Section A….
📘 MCQs on Cost Accounting & Management Concepts
Prime Cost, Overheads & Job Order Costing
1. Prime cost includes:
A. Direct material + Direct labor
B. Direct material + Factory overhead
C. Direct labor + Factory overhead
D. Direct material + Indirect material
✅ Answer:
2. If factory overheads applied are ₹120,000 and actual overheads are ₹100,000, overheads are:
A. Underapplied ₹20,000
B. Overapplied ₹20,000
C. Balanced
D. Indirect
✅ Answer:
3. Job order costing is suitable for:
B. Oil refining
✅ Answer:
4. Cost of production = Prime cost +
A. Selling expenses
B. Administrative expenses
C. Factory overhead
D. Distribution expenses
✅ Answer:
5. Raw material consumed = Opening stock + Purchases – Closing stock
A. True
B. False
✅ Answer:
Conversion Cost, Gross Profit & Operating Income
6. Conversion cost =
A. Direct material + Direct labor
B. Direct labor + Factory overhead
C. Prime cost + Factory overhead
D. Selling + Admin expenses
✅ Answer:
7. Gross profit =
A. Sales – Cost of goods sold
B. Sales – Operating expenses
C. Contribution – Fixed cost
D. Operating profit – Interest
✅ Answer:
8. Operating income =
A. Gross profit – Operating expenses
B. Contribution – Variable cost
C. Fixed cost – Variable cost
D. Sales – Non-operating income
✅ Answer:
Absorption, Variable & Super-Variable Costing
9. Under absorption costing, fixed factory overheads are:
A. Period cost
B. Product cost
C. Excluded from cost
D. Expensed immediately
✅ Answer:
10. Under variable costing, fixed factory overheads are treated as:
A. Product cost
B. Period cost
C. Included in inventory
D. Deferred cost
✅ Answer:
11. Super-variable costing includes only:
A. Direct material cost
B. Direct material + Direct labor
C. All variable manufacturing costs
D. Direct material cost only
✅ Answer:
Inventory Valuation & Inflation
12. Under FIFO, during inflation, cost of goods sold is:
A. Higher
B. Lower
C. Same as LIFO
D. Equal to average cost
✅ Answer:
13. Inflation under FIFO results in:
A. Higher profit
B. Lower profit
C. No effect
D. Lower inventory
✅ Answer:
Abnormal Loss & Budgets
14. Abnormal loss is transferred to:
A. Costing profit & loss account
B. Overhead account
C. Production account
D. Normal loss account
✅ Answer:
15. Flexible budget changes with:
A. Change in sales mix
B. Change in activity level
C. Change in price level
D. None
✅ Answer:
16. Cash budget includes:
A. Depreciation
B. Credit purchases
C. Cash payments & receipts
D. Outstanding expenses
✅ Answer:
17. Purchase budget is prepared:
A. After production budget
B. Before sales budget
C. After cash budget
D. After master budget
✅ Answer:
ROI, RI, & Variance Analysis
18. ROI =
A. Net income / Sales
B. Net income / Average investment
C. Contribution / Sales
D. Profit / Capital employed
✅ Answer:
19. Residual income =
A. Operating income – (Capital × Required rate of return)
B. Operating income / Sales
C. Net income + Interest
D. Contribution – Fixed cost
✅ Answer:
20. Variable overhead efficiency variance is due to:
A. Change in labor rate
B. Change in labor hours efficiency
C. Change in fixed cost
D. Change in selling price
✅ Answer:
21. Fixed overhead volume variance =
A. (Budgeted – Actual units) × Standard fixed cost rate
B. Actual – Applied overhead
C. Budgeted – Actual fixed cost
D. None
✅ Answer:
22. Labor efficiency variance =
A. (Standard hrs – Actual hrs) × Std rate
B. (Actual hrs – Budgeted hrs) × Std rate
C. Actual hrs × Std rate
D. (Actual rate – Std rate) × Std hrs
✅ Answer:
23. Material efficiency variance =
A. (Std qty – Actual qty) × Std price
B. (Actual qty – Std qty) × Std price
C. (Std price – Actual price) × Std qty
D. None
✅ Answer:
Reasons for Variances
24. Material rate variance may arise due to:
A. Change in market price
B. Improper planning
C. Bulk discounts
D. All of the above
✅ Answer:
25. Labor efficiency variance may arise due to:
A. Poor supervision
B. Low morale
C. Inefficient scheduling
D. All of the above
✅ Answer:
Cost Objects, Pools, and Drivers
26. Cost object means:
A. Anything for which cost is measured
B. A cost account
C. A cost center
D. A pool of cost
✅ Answer:
27. Cost pool means:
A. Cost accumulated for similar activities
B. Individual expense
C. Department cost
D. Fixed cost
✅ Answer:
28. Cost driver means:
A. Factor causing cost
B. Direct labor hours
C. Material consumed
D. Overhead cost
✅ Answer:
Activity-Based Costing & Modern Systems
29. ABC assigns overheads based on:
A. Volume of production
B. Cost drivers
C. Labor hours
D. Machine hours
✅ Answer:
30. JIT focuses on:
A. Large inventory
B. Zero defects and waste
C. Higher lead times
D. Mass storage
✅ Answer:
31. MRP stands for:
A. Material Resource Planning
B. Material Requirement Planning
C. Manufacturing Resource Plan
D. Marginal Resource Plan
✅ Answer:
32. MPS stands for:
A. Master Production Schedule
B. Main Production Sheet
C. Manufacturing Process System
D. Material Planning Sheet
✅ Answer:
33. Kaizen means:
A. Continuous improvement
B. Zero inventory
C. Cost control
D. Process elimination
✅ Answer:
34. TQM stands for:
A. Total Quality Management
B. Total Quantity Management
C. Time Quality Management
D. Total Quick Management
✅ Answer:
35. Throughput costing treats only:
A. Direct material as variable
B. All factory cost as variable
C. Selling cost as variable
D. Overhead as fixed
✅ Answer:
Engineered & Discretionary Costs
36. Engineered cost:
A. Directly related to output
B. Based on management judgment
C. Not measurable
D. Fixed cost
✅ Answer:
37. Discretionary cost:
A. Incurred by managerial decision
B. Proportional to output
C. Related to sales
D. Indirect cost only
✅ Answer:
Opportunity, Relevant & Sunk Costs
38. Opportunity cost refers to:
A. Cost of next best alternative foregone
B. Sunk cost
C. Fixed cost
D. Avoidable cost
✅ Answer:
39. Relevant cost is:
A. Future & differential
B. Past & historical
C. Sunk cost
D. Fixed cost
✅ Answer:
40. Sunk cost is:
A. Past cost – not relevant
B. Future avoidable cost
C. Differential cost
D. Opportunity cost
✅ Answer:
41. Explicit cost means:
A. Cash outlay
B. Non-cash cost
C. Opportunity cost
D. Implicit cost
✅ Answer:
42. Implicit cost means:
A. Imputed cost – no cash outlay
B. Paid in cash
C. Fixed overhead
D. Sunk cost
✅ Answer:
Economies of Scale & Dysfunctional Behavior
43. Economies of scale arise when:
A. Average cost decreases with output
B. Fixed cost increases
C. Variable cost per unit rises
D. Efficiency declines
✅ Answer:
44. Dysfunctional behavior in performance evaluation means:
A. Manager acts against organization goals
B. Manager performs better
C. Manager follows policy strictly
D. None
✅ Answer:
Relevant Range & Overhead Allocation
45. Relevant range means:
A. Activity level where cost behavior is valid
B. Range of total cost
C. Sales mix range
D. Fixed cost per unit
✅ Answer:
46. Step-down method of overhead allocation:
A. Partially recognizes services between departments
B. Ignores all interdepartmental services
C. Fully recognizes reciprocal services
D. Allocates to direct labor only
✅ Answer:
47. Reciprocal method of overhead allocation:
A. Fully recognizes interdepartmental services
B. Ignores interdepartmental services
C. Uses simple averages
D. Applies only to factory overhead
✅ Answer:
Cost Control & Reduction
48. Cost control focuses on:
A. Maintaining costs within set limits
B. Eliminating costs completely
C. Strategic innovation
D. Increasing expenses
✅ Answer:
49. Cost reduction focuses on:
A. Permanent lowering of cost
B. Temporary saving
C. Variance control
D. Maintaining budget
✅ Answer:
Cost Tracing & Allocation
50. Cost tracing means:
A. Directly identifying cost with cost object
B. Distributing cost indirectly
C. Estimating overhead
D. Using averages
✅ Answer:
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Section B…
### Prime Costs, Overapplied/Underapplied Overheads, Job Order Costs
1. Prime cost includes:
A) Direct material only
B) Direct labor only
C) Direct material + direct labor + direct expenses
D) Overhead
**Answer:
2. Overapplied overhead occurs when:
A) Applied overhead < Actual overhead
B) Applied overhead = Actual overhead
C) Applied overhead > Actual overhead
D) Overhead is not applied
**Answer:
3. Underapplied overhead means:
A) No adjustment needed
B) Applied overhead > Actual overhead
C) Applied overhead < Actual overhead
D) Overhead does not vary
**Answer:
4. Job order costing is appropriate for:
A) Continuous production
B) Homogeneous products
C) Customized jobs
D) Mass production
**Answer:
5. Cost of production includes:
A) Prime cost only
B) Prime cost + Factory overhead
C) Factory overhead only
D) Administrative expenses
**Answer:
***
### Raw Material Consumed, Conversion Costs
6. Raw material consumed =
A) Opening stock + Purchases - Closing stock
B) Purchases - Closing stock
C) Opening stock - Closing stock
D) Purchases only
**Answer:
7. Conversion costs are:
A) Direct material + Direct labor
B) Direct labor + Manufacturing overhead
C) Manufacturing overhead + Administrative expenses
D) Direct labor only
**Answer:
***
### Gross Profit, Operating Expenses, Operating Income
8. Gross profit is:
A) Sales - Cost of goods sold
B) Sales - Operating expenses
C) Sales + Cost of goods sold
D) Operating income - Expenses
**Answer:
9. Operating expenses include:
A) Direct material costs
B) Factory overheads
C) Selling and administrative expenses
D) Cost of goods sold
**Answer:
10. Operating income equals:
A) Gross profit - Operating expenses
B) Sales - Operating expenses
C) Gross profit + Operating expenses
D) Sales + Operating expenses
**Answer:
***
### Income Statement (Absorption & Variable Costing), Super Variable Costing
11. Absorption costing includes:
A) Fixed and variable manufacturing costs in product cost
B) Only variable costs in product cost
C) Fixed costs as period costs
D) Only direct costs in product cost
**Answer:
12. Variable costing treats fixed manufacturing overhead as:
A) Product cost
B) Period cost
C) Overhead cost
D) Direct cost
**Answer:
13. Super variable costing treats all costs except:
A) Variable production cost
B) Fixed manufacturing overhead
C) Variable selling expenses
D) Fixed administrative expenses
**Answer:
***
### Inventory Valuation (FIFO), Effect of Inflation
14. In FIFO method, during inflation, inventory will be valued at:
A) Latest costs
B) Oldest costs
C) Average costs
D) Selling price
**Answer:
15. Inflation effects on valuation:
A) FIFO results in higher profit than LIFO
B) LIFO results in higher profit than FIFO
C) FIFO and LIFO give the same profit
D) Inflation does not affect inventory valuation
**Answer:
***
### Disposition of Abnormal Loss, Flexible Budget, Cash Budget, Purchase Budget
16. Abnormal loss is:
A) Included in cost of production
B) Charged to profit and loss account
C) Treated as normal loss
D) Ignored in cost statement
**Answer:
17. Flexible budget adjusts for changes in:
A) Fixed costs only
B) Activity levels
C) Selling price
D) Material costs only
**Answer:
18. Cash budget focuses on:
A) Long-term financing
B) Cash inflows and outflows only
C) Inventory planning
D) Fixed asset acquisition
**Answer:
19. Purchase budget plans:
A) Production schedule
B) Material and supplies procurement
C) Employee hiring
D) Sales revenues
**Answer:
***
### ROI, RI, Variances, Responsibility Centers
20. ROI is calculated as:
A) Operating income / Total assets
B) Net income / Equity
C) Sales / Total assets
D) Operating income / Sales
**Answer:
21. Residual Income is:
A) Net income minus minimum required return on investment
B) Sales minus cost of goods sold
C) Total assets minus liabilities
D) Operating income plus interest expense
**Answer:
22. Responsibility centers include:
A) Cost center, profit center, investment center
B) Sales office only
C) Production units only
D) Administrative division only
**Answer:
23. Variable overhead efficiency variance measures differences caused by:
A) Rate per hour
B) Quantity of hours worked
C) Both rate and hours
D) Fixed overhead
**Answer:
24. Fixed overhead volume variance arises from:
A) Spending differences
B) Activity differences
C) Efficiency differences
D) Price differences
**Answer:
25. Labour efficiency variance caused by:
A) Pay rate change
B) Input quantity changes
C) Hours worked differ from standard
D) Price rate change
**Answer:
***
### Material Efficiency & Rate Variances, Causes & Reasons
26. Material efficiency variance results from:
A) Usage of less or more material than standard
B) Material price changes
C) Purchase discounts
D) Stock obsolescence
**Answer:
27. Common causes of variable overhead variances include:
A) Specification changes, machine breakdowns
B) Wage changes
C) Fixed salary payment
D) Periodic audit findings
**Answer:
28. Labour efficiency variances can be caused by:
A) Worker skill level
B) Weather conditions
C) Managerial supervision
D) All of the above
**Answer:
29. Material rate variance is due to:
A) Price changes by supplier
B) Poor quality materials
C) Excess consumption
D) Foreign exchange rates
**Answer:
***
### Cost Pool, Cost Object, Cost Driver, Activity Based Costing (ABC)
30. Cost pool is:
A) A grouping of overhead costs
B) Direct material cost
C) Administrative expense
D) Revenue center
**Answer:
31. Cost object refers to:
A) Product or service tracked for costs
B) Manufacturer’s bank account
C) Employee department
D) Office supplies
**Answer:
32. Cost driver in ABC represents:
A) Activity that causes cost change
B) Overhead expense only
C) Labor cost
D) Fixed cost element
**Answer:
***
### JIT, MRP, MPS, KAIZEN, TQM, Throughput
33. JIT system aims to:
A) Minimize inventory levels
B) Increase batch sizes
C) Use large storage areas
D) Increase lead times
**Answer:
34. MRP stands for:
A) Material Requirements Planning
B) Manufacturing Resource Planning
C) Master Resource Planning
D) Market Resource Planning
**Answer:
35. MPS is:
A) Master Production Schedule
B) Minimum Production Standards
C) Material Purchase System
D) Management Planning System
**Answer:
36. KAIZEN refers to:
A) Continuous small improvements
B) Large scale restructuring
C) Cost cutting only
D) Quality assurance system
**Answer:
37. TQM stands for:
A) Total Quality Management
B) Timely Quantity Measurement
C) Technical Quality Mandate
D) Target Quantity Management
**Answer:
38. Throughput accounting focuses on:
A) Maximizing contribution per constraint unit
B) Minimizing fixed costs
C) Increasing overhead allocation
D) Reducing labor costs
**Answer:
***
### Engineered & Discretionary Costs, Opportunity, Relevant & Irrelevant Costs, Sunk Costs
39. Engineered costs:
A) Vary directly with output
B) Fixed overhead only
C) Administrative expenses
D) None of the above
**Answer:
40. Discretionary costs:
A) Management planned costs like advertising
B) Direct material costs
C) Variable manufacturing overhead
D) Labor wages
**Answer:
41. Opportunity cost is:
A) Cost of foregone alternative
B) Fixed cost
C) Sunk cost
D) Explicit cost
**Answer:
42. Relevant costs are:
A) Future costs which differ among alternatives
B) All past costs
C) Fixed salaries
D) Sunk costs
**Answer:
43. Irrelevant costs include:
A) Sunk costs
B) Direct costs
C) Variable costs
D) Opportunity costs
**Answer:
44. Sunk costs refer to:
A) Past costs that cannot be recovered
B) Future costs
C) Fixed costs that vary
D) Opportunity costs
**Answer:
***
### Explicit & Implicit Costs, Economies of Scale, Dysfunctional Environment, Relevant Range
45. Explicit costs are:
A) Out-of-pocket costs incurred by the firm
B) Imputed costs
C) Opportunity costs
D) Sunk costs
**Answer:
46. Implicit costs are:
A) Non-monetary opportunity costs
B) Monetary cash payments
C) Fixed overhead costs
D) Variable costs
**Answer:
47. Economies of scale result in:
A) Decreasing average cost as volume increases
B) Increasing average cost as volume increases
C) Constant average cost
D) No relationship with volume
**Answer:
48. A dysfunctional environment in an organization is characterized by:
A) Conflicts and poor communication
B) Smooth coordination
C) Efficient process flow
D) Clear responsibilities
**Answer:
49. Relevant range refers to:
A) The range of activity where fixed costs remain constant
B) The whole activity spectrum
C) Variable costs only
D) Maximum output possible
**Answer:
***
### Step Down & Reciprocal Methods, Apportionment & Reapportionment, Cost Control
50. The reciprocal method:
A) Fully recognizes mutual services between cost centers
B) Ignores service cost centers
C) Is simpler than step-down method
D) Does not allocate overheads
**Answer:
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Answers :
Section A….
📘 MCQs on Cost Accounting & Management Concepts
Prime Cost, Overheads & Job Order Costing
1. Prime cost includes:
A. Direct material + Direct labor
B. Direct material + Factory overhead
C. Direct labor + Factory overhead
D. Direct material + Indirect material
✅ Answer: A
💡 Prime cost = Direct Material + Direct Labor.
2. If factory overheads applied are ₹120,000 and actual overheads are ₹100,000, overheads are:
A. Underapplied ₹20,000
B. Overapplied ₹20,000
C. Balanced
D. Indirect
✅ Answer: B
💡 Applied > Actual → Overapplied.
3. Job order costing is suitable for:
A. Cement manufacturing
B. Oil refining
C. Ship building
D. Steel production
✅ Answer: C
💡 Each ship is a unique job.
4. Cost of production = Prime cost +
A. Selling expenses
B. Administrative expenses
C. Factory overhead
D. Distribution expenses
✅ Answer: C
5. Raw material consumed = Opening stock + Purchases – Closing stock
A. True
B. False
✅ Answer: A
Conversion Cost, Gross Profit & Operating Income
6. Conversion cost =
A. Direct material + Direct labor
B. Direct labor + Factory overhead
C. Prime cost + Factory overhead
D. Selling + Admin expenses
✅ Answer: B
7. Gross profit =
A. Sales – Cost of goods sold
B. Sales – Operating expenses
C. Contribution – Fixed cost
D. Operating profit – Interest
✅ Answer: A
8. Operating income =
A. Gross profit – Operating expenses
B. Contribution – Variable cost
C. Fixed cost – Variable cost
D. Sales – Non-operating income
✅ Answer: A
Absorption, Variable & Super-Variable Costing
9. Under absorption costing, fixed factory overheads are:
A. Period cost
B. Product cost
C. Excluded from cost
D. Expensed immediately
✅ Answer: B
10. Under variable costing, fixed factory overheads are treated as:
A. Product cost
B. Period cost
C. Included in inventory
D. Deferred cost
✅ Answer: B
11. Super-variable costing includes only:
A. Direct material cost
B. Direct material + Direct labor
C. All variable manufacturing costs
D. Direct material cost only
✅ Answer: A
💡 Super-variable (throughput) costing = only direct material as product cost.
Inventory Valuation & Inflation
12. Under FIFO, during inflation, cost of goods sold is:
A. Higher
B. Lower
C. Same as LIFO
D. Equal to average cost
✅ Answer: B
13. Inflation under FIFO results in:
A. Higher profit
B. Lower profit
C. No effect
D. Lower inventory
✅ Answer: A
Abnormal Loss & Budgets
14. Abnormal loss is transferred to:
A. Costing profit & loss account
B. Overhead account
C. Production account
D. Normal loss account
✅ Answer: A
15. Flexible budget changes with:
A. Change in sales mix
B. Change in activity level
C. Change in price level
D. None
✅ Answer: B
16. Cash budget includes:
A. Depreciation
B. Credit purchases
C. Cash payments & receipts
D. Outstanding expenses
✅ Answer: C
17. Purchase budget is prepared:
A. After production budget
B. Before sales budget
C. After cash budget
D. After master budget
✅ Answer: A
ROI, RI, & Variance Analysis
18. ROI =
A. Net income / Sales
B. Net income / Average investment
C. Contribution / Sales
D. Profit / Capital employed
✅ Answer: D
19. Residual income =
A. Operating income – (Capital × Required rate of return)
B. Operating income / Sales
C. Net income + Interest
D. Contribution – Fixed cost
✅ Answer: A
20. Variable overhead efficiency variance is due to:
A. Change in labor rate
B. Change in labor hours efficiency
C. Change in fixed cost
D. Change in selling price
✅ Answer: B
21. Fixed overhead volume variance =
A. (Budgeted – Actual units) × Standard fixed cost rate
B. Actual – Applied overhead
C. Budgeted – Actual fixed cost
D. None
✅ Answer: A
22. Labor efficiency variance =
A. (Standard hrs – Actual hrs) × Std rate
B. (Actual hrs – Budgeted hrs) × Std rate
C. Actual hrs × Std rate
D. (Actual rate – Std rate) × Std hrs
✅ Answer: A
23. Material efficiency variance =
A. (Std qty – Actual qty) × Std price
B. (Actual qty – Std qty) × Std price
C. (Std price – Actual price) × Std qty
D. None
✅ Answer: A
Reasons for Variances
24. Material rate variance may arise due to:
A. Change in market price
B. Improper planning
C. Bulk discounts
D. All of the above
✅ Answer: D
25. Labor efficiency variance may arise due to:
A. Poor supervision
B. Low morale
C. Inefficient scheduling
D. All of the above
✅ Answer: D
Cost Objects, Pools, and Drivers
26. Cost object means:
A. Anything for which cost is measured
B. A cost account
C. A cost center
D. A pool of cost
✅ Answer: A
27. Cost pool means:
A. Cost accumulated for similar activities
B. Individual expense
C. Department cost
D. Fixed cost
✅ Answer: A
28. Cost driver means:
A. Factor causing cost
B. Direct labor hours
C. Material consumed
D. Overhead cost
✅ Answer: A
Activity-Based Costing & Modern Systems
29. ABC assigns overheads based on:
A. Volume of production
B. Cost drivers
C. Labor hours
D. Machine hours
✅ Answer: B
30. JIT focuses on:
A. Large inventory
B. Zero defects and waste
C. Higher lead times
D. Mass storage
✅ Answer: B
31. MRP stands for:
A. Material Resource Planning
B. Material Requirement Planning
C. Manufacturing Resource Plan
D. Marginal Resource Plan
✅ Answer: B
32. MPS stands for:
A. Master Production Schedule
B. Main Production Sheet
C. Manufacturing Process System
D. Material Planning Sheet
✅ Answer: A
33. Kaizen means:
A. Continuous improvement
B. Zero inventory
C. Cost control
D. Process elimination
✅ Answer: A
34. TQM stands for:
A. Total Quality Management
B. Total Quantity Management
C. Time Quality Management
D. Total Quick Management
✅ Answer: A
35. Throughput costing treats only:
A. Direct material as variable
B. All factory cost as variable
C. Selling cost as variable
D. Overhead as fixed
✅ Answer: A
Engineered & Discretionary Costs
36. Engineered cost:
A. Directly related to output
B. Based on management judgment
C. Not measurable
D. Fixed cost
✅ Answer: A
37. Discretionary cost:
A. Incurred by managerial decision
B. Proportional to output
C. Related to sales
D. Indirect cost only
✅ Answer: A
Opportunity, Relevant & Sunk Costs
38. Opportunity cost refers to:
A. Cost of next best alternative foregone
B. Sunk cost
C. Fixed cost
D. Avoidable cost
✅ Answer: A
39. Relevant cost is:
A. Future & differential
B. Past & historical
C. Sunk cost
D. Fixed cost
✅ Answer: A
40. Sunk cost is:
A. Past cost – not relevant
B. Future avoidable cost
C. Differential cost
D. Opportunity cost
✅ Answer: A
41. Explicit cost means:
A. Cash outlay
B. Non-cash cost
C. Opportunity cost
D. Implicit cost
✅ Answer: A
42. Implicit cost means:
A. Imputed cost – no cash outlay
B. Paid in cash
C. Fixed overhead
D. Sunk cost
✅ Answer: A
Economies of Scale & Dysfunctional Behavior
43. Economies of scale arise when:
A. Average cost decreases with output
B. Fixed cost increases
C. Variable cost per unit rises
D. Efficiency declines
✅ Answer: A
44. Dysfunctional behavior in performance evaluation means:
A. Manager acts against organization goals
B. Manager performs better
C. Manager follows policy strictly
D. None
✅ Answer: A
Relevant Range & Overhead Allocation
45. Relevant range means:
A. Activity level where cost behavior is valid
B. Range of total cost
C. Sales mix range
D. Fixed cost per unit
✅ Answer: A
46. Step-down method of overhead allocation:
A. Partially recognizes services between departments
B. Ignores all interdepartmental services
C. Fully recognizes reciprocal services
D. Allocates to direct labor only
✅ Answer: A
47. Reciprocal method of overhead allocation:
A. Fully recognizes interdepartmental services
B. Ignores interdepartmental services
C. Uses simple averages
D. Applies only to factory overhead
✅ Answer: A
Cost Control & Reduction
48. Cost control focuses on:
A. Maintaining costs within set limits
B. Eliminating costs completely
C. Strategic innovation
D. Increasing expenses
✅ Answer: A
49. Cost reduction focuses on:
A. Permanent lowering of cost
B. Temporary saving
C. Variance control
D. Maintaining budget
✅ Answer: A
Cost Tracing & Allocation
50. Cost tracing means:
A. Directly identifying cost with cost object
B. Distributing cost indirectly
C. Estimating overhead
D. Using averages
✅ Answer: A
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Section B…
### Prime Costs, Overapplied/Underapplied Overheads, Job Order Costs
1. Prime cost includes:
A) Direct material only
B) Direct labor only
C) Direct material + direct labor + direct expenses
D) Overhead
**Answer: C**
2. Overapplied overhead occurs when:
A) Applied overhead < Actual overhead
B) Applied overhead = Actual overhead
C) Applied overhead > Actual overhead
D) Overhead is not applied
**Answer: C**
3. Underapplied overhead means:
A) No adjustment needed
B) Applied overhead > Actual overhead
C) Applied overhead < Actual overhead
D) Overhead does not vary
**Answer: C**
4. Job order costing is appropriate for:
A) Continuous production
B) Homogeneous products
C) Customized jobs
D) Mass production
**Answer: C**
5. Cost of production includes:
A) Prime cost only
B) Prime cost + Factory overhead
C) Factory overhead only
D) Administrative expenses
**Answer: B**
***
### Raw Material Consumed, Conversion Costs
6. Raw material consumed =
A) Opening stock + Purchases - Closing stock
B) Purchases - Closing stock
C) Opening stock - Closing stock
D) Purchases only
**Answer: A**
7. Conversion costs are:
A) Direct material + Direct labor
B) Direct labor + Manufacturing overhead
C) Manufacturing overhead + Administrative expenses
D) Direct labor only
**Answer: B**
***
### Gross Profit, Operating Expenses, Operating Income
8. Gross profit is:
A) Sales - Cost of goods sold
B) Sales - Operating expenses
C) Sales + Cost of goods sold
D) Operating income - Expenses
**Answer: A**
9. Operating expenses include:
A) Direct material costs
B) Factory overheads
C) Selling and administrative expenses
D) Cost of goods sold
**Answer: C**
10. Operating income equals:
A) Gross profit - Operating expenses
B) Sales - Operating expenses
C) Gross profit + Operating expenses
D) Sales + Operating expenses
**Answer: A**
***
### Income Statement (Absorption & Variable Costing), Super Variable Costing
11. Absorption costing includes:
A) Fixed and variable manufacturing costs in product cost
B) Only variable costs in product cost
C) Fixed costs as period costs
D) Only direct costs in product cost
**Answer: A**
12. Variable costing treats fixed manufacturing overhead as:
A) Product cost
B) Period cost
C) Overhead cost
D) Direct cost
**Answer: B**
13. Super variable costing treats all costs except:
A) Variable production cost
B) Fixed manufacturing overhead
C) Variable selling expenses
D) Fixed administrative expenses
**Answer: A**
***
### Inventory Valuation (FIFO), Effect of Inflation
14. In FIFO method, during inflation, inventory will be valued at:
A) Latest costs
B) Oldest costs
C) Average costs
D) Selling price
**Answer: B**
15. Inflation effects on valuation:
A) FIFO results in higher profit than LIFO
B) LIFO results in higher profit than FIFO
C) FIFO and LIFO give the same profit
D) Inflation does not affect inventory valuation
**Answer: A**
***
### Disposition of Abnormal Loss, Flexible Budget, Cash Budget, Purchase Budget
16. Abnormal loss is:
A) Included in cost of production
B) Charged to profit and loss account
C) Treated as normal loss
D) Ignored in cost statement
**Answer: B**
17. Flexible budget adjusts for changes in:
A) Fixed costs only
B) Activity levels
C) Selling price
D) Material costs only
**Answer: B**
18. Cash budget focuses on:
A) Long-term financing
B) Cash inflows and outflows only
C) Inventory planning
D) Fixed asset acquisition
**Answer: B**
19. Purchase budget plans:
A) Production schedule
B) Material and supplies procurement
C) Employee hiring
D) Sales revenues
**Answer: B**
***
### ROI, RI, Variances, Responsibility Centers
20. ROI is calculated as:
A) Operating income / Total assets
B) Net income / Equity
C) Sales / Total assets
D) Operating income / Sales
**Answer: A**
21. Residual Income is:
A) Net income minus minimum required return on investment
B) Sales minus cost of goods sold
C) Total assets minus liabilities
D) Operating income plus interest expense
**Answer: A**
22. Responsibility centers include:
A) Cost center, profit center, investment center
B) Sales office only
C) Production units only
D) Administrative division only
**Answer: A**
23. Variable overhead efficiency variance measures differences caused by:
A) Rate per hour
B) Quantity of hours worked
C) Both rate and hours
D) Fixed overhead
**Answer: B**
24. Fixed overhead volume variance arises from:
A) Spending differences
B) Activity differences
C) Efficiency differences
D) Price differences
**Answer: B**
25. Labour efficiency variance caused by:
A) Pay rate change
B) Input quantity changes
C) Hours worked differ from standard
D) Price rate change
**Answer: C**
***
### Material Efficiency & Rate Variances, Causes & Reasons
26. Material efficiency variance results from:
A) Usage of less or more material than standard
B) Material price changes
C) Purchase discounts
D) Stock obsolescence
**Answer: A**
27. Common causes of variable overhead variances include:
A) Specification changes, machine breakdowns
B) Wage changes
C) Fixed salary payment
D) Periodic audit findings
**Answer: A**
28. Labour efficiency variances can be caused by:
A) Worker skill level
B) Weather conditions
C) Managerial supervision
D) All of the above
**Answer: D**
29. Material rate variance is due to:
A) Price changes by supplier
B) Poor quality materials
C) Excess consumption
D) Foreign exchange rates
**Answer: A**
***
### Cost Pool, Cost Object, Cost Driver, Activity Based Costing (ABC)
30. Cost pool is:
A) A grouping of overhead costs
B) Direct material cost
C) Administrative expense
D) Revenue center
**Answer: A**
31. Cost object refers to:
A) Product or service tracked for costs
B) Manufacturer’s bank account
C) Employee department
D) Office supplies
**Answer: A**
32. Cost driver in ABC represents:
A) Activity that causes cost change
B) Overhead expense only
C) Labor cost
D) Fixed cost element
**Answer: A**
***
### JIT, MRP, MPS, KAIZEN, TQM, Throughput
33. JIT system aims to:
A) Minimize inventory levels
B) Increase batch sizes
C) Use large storage areas
D) Increase lead times
**Answer: A**
34. MRP stands for:
A) Material Requirements Planning
B) Manufacturing Resource Planning
C) Master Resource Planning
D) Market Resource Planning
**Answer: A**
35. MPS is:
A) Master Production Schedule
B) Minimum Production Standards
C) Material Purchase System
D) Management Planning System
**Answer: A**
36. KAIZEN refers to:
A) Continuous small improvements
B) Large scale restructuring
C) Cost cutting only
D) Quality assurance system
**Answer: A**
37. TQM stands for:
A) Total Quality Management
B) Timely Quantity Measurement
C) Technical Quality Mandate
D) Target Quantity Management
**Answer: A**
38. Throughput accounting focuses on:
A) Maximizing contribution per constraint unit
B) Minimizing fixed costs
C) Increasing overhead allocation
D) Reducing labor costs
**Answer: A**
***
### Engineered & Discretionary Costs, Opportunity, Relevant & Irrelevant Costs, Sunk Costs
39. Engineered costs:
A) Vary directly with output
B) Fixed overhead only
C) Administrative expenses
D) None of the above
**Answer: A**
40. Discretionary costs:
A) Management planned costs like advertising
B) Direct material costs
C) Variable manufacturing overhead
D) Labor wages
**Answer: A**
41. Opportunity cost is:
A) Cost of foregone alternative
B) Fixed cost
C) Sunk cost
D) Explicit cost
**Answer: A**
42. Relevant costs are:
A) Future costs which differ among alternatives
B) All past costs
C) Fixed salaries
D) Sunk costs
**Answer: A**
43. Irrelevant costs include:
A) Sunk costs
B) Direct costs
C) Variable costs
D) Opportunity costs
**Answer: A**
44. Sunk costs refer to:
A) Past costs that cannot be recovered
B) Future costs
C) Fixed costs that vary
D) Opportunity costs
**Answer: A**
***
### Explicit & Implicit Costs, Economies of Scale, Dysfunctional Environment, Relevant Range
45. Explicit costs are:
A) Out-of-pocket costs incurred by the firm
B) Imputed costs
C) Opportunity costs
D) Sunk costs
**Answer: A**
46. Implicit costs are:
A) Non-monetary opportunity costs
B) Monetary cash payments
C) Fixed overhead costs
D) Variable costs
**Answer: A**
47. Economies of scale result in:
A) Decreasing average cost as volume increases
B) Increasing average cost as volume increases
C) Constant average cost
D) No relationship with volume
**Answer: A**
48. A dysfunctional environment in an organization is characterized by:
A) Conflicts and poor communication
B) Smooth coordination
C) Efficient process flow
D) Clear responsibilities
**Answer: A**
49. Relevant range refers to:
A) The range of activity where fixed costs remain constant
B) The whole activity spectrum
C) Variable costs only
D) Maximum output possible
**Answer: A**
***
### Step Down & Reciprocal Methods, Apportionment & Reapportionment, Cost Control
50. The reciprocal method:
A) Fully recognizes mutual services between cost centers
B) Ignores service cost centers
C) Is simpler than step-down method
D) Does not allocate overheads
**Answer: A**
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