📘 Basic Concepts of Cost Accounting
1. Prime costs consist of which of the following?
· A) Direct materials + Manufacturing overhead
· B) Direct labor + Manufacturing overhead
· C) Direct materials + Direct labor
· D) Direct materials + Direct labor + Manufacturing overhead
Answer
2. Which of the following is a period cost?
· A) Direct materials
· B) Factory depreciation
· C) Sales commission
· D) Assembly-line labor
Answer:
🧮 Activity‑Based Costing (ABC)
3. Which costing method assigns overhead to products based on multiple cost drivers?
· A) Traditional costing
· B) Absorption costing
· C) Variable costing
· D) Activity‑Based Costing (ABC)
4. Bellweather Co. allocates overhead using ABC with two cost pools:
· Setup pool: $200,000 driven by 400 setups.
· Machining pool: $600,000 driven by 50,000 machine hours.
Product X is produced in an order of 1,000 units that consumes 8 setups and 200 machine hours. What is the ABC overhead cost per unit of Product X?
· A) $5.00
· B) $6.40
· C) $7.20
· D) $8.00
Answer:
🏭 Job Order and Process Costing
5. Which of the following companies is most likely to use a job‑order costing system rather than a process costing system?
· A) Candy maker
· B) Shipbuilder
· C) Crude oil refinery
· D) Fast food restaurant
Answer
6. A process‑costing system would be most appropriate for which type of business?
· A) Custom furniture manufacturer
· B) Shipbuilder
· C) Crude oil refinery
· D) Specialty costume maker
Answer:
⚙️ JIT, Kanban, MRP, MRP II, Kaizen, TQM
7. JIT is a philosophy of:
· A) Push production
· B) Variability increase
· C) Re‑engineering for breakthrough
· D) Waste reduction
Answer:
8. When using kanbans:
· A) Kanban cards provide direct control on the amount of work‑in‑process between cells.
· B) In an MRP system, kanban can be thought of as a “build” authorization.
· C) If producer and user are not in visual contact, a light or empty spot on the floor should be used as a signal.
· D) Each pull station can require only one resupply component.
9. MRP stands for:
· A) Material requirement planning
· B) Material reordering planning
· C) Material requisition procedure
· D) Material recording procedure
10. Which of the following best describes MRP II?
· A) It is limited to material planning.
· B) It adds capacity planning, scheduling, job costing, and financial integration to MRP.
· C) It is a pull system based on kanban.
· D) It is a quality management system.
11. TQM stands for:
· A) Total Quality Manufacturing
· B) Total Quality Measurement
· C) Total Quality Management
· D) None of the above
Answer.
12. The concept of Kaizen in TQM explains:
· A) Gradual and continuous improvement
· B) Zero defect implementation
· C) 100% inspection
· D) All of the above
Answer: .
13. A key to just‑in‑time production is:
· A) To rely very heavily upon purchased items rather than in‑house production.
· B) The elimination of all or most product options.
· C) Production in large lot sizes.
· D) The elimination of all inventories.
14. Kanban is associated with:
· A) EOQ
· B) JIT
· C) Capacity planning
· D) Product design
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📊 Budgetary Control
15. When properly developed and administered, budgets provide the following advantages to the organization EXCEPT to:
· A) Provide a structure for measuring performance.
· B) Motivate managers and other employees.
· C) Ensure that the organization makes a profit.
· D) Promote the efficient allocation of resources.
16. A flexible budget:
· A) Considers only variable costs.
· B) Considers all costs.
· C) Adjusts for changes in activity level.
· D) Is static and cannot be changed.
Answer:
17. Zero‑based budgeting requires each cost element:
· A) To be set at zero.
· B) To be specifically justified as if the activities were being undertaken for the first time.
· C) To be out‑sourced to an external supplier.
· D) To be based on the previous year’s budget.
Answer:
📈 Variance Analysis
18. In cost accounting, the purpose of variance analysis is to:
· A) Understand reasons for variances.
· B) Take remedial measures.
· C) Improve future performance.
· D) All of the above.
Answer
19. A company isolates its raw material price variance. Budgeted: 150,000 units × 3 lbs/unit × $2.00/lb = $900,000. Actual: 160,000 units produced; 500,000 lbs purchased; 490,000 lbs used; cost per lb $2.02. What is the raw material price variance?
· A) $9,600 unfavorable
· B) $9,800 unfavorable
· C) $10,000 unfavorable
· D) $20,000 unfavorable
Answer:
20. If standard hours are 400 @ $1.00/hour and actual hours are 380 @ $1.25/hour, the labor rate variance is:
· A) $20 favorable
· B) $25 favorable
· C) $100 adverse
· D) $95 adverse
Answer:
📘 Basic Cost Accounting Concepts (Q21–Q35)
21. Costs that change in response to alternative courses of action are called:
· A) Relevant costs
· B) Differential costs
· C) Target costs
· D) Sunk costs
Answer:
22. 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
Answer:
23. The cost of obsolete inventory acquired several years ago, to be considered in a keep vs. disposal decision, is an example of a:
· A) Uncontrollable cost
· B) Sunk cost
· C) Avoidable cost
· D) Opportunity cost
Answer:
24. The loss of interest and dividend that would be earned otherwise from an amount invested in plant and machinery is an example of:
· A) Imputed Cost
· B) Opportunity Cost
· C) Controllable Cost
· D) Out of
25. 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
Answer:
26. Which of the following bases is not appropriate for apportionment of a Transport department's cost?
· A) Crane hours
· B) Crane value
· C) Truck Mileage
· D) Truck value
Answer:
27. In a control report, the primary purpose of comparing actual results to budget is to:
· A) Identify who is to blame for poor performance
· B) Motivate managers to always achieve budget
· C) Highlight areas requiring management attention
· D) Comply with external reporting requirements
Answer:
28. Which of the following best describes a "conversion cost"?
· A) Direct materials + Direct labor
· B) Direct labor + Manufacturing overhead
· C) Direct materials + Manufacturing overhead
· D) Direct materials + Direct labor + Manufacturing overhead
Answer:.
29. The cost of a product is $50 per unit at a production volume of 10,000 units. At a production volume of 20,000 units, the total variable cost will:
· A) Remain the same in total
· B) Double in total
· C) Halve per unit
· D) Decrease in total
Answer:
30. Which of the following is a characteristic of the Cost Concept?
· A) Assets are recorded at fair market value
· B) Expenses are matched with revenues
· C) Costs are recorded when incurred, not when paid
· D) All of the above
Answer:
31. An imputed cost is:
· A) A cost that entails a dollar outlay
· B) A cost that does not entail any dollar outlay but is relevant to decision-making
· C) Always a sunk cost
· D) A cost recorded in the financial statements
Answer:
32. Which of the following items is not an appropriation of profits?
· A) Taxes on income and profit
· B) Preliminary expenses written off
· C) Provision for bad-debts
· D) Dividend paid
Answer
33. The technique where standardized principles and methods of cost accounting are employed by a number of different companies and firms is:
· A) Standard Costing
· B) Uniform Costing
· C) Single Costing
· D) Absorption Costing
Answer:
34. Which of the following is a product cost under absorption costing but not under variable costing?
· A) Direct materials
· B) Direct labor
· C) Variable manufacturing overhead
· D) Fixed manufacturing overhead
Answer.
35. The cost of production plus opening stock of finished goods minus closing stock of finished goods is equal to:
· A) Cost of goods sold
· B) Prime cost
· C) Cost of goods manufactured
· D) Total manufacturing cost
Answer: A. This entity.
🧮 Activity-Based Costing (ABC) (Q36–Q45)
36. Under activity-based costing, which activity is considered a 'Product level activity'?
· A) Use of indirect materials
· B) Inspection of products
· C) Keeping technical drawings of products
· D) Production plant security
Answer:
37. Activity-based costing can improve costing accuracy for:
· A) Manufacturing companies only
· B) Service companies only
· C) Any company in any industry
· D) Entities with a single product only
Answer:
38. If a firm uses activity-based costing to allocate costs, it does all of the following except:
· A) Combine homogenous costs in appropriate pools
· B) Select appropriate cost drivers
· C) Use a single plant-wide overhead rate based on direct labor hours
· D) Assign costs to products based on their consumption of activities
Answer:
39. Which of the following statements about activity-based costing is correct?
· A) ABC uses a number of activity cost pools, each allocated on the basis of direct labor-hours.
· B) Activity rates in ABC are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.
· C) ABC is always simpler and cheaper to implement than traditional costing.
· D) ABC is only suitable for service organizations.
Answer:
40. The item for which measurement of cost is required under ABC is termed as:
· A) Cost driver
· B) Cost object
· C) Activity pool
· D) Resource cost
Answer: .
41. In ABC, costs that are caused by a group of things being made or processed at a single time are referred to as:
· A) Unit-level activities
· B) Batch-level activities
· C) Product-sustaining activities
· D) Facility-level activities
Answer:
42. A key indicator that a company would benefit from switching to ABC is:
· A) The company produces a single, homogeneous product.
· B) Overhead costs are a small proportion of total product cost.
· C) The company produces diverse products that consume overhead resources differently.
· D) Direct labor is the dominant cost driver.
Answer:
43. Under ABC, the accumulated costs for each activity are called:
· A) Cost objects
· B) Cost pools
· C) Cost drivers
· D) Cost rates
Answer:
44. Which of the following is a facility-level activity in ABC?
· A) Machine setups
· B) Product design
· C) Plant security
· D) Inspecting incoming materials
Answer:
45. The primary benefit of using ABC is:
· A) It always reduces total overhead costs.
· B) It provides more accurate product cost information for decision-making.
· C) It eliminates the need for any allocation of costs.
· D) It simplifies the costing process for all organizations.
Answer:.
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🏭 Job Order and Process Costing (Q46–Q55)
46. Job costing is used in:
· A) Furniture making
· B) Repair shops
· C) Printing press
· D) All of the above
Answer:.
47. In a job cost system, costs are accumulated:
· A) On a monthly basis
· B) By specific job
· C) By department or process
· D) By kind of material used
Answer:
48. The most suitable cost system where the products differ in type of material and work performed is:
· A) Operating Costing
· B) Job costing
· C) Process costing
· D) All of these.
49. Job Costing is:
· A) Suitable where similar products are produced on a mass scale
· B) A method of costing used for non-standard and non-repetitive products
· C) A technique of costing
· D) Applicable to all industries regardless of the products or services provided
Answer:
50. Batch costing is a type of:
· A) Direct costing
· B) Process costing
· C) Job costing
· D) Differential costing
Answer: .
51. Batch Costing is similar to job costing except with the difference that:
· A) Process becomes a cost unit
· B) Job becomes a cost unit
· C) Batch becomes the cost unit instead of a job
· D) None of the
52. Which of the following documents are used in job costing to record the issue of direct materials to a job?
· A) Purchase order
· B) Purchase requisition
· C) Goods received note
· D) Material requisition
Answer:
53. Which of the following statements is true?
· A) Batch costing is a variant of job costing.
· B) Job cost sheet may be used for estimating profit of jobs.
· C) Job costing cannot be used in conjunction with marginal costing.
· D) In cost plus contracts, the contractor runs a risk of incurring a loss.
Answer:
54. Equivalent production of 1,000 units, 60% complete in all respects, is: not ask in exam
· A) 1000 units
· B) 1600 units
· C) 600 units
· D) 1060 units
Answer:
55. Operating costing is applicable to:
· A) Hospitals
· B) Cinemas
· C) Transport undertaking
· D) All of the above
Answer:
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⚙️ JIT, Kanban, MRP, MRP II, Kaizen, TQM (Q56–Q68)
56. Just-in-time (JIT) is a philosophy that emphasizes:
· A) Holding large amounts of inventory
· B) Reducing waste and improving quality
· C) Increasing lead time
· D) Enhancing marketing efforts
57. A key to just-in-time production is:
· A) To rely very heavily upon purchased items rather than in-house production.
· B) The elimination of all or most product options.
· C) Production in large lot sizes.
· D) The elimination of all inventories.
Answer:
58. Kanban is associated with:
· A) EOQ
· B) JIT
· C) Capacity planning
· D) Product design
Answer:
59. When using kanbans:
· A) Kanban cards provide direct control on the amount of work-in-process between cells.
· B) In an MRP system, kanban can be thought of as a "build" authorization.
· C) If producer and user are not in visual contact, a light or empty spot on the floor should be used as a signal.
· D) Each pull station can require only one resupply component.
Answer:
60. MRP stands for:
· A) Material requirement planning
· B) Material reordering planning
· C) Material requisition procedure
· D) Material recording procedure
Answer
61. Which of the following best describes MRP II?
· A) It is limited to material planning.
· B) It adds capacity planning, scheduling, job costing, and financial integration to MRP.
· C) It is a pull system based on kanban.
· D) It is a quality management system.
Answer:
62. TQM stands for:
· A) Total Quality Manufacturing
· B) Total Quality Measurement
· C) Total Quality Management
· D) None of the above
Answer
63. The concept of Kaizen in TQM explains:
· A) Gradual and continuous improvement
· B) Zero defect implementation
· C) 100% inspection
· D) All of the above
Answer:
64. Total Quality Management (TQM) focuses on:
· A) Continuous improvement
· B) Reducing production costs
· C) Increasing the number of products
· D) Expanding market share
Answer:
65. Which of the following is a principle of lean manufacturing?
· A) Maximizing inventory levels
· B) Reducing wastes
· C) Increasing lead times
· D) Focusing on mass production
Answer:
66. In operations management, the term 'lead time' refers to:
· A) Total time taken to complete a production process
· B) The time between the initiation and completion of a production process
· C) Time taken to market a product
· D) Time taken to recruit new employees
Answer
67. Most widely used pull inventory model:
· A) MRP I and MRP II
· B) DRP and EOQ
· C) JIT and KANBAN
· D) None of the above
Answer:
68. Smoothing of production as done in JIT avoids:
· A) Inventories
· B) Flexibility
· C) Quality
· D) Efficiency
Answer:
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📊 Budgetary Control (Q69–Q76)
69. When properly developed and administered, budgets provide the following advantages to the organization EXCEPT to:
· A) Provide a structure for measuring performance.
· B) Motivate managers and other employees.
· C) Ensure that the organization makes a profit.
· D) Promote the efficient allocation of resources.
Answer:
70. A flexible budget:
· A) Considers only variable costs.
· B) Considers all costs.
· C) Adjusts for changes in activity level.
· D) Is static and cannot be changed.
Answer:
71. Zero-based budgeting requires each cost element:
· A) To be set at zero.
· B) To be specifically justified as if the activities were being undertaken for the first time.
· C) To be out-sourced to an external supplier.
· D) To be based on the previous year's budget.
Answer:
72. Which of the following steps are required for Budgetary Control?
· A) Organisation for Budgeting; Budget Manual; Responsibility for Budgeting; and Budget Standard
· B) Organisation for Budgeting; Budget Manual; Responsibility for Budgeting; and Budget Procedure
· C) Objective for Budgeting; Budget Manual; Responsibility for Budgeting; and Budget Standard
· D) Organisation for Budgeting; Budget Objective; Responsibility for Budgeting; and Budget Standard
Answer:
73. A factor which will limit the activities of an undertaking and which is taken into account in preparing budgets is termed as:
· A) Limiting factor
· B) Governing factor
· C) Key factor
· D) All the above
Answer:
74. When demand forecasting is difficult, the budget which is prepared is:
· A) Sales Budget
· B) Production Budget
· C) Financial Budget
· D) Flexible Budget
Answer:
75. A method of budgeting whereby all activities are re-evaluated each time a budget is set is:
· A) Master Budget
· B) Zero-Based Budgeting
· C) Performance Budgeting
· D) Flexible Budget
Answer:
76. Which of the following is a key benefit of using a flexible budget rather than a static budget?
· A) It simplifies the budgeting process by using fixed inputs.
· B) It provides a detailed analysis of variances based on actual activity levels.
· C) It eliminates the need for variance analysis.
· D) It is easier to prepare than a static budget.
Answer:
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📈 Variance Analysis (Q77–Q100)
77. In cost accounting, the purpose of variance analysis is to:
· A) Understand reasons for variances.
· B) Take remedial measures.
· C) Improve future performance.
· D) All of the above.
Answer:
78. A company has the following standards: 5 kg of material at $10/kg. Actual usage was 6 kg at $9/kg. What is the Material Price Variance?
· A) $6 Favorable
· B) $6 Unfavorable
· C) $10 Favorable
· D) $10 Unfavorable
**Answer:
79. If the standard labor time for 100 units is 200 hours and the actual hours taken are 220 hours at a standard wage rate of $50 per hour, what is the labor efficiency variance?
· A) $1,000 Favorable
· B) $1,000 Adverse
· C) $500 Adverse
· D) $500 Favorable
**Answer
80. A product's standard cost includes 3 hours of labor at $40 per hour. Actual labor was 4 hours at $38 per hour. What is the labor rate variance?
· A) $8 Favorable
· B) $8 Unfavorable
· C) $38 Favorable
· D) $38 Unfavorable
**Answer
81. Standard cost of variable overhead is $5 per hour. Standard hours allowed for actual production are 1,000 hours, actual hours worked are 1,100 hours, and actual overhead is $5,600. Calculate variable overhead spending variance.
· A) $100 Favorable
· B) $100 Adverse
· C) $500 Adverse
· D) $500 Favorable
**Answer:
82. A company produces 500 units. The standard material per unit is 2 kg at $4/kg. Actual material used is 1,100 kg at $3.8/kg. Calculate material usage variance.
· A) $400 Favorable
· B) $400 Adverse
· C) $200 Adverse
· D) $200 Favorable
**Answer:
83. A company's fixed overhead absorption rate is $10 per hour. Standard hours allowed for actual production are 500 hours. Actual fixed overhead incurred was $5,200. Calculate fixed overhead spending variance.
· A) $200 Adverse
· B) $200 Favorable
· C) $2,000 Adverse
· D) $2,000 Favorable
**Answer
84. Standard variable overhead rate is $4 per hour. Standard hours allowed are 500 hours. Actual hours worked are 550 hours and actual variable overhead is $2,300. Calculate variable overhead efficiency variance.
· A) $200 Adverse
· B) $200 Favorable
· C) $100 Adverse
· D) $100 Favorable.
85. Which variance arises due to the difference between actual price and standard price of materials?
· A) Material Usage Variance
· B) Material Price Variance
· C) Material Cost Variance
· D) Material Mix Variance
Answer
86. Labour efficiency variance indicates:
· A) The difference between actual rate and standard rate
· B) The difference between actual hours and standard hours for actual production
· C) The difference between actual cost and standard cost
· D) The difference between budgeted and actual labor cost
Answer:
87. Which of the following is a favorable variance?
· A) Actual cost greater than standard cost
· B) Actual cost less than standard cost
· C) Actual revenue less than budgeted revenue
· D) Actual profit less than budgeted profit
Answer:
88. Overhead variances are classified into:
· A) Fixed and Variable overhead variances
· B) Price and Efficiency variances
· C) Spending and Volume variances
· D) All of the above
Answer:
89. What type of standard assumes no inefficiencies and perfect conditions?
· A) Attainable standard
· B) Ideal standard
· C) Basic standard
· D) Current standard
Answer
90. How often are standards usually revised?
· A) Never
· B) Every month
· C) At regular intervals based on changing conditions
· D) Only when a new product is introduced
Answer:
91. What is the effect of an adverse material usage variance?
· A) Increased material cost
· B) Decreased material cost
· C) No effect on material cost
· D) Increased labor cost
Ans
92. A company budgets sales at 10,000 units at $20 per unit. Variable cost is $12/unit and fixed costs are $40,000. What is the budgeted profit?
· A) $40,000
· B) $80,000
· C) $120,000
· D) $200,000
**Answer:
93. Which variance is of least significance from a behavioral control perspective?
· A) Unfavorable materials price variance
· B) Favorable labor efficiency variance
· C) Unfavorable labor efficiency variance
· D) Favorable material usage variance
Answer:
94. A favorable variance occurs when:
· A) Actual revenue is less than budgeted
· B) Actual cost is greater than standard
· C) Actual cost is less than standard
· D) Actual profit is less than budgeted
Answer
95. Variance analysis involves breaking down and analyzing the total variance to:
· A) Increase total costs
· B) Explain the difference between actual and standard performance
· C) Eliminate the need for budgeting
· D) Reduce employee motivation
Answer
96. Which of the following may be the cause of a Material Price Variance?
· A) Change in supplier prices
· B) Change in production efficiency
· C) Change in labor rates
· D) Change in overhead spending
Answer:
97. [CMA Adapted] The fixed manufacturing overhead spending variance for December was:
· A) $450
· B) $100,000
· C) Only overhead cost variances are calculated for variable costs
· D) A 4-variance analysis can be conducted
Answer:.
98. Overhead cost variances are calculated for:
· A) Variable manufacturing overhead costs only
· B) Fixed manufacturing overhead costs only
· C) Both variable and fixed manufacturing overhead costs
· D) Neither variable nor fixed overhead costs
99. In responsibility accounting, controllable costs are:
· A) Costs over which a manager has direct influence
· B) Costs that cannot be influenced by any manager
· C) Always fixed costs
· D) Always variable costs
Answer:
100. Profit center managers are responsible for:
· A) Revenues only
· B) Costs only
· C) Both revenues and costs
· D) Neither revenues nor costs
Answer:
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