quantity . Batch costing is adopted by
manufacturers of biscuits, ready-made garments, spare parts
medicines etc.
4 Process Costing:
It is called continuous costing. In certain industries,
the raw material passes through different processes
before it takes the shape of a final product. In other
words, the finished product of one process becomes
the raw material for the subsequent process. Process
costing is used in such industries.
A separate account is opened for each process to find
out the total cost as well as cost per unit at the end
of each process. Process costing is applied to
continuous process industries such as chemicals,
textiles, paper, soap, lather etc.
5 Unit Costing:
This method is also known as single or output
costing. It is suitable to industries where production
is continuous and units are identical. The objective
of this method is to ascertain the total cost as well as
the cost per unit. A cost sheet is prepared taking into
account the cost of material, labour and overheads.
Unit costing is applicable units brick making ,
manufacturing cycles, radios, washing machines etc.
6 Operating Costing:
This method is followed by industries which render
services. To ascertain the cost of such services, composite
units like passenger kilometers and tone kilometers are
used for ascertaining costs. For example, in the case of a
bus company, operating costing indicates the cost of
carrying a passenger per kilometer. Operating costing is
adopted by airways railways, road transport companies
(goods as well as passengers) hotels, cinema halls, power
houses etc.
7.Operation costing
It is a further refinement of process costing. It is
suitable to industries where mass or repetitive
production is carried out or where the goods have to
be stocked in semi-finished stage, to enable the
execution of special orders, or for the convenient use
in later operations. In this method, the cost unit is an
operation. It is used in cycle manufacturing,
automobile units, etc.
8.Multiple Costing:
It is also known as composite costing. It refers to a
combination of two or more of the above methods of
costing. It is adopted in industries where several parts are
produced separately and assembled to a single product.
 Techniques Of Costing
1. Marginal Costing – It is the ascertainment of
marginal cost differentiating between fixed cost and
variable cost. The ascertainment by differentiating
between fixed costs and variable costs, of marginal
costs and of the effect on profit of changes in
volume or type of output.
2. Standard Costing – The preparation and use of
standard costs, their comparison with actual costs
and the analysis of variance to their causes and
points of incidence. This permits the management to
investigate the reasons for these variances and take
necessary corrective action.
3. Direct Costing – It is a practice of charging all direct
costs into, variable and fixed cost relating to
operations process or products leaving all other cost
to be written off against profits in which they arise.
4. Absorption Costing – Absorption costing is also
referred to as full costing. It is a costing technique in
which all manufacturing cost (fixed and variable) are
considered as cost of production and are used in
determining the cost of goods manufactured and
inventories. The fixed production costs are treated as
part of the actual production costs.
5. Uniform Costing – It is the use of the same costing
principles and practices for common control or
comparison of cost by different business units. CIMA
has defined uniform costing as “the use by several
undertakings of the same costing principles and or
practices.” This helps to compare the performance
one business with the other and to derive the benefit
of anyone’s better experience and performance.
6. Budgetary Control – A Budget is used for
controlling and co-ordination of business operations.
A Budget is a quantitative or financial statement
prepared for definite period of time. Budgetary
control is a use of comprehensive system of
budgeting to aid management in carrying out its
functions of planning, coordinating, and controlling
operations. A budgetary control is one of the
important tools of control.
 MCQ on Cost Accounting
1. What is the basic concept of cost concept?
A) Cost ascertainment. B) Tax compliance.
C) Financial audit D) Profit analysis
2. Process costing is appropriate for which firm?
A) Bricklaying firms B) Transport firms
C) Hospitals D) Oil refining firms
3. In how many ways cost classification can be done?
A) Three ways B) Two ways
C) Four ways D) Many ways
4. Which cost is incurred even if the company is
closed?
A) Sunk cost B) Historical cost
C) Shutdown cost D) Imputed cost
5. Direct expenses are also known as
A) Overhead expenses B) Sundry expenses
C) Chargeable expenses D) Major expenses
6. Warehouse rent is a part of which cost?
A) Production cost B) Distribution cost
C) Prime cost D) Factory cost
7. Toy manufacturing companies use what type of
costing?
A) Multiple costing B) Process costing
C) Unit costing D) Batch costing
8. A total of all the direct costs is known as
A) Cost of production B) Cost of sales
C) Prime cost D) Works cost
9. Indirect material used in production is known as
A. office overhead B. selling overhead
C. distribution overhead D. factory overhead
10 Use of same costing principles and practices by several
undertakings for cost ascertainment and control is called
_____ costing.
a. Uniform b. Composite
c. Single d. Standard
11 Fixed cost per unit increases with
A. variable cost per unit increases
B. variable cost per unit decreases
C. production volume increases
D. production volume decreases
12. Which of the following is a example of semi - variable
cost
A.Salary B.Tax
C.Telephone expenses D.Office expenses
13. Batch costing helps to determine
A. maximum quantity of output
B. minimum quantity of output
C. economic batch quantity
D. profit of batches
14. Difference between job time and attendance time is
known as
A. job time B. actual time
15. Which industry is suitable for using operating
costing method?
a. Textile b. Sugar
c. Toy d. Transport
16. Total cost plus profit is
a. Sales b. Cost of sales
c. Cost of production d. Works cost
17. Which technique of costing distinguishes costs
into fixed and variable?
a. Standard b. Uniform
c. Absorption d. Marginal
18. Batch costing is suitable for
a. Sugar industry b. Chemical industry
c. Pharma industry d. Oil industry
19. Cost of production is _____
a. Factory cost + Office OH b. Office OH + Selling OH
c. Works cost + Op. WIP d. Office OH – Closing WIP
20. Period costs are
a. Fixed cost b. Variable cost
c. Overhead cost d. Prime cost
21. An example of normal loss of materials is
a. Loss due to accidents b. Pilferage
c. Loss due to breaking the bulk
d. Loss due to careless handling
22 Direct material is a _____
a. Fixed cost b. Variable cost
c. Semi-variable cost d. None of the above
23. Thread in garments is an example of _____
a. Direct materials b. Prime cost
c. Variable cost d. Indirect materials
24. Rent on own building is an example of _____
a. Imputed cost b. Explicit cost
c. Standard cost d. Abnormal cost
25 Overheads or on cost is the total of
a. All direct expenses b. All indirect expenses
c. Direct Expenses + Factory OH d. None of the
above
26. Cost to be incurred at present or in future to
replace an asset or material is
a. Development cost b. Research cost
c. Expired cost d. Replacement cost
27. Change in costs due to change in the level of
activity is called _____
a. Marginal cost b. Differential cost
c. Abnormal cost d. Uncontrollable cost
28. Which among the following costs are not useful
for managerial decision making?
a. Sunk Cost b. Marginal Cost
c. Standard Cost d. None of the above
29 The main function of cost accounting is _______
reporting
a. Internal b. External
c. Government d. Bank
30.Cost accounting has developed due to the ___________
of financial accounting
a. Advantages b. Limitations
c. Merits d. Expansion
31 The method adopted by builders and civil engineering
contractors for jobs involving huge capital expenditure
and long time for completion is called _____ costing.
a. Process b. Contract
c. Operating d. Composite
32 Bad debts is an example of
a. Factory OH b. Administration OH
c. Selling OH d. Distribution OH
33 Primary packing is part of
a. Prime cost b. Factory OH
c. Selling OH d. Distribution OH
34 Idle Time is
a. Time spent by workers to take lunch
b. Time spent by workers on their jobs
c. Time spent by workers in the factory
d. The difference between time paid for and time spent on
job
35 Which of the following is a direct worker?
a. Foreman b. Sweeper
c. Machine operator d. Watchman
36 He sum of direct wages, direct expenses and overhead
costs of converting raw materials in to finished products is
called
a. Prime cost b. Works cost
c. Direct cost d. Conversion cost
37 Which of the following is correct about normal cost?
a. Irregular and unexpected cost
b. Charged to Costing P & L a/c
c. Part of Cost of Production
d. All of the above
38 Expired cost is recorded in _____
a. Balance Sheet b. Profit & Loss A/c
c. Cash flow statement d. None of the above
39. Unexpired cost is recorded in _____
a. Balance Sheet b. Profit & Loss A/c
c. Cash flow statement d. None of the above
40. Cost accountancy is considered an art because it _____
a. Has systematic body of knowledge
b. requires necessary ability and skills
c. involves continuous efforts of cost accountant
d. None of the above
41 Cost accountancy is considered a science because _____
a. It has a systematic body of knowledge
b. It requires necessary ability and skills
c. Involves continuous efforts of a cost accountant
d. None of the above
42 On the basis of “Relationship with accounting period”
costs are classified as
a. Historical Costs and contract cost
b. Capital Costs and fixed cost
c. Capital Costs and Revenue Costs.
d. Product Costs and Period Costs
43 Costs incurred in the past and has no effect on future
decision making is called _____
a. Opportunity cost b. Imputed cost
c. Conversion cost d. Sunk Cost
44 Depreciation on machinery is an example of
a. Imputed cost b. Capital cost
c. Shut down cost d. Discretionary cost
45 Which among the following is correct about abnormal
cost?
a. Expected at a given level of output
b. Charged to Costing P&L a/c
c. Part of Cost of Production
d. None of the above
46 Costs are classified between direct and indirect costs
according to method
a. Element b. Functions
c. Degree of traceability to product
d. Change in Activity or Volume
47 Costs required for production and will not be incurred if
there is no production are
a. Product cost b. Direct cost
c. Period cost d. All of These
48 Hotel industry is covered in which method of costing ?
A multiple operation costing b job costing
c standard costing d operating costing
49 which method is suitable for automobile repair
workshop ?
A multiple operation costing b job costing
c standard costing d operating costing
50 Which of the following is not a direct expense ?
A royalty paid b carriage on purchase
C wages of machine operator d wages of watchman
Based on question 51 – 53
Factory exp. 30000 ; administration Exp. 20000 ; Direct
labour 20000; Direct material 35000; selling expenses
10000; Direct expenses 5000
51. What will be the Prime cost
A 40000 b 30000
C 60000 d 80000
52 What will be the Cost of Production
A 120000 b 110000
C 100000 d 80000
53 What should be the selling price of the product if he has
to earn profit of 10 % on total cost
A 132000 b 144000
C 120000 d 121000
54 If cost of production of 1000 units is 20000 . What is the
cost of closing stock ? The units sold are 800 units .
A 4000 b 5000
C 3000 d 4500
55 Prime cost may be correctly termed as
a. The sum of direct material and labour cost with all other
cost
b. The total of all cost items which can be directly
charged to production units.
c. The total costs incurred in producing a finished unit.
d. The sum of the large costs there in a product cost.
56 For exercising control over cost, the best system is
______ costing.
a. Standard b. Historical
c. Marginal d. Estimated
57 Mention the item of expense which is excluded from
cost accounts. a. Raw materials b. Office
supplies
c. Salaries d. Income Tax
58 specify the expense which are excluded from cost
A direct cost b expense of raising capital
C selling overheads d indirect labour
59 when cost price is Rs 800 and profit on sale is 20 %,
the profit shall be
A 160 b 80
C 150 d 200
60 Factory overheads are 80 % of direct labour cost . If
factory overheads are 64000 then direct cost will be :
A 51200 b 80000
C 8000 d 5120
61 The works cost plus administration expenses represents
a. Total cost b. Cost of production
c. Cost of sales d. Factory cost
62 Indirect material used in production is classified as
a. Office overhead b. Selling Overhead
c. Distribution Overhead d. Factory Overhead
63 Variable costs increase in total due to
a. Increase in sales b. Increase in volume of production
c. Increase in profit d. All of the above
64 Cost incurred by undertakings which do not manufacture
any product but services is
a. Operation cost b. Operating cost
c. Joint cost d. Sunk cost
65 Economic order quantity is a tool for controlling
___________
a. Inventory b. Price
c. Machinery d. Cost
66 Calculate overhead rate using prime cost method –
Factory OH – Rs. 80,000, Direct materials – Rs. 1, 20,000 &
Direct wages – Rs.80,000.
a. 66.67% b. 100%
c. 40% d. 60%
67 Rent receivable is ______
a. Purely cost charge b. Purely financial income
c. Notional charge d. None of these
68 Advertisement expenses are treated as
a. Selling overhead b. Distribution overhead
c. Cost of production d. Direct expenses
69 In cost terms , direct manufacturing labour cost is included
in
A. manufacturing costs B . prime costs
C. conversion costs D. both B and C
70 Total cost of a product: Rs. 10,000 Profit: 25% on Selling
Price Profit is:
(a) Rs. 2,500 (b) Rs. 3,000
(c) Rs. 3,333 (d) Rs. 2,000
71 Costing is a technique of
a) Inventory control
b) Management control
c) Ascertainment of cost
d) Calculation of cost e) Reduction of cost
72 .........is an extension of job costing.
a) Process costing b) Batch costing
c) Contract costing d) Operation costing
73 When job is very big and spread over long periods of time
the method of costing adopted is
a) Process b) Job
c) Contract d) Operation e) Batch
74. Continuous costing is also called
a) Operation costing b) Process costing
c) Batch costing d) Contract costing
75 In ............. costing the cost of a group of products is
ascertained.
a) Process b) Job
c) Batch d) Service
e) Marginal
76 The quantity of material to be ordered at one time is known
as
a) EOQ b) BOQ
c) EBQ d) Re-order period
e) All of these
77 In a shutdown decision, one has to consider :
a. Contribution b. Identifiable fixed cost, if any
c. Impact of shutdown on other products, if any
d. All of the above
78 Interest on own capital is a:
a. Cash cost b. Notional cost
c. Sunk cost d. Part of prime cost
79 Secondary packing expenses are:
a. Part of prime cost b. Part of production overheads
c. Part of distribution overheads
d. Written-off to costing profit and loss account
80 under marginal costing:
a. All costs are classified into two groups – variable and fixed
b. Variable costs form part of the product cost and inventory
valuation
c. Fixed costs are treated as period costs
d. All of the above
81 Non-monetary incentives may include the following except:
a. Health and safety b. Housing facilities
c. Education and training d. Dearness allowance
82 Example of semi-variable items include the following
except:
a. Telephone b. Repairs and maintenance
c. Insurance of plant and building d Electricity charges
83 If Direct Material = 12,000; Direct Labor = 8000 and other
Direct Cost = 2000 then what will be the Prime Cost?
a. 12000 b. 14000
c. 20000 d. 22000
84 In furniture manufacturing use of nail, pins, glue, and polish
which use to increase its esteem value that cost is treated as:
a. Direct material cost b. Indirect material cost
c. Factory Overhead cost d. Prime cost
85 The margin of safety can be defined as:
a. The excess of budgeted or actual sales over budgeted or
actual variable expenses
b. The excess of budgeted or actual sales over budgeted or
actual fixed expenses
c. The excess of budgeted sales over the break-even volume of
sales
d. The excess of budgeted net income over actual net income
86 What is Margin of Safety if Sales is 20,000 units and B.E.P is
15,000 units.
a. 35,000 units b. 5,000 units
c. Rs 5,000 d. Rs 35,000
87 Estimate amount of profit if Sales is 10,000 units Fixed cost
is Rs 50,000, Variable cost per unit is Rs 12 and selling price per
unit is Rs 20.
a. Rs 12,000 b. Rs 5,000
c. Rs 30,000 d. None of the above
88 What will be the impact on B.E.P if variable costs are
reduced?
a. Decrease b. No change
c. Increase d. None of the above
89 What will be the impact on B.E.P if fixed cost is increased?
a. Decrease b. No change
c. Increase d. None of the above
90 The break-even point is the point where:
a. Total sales revenue equals total expenses (variable and
fixed)
b. Total contribution margin equals total fixed expenses
c. Total sales revenue equals to variable expenses only
d. Both a & b
91 The difference between total revenues and total variable
costs is known as:
a. Contribution margin b. Gross margin
c. Operating income d. Fixed costs
92 A variable cost is?
a. One which varies in proportion to the level of fixed cost
incurred.
b. One which tends to vary with the level of activity.
c. One which changes over time.
d. One which cannot be estimated with any great degree of
accuracy.
93 Which of the following is the objective of cost sheet
1. For determining the selling price
2. Facilitating in managerial decision making
3. Preparation of budgets
4. All of these
94 Which of the following is not the element of Cost Sheet
A. Prime cost b Factory cost
C Cost of production d Contribution
95 When a company uses two or more than two
methods of costing , then it is known as _____
A. Process costing b multiple costing
c. Combination d complex
96 Multiple costing is also known as
a. Composite costing b. complex costing
c. Combination costing d all of these
97 Classification of cost is useful .
A. to find gross profit. B. to find net profit.
C. to identify costs. D. to identify efficiency
98 What is Tender ?
A estimation of cost b estimation of profit
C estimation of selling price d estimation of units
99 The objective of standard costing is to________
A) Determine profitability of a product
B) Determine break-even production level
C) Control costs D) Allocate costs with more
accuracy
100 Contract costing is also known as
A terminal costing b direct cost
C hamper costing d all of these