SCENARIO-BASED ILLUSTRATIONS & EXAM-STYLE QUESTIONS on Job Order Costing (JOC) and Activity-Based Costing (ABC) aligned with US CMA Part 1 and ACCA Foundations (MA/FMA).
Each scenario mirrors how these topics are tested—context, data, decision, and interpretation.
🔹 PART A: JOB ORDER COSTING – SCENARIO-BASED ILLUSTRATIONS
Scenario 1: Custom Manufacturing (CMA-Style)
Facts
Apex Furnitures manufactures customized office desks. During March:
- Direct materials issued to Job A101: ₹48,000
- Direct labor for Job A101: 1,200 hours @ ₹200/hour
- Factory overhead is applied at 150% of direct labor cost
Required
- Compute total manufacturing cost of Job A101
- Compute cost per unit if 20 desks were produced
Solution
- Direct labor cost =
- Factory overhead =
Total Job Cost
=
Cost per unit
=
👉 Exam Focus: Predetermined OH rate, cost sheet logic
Scenario 2: Over- or Under-Applied Overhead (CMA Favorite)
Facts
Predetermined OH rate = ₹120 per DLH
Actual DLH = 8,000
Actual OH incurred = ₹9,20,000
Required
- Calculate applied overhead
- Determine under/over-applied overhead
Solution
Applied OH =
Actual OH =
👉 Over-applied OH =
Exam Interpretation
- Over-applied → close to COGS or prorate
Scenario 3: Service Industry (ACCA-Style Twist)
Facts
A law firm uses job costing for each client.
- Lawyer hours: 120 @ ₹1,500/hour
- Support staff cost allocated at 40% of lawyer cost
Required
Compute total job cost.
Solution
Lawyer cost =
Support cost =
Total Job Cost =
👉 Exam Insight: Job costing applies to services also
🔹 PART B: ACTIVITY-BASED COSTING (ABC) – SCENARIO ILLUSTRATIONS
Scenario 4: Traditional vs ABC (VERY IMPORTANT – CMA)
Facts
Omega Ltd produces two products:
| Particulars | Product X | Product Y |
|---|---|---|
| Units | 10,000 | 2,000 |
| Machine hours/unit | 2 | 8 |
Total overhead = ₹12,00,000
Traditional system uses machine hours
Step 1: Traditional Costing
Total MH
OH rate = ******** ÷ *****=***per MH
- X OH/unit =
- Y OH/unit =
👉 Distortion likely → move to ABC
Scenario 5: ABC Cost Allocation (CMA Core)
Activities & Cost Pools
| Activity | Cost (₹) | Cost Driver | Total Driver Units |
|---|---|---|---|
| Setups | 4,00,000 | No. of setups | 200 |
| Machining | 6,00,000 | Machine hours | 30,000 |
| Inspections | 2,00,000 | Inspections | 400 |
Usage by Product A
- Setups: 50
- Machine hours: 5,000
- Inspections: 100
Required
Compute overhead assigned to Product A.
Solution
1️⃣ Setup rate = ******per setup
→ 50 × ***** = *******
2️⃣ Machining rate = ******per MH
→ 5,000 × **** = ******
3️⃣ Inspection rate = **** per inspection
→ 100 × *** =******
Total ABC Overhead =*******
Scenario 6: Decision-Making (CMA Exam Angle)
Question
After implementing ABC, Product B shows higher cost than selling price.
Required
Which is the BEST management action?
A. Eliminate product immediately
B. Increase selling price
C. Analyze cost drivers and process efficiency
D. Revert to traditional costing
✅ Correct Answer:
👉 ABC supports better decisions, not automatic elimination
🔹 PART C: JOB COSTING vs ABC – INTEGRATED SCENARIO
Scenario 7: When ABC is Better (ACCA + CMA)
Facts
A company produces low-volume customized products and high-volume standard products. Overheads are driven by setups and inspections.
Requirement
Which costing system provides more accurate product cost?
✅ Answer:***********
Reason
- *************************
- **************************
🔹 EXAM TRIGGERS TO REMEMBER 🧠
| Keyword in Question | System |
|---|---|
| Custom order | Job costing |
| Service contract | Job costing |
| Overhead distortion | ABC |
| Multiple activities | ABC |
| Setup / inspection | ABC |
| Predetermined OH | Job costing |
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Below are exam-oriented MCQs on Job Order Costing (JOC) and Activity-Based Costing (ABC) designed strictly in US CMA exam style (conceptual traps, calculations, and interpretation-based questions).
PART A: Job Order Costing – Challenging MCQs
1.
Under a job order costing system, which cost is NOT directly traceable to a specific job?
A. Direct materials
B. Direct labor
C. Factory supervisor salary
D. Special components purchased for a job
Answer:
2.
If manufacturing overhead is underapplied at year-end and immaterial, the best treatment is to:
A. Allocate to WIP, FG, and COGS
B. Close to Cost of Goods Sold
C. Adjust WIP only
D. Carry forward to next period
Answer:
3.
A company applies overhead based on direct labor hours. Budgeted overhead is ₹900,000 and budgeted DLH are 30,000 hours. Actual DLH worked were 32,000 hours. Overhead applied equals:
A. ₹900,000
B. ₹960,000
C. ₹1,020,000
D. ₹840,000
Calculation:
Predetermined OH rate = *****/****= **per DLH
Applied OH = 32,000 × **= *******
Answer:
4.
Which journal entry records direct labor cost in job order costing?
A. WIP Dr / Wages Payable Cr
B. MOH Dr / Wages Payable Cr
C. COGS Dr / Wages Payable Cr
D. FG Dr / Wages Payable Cr
Answer:
5.
Which situation would most likely cause overapplied overhead?
A. Actual overhead > applied overhead
B. Actual activity > estimated activity
C. Actual overhead < applied overhead
D. Underestimated DLH
Answer:
6.
In job order costing, scrap from a specific job should be:
A. Charged to MOH
B. Written off to COGS
C. Credited to the job cost
D. Treated as period expense
Answer:
7.
Which account is debited when indirect materials are issued?
A. Work in Process
B. Manufacturing Overhead
C. Cost of Goods Sold
D. Finished Goods
Answer:
8.
Which statement is TRUE about job order costing?
A. Costs are accumulated by department
B. Costs are averaged over units
C. Each job has a separate cost sheet
D. Suitable only for homogeneous products
Answer:
PART B: Activity-Based Costing – Challenging MCQs
9.
The primary purpose of ABC is to:
A. Reduce product costs
B. Allocate costs based on volume
C. Improve cost accuracy by using multiple drivers
D. Eliminate fixed costs
Answer:
10.
Which of the following is NOT a level of activity in ABC?
A. Unit-level
B. Batch-level
C. Product-level
D. Profit-level
Answer:
11.
Which cost driver is most appropriate for machine setup costs?
A. Machine hours
B. Number of setups
C. Units produced
D. Direct labor hours
Answer:
12.
ABC differs from traditional costing because ABC:
A. Uses a single overhead rate
B. Allocates overhead based on activity consumption
C. Ignores non-manufacturing costs
D. Allocates only variable costs
Answer:
13.
Which cost is least likely to be product-level?
A. Product design
B. Engineering changes
C. Quality inspection per batch
D. Advertising a product line
Answer:
14.
A product consumes more setup hours but fewer machine hours. Compared to traditional costing, ABC will most likely:
A. Reduce product cost
B. Increase product cost
C. Have no effect
D. Eliminate overhead
Answer:
15.
Which cost will NOT change under ABC?
A. Total manufacturing overhead
B. Cost assigned to each product
C. Overhead allocation accuracy
D. Cost distortion
Answer:
16.
Which is a facility-level cost?
A. Machine setups
B. Product testing
C. Plant security
D. Material handling
Answer:
17.
ABC is most beneficial when:
A. Products are homogeneous
B. Overhead is insignificant
C. Overhead is high and products are diverse
D. Labor is the main cost
Answer:
18.
Which statement is TRUE about ABC in CMA exams?
A. ABC always lowers product cost
B. ABC replaces GAAP costing
C. ABC improves decision-making
D. ABC eliminates fixed costs
Answer:
PART C: CMA-Style Scenario Based MCQs
19.
A low-volume, complex product is undercosted under traditional costing. Implementing ABC will most likely:
A. Reduce its cost
B. Increase its cost
C. No impact
D. Eliminate overhead
Answer:
20.
Which costing system is preferred for customized products?
A. Process costing
B. ABC
C. Job order costing
D. Standard costing
Answer:
21.
Which system provides better cost control for overhead?
A. Job order costing
B. Process costing
C. ABC
D. Absorption costing
Answer:
22.
If batch-level costs are allocated using unit-level drivers, the result will be:
A. Accurate costing
B. Overcosting high-volume products
C. Undercosting low-volume products
D. Both B and C
Answer:
Exam Tip – US CMA Perspective
- Job Order Costing → journal entries + OH application traps
- ABC → cost hierarchy + driver logic + distortion analysis
- CMA loves: “Which cost increases/decreases after ABC?”
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