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Cost Accounting Mcqs Test

1. Costs that change in response to alternative courses of action are called:

a. Relevant costs

b. Differential costs

c. Target costs

d. Sunk costs

2. The cost data pertaining to Product ―X‖ of XL Ltd. are as follows :

Maximum capacity 30,000 units

Normal capacity 15,000 units

Increase in inventory 1,880 units

Variable cost per unit ` 12

Selling price per unit ` 50

Fixed manufacturing overhead costs ` 3,60,000

If the profit under Absorption costing method is ` 1,01,000, the profit under Marginal costing method

would be

a. ` 1,46,120

b. ` 1,23,560

c. ` 55,880

d. ` 73,340

[Hint : Fixed cost per unit = ` 3,60,000 / 15,000 units = ` 24

Profit under absorption costing = ` 1,01,000

Adjustment of fixed manufacturing overhead costs of increased inventory = 1,880 units x ` 24 = `

45,120

Profit under marginal costing = ` 1,01,000 – ` 45,120 = ` 55,880]

3. The total cost incurred in the operation of a business undertaking other than the cost of

manufacturing and production is known as

a. Direct cost

b. Variable cost

c. Commercial cost

d. Conversion cost

4. Consider the following data for a company during the month of June 2012

Budgeted hours 4,000

Standard hours for actual production 4,400

Maximum possible hours in the budget period 4,800

Actual hours 3,800

The activity ratio of the company during the month is

a. 111%

b. 120%

c. 95%

d. 117%

[Hint : Activity ratio = Standard hours for actual production x 100

Budgeted hours

= 4,440 hours x 100 = 111%]

4,000 hours

5. Total unit costs are

a.Independent of the cost system, used to generate them

b.Needed for determining product contribution

c.Irrelevant in marginal analysis

d.Relevant for cost-volume-profit analysis

6. Which of the following bases is not appropriate for apportionment of Transport department‘s cost ?

a. Crane hours

b. Crane value

c. Truck Mileage

d. Truck value

7. The cost of obsolete inventory acquired several years ago, to be considered in a keep vs. disposal

decision is an example of :

a.Uncontrollable cost

b.Sunk cost

c.Avoidable cost

d.Opportunity cost

[Hint : Costs of obsolete inventory represent the sunk cost because the costs have already been

incurred.]

8. Budgeted sales for the next year is 5,00,000 units. Desired ending finished goods inventory is

1,50,000 units and equivalent units in ending W-I-P inventory is 60,000 units. The opening finished

goods inventory for the next year is 80,000 units, with 50,000 equivalent units in beginning W-I-P

inventory How many equivalent units should be produced?

a. 5,80,000

b. 5,50,000

c. 5,00,000

d. 5,75,000

[Hint : Using production related budgets, units to produce equals budgeted sales + desired ending

finished goods inventory + desired equivalent units in ending W-I-P inventory – beginning finished

goods inventory – equivalent units in beginning W-I-P inventory. Therefore, in this case, units to

produce is equal to 5,00,000 + 1,50,000 + 60,000 – 80,000 – 50,000 = 5,80,000.

9. If the asset turnover and profit margin of a company are 1.85 and 0.35 respectively, the return on

investment is

a. 0.65

b. 0.35

c. 1.50

d. 5.29

[Hint : Return on investment = Asset turnover x Profit margin = 1.85 x 0.35 = 0.65]

10. A company is currently operating at 80% capacity level. The production under normal capacity

level is 1,50,000 units. The variable cost per unit is ` 14 and the total fixed costs are ` 8,00,000. If the

company wants to earn a profit of ` 4,00,000, then the price of the product per unit should be

a. ` 37.50

b. ` 38.25

c. ` 24.00

d. ` 35.00

[Hint : Total fixed cost – ` 8,00,000

Expected profit – ` 4,00,000

Variable cost at 80% level

(80% x 1,50,000 units x ` 14) – ` 16,80,000

Total price – ` 28,80,000

Per unit price at 80% level = (` 28,80,000 / 1,20,000 units) = ` 24.00.]

11. Consider the following data pertaining to the production of a company for a particular month :

Opening stock of raw material ` 11,570

Closing stock of raw material ` 10,380

Purchase of raw material during the month ` 1,28,450

Total manufacturing cost charged to product ` 3,39,165

Factory overheads are applied at the rate of 45% of direct labour cost.

The amount of factory overheads applied to production is

a. ` 65,025

b. ` 94,287

c. ` 95,020

d. ` 1,52,624

[Hint : Raw material used= Op. Stock + Purchases – Cl. Stock

= ` 11,570 + ` 1,28,450 – ` 10,380 = ` 1,29,640

Manufacturing cost = Raw material used + Direct labour + Factory overhead

` 3,39,165 = ` 1,29,640 + Direct labour + 45% of Direct labour

1.45 Direct labour = ` 2,09,525

Direct labour = ` 1,44,500

The amount of factory overhead= 45% of ` 1,44,500 = ` 65,025.]

12. The budgeted annual sales of a firm is ` 80 lakhs and 25% of the same is cash sales. If the average

amount of debtors of the firm is ` 5 lakhs, the average collection period of credit sales months.

a. 1.50

b. 1.00

c. 0.50

d. 1.75

[Hint : Total annual sales = ` 80 lakhs

Total cash sales = 25 % of 80 lakhs. = 20 lakhs.

Total credit sales = 75% of 80 lakhs = 60 lakhs

Average amount of debtors = 5 lakhs = 1 months average credit sales.

Therefore, average collection period is 1 month.]

13. If the minimum stock level and average stock level of raw material ―A‖ are 4,000 and 9,000 units respectively, find out its reorder quantity.

a. 8,000 units

b. 11,000 units

c. 10,000 units

d. 9,000 units

[Hint : Average stock level = Minimum stock level + ½ Reorder quantity

9,000 units = 4,000 units + ½ Reorder quantity

½ Reorder quantity = 9,000 units – 4,000 units

Reorder level = 5, 000 units / 0.5 = 10,000 units]

14. A worker has a time rate of ` 15/hr. He makes 720 units of component (standard time : 5 minutes/

unit) in a week of 48 hours. His total wages including Rowan bonus for the week is

a. ` 792

b. ` 820

c. ` 840

d. ` 864

[Hint : Standard time = 5 times x 720 units = 60 hours

60 minutes

Time taken = 48 hrs.

Time saved = 12 hrs.

Total earning of a worker under Rowan plan

= (48 hrs. x ` 15) + ( 12 hrs. x 48 hrs. x ` 15)

60 hrs.

= ` 720 + ` 144 = ` 864

15. A company maintains a margin of safety of 25% on its current sales and earns a profit of ` 30 lakhs per annum. If the company has a profit volume (P/V) ratio of 40%, its current sales amount to

a. ` 200 lakhs

b. ` 300 lakhs

c. ` 325 lakhs

d. None of the above

[Hint : Margin of safety = Profit/ P/V Ratio

= 30/0.40 = ` 75 lakhs

0.25 of sales = ` 75 lakhs

Hence, Sales = 75/0.25 = ` 300 lakhs]

16. Sale for two consecutive months, of a company are ` 3,80,000 and ` 4,20,000. The company‘s net

profits for these months amounted to ` 24,000 and ` 40,000 respectively. There is no change in

contribution/sales ratio or fixed costs. The contribution/sales ratio of the company is

a. 1/3

b. 2/5

c. ¼

d. None of the above

[Hint : Contribution / sales = Increase in profit / Increase in sales

= (40,000 – 24,000) / (4,20,000 – 3,80,000)

= 16,000/40,000 = 2/5]

17. A Limited has fixed costs of ` 6,00,000 per annum. It manufactures a single product which it sells for 200 per unit. Its contribution to sales ratio is 40%. A Limited‘s break-even in units is

a. 7,500

b. 8,000

c. 3,000

d. 1,500

[Hint : Break-even units = Fixed cost / contribution per unit

= ` 6,00,000/ 40% of ` 200

= 7,500]

18. The current liabilities of Akash Ltd. is ` 30,000. If its current ratio is 3:1 and Quick ratio is 1:1, the value of stock-in-trade will be

a. ` 20,000

b. ` 30,000

c. ` 60,000

d. Insufficient information

[Hint : Current Ratio = Current Assets = 3:1

Current Liabilities

Current Assets = ` 30,000 x 3 = ` 90,000

Quick Ratio = Quick Assets = 1:1

Quick Liabilities

Liquid assets = ` 30,000 x 1 = ` 30,000

Hence, value of stock-in-trade : CA – LA = ` (90,000 – 30,000)

= ` 60,000]

19. If the capacity usage ratio of a production department is 90% and activity ratio is 99% then the

efficiency ratio of the department is

1. 100%

2. 120%

3. 110%

4. 105%

[Hint : Efficiency ratio (ER) = Std. hr. of production ÷ Actual hrs.

Activity ratio (AR) = Std. hrs. for production ÷ Budgeted hrs.

Capacity ratio (CR) = Actual hrs. ÷ Budgeted hrs.

Hence, ER = AR / CR = 99% / 90% = 110%]

20. In two consecutive periods, sales and profit were ` 1,60,000 and ` 8,000 respectively in the first

period and ` 1,80,000 and ` 14,000 respectively during the second period. If there is no change in

fixed cost between the two periods then P-V ratio must be

1. 20%

2. 25%

3. 30%

4. 40%

[Hint : Change in profit = P/V Ratio

Change in sales

= 14,000 – 8,000

1,80,000 – 160,000

= 6,000

20,000

= 0.30 or 30%]

21. Horizon Ltd. Manufactures product BM for last 5 years. The company maintains a margin of safety of 37.5% with overall contribution to sales ratio of 40%. If the fixed cost is ` 5 lakh, the profit of the company is

a. ` 24.00 laks

b. ` 12.50 lakh

c. ` 3.00 lakh

d. None of A, B, C

[Hint : Break even sales = ` 5 lakhs ÷ 0.40 = ` 12.50 lakhs

Total sales = 12.50 . = ` 20.00 lakhs

(1 – 0.375)

Hence the profit of the company : ` 20 lakh x 0.375 x 0.40 = ` 3.00 lakhs]

22. The cost-volume-profit relationship of a company is described by the equation y = ` 8,00,000 +

0.60x, in which x represents sales revenue and y is the total cost at the sales volume represented

by x. If the company desires to earn a profit of 20% on sales, the required sales will be.

a. ` 40,00,000

b. ` 35,50,000

c. ` 24,00,000

d. ` 20,00,000

[Hint : Variable cost = 60% , therefore, contribution to sales ratio = 40% (P/V ratio)

Company‘s target profit 20% in sales, therefore, revised contribution which covers only fixed cost =

40% – 20% = 20%.

Required sales = fixed cost / revised contribution = ` 8,00,000/ 20% = ` 40,00,000.]

23. ABC Ltd. is having 400 workers at the beginning of the year and 500 workers at the end of the year. During the year 20 workers were discharged and 15 workers left the organization. During the year

the company has recruited 65 workers. Of these, 18 workers were recruited in the vacancies of

those leaving, while the rest were engaged for an expansion scheme. The labour turnover rate

under separation method is :

a. 22.20%

b. 7.78%

c. 4.00%

d. 14.40%

[Hint : Average number of workers = (400 + 500)/2 = 450

Separation method

= No. of separations during the period x 100

Average number of workers during the period

= 20 + 15 x 100

450

= 7.78%

24. One of the most important tools in cost planning is:

a. Direct cost

b. Cost Sheet

c. Budget

d. Marginal Costing.

25. Economies and diseconomies of scale explain why the:

a. Short-run average fixed cost curve declines so long as output increases.

b. Marginal cost curve must intersect the minimum point of the firm’s average total cost curve.

c. Long-run average total cost curve is typically U-shaped.

d. Short-run average variable cost curve is U-shaped.

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

a. Replacement cost

b. Sunk cost

c. Marginal cost

d. Standard cost.

27. Which of the following is an accounting record?

a. Bill of Material

b. Bin Card

c. Stores Ledger.

d. All of these.

28. The fixed-variable cost classification has a special significance in preparation of :

a. Flexible Budget

b. Master Budget

c. Cash Budget

d. Capital Budget

29. Input in a process is 4000 units and normal loss is 20%. When finished output in the process is only 3240 units, there is an :

a. Abnormal loss of 40 units

b. Abnormal gain of 40 units

c. Neither abnormal loss nor gain.

d. Abnormal loss of 60 units.

30. Idle capacity of a plant is the difference between:

a. Maximum capacity and practical capacity

b. Practical capacity and normal capacity

c. Practical capacity and capacity based on sales expectancy

d. Maximum capacity and actual capacity.

31. When P/V ratio is 40% and sales value is `10,000, the variable cost will be

a. ` 4000

b. ` 6000

c. ` 10000

d. Variable Cost cannot be calculated from data given.

32. The forex component of imported material cost is converted

a. At the rate on the date of settlement

b. At the rate on the date of transaction

c. At the rate on date of delivery

d. None of the above.

33. Maximum possible productive capacity of a plant when no operating time is lost , is its

a. Practical capacity

b. Theoretical capacity

c. Normal capacity

d. Capacity based on sales expectancy

[Hint : Theoretical capacity is the denominator-level concept that is based on producing at full

efficiency all the time.,

Practical capacity is a denominator-level concept that reduces the theoretical capacity by

unavoidable operating interruptions such as scheduled maintenance time, shutdowns for holidays

and so on.

Normal capacity measures the denominator level in terms of demand for the output of the plant.

Normal capacity utilization is a concept based on the level of capacity utilization that specifies the

average customer demand over a time period, that includes seasonal, cyclical and trend factors.]

34. When production is below standard specification or quality and cannot be rectified by incurring

additional cost, it is called

a. Defective

b. Spoilage

c. Waste

d. Scrap

[Hint : (1) Spoiled goods-goods that do not meet production standards and are either sold for their

salvage value or discarded; (2) Defective units-goods that do not meet standards and are sold at

a reduced price or reworked and sold at the regular or a reduced price; (3) Waste-material that is

lost in the manufacturing process by shrinkage, evaporation, etc.; and (4) Scrap-by-product of the

manufacturing process that has a minor market value.]

35. CAS 8 requires each type of utility to be treated as

a. Separate cost object

b. Not part of cost as not include in material

c. Not part of cost as they do not form part of product

d. Treated as administrative overheads.

36. Selling and distribution overhead does not include:

a. Cost of warehousing

b. Repacking cost

c. Transportation cost

d. Demurrage charges.

37. When overtime is required for meeting urgent orders, overtime premium should be

a. Charged to Costing Profit and Loss A/c

b. Charged to overhead costs

c. Charged to respective jobs

d. None of the above.

[Hint : When cost is incurred for specified job, the cost should be charged to that job only.]

38. Exchange losses or gains after purchase transaction is complete is treated as

a. Product cost.

b. Overhead cost.

c. Purchase cost.

d. Finance cost

39. Selling price per unit ` 15.00; Direct Materials cost per unit ` 3.50; Direct Labour cost per unit ` 4.00

Variable Overhead per unit ` 2.00; Budgeted fixed production overhead costs are ` 60,000 per

annum charged evenly across each month of the year. Budgeted production costs are 30,000 units

per annum. What is the Net profit per unit under Absorption costing method.

a. ` 9.50

b. ` 15.00

c. ` 11.50

d. ` 3.50

40. Which of the following cost is linked with the calculation of cost of inventories?

a. Product cost

b. Period cost

c. Both product and period cost

d. Historical cost

41. If, Sales = ` 800,000

Markup rate = 25% of cost

What would be the value of Gross profit?

a. ` 200,000

b. ` 160,000

c. ` 480,000

d. ` 640,000

42. Which of the following is TRUE when piece rate system is used for wage determination?

a. Under this method of remuneration a worker is paid on the basis of time taken by him to

perform the work

b. Under this method of remuneration a worker is paid on the basis of production

c. The rate is expressed in terms of certain sum of money for total production

d. The rate is not expressed in terms of certain sum of money for total production

43. The salary of factory clerk is treated as:

a. Direct labor cost

b. Indirect labor cost

c. Conversion cost

d. Prime cost

44. Average consumption x Emergency time is a formula for the calculation of:

a. Lead time

b. Re-order level

c. Maximum consumption

d. Danger level

45. EOQ is a point where:

a. Ordering cost is equal to carrying cost

b. Ordering cost is higher than carrying cost

c. Ordering cost is lesser than the carrying cost

d. Total cost is maximum

46. A worker is paid ` 0.50 per unit and he produces 18 units in 7 hours. Keeping in view the piece rate system, the total wages of the worker would be:

a. 18 x 0.50 = ` 9

b. 18 x 7 = ` 126

c. 7 x 0.5 = ` 3.5

d. 18 x 7 x 0.50 = ` 63

47. When closing stock is over valuate, what would its effect on profit?

a. Cannot determined with given statement

b. It will Increase the profit

c. It will decrease the profit

d. No effect on profit

48. A firm sells bags for ` 14 each. The variable cost for each unit is ` 8. What is the contribution margin per unit?

a. ` 6

b. ` 12

c. ` 14

d. ` 8

49. Which of the following is NOT true? A small company’s breakeven point:

a. Occurs where its revenue equals its expenses

b. Shows entrepreneurs‘ minimum level of activity required to keep the company in operation

c. Is the point at which a company neither earns a profit nor incurs a loss

d. Total contribution margin equals total variable expenses

50. Keller Co. sells a single product for ` 28 per unit. If variable costs are 65% of sales and fixed costs total ` 9,800, the break-even point will be:

a. 15,077 units

b. 18,200 units

c. 539 units

d. 1,000 units