Short answers for all 100 questions mocktest on basic concepts of financial reporting Cost Accounting,dtd 17th September 2026:

 

Short answers for all 100 questions mocktest on basic concepts of financial reporting Cost Accounting,dtd 17th September 2026:

Short answers for all 100 questions mocktest on basic concepts of financial reporting Cost Accounting,dtd 17th September 2026:

1. Who are stakeholders with their interest? Write at least 3

Ans: Shareholders (profit/ROI), Customers (fair price/quality), Employees (job security/wages), Government (tax compliance), Creditors (repayment ability).

2. What are types of industries for costing?

Ans: Manufacturing, Service, Merchandising/Trading, Construction, Agriculture, Extractive/Mining.

3. What are types of costs?

Ans: Fixed, Variable, Semi-variable, Direct, Indirect, Product, Period, Opportunity, Sunk, Relevant, Irrelevant.

4. What is difference between financial & non-financial info? Write examples

Ans: Financial = monetary (e.g., sales $500k, profit $50k). Non-financial = non-monetary (e.g., customer satisfaction 90%, employee turnover 5%, units produced).

5. What is predetermined overhead rate? Write formula

Ans: POHR = Estimated Total Overhead ÷ Estimated Total Allocation Base (e.g., direct labor hours, machine hours).

6. What is cost centre? Write examples

Ans: A unit/department where costs are accumulated. Examples: Production dept, HR dept, Maintenance dept, Marketing dept.

7. What is cost tracing?

Ans: Directly assigning costs to a cost object because they can be economically traced (e.g., direct materials to a product).

8. What is cost allocation?

Ans: Assigning indirect costs to cost objects using an allocation base (e.g., allocating rent by floor space).

9. What is semi-variable cost? Write example

Ans: Cost with both fixed and variable components. Example: Electricity bill (fixed minimum + variable usage charge).

10. What is fixed cost? Write example

Ans: Cost that remains constant regardless of activity level. Example: Factory rent, insurance, salaries of permanent staff.

11. What is high-low method? Write formula

Ans: Variable cost/unit = (Highest cost − Lowest cost) ÷ (Highest activity − Lowest activity). Then Fixed cost = Total cost − (VC × activity).

12. What is overcosting?

Ans: When a product is assigned more cost than it actually consumes, leading to overstated cost and possibly overpricing.

13. What is undercosting?

Ans: When a product is assigned less cost than it actually consumes, leading to understated cost and possibly underpricing.

14. What is manufacturing overhead? Write 2 examples

Ans: Indirect factory costs. Examples: Factory rent, factory supervisor salary, depreciation on factory machinery.

15. What is non-manufacturing overhead? Write 2 examples

Ans: Indirect non-factory costs. Examples: Marketing expenses, office rent, admin salaries.

16. What is overapplied overhead?

Ans: When applied overhead > actual overhead. It is credited (reduces COGS) at year-end.

17. What is underapplied overhead?

Ans: When applied overhead < actual overhead. It is debited (increases COGS) at year-end.

18. What is prime cost?

Ans: Direct Materials + Direct Labor. It is the direct cost of production.

19. What is overheads / conversion cost?

Ans: Conversion Cost = Direct Labor + Manufacturing Overhead. Cost to convert raw materials into finished goods.

20. What is cross-cost subsidization?

Ans: When one product/customer subsidizes another due to distorted cost allocation, leading to wrong pricing decisions.

21. What is allocation base?

Ans: The measure used to assign indirect costs (e.g., machine hours, labor hours, units produced, floor space).

22. What is skilled vs unskilled labour?

Ans: Skilled = trained, specialized (e.g., engineer, welder). Unskilled = no special training (e.g., loader, cleaner). Skilled earns higher wages.

23. What is difference between payroll, personnel, HR, production, timekeeping?

Ans: Payroll = wages computation/payment. Personnel/HR = hiring, training, welfare. Production = making goods. Timekeeping = recording hours worked.

24. What is apportionment of overhead?

Ans: Distributing overhead costs to different departments/cost centers on a fair basis (e.g., rent by floor area).

25. What is reapportionment of overhead?

Ans: Redistributing service department costs to production departments after initial apportionment.

26. What are joint costs?

Ans: Costs incurred up to the split-off point in producing multiple products simultaneously (e.g., crude oil refining).

27. What is engineering overhead?

Ans: Overhead related to design, planning, and engineering activities (e.g., design dept salaries, CAD software).

28. What is discretionary overhead?

Ans: Overhead set by management decision, not directly tied to output (e.g., R&D, advertising, training).

29. What is efficiency?

Ans: Doing things right — achieving maximum output with minimum input (output/input ratio).

30. What is effectiveness?

Ans: Doing the right things — achieving intended goals/objectives.

31. What is economy?

Ans: Acquiring resources at the lowest possible cost without compromising quality.

32. What is accounting cost?

Ans: Explicit costs recorded in books — actual payments made (wages, rent, materials).

33. What is opportunity cost?

Ans: Value of the next best alternative forgone when making a decision.

34. What is economic cost?

Ans: Accounting Cost + Opportunity/Implicit Cost.

35. What are explicit costs?

Ans: Out-of-pocket, recorded costs (wages, rent, materials).

36. What are implicit costs?

Ans: Opportunity costs of using owned resources (e.g., owner's time, own building rent forgone).

37. What is relevant range?

Ans: The activity range over which fixed costs remain constant and variable cost per unit stays stable.

38. What are factors of production?

Ans: Land, Labor, Capital, Entrepreneurship.

39. What is short-run period?

Ans: Time period where at least one factor of production is fixed (usually capital).

40. What is investment in associates?

Ans: Investment in a company where investor has significant influence (20–50% voting power), accounted by equity method.

41. What is investment in subsidiary company?

Ans: Investment where investor controls (>50% voting power), consolidated in group financial statements.

42. What is trading investment?

Ans: Investment held for short-term resale, measured at fair value through profit or loss (FVTPL).

43. What is Held-to-Maturity HTM investment?

Ans: Debt investment held until maturity, measured at amortized cost.

44. What is Available-for-Sale AFS - Now FVOCI?

Ans: Investment measured at fair value through OCI (Other Comprehensive Income), not profit or loss.

45. What is computation of valuation by equity method?

Ans: Investment = Initial Cost + Share of Profit − Dividends Received − Impairment.

46. Example: Associate profit 200k, Investor 30%, Dividend 50k, what is investment income?

Ans: Investment income = 30% × 200k = $60,000. (Dividend reduces investment balance, not income.)

47. What is EPS?

Ans: EPS = (Net Income − Preference Dividends) ÷ Weighted Average Common Shares Outstanding.

48. What is diluted EPS?

Ans: EPS assuming all convertible securities (options, bonds, preference shares) are converted into common stock.

49. What is impairment loss?

Ans: Reduction in asset value when carrying amount > recoverable amount. Dr. Impairment Loss, Cr. Asset.

50. What is depreciation loss?

Ans: Systematic allocation of an asset's cost over its useful life (not a "loss" but an expense).

51. What is deferred tax?

Ans: Tax effect of temporary differences between accounting income and taxable income, recognized as DTA or DTL.

52. What is current tax?

Ans: Tax payable on taxable income for the current period, calculated per tax laws.

53. When DTL arises?

Ans: When taxable income < accounting income (e.g., accelerated tax depreciation), tax deferred to future.

54. When DTA arises?

Ans: When taxable income > accounting income (e.g., warranty provision), tax saved in future.

55. What are current liabilities?

Ans: Obligations due within 12 months (e.g., accounts payable, short-term loans, accrued expenses).

56. What are non-current liabilities?

Ans: Obligations due after 12 months (e.g., long-term loans, bonds payable, lease liabilities).

57. What is cash flow from operation direct method?

Ans: Shows actual cash receipts and payments from operations (cash from customers, cash paid to suppliers/employees).

58. Formula for cash collected from customers?

Ans: Cash Collected = Sales + Opening Receivables − Closing Receivables.

59. Formula for cash paid to suppliers?

Ans: Cash Paid = Purchases + Opening Payables − Closing Payables (Purchases = COGS + Closing Inventory − Opening Inventory).

60. What is net income?

Ans: Net Income = Revenue − Expenses (bottom line profit).

61. What is gross profit margin?

Ans: Gross Profit ÷ Revenue × 100. Gross Profit = Revenue − COGS.

62. What is profit margin?

Ans: Net Income ÷ Revenue × 100 (net profit margin).

63. What is mark-up?

Ans: Mark-up = (Selling Price − Cost) ÷ Cost × 100 (based on cost).

64. Relation between margin & mark-up?

Ans: Margin = Mark-up ÷ (1 + Mark-up); Mark-up = Margin ÷ (1 − Margin).

65. What is cash dividend?

Ans: Dividend paid in cash to shareholders.

66. What is interim dividend?

Ans: Dividend declared and paid during the year before final annual dividend.

67. What is stock dividend?

Ans: Dividend paid in additional shares instead of cash.

68. What is small stock dividend?

Ans: Stock dividend < 20–25% of outstanding shares, recorded at fair market value.

69. What is residuary theory?

Ans: Equity = residual interest in assets after deducting liabilities (owner's residual claim).

70. What is proprietary theory?

Ans: Business is an extension of owner; accounting focuses on owner's net worth.

71. What is entity theory?

Ans: Business is separate from owners; accounting focuses on the entity's assets, liabilities, and equity.

72. What is presentation disclosure in financial statements?

Ans: Proper classification, format, and notes disclosing accounting policies, contingencies, and significant items.

73. What is net assets?

Ans: Total Assets − Total Liabilities = Equity/Net Worth.

74. What is net worth?

Ans: Shareholders' equity = Total Assets − Total Liabilities.

75. Is preference dividend finance cost?

Ans: No, preference dividend is appropriation of profit, not a finance cost (unless classified as liability under IFRS).

76. What is joint product?

Ans: Two or more products of similar value produced simultaneously from same process (e.g., petrol & diesel from crude oil).

77. What is by-product?

Ans: Minor product of lesser value produced alongside main product (e.g., sawdust from timber).

78. Allocation of joint costs methods?

Ans: Sales value at split-off, Physical units, Net realizable value, Constant gross margin %.

79. What is step-down method for overhead allocation?

Ans: Service department costs allocated to other service and production departments sequentially, ignoring reciprocal services.

80. What is reciprocal method?

Ans: Most accurate method; recognizes mutual services among service departments using simultaneous equations.

81. What is direct method of allocation?

Ans: Service department costs allocated only to production departments, ignoring services to other service departments.

82. What is overcosting effect on decision?

Ans: Product appears costly → overpriced → lost sales; other products underpriced → losses.

83. What is prime cost vs conversion cost use?

Ans: Prime cost = direct costs (DM + DL), used for pricing. Conversion cost = DL + MOH, used for measuring production efficiency.

84. What is difference between job order vs process costing industries? Write example

Ans: Job order = custom, distinct jobs (e.g., construction, custom furniture). Process costing = mass, homogeneous production (e.g., cement, oil refining, soft drinks).

85. What is difference between variable vs absorption costing impact on income? Which operating income is higher, when ending inventory is higher than opening inventory?

Ans: When ending inventory > opening inventory, absorption costing income is higher (fixed overhead deferred in inventory). When inventory decreases, variable costing income is higher.

86. What is cash equivalent?

Ans: Short-term, highly liquid investments (≤3 months) easily convertible to cash (e.g., treasury bills, commercial paper).

87. What is unrealized gain on intercompany inventory in consolidation? Accounting effect

Ans: Profit on inventory still held by buyer must be eliminated. Dr. COGS/Profit, Cr. Inventory — reduces consolidated profit and inventory.

88. What is elimination of intercompany owing? One example

Ans: Eliminate reciprocal receivables/payables: Dr. Accounts Payable (buyer), Cr. Accounts Receivable (seller).

89. What is other comprehensive income OCI? Example

Ans: Gains/losses excluded from profit or loss. Examples: Revaluation surplus, FVOCI investments, foreign currency translation, actuarial gains.

90. What is deferred tax liability calculation?

Ans: DTL = Temporary Difference × Tax Rate. Arises when book income > taxable income.

91. What is impairment journal entry?

Ans: Dr. Impairment Loss, Cr. Accumulated Impairment Loss / Asset.

92. What is DDB depreciation formula?

Ans: Depreciation = (2 ÷ Useful Life) × Book Value at Beginning of Year.

93. What is SYD depreciation formula?

Ans: Depreciation = (Remaining Life ÷ SYD) × (Cost − Salvage); SYD = n(n+1)/2.

94. What is difference between interest and dividend?

Ans: Interest = paid on debt, tax-deductible, mandatory. Dividend = paid on equity, not tax-deductible, discretionary.

95. What is Cost cross subsidization?

Ans: One product/customer bears cost of another due to flawed allocation, distorting pricing and profitability.

96. What are types of stakeholders interest in costing?

Ans: Shareholders (profit), Management (cost control), Customers (fair price), Employees (wages), Government (tax), Creditors (solvency).

97. What is opportunity cost example in production?

Ans: Using a machine for Product A means forgoing production of Product B — the lost contribution of B is the opportunity cost.

98. What is sunk cost?

Ans: Irrecoverable past cost irrelevant to future decisions (e.g., R&D already spent).

99. What is explicit cost vs accounting cost same?

Ans: Yes, they are the same — actual out-of-pocket costs recorded in books.

100. What is b in y=a+bx?

Ans: b = variable cost per unit (slope); a = fixed cost; x = activity level; y = total cost.

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