COSTING CHAPTER 1

BASIC CONCEPTS
PART - A
1. The main purpose of Cost Accounting is –
a) To maximise profit.
b) To help in inventory valuation.
c) To enter into Price War with competitive Firms.
d) To provide information to management for decision-making.

2. _______is anything for which a separate measurement is required.

a) Cost Unit
b) Cost Object
c) Cost Driver
d) Cost Centre

3. Which of the following is true about Cost control:

a) It is a corrective function
b) It challenges the set standards
c) It ends when targets achieved
d) It is concerned with future

4. Cost Units used in Power Sector is:

a) Kilo Meter (K.M)
b) Kilo-Watt-Hour (kWh)
c) Number of Electric Points
d) Machine Hours

5. Processes Costing method is suitable for –

a) Transport Sector
b) Chemical Industries
c) Dam Construction
d) Furniture-making

6. Distinction between Direct Cost and Indirect Cost is an example of_classification

a) By Element
b) By Function
c) By Controllability
d) By Variability

7. The advantage of using IT in Cost Accounting does not include:

a) Single Point Data Entry
1
 b) Stock needs to be reconciled with Goods Received Note
c) Reduction in multiplicity of documents
d) Integration of various functions

8. A Taxi Provider charges minimum Rs.80 thereafter Rs.12 per kilometer of distance
travelled, The behaviour of Conveyance Cost is:
a) Fixed Cost
b) Semi-Variable Cost
c) Variable Cost
d) Administrative Cost.

9. A Ltd has three Production Departments, and each department has two machines, which
of the following cannot be treated as Cost Centre for cost allocation:
a) Machines under the Production Department
b) Production Departments
c) Both Production Department and Machines
d) A Ltd

10. Which of the following is an example of functional classification of cost?

a) Semi-Variable Costs
b) Fixed Cost
c) Administrative Overheads
d) Indirect Overheads.

11. Ticket Counter in a Railway Station is an example of

(a) Cost Centre
(b) Revenue Centre
(c) Profit Centre
(d) Investment Centre

12. Costs which are ascertained after they have been incurred are known as -
(a) Sunk Costs
(b) Imputed Costs
(c) Historical Costs
(d) Opportunity Costs

13. Generally, for the purpose of Cost Sheet preparation, costs are classified on the basis of
-
(a) Functions
(b) Variability
(c) Relevance
(d) Nature

14. Which of the following items is not excluded while preparing a Cost Sheet?
(a) Goodwill written off
(b) Provision for Taxation
(c) Property Tax on Factory Building
(d) Transfer to Reserves

15. What is Prime Cost?

2
 (a) Total Direct Costs only
(b) Total Indirect Costs only
(c) Total Non-Production Costs
(d) Total Production Costs

16. Which of the following does not form part of Prime Cost-
(a) Cost of Packing
(b) Cost of Transportation Paid to bring materials to Factory
(c) GST paid on Raw Materials (where Input Credit cannot be claimed)
(d) Overtime Premium paid to Workers.

17. A Ltd received an order, for which it purchased a special frame for manufacturing. This
is a part of:
(a) Direct Materials
(b) Direct Expenses
(c) Factory Overheads
(d) Administration Overheads.

18. Which of the following are Direct Expenses?

1) Cost of Special Designs, Drawings or Layouts,
2) Hire of Tools or Equipment for a particular job,
3) Salesman's Wages,
4) Rent, Rates and Insurance of a Factory.
a) (1)and (2)
b) (1)and (3)
c) (2)and (3)
d) (3)and (4)

19. Salary paid to Plant Supervisor is a part of -

a) Direct Expenses
b) Factory Overheads
c) Quality Control Cost
d) Administration Cost

20. Depreciation of Director's Laptop is treated as a part of:

a) Administration Overheads
b) Factory Overheads
c) IT Infrastructure Cost
d) Research & Development Cost

21. Manufacturing Company has set-up a lab for testing of products for compliance with
standards. Salary of this Lab Staff are part of:
a) Works Overheads
b) Quality Control Cost
c) Direct Expenses
d) Research & Development Cost

22. Audit Fees paid to External Statutory Auditors is part of-

3
 a) Administration Cost
b) Production Cost
c) Selling & Distribution Cost
d) Quality Control Cost

23. Salary paid to Factory Stores Staff is part of:

a) Factory Overheads
b) Production Cost
c) Direct Employee Cost
d) Direct Material Cost

24. Canteen Expenses for Factory Workers are part of -

a) Factory Overhead
b) Administration Cost
c) Marketing Cost
d) Direct Expenses

25. Company pays Royalty to State Government on the basis of production, it is treated as:
a) Direct Material Cost
b) Quality Control Cost
c) Direct Expenses
d) Administration Overhead

26. Which of the following is not an element of Works Overhead?

a) Store Keeper's Salary
b) Plant Manager's Salary
c) Sales Manager's Salary
d) Product Inspector's Salary

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(d) (b) (c) (b) (b) (a) (b) (b) (d) (c) (b) (c) (a) (c)

16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.
(a) (a) (b) (a) (b) (a) (b) (a) (a) (a) (c) (c)
PART - B

1. Ticket Counter in a Railway Sta on is an example of

(a) Cost Centre
(b) Revenue Centre
(c) Profit Centre
(d) Investment Centre

4
2. Costs which are ascertained a er they have been incurred are
known as-
(a) Sunk Costs
(b) Imputed Costs
(c) Historical Costs
(d) Opportunity Costs

3. Generally, for the purpose of Cost Sheet prepara on, costs are
classified on the basis of
(a) Func ons
(b) Variability
(c) Relevance
(d) Nature

4. Cost Units used in Power Sector is

(a) Kilo Meter (K.M)
(b) Kilo-Wa -Hour (kWh)
(c) Number of Electric Points
(d) Machine Hours

5. Processes Cos ng method is suitable for-

(a) Transport Sector
(b) Chemical Industries

5
 (c) Dam Construc on
(d) Furniture-making

6. Dis nc on between Direct Cost and Indirect Cost is an example of

classifica on
(a) By Element
(b) By Func on
(c) By Controllability
(d) By Variability

7. The advantage of using IT in Cost Accoun ng does not include:

(a) Single Point Data Entry
(b) Stock needs to be reconciled with Goods Received Note
(c) Reduc on in mul plicity of documents
(d) Integra on of various func ons

8. A Taxi Provider charges minimum Rs.80 therea er Rs.12 per

kilometer of distance travelled, the behaviour of Conveyance Cost is:
(a) Fixed Cost
(b) Semi-Variable Cost
(c) Variable Cost
(d) Administra ve Cost

6
9. A Ltd has three Produc on Departments, and each department has
two machines, which of the following cannot be treated as Cost
Centre for cost alloca on:
(a) Machines under the Produc on Department
(b) Produc on Departments
(c) Both Produc on Department and Machines
(d) A Ltd

10. Which of the following is an example of func onal classifica on

of cost?
(a) Semi-Variable Costs
(b) Fixed Cost
(c) Administra ve Overheads
(d) Indirect Overheads
11. The main purpose of Cost Accoun ng is
(a) to maximise profit.
(b) to help in inventory valua on.
(c) to enter into Price War with compe ve Firms.
(d) to provide informa on to management for decision-making.

12. Is anything for which a separate measurement is required.

(a) Cost Unit
(b) Cost Object
(c) Cost Driver
(d) Cost Centre
7
13. Which of the following is true about Cost control:
(a) It is a correc ve func on
(b) It challenges the set standards
(c) It ends when targets achieved
(d) It is concerned with future

14. Which of the following items is not excluded while preparing a

Cost Sheet?
(a) Goodwill wri en off
(b) Provision for Taxa on
(c) Property Tax on Factory Building
(d) Transfer to Reserves

15. What is Prime Cost?

(a) Total Direct Costs only
(b) Total Indirect Costs only
(c) Total Non-Produc on Costs
(d) Total Produc on Costs

16. Which of the following does not form part of Prime Cost
(a) Cost of Packing
(b) Cost of Transporta on Paid to bring materials to Factory

8
 (c) GST paid on Raw Materials (where Input Credit cannot be
claimed)
(d) Over me Premium paid to Workers

17. A Ltd received an order, for which it purchased a special frame for
manufacturing. This is a part of:
(a) Direct Materials
(b) Direct Expenses
(c) Factory Overheads
(d) Administra on Overheads

18. Which of the following are Direct Expenses?

(a) (1) and (2)
(b) (1) and (3)
(c) (2) and (3)
(d) (3) and (4)

19. Salary paid to Plant Supervisor is a part of

(a) Direct Expenses
(b) Factory Overheads
(c) Quality Control Cost
(d) Administra on Cost

20. Deprecia on of Director's Laptop is treated as a part of:

9
 (a) Administra on Overheads
(b) Factory Overheads
(c) IT Infrastructure Cost
(d) Research & Development Cost

21. A Manufacturing Company has set-up a lab for tes ng of products

for compliance with standards. Salary of this Lab Staff are part of:
(a) Works Overheads
(b) Quality Control Cost
(c) Direct Expenses
(d) Research & Development Cost

22. Audit Fees paid to External Statutory Auditors is part of-

(a) Administra on Cost
(b) Produc on Cost
(c) Selling & Distribu on Cost
(d) Quality Control Cost

23. Salary paid to Factory Stores Staff is part of:

(a) Factory Overheads
(b) Produc on Cost
(c) Direct Employee Cost
(d) Direct Material Cost

10
24. Canteen Expenses for Factory Workers are part of -
(a) Factory Overhead
(b) Administra on Cost
(c) Marke ng Cost
(d) Direct Expenses

25. A Company pays Royalty to State Government on the basis of

produc on, it is treated as
(a) Direct Material Cost
(b) Quality Control Cost
(c) Direct Expenses
(d) Administra on Overhead

26. Which of the following is not an element of Works Overhead?

(a) Store Keeper's Salary
(b) Plant Manager's Salary
(c) Sales Manager's Salary
(d) Product Inspector's Salary

1 2 3 4 5 6 7 8 9 10
B C A B B A B B D C
11 12 13 14 15 16 17 18 19 20
D B C C A A B A B A
21 22 23 24 25 26
B A A A C C

11
 COSTING CHAPTER 2
MATERIALS
PART- A

1. Direct Material can be classified as –

(a) Fixed Cost
(b) Variable Cost
(c) Abnormal Cost
(d) Regular Cost

2. Direct Material is a –
(a) Administra on Cost
(b) Selling and Distribu on Cost
(c) R&D Cost
(d) None of these

3. In most of the manufacturing industries, the most important element of

Cost is –
(a) Material
(b) Labour
(c) Overheads
(d) None

4. Which of the following is considered to be Normal Loss of Materials?

(a) Loss due to accidents
(b) Pilferage
(c) Loss due to breaking the bulk
(d) Loss due to careless handling of materials.

5. Which of the following is NOT considered as Normal Loss of Material?

(a) Loss due to evapora on due to prevalent weather condi ons
(b) Loss due to Pilferage
(c) Loss due to breaking the bulk

12
 (d) Loss due to transferring of liquid materials from container to
another

6. In which of following methods of Pricing, costs lag behind the current

economic values?
(a) Last-in-First Out Price
(b) First—in-First Out Price
(c) Replacement Price
(d) Weighted Average Price

7. At the Economic Ordering Quan ty level, the following is true on an

annual basis.
(a) Ordering Cost is minimum
(b) Carrying Cost is minimum
(c) Ordering Cost is equal to the Carrying Cost
(d) Purchase Price is minimum

8. Con nuous Stock Taking is a part of –

(a) Annual Stock Taking
(b) Perpetual Inventory
(c) ABC Analysis
(d) Bin Cards

9. In which of the following methods, issues of materials are priced at pre-

determined rate?
(a) Inflated Price Method
(b) Standard Price Method
(c) Replacement Price Method
(d) Market Price Method.

10.When Material Prices fluctuate widely, the method of pricing that gives
absurd results is –
(a) Simple Average Price
(b) Weighted Average Price
(c) Moving Average Price
(d) Inflated Price.

11.When prices fluctuate widely, the method that will smooth out the effect
of fluctua ons is –
(a) Simple Average
(b) Weighted Average

13
 (c) FIFO
(d) UFO

12.Under the FSN system of Inventory Control, Inventory is classified on the

basis of:
(a) Volume of material consump on
(b) Frequency of usage of items of inventory
(c) Cri cality of the item of inventory for produc on
(d) Value of items of inventory.

13.Form used for making a formal request to the Purchasing Department to

purchase materials is a –
(a) Material Transfer Note
(b) Purchase Requisi on Note
(c) Bill of Materials
(d) Material Requisi on Note.

14.Which of the following is evaluated in a Supplier Decision?

(a) Financial Background
(b) Quality of Materials
(c) Time for Delivery
(d) All of the above

15.Classifica on of Materials on the basis of their Importance in Value is

called –
(a) EOQ Analysis
(b) Stock Level Analysis
(c) ABC Analysis
(d) Value Analysis

16.Issue Request by Produc on Department to Stores Department is called

–
(a) Request for Proposal
(b) Stores Requisi on
(c) Purchase Requisi on
(d) Consump on Statement

17.For Return of Excess Materials from Produc on Department to Stores,

the document used Is...........
(a) Material Return Note
(b) Stores Debit Note

14
 (c) Shop Credit Note
(d) All the above (same)

18.Which of the following is NOT related to a Standard List of Materials and

Components?
(a) Consump on Statement
(b) Bill of Materials
(c) Material Specifica on List
(d) Material List

19.Formal Request to Purchase Department to procure materials from

Suppliers is called..
(a) Purchase Order
(b) Purchase Requisi on
(c) Purchase A/c
(d) Purchase Offer

20.Which of the following is NOT a Stores related Record?

(a) Bin Cards
(b) Stock Control Cards
(c) Job Cards
(d) Stores Ledger

21.Which of the following is NOT recorded on a Bin Card?

(a) Material Received from Supplier
(b) Material Issued to Produc on Depts
(c) Inter Department Transfers
(d) Loss of Materials

22. What is the formula for Re Order Level?

(a) Minimum Usage X Minimum Lead Time
(b) Minimum Usage X Maximum Lead Time
(c) Maximum Usage X Minimum Lead Time
(d) Maximum Usage X Maximum Lead Time

23. (ROL + ROQ (-) Minimum Usage X Minimum Lead Time) is the computa on
formula for....
(a) Maximum Level
(b) Minimum Level
(c) Average Level

15
(d) Danger Level

24. Inventory Turnover Ra o is expressed in -

(a) Rupees
(b) Percentage
(c) Times
(d) Any

25. Generally, a ......... T/o Ra o and ............ days Average Inventory Held is
preferable.
(a) High, Less
(b) Low, High
(c) Low, Low
(d) High, High

26. Pricing of Materials in the order in which they are purchased is

called..........Method
(a) Specific Iden fica on
(b) FIFO
(c) LIFO
(d) Orderly

27. Under UFO, the Closing Stock of Inventory will be valued generally
at........prices.
(a) Latest
(b) Earliest
(c) Average
(d) Inflated

28. Landed Cost of Materials does NOT include.........

(a) Cost of Containers
(b) Carriage Inwards
(c) Stock Insurance
(d) Unloading Charges

29. Cost of Abnormal Loss of Materials is............

(a) Debited to Cos ng P&L
(b) Credited to Cos ng P8iL
(c) Included in Landed Cost
(d) Included in OH

16
30. If RM Requirement is 18,250 units p.a.. Ordering Cost is Rs.50 and Carrying
Cost Rs.0.1 per
day, EOQ
(a) 4,272 units
(b) 224 units
(c) 8,162 units
(d) None of the above

31. Which of these is a treatment for Rec fica on Cost of Normal Defec ves?
(a) Charged to General OH
(b) Charged to Good Products
(c) Charged to Specific Department
(d) All of the above

32. Material Returned to Vendor is treated as................. In the Stores Ledger.

(a) Suspense
(b) Receipt
(c) Issue
(d) Stock

33. Which of these is NOT used in the context of Material Cost Control?
(a) Goods Received Note
(b) Bill of Materials
(c) Stores Requisi on
(d) Profit Reconcilia on Statement

34. The Produc on Planning Department prepares a List of Materials and

Stores required for the comple on of a specific job order. This List is known as
(a) Bin Card
(b) Bill of Material
(c) Material Requisi on Slip
(d) Produc on Planning Note

ANSWERS

1.2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(b) (d) (a) (c) (b) (b) (c) (b) (b) (a) (b) (b) (b) (d) (c)

16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
(b) (d) (a) (b) (c) (c) (d) (a) (c) (a) (b) (b) (c) (a) (b)

17
 PART- B

1. When prices fluctuate widely, the method that will smooth out the
effect of fluctua ons is-
(a) Simple Average
(b) Weighted Average
(c) FIFO
(d) LIFO

2. Under the FSN system of Inventory Control, on the basis of:

(a) Volume of material consump on
(b) Frequency of usage of items of inventory
(c) Cri cality of the item of inventory for produc on
(d) Value of items of inventory.

3. Form used for making a formal request to the Purchasing

Department to purchase materials is a -
(a) Material Transfer Note
(b) Purchase Requisi on Note
(c) Bill of Materials
(d) Material Requisi on Note.

4. Which of the following is considered to be Normal Loss of

Materials?
18
 (a) Loss due to accidents
(b) Pilferage
(c) Loss due to breaking the bulk
(d) Loss due to careless handling of materials.

5. Which of the following is NOT considered as Normal Loss of

Material?
(a) Loss due to evapora on due to prevalent weather condi ons
(b) Loss due to Pilferage
(c) Loss due to breaking the bulk
(d) Loss due to transferring of liquid materials from container to
another

6. In which of following methods of Pricing, costs lag behind the

current economic values?
(a) Last-in-First Out Price
(b) First-in-First Out Price
(c) Replacement Price
(d) Weighted Average Price

7. At the Economic Ordering Quan ty level, the following is true on

an annual basis.
(a) Ordering Cost is minimum
(b) Carrying Cost is minimum
(c) Ordering Cost is equal to the Carrying Cost

19
 (d) Purchase Price is minimum

8. Con nuous Stock Taking is a part of

(a) Annual Stock Taking
(b) Perpetual Inventory
(c) ABC Analysis
(d) Bin Cards

9. In which of the following methods, issues of materials are priced at

pre-determined rate?
(a) Inflated Price Method
(b) Standard Price Method
(c) Replacement Price Method
(d) Market Price Method.

10. When Material Prices fluctuate widely, the method of pricing that
gives absurd results is-
(a) Simple Average Price
(b) Weighted Average Price
(c) Moving Average Price
(d) Inflated Price
11. Direct Material can be classified as-
(a) Fixed Cost
(b) Variable Cost

20
 (c) Abnormal Cost
(d) Regular Cost

12. Direct Material is a -

(a) Administra on Cost
(b) Selling and Distribu on Cost
(c) R&D Cost
(d) None of these

13. In most of the manufacturing industries, the most important

element of Cost is-
(a) Material
(b) Labour
(c) Overheads
(d) None of the above

14. Which of the following is evaluated in a Supplier Decision?

(a) Financial Background
(b) Quality of Materials
(c) Time for Delivery
(d) All of the above

15. Classifica on of Materials on the basis of their Importance in

Value is called -

21
 (a) EOQ Analysis
(b) Stock Level Analysis
(c) ABC Analysis
(d) Value Analysis

16. Issue Request by Produc on Department to Stores Department is

called-
(a) Request for Proposal
(b) Stores Requisi on
(c) Purchase Requisi on
(d) Consump on Statement

17. For Return of Excess Materials from Produc on Department to

Stores, the document used is....
(a) Material Return Note
(b) Stores Debit Note
(c) Shop Credit Note
(d) All the above (same)

18. Which of the following is NOT related to a Standard List of

Materials and Components?
(a) Consump on Statement
(b) Bill of Materials
(c) Material Specifica on List
(d) Material List
22
19. Formal Request to Purchase Department to procure materials
from Suppliers is called...
(a) Purchase Order
(b) Purchase Requisi on
(c) Purchase A/c
(d) Purchase Offer

20. Which of the following is NOT a Stores related Record?

(a) Bin Cards
(b) Stock Control Cards
(c) Job Cards
(d) Stores Ledger

21. Which of the following is NOT recorded on a Bin Card?

(a) Material Received from Supplier
(b) Material Issued to Produc on Depts
(c) Inter Department Transfers
(d) Loss of Materials

22. What is the formula for Re Order Level?

(a) Minimum Usage X Minimum Lead Time
(b) Minimum Usage X Maximum Lead Time
(c) Maximum Usage X Minimum Lead Time

23
 (d) Maximum Usage X Maximum Lead Time

23. (ROL + ROQ (-) Minimum Usage X Minimum Lead Time) is the
computa on formula for.....
(a) Maximum Level
(b) Minimum Level
(c) Average Level
(d) Danger Level

24. Inventory Turnover Ra o is expressed in

(a) Rupees
(b) Percentage
(c) Times
(d) Any of the above

25. Generally, a T/o Ra o and days Average Inventory Held is

preferable.
(a) High, Less
(b) Low, High
(c) Low, Low
(d) High, High

26. Pricing of Materials in the order in which they are purchased is

called............ Method
(a) Specific Iden fica on
24
 (b) FIFO
(c) LIFO
(d) Orderly

27. Under LIFO, the Closing Stock of Inventory will be valued

generally at........prices.
(a) Latest
(b) Earliest
(c) Average
(d) Inflated

28. Landed Cost of Materials does NOT include......

(a) Cost of Containers
(b) Carriage Inwards
(c) Stock Insurance
(d) Unloading Charges

29. Cost of Abnormal Loss of Materials is.......

(a) Debited to Cos ng P&L
(b) Credited to Cos ng P&L
(c) Included in Landed Cost
(d) Included in OH

25
30. If RM Requirement is 18,250 units p.a., Ordering Cost is Rs.50 and
Carrying Cost Rs.0.1 per day, EOQ is
(a) 4,272 units
(b) 224 units
(c) 8,162 units
(d) None of the above

31. Which of these is a treatment for Rec fica on Cost of Normal

Defec ves?
(a) Charged to General OH
(b) Charged to Good Products
(c) Charged to Specific Department
(d) All of the above

32. Material Returned to Vendor is treated as In the Stores Ledger.

(a) Suspense
(b) Receipt
(c) Issue
(d) Stock

33. Which of these is NOT used in the context of Material Cost

Control?
(a) Goods Received Note
(b) Bill of Materials
(c) Profit Reconcilia on Statement
26
 (d) Stores Requisi on

34. The Produc on Planning Department prepares a List of Materials

and Stores required for the comple on of a specific job order. This
List is known as -
(a) Bin Card
(b) Bill of Material
(c) Material Requisi on Slip
(d) Produc on Planning Note

1 2 3 4 5 6 7 8 9 10
B B B C B B C B B A
11 12 13 14 15 16 17 18 19 20
B D A D C B D A B C
21 22 23 24 25 26 27 28 29 30
C D A C A B B C A B
31 32 33 34
D C D B

27
 COSTING CHAPTER 3
EMPLOYEE COSTING
PART- A
1. Idle Time is the me under which-
(a) Full Wages are paid to workers
(b) No Output is produced by the workers
(c) Both (a) and (b)
(d) None of the above.

2. Idle Time is –
(a) Time spent by workers in Factory
(b) Time spent by workers in Office
(c) Time spent by workers off their work
(d) Time spent by workers on their job

3. When a Direct Worker is paid on a monthly fixed salary basis, the

following is true:
(a) There is no Idle Time Lost
(b) There is no Idle Time Cost.
(c) Idle Time Cost is separated and treated as Overhead.
(d) Salary is fully treated as Factory Overhead Cost.

4. Cost of Idle Time due to non-availability of Raw Material is-

(a) Charged to Overhead Costs
(b) Charged to respec ve Jobs
(c) Charged to Cos ng Profit and Loss Account
(d) Charged to Supplier

5. Time and Mo on Study is conducted by-

(a) Time Keeping Department
(b) Personnel Department
(c) Payroll Department
(d) Engineering Department

28
6. Wages Sheet is generally prepared by –
(a) Time-Keeping Department
(b) Personnel Department
(c) Payroll Department
(d) Engineering Department

7. Iden fy, which one of the following, does not account for increasing
Labour Produc vity-
(a) Job Sa sfac on
(b) Mo va ng Workers
(c) High Labour Turnover
(d) Proper Supervision and Control.

8. For reducing the Labour Cost per unit, which of the following factors is
the most important?
(a) Low Wage Rates
(b) Longer hours of work
(c) Higher Produc vity or Efficiency
(d) Strict control and supervision

9. Which of the following formula is appropriate in measuring Labour

Turnover?
(a) Number of Persons Replaced/ Average Number of Workers
(b) Numbers of Persons Separated / Number of Workers at the
beginning of the year
(c) (Number of persons replaced + number of persons
separated)/(number of persons at the beginning + the number of
persons at the end of the year)
(d) None of the above

10.Time Booking refers to a method wherein _of an employee is recorded.

(a) A endance
(b) Book Keeping details
(c) Health Status
(d) Time spent on a par cular job.

11.Employee Cost includes-

(a) Wages and Salaries
(b) Allowances and Incen ves
(c) Payment for Over me
(d) All of the above.

29
12.If the me saved is less than 50% of the Standard Time, then the Wages
under Rowan and Halsey Premium Plan on comparison gives-
(a) More wages to workers under Rowan plan than Halsey plan
(b) More wages to workers under Halsey plan than Rowan plan
(c) Equal wages under two plans
(d) None of the above.

13.Standard Time of a job is 60 hours and guaranteed me rate is Rs.30 per

hour. What is the amount of wages under Rowan plan if job is completed
in 48 hours?
(a) Rs. 1,620
(b) (b) Rs.1,728
(c) (c) Rs. 1,800
(d) (d) Rs.1,440

14.Standard Time of a job is 60 hours and guaranteed me rate is Rs.30 per

hour. What is the amount of Bonus under Halsey plan if job is completed
in 48 hours?
(a) Rs. 1,620
(b) Rs.1,440
(c) Rs.180
(d) Rs.1,728

15.Important factors for control of employee cost can be-

(a) Time and Mo on Study
(b) Control over idle me and over me
(c) Control over employee turnover
(d) All of the above.

16.Out of the following methods a endance is marked by recognizing an

employee based on physical and behavioural traits—
(a) Punch Card A endance method
(b) Bio- Metric A endance system
(c) A endance Register method
(d) Token Method.

17.If over me is required for mee ng urgent orders, the Over me Premium
should be charged As-
(a) Respec ve job
(b) Overhead Cost
(c) Cos ng P& L A/c
30
 (d) None of above.

18.Keeping a record of Total Time spent by the worker inside the Factory is
called –
(a) Time Keeping
(b) Time Booking
(c) Time Managing
(d) Time Recording

19.Time Booking refers to keeping a record of –

(a) Time spent by workers on their jobs
(b) Time spent by workers in factory
(c) Time spent by workers without work
(d) Time spent by workers other than working hours

20.Which of these is a Manual Method of Time Keeping?

(a) Dial Time Recorder
(b) Punch Cards
(c) Biometric Devices
(d) Metal Discs

21.Time lost between finish of one job and start of next job is an example
of.........
(a) Lost Time
(b) Elapsed Time
(c) Normal Idle Time
(d) Abnormal Idle Time

22.Over me is-
(a) Actual Hours being more than Normal Time
(b) Actual Hours being more than Standard Time
(c) Standard Hours being more than Actual Hours
(d) Actual Hours being less than Standard Time

23.Persistent Over me Work may signify....

(a) Understaffing
(b) Labour Inefficiency
(c) Limited Produc on Facili es
(d) All of the above

24.Wages a ributable to Normal Idle Time is treated as

31
 (a) Direct Wages
(b) Produc on OH
(c) Either of the above
(d) None of the above

25.Which of these is NOT a measure for controlling Over me and its Cost?
(a) Effec ve Supervision
(b) Retrenchment of Workers
(c) Proper Defini on of Standard Time
(d) Sanc on for OT Work

26.Rate of Change in Labour Force of a Firm during a period is called...

(a) Labour Turnover Ra o
(b) Labour U lisa on Ra o
(c) Labour Cost Ra o
(d) Labour Change Ra o

27.In the context of Labour Turnover, Number of Workers le and

discharged is called....
(a) Accession
(b) Replacement
(c) New Recruitment
(d) Separa on

28.(Hours Worked X Rate per Hour) is the computa on of Wages under...

(a) Incen ve System
(b) Piece Rate System
(c) A endance System
(d) Time Rate System

29.Under Halsey System, generally. Bonus is computed as..........X Time

Saved X Rate per hour
(a) 30%
(b) 50%
(c) 70%
(d) Actual Hrs-rStd Hrs

30.A Worker will earn equal wages under Halsey and Rowan System, if Time
Saved equals –
(a) 50% of Std Time
(b) 50% of Actual Time

32
 (c) ½ of Total Time
(d) ½ of Lost Time

31.Evalua ng an Individual’s performance on the job is called –

(a) Job Evalua on
(b) Personnel System
(c) Merit Ra ng
(d) Scoring System

32.Labour Efficiency (based on Time) is given by the Formula.....

(a) Std Time/Actual Time
(b) Actual Time/Std Time
(c) Idle Time/Std Time
(d) Idle Time/Actual Time

33.If Wages per day of 8 hours is Rs.500, Std Output is 100 units. Actual
Output is 120, Piece Rate Wages=
(a) Rs.500
(b) (b) Rs.600
(c) Rs.62.5
(d) Rs.5

34.If Std Time is 8 hours. Actual Time is 6 hours. Rate per hour is Rs.100,
Rowan Wages =
(a) Rs.600
(b) Rs.150
(c) Rs.750
(d) Rs.700

35.If Actual Output in 8 hours is 700 units. Standard Output is 90 units per
hour. Efficiency Ra o is
(a) 97.22%
(b) 102.86%
(c) 100%
(d) 77.78%

36.What is the treatment of Incen ve Bonus to Workers in Cost Accoun ng?

(a) Appropria on of Profit
(b) Abnormal Cost
(c) Deferred Cost
(d) Direct Wages

33
 ANSWERS

1 .2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(c) (c) (b) (c) (d) (c) (c) (c) (a) (d) (d) (a) (b) (c) (d)

16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
(b) (a) (a) (a) (d) (c) (a) (d) (c) (b) (a) (d) (d) (b) (a)

31. 32. 33. 34. 35. 36.

(c) (a) (b) (c) (a) (d)

PART- B
1. Employee Cost includes-
(a) Wages and Salaries
(b) Allowances and Incen ves
(c) Payment for Over me
(d) All of the above.

2. If the me saved is less than 50% of the Standard Time, then the
Wages under Rowan and Halsey Premium Plan on comparison gives
(a) More wages to workers under Rowan plan than Halsey plan
(b) More wages to workers under Halsey plan than Rowan plan
(c) Equal wages under two plans
(d) None of the above.

3. Standard Time of a job is 60 hours and guaranteed me rate is

Rs.30 per hour. What is the amount of wages under Rowan plan if job
is completed in 48 hours?
34
 (a) Rs.1,620
(b) Rs.1,728
(c) Rs.1,800
(d) Rs.1,440

4. Cost of Idle Time due to non-availability of Raw Material is-

(a) Charged to Overhead Costs
(b) Charged to respec ve Jobs
(c) Charged to Cos ng Profit and Loss Account
(d) Charged to Supplier

5. Time and Mo on Study is conducted by

(a) Time Keeping Department
(b) Personnel Department
(c) Payroll Department
(d) Engineering Department

6. Wages Sheet is generally prepared by

(a) Time-Keeping Department
(b) Personnel Department
(c) Payroll Department
(d) Engineering Department

35
7. Iden fy, which one of the following, does not account for
increasing Labour Produc vity-
(a) Job Sa sfac on
(b) Mo va ng Workers
(c) High Labour Turnover
(d) Proper Supervision and Control.

8. For reducing the Labour Cost per unit, which of the following
factors is the most important?
(a) Low Wage Rates
(b) Longer hours of work
(c) Higher Produc vity or Efficiency
(d) Strict control and supervision

9. Which of the following formula is appropriate in measuring Labour

Turnover?
(a) Number of Persons Replaced/ Average Number of Workers
(b) Numbers of Persons Separated / Number of Workers at the
beginning of the year
(c) (Number of persons replaced number of persons
separated)/(number of persons at the beginning the number of
persons at the end of the year)
(d) None of the above

10. Time Booking refers to a method wherein of an employee is

recorded.
36
 (a) A endance
(b) Book Keeping details
(c) Health Status
(d) Time spent on a par cular job.

11. Idle Time is the me under which

(a) Full Wages are paid to workers
(b) No Output is produced by the workers
(c) Both (a) and (b)
(d) None of the above.

12. Idle Time is

(a) Time spent by workers in Factory
(b) Time spent by workers in Office
(c) Time spent by workers off their work
(d) Time spent by workers on their job

13. When a Direct Worker is paid on a monthly fixed salary basis, the
following is true:
(a) There is no Idle Time Lost
(b) There is no Idle Time Cost.
(c) Idle Time Cost is separated and treated as Overhead
(d) Salary is fully treated as Factory Overhead Cost

37
14. Standard Time of a job is 60 hours and guaranteed me rate is
Rs.30 per hour. What is the amount of Bonus under Halsey plan if job
is completed in 48 hours?
(a) Rs.1,620
(b) Rs.1,440
(c) Rs.180
(d) Rs.1,728

15. Important factors for control of employee cost can be

(a) Time and Mo on Study
(b) Control over idle me and over me
(c) Control over employee turnover
(d) All of the above.

16. Out of the following methods a endance is marked by

recognizing an employee based on physical and behavioural traits-
(a) Punch Card A endance method
(b) Bio-Metric A endance system
(c) A endance Register method
(d) Token Method.

17. If over me is required for mee ng urgent orders, the Over me

Premium should be charged as
(a) Respec ve job
(b) Overhead Cost

38
 (c) Cos ng P&L A/c
(d) None of above.

18. Keeping a record of Total Time spent by the worker inside the
Factory is called-
(a) Time Keeping
(b) Time Booking
(c) Time Managing
(d) Time Recording

19. Time Booking refers to keeping a record of

(a) Time spent by workers on their jobs
(b) Time spent by workers in factory
(c) Time spent by workers without work
(d) Time spent by workers other than working hours

20. Which of these is a Manual Method of Time Keeping?

(a) Dial Time Recorder
(b) Punch Cards
(c) Biometric Devices
(d) Metal Discs

21. Time lost between finish of one job and start of next job is an
example of

39
 (a) Lost Time
(b) Elapsed Time
(c) Normal Idle Time
(d) Abnormal Idle Time

22. Over me is
(a) Actual Hours being more than Normal Time
(b) Actual Hours being more than Standard Time
(c) Standard Hours being more than Actual Hours
(d) Actual Hours being less than Standard Time

23. Persistent Over me Work may signify....

(a) Understaffing
(b) Labour Inefficiency
(c) Limited Produc on Facili es
(d) All of the above

24. Wages a ributable to Normal Idle Time is treated as

(a) Direct Wages
(b) Produc on OH
(c) Either of the above
(d) None of the above

40
25. Which of these is NOT a measure for controlling Over me and its
Cost?
(a) Effec ve Supervision
(b) Retrenchment of Workers
(c) Proper Defini on of Standard Time
(d) Sanc on for OT Work

26. Rate of Change in Labour Force of a Firm during a period is

called...
(a) Labour Turnover Ra o
(b) Labour U liza on Ra o
(c) Labour Cost Ra o
(d) Labour Change Ra o

27. In the context of Labour Turnover, Number of Workers le and

discharged is called...
(a) Accession
(b) Replacement
(c) New Recruitment
(d) Separa on

28. (Hours Worked X Rate per Hour) is the computa on of Wages

under....
(a) Incen ve System
(b) Piece Rate System

41
 (c) A endance System
(d) Time Rate System

29. Under Halsey System, generally, Bonus is computed X Time Saved

X Rate per hour
(a) 30%
(b) 50%
(c) 70%
(d) Actual Hrs + Std Hrs

30. A Worker will earn equal wages under Halsey and Rowan System,
if Time Saved equals -
(a) 50% of Std Time
(b) 50% of Actual Time
(c) 1/2 of Total Time
(d) 1/2 of Lost Time

31. Evalua ng an Individual's performance on the job is called-

(a) Job Evalua on
(b) Personnel System
(c) Merit Ra ng
(d) Scoring System

32. Labour Efficiency (based on Time) is given by the Formula.....

42
 (a) Std Time/Actual Time
(b) Actual Time/Std Time
(c) Idle Time/Std Time
(d) Idle Time/Actual Time

33. If Wages per day of 8 hours is Rs.500, Std Output is 100 units,
Actual Output is 120, Piece Rate Wages=
(a) Rs.500
(b) Rs.600
(c) Rs.62.5
(d) Rs.5

34. If Std Time is 8 hours, Actual Time is 6 hours, Rate per hour is
Rs.100, Rowan Wages=
(a) Rs.600
(b) Rs.150
(c) Rs.750
(d) Rs.700

35. If Actual Output in 8 hours is 700 units, Standard Output is 90

units per hour, Efficiency Ra o is
(a) 97.22%
(b) 102.86%
(c) 100%
(d) 77.78%
43
36. What is the treatment of Incen ve Bonus to Workers in Cost
Accoun ng?
(a) Appropria on of Profit
(b) Abnormal Cost
(c) Deferred Cost
(d) Direct Wages

1 2 3 4 5 6 7 8 9 10
D A B C D C C C A D
11 12 13 14 15 16 17 18 19 20
C C B C D B A A A D
21 22 23 24 25 26 27 28 29 30
C A D C B A D D B A
31 32 33 34 35 36
C A B C A D

44
 COSTING CHAPTER 4
OVERHEADS AND ABSORPTION COSTING SYSTEM
PART-A
1. "Fixed Overhead Costs are not affected in monetary terms during a given
period by a change
in output". But this statement is valid provided:
(a) Increase in Output is not substan al
(b) Increase in Output is substan al
(c) Both (a) and (b)
(d) None of the above.

2. ______Capacity is defined as actually u lised capacity of a plant.

(a) Theore cal
(b) Installed
(c) Prac cal
(d) Idle

3. Maximum Possible Produc ve Capacity of a plant when no opera ng me is

lost is its -
(a) Normal Capacity
(b) Prac cal Capacity
(c) Theore cal Capacity
(d) Capacity based on Sales Expectancy

4. The allotment of whole items of cost to Cost Centres or Cost Units is called:
(a) Cost Absorp on
(b) Cost Appor onment
(c) Cost Alloca on
(d) Cost Determina on

5. Charging to a Cost Center, those overheads that result solely for the
existence of that Cost
Center is known as -

45
(a) Alloca on
(b) Appor onment
(c) Absorp on
(d) Allotment

6. Charging of common Overheads Cost to various Cost Centers, using

appropriate bases is
known as -
(a) Alloca on
(b) Appor onment
(c) Absorp on
(d) Allotment

7. Distribu on of Service Department Overheads Cost to Produc on

Departments, using
different assump ons and methods is known as -
(a) Alloca on
(b) Appor onment
(c) Absorp on
(d) Re-Appor onment

8. Absorp on means charging of Overheads to -

(a) Cost Centers
(b) Cost Objects
(c) Cost Drivers
(d) Cost Pools

9. Which of the following is NOT a Service Department?

(a) Cos ng Department
(b) Machining Department
(c) Time Keeping Department
(d) Stores Department

10. Which of the following is a Service Department?

(a) Refining Department
(b) Machining Department
(c) Receiving Department
(d) Finishing Department

11. Packing Cost is part of –

46
 (a) Produc on Cost
(b) Selling Cost
(c) Distribu on Cost
(d) It may be any of the above

12. Primary Packing Cost is a part of:

(a) Direct Material Cost
(b) Produc on Cost
(c) Selling Overheads
(d) Distribu on Overheads.

13. Directors Remunera on is a part of –

(a) Produc on Overhead
(b) Administra on Overhead
(c) Selling Overhead
(d) Distribu on Overhead.

14. Which of the following is not the classifica on of Overhead based on its
func onality?
(a) Factory Overhead
(b) Administra ve Overhead
(c) Fixed Overhead
(d) Selling Overhead.

15. Adver sement Expense is an example of:

(a) Distribu on Overhead
(b) Produc on Overhead
(c) Selling Overhead
(d) Administra on Overhead.

16. Which of the following is not treated as a Manufacturing Overhead?

(a) Lubricants
(b) Co on Waste
(c) Appor oned Administra on Overheads
(d) Night Shi Allowance paid to a Factory Worker due to general work
pressure.

17. Normal Capacity of a Plant refers to the difference between –

(a) Maximum Capacity and Prac cal Capacity
(b) Prac cal Capacity and Normal Capacity

47
 (c) Prac cal capacity and es mated idle capacity as revealed by long term
sales trend
(d) Maximum Capacity and Actual Capacity.

18. The difference between Actual Factory Overhead and Absorbed Factory
Overhead will be usually at the minimum level, provided pre- determined
overhead rate is based on:
(a) Maximum Capacity
(b) Direct Labour Hours
(c) Machine Hours
(d) Normal Capacity

19. When Absorbed Overhead is higher than the amount of Overhead incurred,
it is called –
(a) Under-absorp on of Overhead
(b) Over-absorp on of Overhead
(c) Proper absorp on of Overhead
(d) Re-absorp on of Overhead

20. When Absorbed Overhead is less than the amount of Overhead incurred, it
is called –
(a) Under-absorp on of Overhead
(b) Over-absorp on of Overhead
(c) Proper absorp on of Overhead
(d) Re-absorp on of Overhead

22.Which of the following overhead cost may not be appor oned on the
basis of Direct Wages?
(a) Workers’Holiday Pay
(b) Perquisites to Workers
(c) ESI Contribu on
(d) Managerial Salaries

22. Selling and Distribu on Overheads are absorbed on the basis of –

(a) Rate per unit sold
(b) Percentage on Works Cost
(c) Percentage of Sales Value
(d) Any of the above

48
 ANSWERS
1 .2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15
(a) (c) (c) (c) (a) (b) (d) (b) (b) (c) (d) (b) (b) (c) (c)
16. 17. 18. 19. 20. 21. 22
(d) (c) (d) (b) (a) (d) (d)

PART-B
. Packing Cost is part of -
(a) Produc on Cost
(b) Selling Cost
(c) Distribu on Cost
(d) It may be any of the above

2. Primary Packing Cost is a part of:

(a) Direct Material Cost
(b) Produc on Cost
(c) Selling Overheads
(d) Distribu on Overheads

3. Directors Remunera on is a part of -

(a) Produc on Overhead
(b) Administra on Overhead
(c) Selling Overhead
(d) Distribu on Overhead

49
4. The allotment of whole items of cost to Cost Centres or Cost Units
is called:
(a) Cost Absorp on
(b) Cost Appor onment
(c) Cost Alloca on
(d) Cost Determina on

5. Charging to a Cost Center, those overheads that result solely for

the existence of that Cost Center is known as -
(a) Alloca on
(b) Appor onment
(c) Absorp on
(d) Allotment

6. Charging of common Overheads Cost to various Cost Centers,

using appropriate bases is known as -
(a) Alloca on
(b) Appor onment
(c) Absorp on
(d) Allotment

7. Distribu on of Service Department Overheads Cost to Produc on

Departments, using different assump ons and methods is known as -
(a) Alloca on

50
 (b) Appor onment
(c) Re-Appor onment
(d) Absorp on

8. Absorp on means charging of Overheads to-

(a) Cost Centers
(b) Cost Objects
(c) Cost Drivers
(d) Cost Pools

9. Which of the following is NOT a Service Department?

(a) Cos ng Department
(b) Machining Department
(c) Time Keeping Department
(d) Stores Department

10. Which of the following is a Service Department?

(a) Refining Department
(b) Machining Department
(c) Receiving Department
(d) Finishing Department

51
11. "Fixed Overhead Costs are not affected in monetary terms during
a given period by a change in output". But this statement is valid
provided:
(a) Increase in Output is not substan al
(b) Increase in Output is substan al
(c) Both (a) and (b)
(d) None of the above.

12. Capacity is defined as actually u lised capacity of a plant.

(a) Theore cal
(b) Installed
(c) Prac cal
(d) Idle

13. Maximum Possible Produc ve Capacity of a plant when no

opera ng me is lost is its-
(a) Normal Capacity
(b) Prac cal Capacity
(c) Theore cal Capacity
(d) Capacity based on Sales Expectancy

14. Which of the following is not the classifica on of Overhead based

on its func onality?
(a) Factory Overhead
(b) Administra ve Overhead

52
 (c) Fixed Overhead
(d) Selling Overhead

15. Adver sement Expense is an example of:

(a) Distribu on Overhead
(b) Produc on Overhead
(c) Selling Overhead
(d) Administra on Overhead

16. Which of the following is not treated as a Manufacturing

Overhead?
(a) Lubricants
(b) Co on Waste
(c) Appor oned Administra on Overheads
(d) Night Shi Allowance paid to a Factory Worker due to general
work pressure

17. Normal Capacity of a Plant refers to the difference between-

(a) Maximum Capacity and Prac cal Capacity
(b) Prac cal Capacity and Normal Capacity
(c) Prac cal capacity and es mated idle capacity as revealed by
long term sales trend
(d) Maximum Capacity and Actual Capacity

53
18. The difference between Actual Factory Overhead and Absorbed
Factory Overhead will be usually at the minimum level, provided pre-
determined overhead rate is based on:
(a) Maximum Capacity
(b) Direct Labour Hours
(c) Machine Hours
(d) Normal Capacity

19. When Absorbed Overhead is higher than the amount of

Overhead incurred, it is called-
(a) Under-absorp on of Overhead
(b) Over-absorp on of Overhead
(c) Proper absorp on of Overhead
(d) Re-absorp on of Overhead

20. When Absorbed Overhead is less than the amount of Overhead

incurred, it is called-
(a) Under-absorp on of Overhead
(b) Over-absorp on of Overhead
(c) Proper absorp on of Overhead
(d) Re-absorp on of Overhead

21. Which of the following overhead cost may not be appor oned on
the basis of Direct Wages?
(a) Workers' Holiday Pay

54
 (b) Perquisites to Workers
(c) ESI Contribu on
(d) Managerial Salaries

22. Selling and Distribu on Overheads are absorbed on the basis of

(a) Rate per unit sold
(b) Percentage on Works Cost
(c) Percentage of Sales Value
(d) Any of the above

1 2 3 4 5 6 7 8 9 10
D B B C A B D B B C
11 12 13 14 15 16 17 18 19 20
A C C C C D C D B A
21 22
D D

55
 COSTING CHAPTER 5
ACTIVITY BASED COSTING
PART- A

1. A Cost Driver is –
(a) An item of Produc on Overheads
(b) A Common Cost which is shared over Cost Centres
(c) Any Cost rela ng to Transport Sector
(d) An resource or ac vity which generates costs.

2. In Ac vity Based Cos ng, costs are accumulated by ac vity. Such Accumulated
Amounts Are called –
(a) Cost Drivers
(b) Cost Objects
(c) Cost Pools
(d) Cost Benefit Analysis.

3. A Cost Driver –
(a) Is a force behind the overhead cost
(b) Is an alloca on base
(c) Is a transac on that is a significant determinant of cost
(d) Is all of the above.

4. Which of the following is not a correct match: Ac vity Cost Driver

(a) Produc on Scheduling Number of Produc on Runs
(b) Despatching Number of Despatch Orders
(c) Machinery Maintenance Maintenance Hours
(d) Inspec on Machine Hours

5. Find the one which is not appropriate in the following list

(a) The number of purchase, supplies and customers’ orders drives the cost associated
with new material inventory, work-in-progress and finished goods inventory
(b) The number of Produc on Runs undertaken drives Produc on Scheduling, Inspec on
and Material Handling.

56
(c) The quality of Raw Material issued drives the cost of Receiving Department Costs.
(d) The number of packing orders drives the Packing Costs.

6. Steps in ABC include –

(a) Iden fica on of ac vi es and their respec ve costs
(b) Iden fica on of Cost Driver of each ac vity and computa on of an alloca on rate Per
ac vity
(c) Alloca on of Overhead Cost to products/ services based on the ac vi es involved
(d) All of the above.

7. Which of the following is not a benefit of ABC?

(a) Accurate cost alloca on
(b) Improved decision making
(c) Be er control on ac vity and costs
(d) Reduc on of Prime Cost.

8. Which of these is NOT a Cost Driver for Marke ng and Sales Func on?
(a) Number of Adver sements/ Inser on
(b) Number of Research Projects
(c) Number of Sales Personnel
(d) Sales Revenue

9. Which of these is NOT a Cost Driver for Customer Service Ac vity?

(a) Number of Service Calls
(b) Number of Products serviced
(c) Hours spent on servicing products
(d) Sales Revenue

10. Which of these is NOT a Cost Driver for the Ac vity “Design of Products, Services &
Processes’?
(a) Number of Products in design
(b) Number of Parts per Product
(c) Number of Employee Training Programmes
(d) Number of Engineering Hours

11. Which of these is generally a “Unit Level Ac vity” Cost?

(a) Material Ordering – where an order is placed for every batch of produc on.
(b) Machine Set-Up Costs – where machines need re-se ng for each different batch /
lot.
(c) Inspec on of Products – where the first item in every batch is inspected.
(d) Use of Indirect Materials and Consumables

12. Iden fy the “Batch Level Ac vity” Cost out of the following.
(a) Ground Maintenance

57
(b) Use of Indirect Materials and Consumables
(c) Inspec on of Products
(d) Product Designing

13. The steps involved for implementa on of ABC in a Manufacturing Company include
the Following except
(a) Borrowing Fund
(b) Feasibility Study
(c) Building up necessary IT infrastructure and training of employees at all levels
(d) Strategy and Value Chain Analysis.

14. Which of the following statements are true:

(1) Ac vity based Management involves Ac vity
Analysis and Performance Measurement.
(2) Ac vity Based Cos ng serves as a major source of informa on in ABM.
(a) (1) True; (2) False
(b) (1) True; (2) True
(c) (1) False; (2) True
(d) (1) False; (2) False.

15. The key elements of Ac vity Based Budge ng are

(a) Type of ac vity to be performed
(b) Quan ty of ac vity to be performed
(c) Cost of ac vity to be performed
(d) All of the above

ANSWERS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(d)(c) (d) (d) (c) (d) (d) (b) (d) (c) (d) (c) (a) (b) (d)

PART- B

1. Which of these is generally a "Unit Level Ac vity" Cost?

(a) Material Ordering where an order is placed for every batch of
produc on
(b) Machine Set-Up Costs where machines need re-se ng for each
different batch/lot

58
 (c) Inspec on of Products where the first item in every batch is
inspected
(d) Use of Indirect Materials and Consumables

2. Iden fy the "Batch Level Ac vity" Cost out of the following.

(a) Ground Maintenance
(b) Use of Indirect Materials and Consumables
(c) Inspec on of Products
(d) Product Designing

3. The steps involved for implementa on of ABC in a Manufacturing

Company include the following except
(a) Borrowing Fund
(b) Feasibility Study
(c) Building up necessary IT infrastructure and training of
employees at all levels
(d) Strategy and Value Chain Analysis

4. Which of the following is not a correct match:

59
5. Find the one which is not appropriate in the following list:
(a) The number of purchase, supplies and customers' orders drives
the cost associated with new material inventory, work-in-progress
and finished goods inventory
(b) The number of Produc on Runs undertaken drives Produc on
Scheduling, Inspec on and Material Handling.
(c) The quality of Raw Material issued drives the cost of Receiving
Department Costs.
(d) The number of packing orders drives the Packing Costs.

6. Steps in ABC include-

(a) Iden fica on of ac vi es and their respec ve costs
(b) Iden fica on of Cost Driver of each ac vity and computa on of
an alloca on rate per ac vity
(c) Alloca on of Overhead Cost to products/ services based on the
ac vi es involved
(d) All of the above.

7. Which of the following is not a benefit of ABC?

(a) Accurate cost alloca on
(b) Improved decision making
(c) Be er control on ac vity and costs
(d) Reduc on of Prime Cost

8. Which of these is NOT a Cost Driver for Marke ng and Sales

Func on?
60
 (a) Number of Adver sements/ Inser ons
(b) Number of Research Projects
(c) Number of Sales Personnel
(d) Sales Revenue

9. Which of these is NOT a Cost Driver for Customer Service Ac vity?

(a) Number of Service Calls
(b) Number of Products serviced
(c) Hours spent on servicing products
(d) Sales Revenue

10. Which of these is NOT a Cost Driver for the Ac vity "Design of
Products, Services & Processes"?
(a) Number of Products in design
(b) Number of Parts per Product
(c) Number of Employee Training Programmes
(d) Number of Engineering Hours

11. A Cost Driver is-

(a) An item of Produc on Overheads
(b) A Common Cost which is shared over Cost Centres
(c) Any Cost rela ng to Transport Sector
(d) A resource or ac vity which generates costs.

61
12. In Ac vity Based Cos ng, costs are accumulated by ac vity. Such
Accumulated Amounts are called -
(a) Cost Drivers
(b) Cost Objects
(c) Cost Pools
(d) Cost Benefit Analysis.

13. A Cost Driver-

(a) is a force behind the overhead cost
(b) is an alloca on base
(c) is a transac on that is a significant determinant of cost
(d) is all of the above.

14. Which of the following statements are true:

(1) Ac vity based Management involves Ac vity Analysis and
Performance Measurement.
(2) Ac vity Based Cos ng serves as a major source of informa on
in ABM.
(a) (1) True; (2) False
(b) (1) True; (2) True
(c) (1) False; (2) True
(d) (1) False; (2) False

15. The key elements of Ac vity Based Budge ng are -

(a) Type of ac vity to be performed
62
 (b) Quan ty of ac vity to be performed
(c) Cost of ac vity to be performed
(d) All of the above

1 2 3 4 5 6 7 8 9 10
D C A D C D D B D C
11 12 13 14 15
D C D B D

COSTING CHAPTER 6
COST ACCOUNTING SYSTEM
PART- A

1. Generally, for the purpose of cost sheet prepara on, costs are classified
on the basis of:
(a) Func ons
(b) Variability
(c) Relevance
(d) Nature

2. Which of the following does not form part of prime cost:

(a) Cost of packing
(b) Cost of transporta on paid to bring materials to factory
(c) GST paid on raw materials (input credit cannot be claimed)
(d) Over me premium paid to workers.

3. A Ltd. Received an order, for which it purchased a special frame for

manufacturing, it is a part of:
63
 (a) Direct Materials
(b) Direct expenses
(c) Factory Overheads
(d) Administra on Overheads

4. Salary paid to plant supervisor is a part of

(a) Direct expenses
(b) Factory overheads
(c) Quality control cost
(d) Administra on cost

5. Deprecia on of director’s laptop is treated as a part of:

(a) Administra on Overheads
(b) Factory Overheads
(c) Direct Expenses
(d) Research & Development cost.

6. A manufacture has set-up a lab for tes ng of products for compliance

with standards, salary of this Lab staffs are part of:
(a) Works overheads
(b) Quality Control Cost
(c) Direct Expenses
(d) Research & Development Cost.

7. Audit fees paid to auditors is part of:

(a) Administra on Cost
(b) Produc on cost
(c) Selling & Distribu on cost
(d) Not shown in cost sheet.

8. Salary paid to factory store staff is part of:

(a) Factory overheads
(b) Produc on Cost
(c) Direct Employee cost
(d) Direct Material Cost.

64
 9. Canteen expenses for factory workers are part of:
(a) Factory overhead
(b) Administra on Cost
(c) Marke ng cost
(d) None of the above.

10.A company pays royalty to State Government on the basis of produc on,
it is treated as:
(a) Direct Material Cost
(b) Factory Overheads
(c) Direct Expenses
(d) Administra on cost.

Answers to the MCQs

1. (a) 2. (a) 3. (b) 4. (b) 5. (a) 6. (b)

7. (a) 8. (a) 9. (a) 10. (c)

PART- B
. What is the Journal Entry under a Non-Integrated System for
recording Sales made?
(a) No entry
(b) Dr.Sales, Cr.General Ledger Adjustment
(c) Dr. Cash or Bank, Cr.Sales
(d) Dr.General Ledger Adjustment, Cr.Sales

2. What is the Journal Entry under a Non-Integrated System for the

absorp on of Factory Overhead?

65
 (a) Dr.Factory OH Control, Cr.WIP Control
(b) Dr.WIP Control, Cr.Factory OH Control
(c) Dr.WIP Control, Cr.General Ledger Adjustment
(d) Dr.Factory OH Control, Cr.General Ledger Adjustment

3. Which of the following items is most likely to be included in Cost

Accounts?
(a) No onal Rent
(b) Dona ons
(c) Transfer to General Reserve
(d) Rent Receivable

4. Integrated Systems of accounts are maintained-

(a) in separate books of accounts for cos ng and financial
accoun ng purposes
(b) in the same books of accounts
(c) in a computerized system only
(d) All of the above.

5. Integral Accounts eliminate the necessity of using the-

(a) Cost Ledger Control Account
(b) Store Ledger Control Account
(c) Overhead Suspense account
(d) WIP Control Account

66
6. Under the Non-Integrated System of Accoun ng, Purchase of Raw
Material is debited to-
(a) Stores Ledger Control Account
(b) General Ledger Adjustment Account
(c) Purchase Account
(d) Supplier Account

7. Under Non-Integrated Accounts, if materials worth Rs.1,500 are

purchased for a special job, then which account will be debited-
(a) Special Job Account/Work in Process Account
(b) Raw Material Control Account
(c) Purchase Account
(d) General Ledger Adjustment Account

8. Which account is to be debited when materials worth Rs.500 are

returned to the vendor under Non-Integrated Accounts-
(a) Cost Ledger Control Account
(b) Finished Goods Control Account
(c) WIP Control Account
(d) Raw Material Control Account

9. What is the Journal Entry under an Integrated System for the

purchase of Materials on credit?
(a) Dr.Stores Ledger Control, Cr.Purchases

67
 (b) Dr.Stores Ledger Control, Cr.General Ledger Adjustment
(c) Dr.Stores Ledger Control, Cr.Supplier
(d) Dr.General Ledger Adjustment, Cr.Supplier

10. What is the Journal Entry under an Integrated System for

payment to Creditors for supplies made?
(a) Dr.Creditors, Cr.Purchases
(b) Dr.Creditors, Cr.General Ledger Adjustment
(c) Dr.Creditors, Cr.Cost Ledger Control
(d) Dr.Creditors, Cr.Cash or Bank

11. Under the Non-Integrated Accoun ng System-

(a) Same Ledger is maintained for Cost and Financial Accounts by
Accountants
(b) Separate Ledgers are maintained for Cost and Financial
Accounts
(c) All transac ons rela ng to Expenditure, Assets, and incomes are
completely recorded. Liabili es are
(d) Product-wise or Department-wise informa on is not
maintained.

12. No onal Costs-

(a) May be included in Integrated Accounts
(b) May be included in Non-Integrated Accounts
(c) Cannot be included in Non-Integrated Accounts

68
 (d) are not accounted at all in Integrated or Non-Integrated
Accounts

13. Under Non-Integrated Accoun ng System, the account made to

complete double entry is-
(a) Stores Ledger Control Account
(b) Work in Progress Control Account
(c) Finished Goods Control Account
(d) General Ledger Adjustment Account

14. Which of the following is considered an accoun ng record?

(a) Bin Card
(b) Bill of Material
(c) Stores Ledger
(d) Stores Requisi on

15. When Loss as per Cost Records is Rs.5,600, AOH under-absorbed

being Rs.600, the Loss as per Financial Accounts should be-
(a) Rs.5,600
(b) Rs.6,200
(c) Rs.5,000
(d) None of the above.

16. When you a empt a reconcilia on of profits as per Financial

Accounts and Cost Accounts, the following is done:

69
 (a) Add the underabsorp on of OH in Cost Accounts if you start
from the Profits as per Financial Accounts
(b) Add the underabsorp on of OH in Cost Accounts if you start
from the profits as per Cost Accounts.
(c) Add the overabsorp on of OH in Cost Accounts if you start from
the profits as per Financial Accounts.
(d) Add the overabsorp on of OH in Cost Accounts if you start from
the profits as per Cost Accounts.

17. Which of the following items should be added to Cos ng Profit to

arrive at Financial Profit?
(a) Over-absorp on of Works Overhead
(b) Interest paid on Debentures
(c) Income Tax Paid
(d) Stores Adjustment debited in Financial Books

18. In a Profit Reconcilia on Statement, Expenses shown only in

Financial Accounts are -
(a) Added to Financial Profit
(b) Deducted from Financial Profit
(c) Added to Cos ng Profit
(d) Omi ed from Reconcilia on

19. In a Profit Reconcilia on Statement, Incomes shown only in

Financial Accounts are -
(a) Added to Financial Profit
70
 (b) Deducted from Financial Profit
(c) Deducted from Cos ng Profit
(d) Omi ed from reconcilia on

20. In a Profit Reconcilia on Statement, Transfers to Reserves are-

(a) Added to Financial Profit
(b) Deducted from Financial Profit
(c) Added to Cos ng Profit
(d) Omi ed from Reconcilia on

21. In a Profit Reconcilia on Statement, Closing Stock Undervalued in

Financial Accounts is -
(a) Added to Financial Profit
(b) Deducted from Financial Profit
(c) Added to Cos ng Profit
(d) Omi ed from Reconcilia on

22. In a Profit Reconcilia on Statement, Expenses shown only in Cost

Accounts are-
(a) Added to Financial Profit
(b) Deducted from Financial Profit
(c) Deducted from Cos ng Profit
(d) Omi ed from Reconcilia on

71
23. If there is a Loss as per Financial Accounts of Rs.10,600, and
Dona ons not shown in Cost Accounts are Rs.6,000, what would be
the Profit or Loss as per Cost Accounts?
(a) Loss Rs.16,600
(b) Profit Rs.16,600
(c) Loss Rs.4,600
(d) Profit Rs.4,600

1 2 3 4 5 6 7 8 9 10
D B A B A A A A C D
11 12 13 14 15 16 17 18 19 20
B B D C B A A A B A
21 22 23
A B C

72
 COSTING CHAPTER 7
JOB AND BATCH COSTING
PART - A

1. General Ledger Adjustment Account is also known as _________ account.

(a) Work-in-progress Ledger Control A/c
(b) Cost Ledger Control A/c
(c) Stores Ledger Control A/c
(d) Finished Goods Ledger Control A/c

2. In non-integrated accoun ng ___________ account is debited for purchase

of materials.
(a) Work-in-progress Ledger Control A/c
(b) Cost Ledger Control A/c
(c) Stores Ledger Control A/c
(d) Finished Goods Ledger Control A/c

3. For absorp on of direct wages _________ account is debited.

(a) Work-in-progress Ledger Control A/c
(b) Cost Ledger Control A/c
(c) Stores Ledger Control A/c
(d) Finished Goods Ledger Control A/c

73
4. Normal wastage of material is debited to ________ account.
(a) Stores ledger control A/c
(b) Work-in-progress ledger control A/c
(c) Work overheads control A/c
(d) General ledger adjustment A/c

5. ____________ of records is avoided under Integral Accoun ng.

(a) Simplifica on
(b) Duplica on
(c) Triplica on
(d) None of the above

6. Which account is not required under integrated accoun ng system?

(a) Stores ledger control A/c
(b) Work-in-progress ledger control A/c
(c) Work overheads control A/c
(d) General ledger adjustment A/c

7. General Ledger Adjustment Account is credited for purchases of material in

cash under non-
integral system.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

8. Assets accounts are not maintained in Integrated System.

74
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

9. Under the system of Integrated Accounts, there is no need for a separate

cost ledger.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

10. Under the Non-integrated accoun ng system

(a) Some ledger is maintained for cost and financial accounts by accountants
(b) Separate ledgers are maintained for cost and financial accounts
(c) (a) & (b) both
(d) None of the above

11. No onal costs

(a) May be included in integrated accounts
(b) May be included in Non-integrated accounts
(c) Cannot be included in Non-integrated accounts
(d) None of the above

12. Under Non-integrated accoun ng system, the account made to complete

double entry is:
(a) Stores ledger control account

75
(b) work-in-progress control account
(c) finished goods control account
(d) General ledger adjustment account

13. Integrated systems of accounts are maintained

(a) In separate books of accounts for cos ng and financial accoun ng purposes
(b) In same books of accounts
(c) Both (a) & (b)
(d) None of the above

14. Under Non-integrated system of accoun ng, purchase of raw material is

debited to which account
(a) Material control account/Stores ledger control account
(b) General ledger adjustment account
(c) Purchase account
(d) None of the above

15. Under Non-integrated accounts, if materials worth, ₹1,500 are purchased

for a special job, then which account will be debited:
(a) Special job account/Work-in-Process account
(b) Material control account
(c) Cost Control Account
(d) None of the above

16. Which account is to be debited if materials worth ₹500 are returned to

vendor under Non-
integrated accounts:

76
(a) Cost ledger control account
(b) Finished goods control account
(c) WIP control account
(d) None of the above

17. Which of the following items is included in cost accounts?

(a) No onal rent
(b) Dona ons
(c) Transfer to general reserve
(d) Rent receivable

18. When cos ng loss ₹5,600, administra ve overhead under-absorbed being

₹600, the loss as per financial accounts should be
(a) ₹5,600
(b) ₹6,200
(c) ₹5,000
(d) None of the above

19. Which of the following items should be added to cos ng profit to arrive at
financial profit?
(a) Over-absorp on of works overhead
(b) Interest paid on debentures
(c) Income tax paid
(d) All of the above

20. Reconcilia on statement is required to be prepared in case of

_____________ system.

77
(a) Integrated
(b) Non-Integrated
(c) Either of the above
(d) None of the above

21. Which of the following items are shown in Profit & Loss account only?
(a) Dividend paid
(b) Commission received
(c) Income tax paid
(d) All of the above

22. Which of the following items are shown in cost accounts only?
(a) Rent of own premises
(b) No onal cost of own capital
(c) Salary of own manager at no onal figure
(d) All of the above

23. Goodwill wri en off is such item which is included in _______ accounts but
not ______ in accounts.
(a) Financial; Cost
(b) Cost; Financial
(c) Main; Supplementary
(d) Supplementary; Main

24. Following item shall be added to cos ng profit to arrive at financial profit:
(a) Income tax provision
(b) Interest on debentures
78
(c) Dividend received
(d) None of the above

25. Profit as per financial accounts is ₹ 50,000. What will be the profit as per
cost accounts when deprecia on overcharged in cost accounts is ₹ 2,000.
(a) ₹ 50,000
(b) ₹ 48,000
(c) ₹ 52,000
(d) None of the above

26. Which of these items are not included in cost accounts?

(a) Interest received on bank deposits
(b) Transfer fee received
(c) Profit on sale of assets
(d) All of the above

27. Under absorp on of overhead decreases profit in cos ng books.

(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

28. Loss on sale of fixed assets is an item of both financial accounts and cost
accounts.
(a) True
(b) False
(c) Either of (a) or (b)

79
(d) None of the above

29. Deprecia on charged in cost books is ₹ 8,000 and in financial books is ₹

6,700. What will be the profit as per financial books when profit as per cost
book is ₹ 6,000?
(a) ₹ 7,300
(b) ₹ 4,700
(c) ₹ 6,000
(d) None of the above

30. When financial profit is 8,000, the administra ve overhead over recovered
in cost accounts is ₹ 600, the cos ng profit is ₹ 8,600.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

31. Opening raw material value as per cost accounts is ₹ 50,000 and as per
financial accounts its ₹ 60,000. In this situa on cos ng profit will be
___________ than the financial profit.
(a) Higher
(b) Lower
(c) Either of the above
(d) None of the above

32. Closing work in progress value as per cost accounts is ₹ 60,000 and as per
financial accounts its ₹ 50,000. In this situa on cos ng profit will be
___________ than the financial profit.

80
(a) Higher
(b) Lower
(c) Either of the above
(d) None of the above

33. Closing finished goods stock value as per cost accounts is ₹ 50,000 and as
per financial accounts its ₹ 60,000. In this situa on cos ng profit will be
___________ than the financial profit.
(a) Higher
(b) Lower
(c) Either of the above
(d) None of the above

]34. Opening finished goods stock value as per cost accounts is ₹ 60,000 and as
per financial accounts its ₹ 50,000. In this situa on cos ng profit will be
___________ than the financial profit.
(a) Higher
(b) Lower
(c) Either of the above
(d) None of the above

Answer Key

1. (b) 2. (c) 3. (a) 4. (c) 5. (b) 6. (d) 7. (b) 8. (b) 9. (a) 10. (b)
11. (b) 12. (d) 13. (b) 14. (a) 15. (a) 16. (a) 17. (a) 18. (b) 19. (a) 20. (b)
21. (d) 22. (d) 23. (a) 24. (c) 25. (c) 26. (d) 27. (b) 28. (b) 29. (a) 30. (b)
31. (a) 32. (a) 33. (b) 34. (b)

81
 PART – B

1. Which of the following would best describe the characteris cs of

Job Cos ng: (i) homogeneous products; (ii) customer-driven
produc on; (iii) short period of me between the commencement
and comple on of the Cost Unit.
(a) (i) and (ii) only
(b) (ii) and (iii) only
(c) (i) and (iii) only
(d) (ii) only

2. The most suitable cost system where the products differ in the
type of materials and work performed is:
(a) Job Cos ng
(b) Process Cos ng
(c) Opera ng Cos ng
(d) Mul ple Cos ng

3. Which of the following statements is true:

(a) Job Cos ng is applicable for the Service Sector.
(b) Job Cos ng cannot be used in conjunc on with marginal
cos ng.
(c) There is no difference between Job Cos ng and Process Cos ng.
(d) Job Cost Sheet may be used for es ma ng the profit of jobs.

82
4. Batch Cos ng is similar to job cos ng except with the difference
that a -
(a) Job becomes a Cost Unit.
(b) Batch becomes the Cost Unit instead of a Job
(c) Process becomes a Cost Unit
(d) Batch becomes the Cost Centre

5. Batch Cos ng is applied effec vely in the following situa on:

(a) paper manufacturing
(b) drug manufacturing
(c) designer clothes manufacturing
(d) oil refining

6. Batch Cos ng is suitable for-

(a) Sugar Industry
(b) Chemical Industry
(c) Pharma Industry
(d) Oil Industry

7. The main points of dis nc on between Job and Contract Cos ng

include
(a) Length of me to complete.
(b) Big jobs
(c) Ac vi es to be done outside the factory area

83
 (d) All of the above

8. Economic Batch Quan ty is that size of the batch of produc on

where -
(a) Average Produc on Cost is minimum
(b) Set-Up Cost per Produc on Run is minimum
(c) Carrying Cost per unit per annum is minimum
(d) Sum of annual Set Up Cost and Carrying Costs is minimum

9. Job Cos ng is similar to that under Batch Cos ng except with the
difference that a:
(a) Job becomes a Cost Unit
(b) Batch becomes the Cost Unit instead of a job
(c) Process becomes a Cost Unit
(d) Job becomes the Cost Centre

10. In Job Cos ng, which of the following documents is used to

record the issue of Direct Material to a job?
(a) Goods Received Note
(b) Material Requisi on
(c) Purchase Order
(d) Purchase Requisi on
11. If the products produced or jobs undertaken are of diverse
nature, the system of cos ng to be used should be:
(a) Process Cos ng

84
 (b) Opera ng Cos ng
(c) Job Cos ng
(d) Mul ple Cos ng

12. Job Cos ng is-

(a) applicable to all industries regardless of the products or services
provided
(b) a technique of cos ng
(c) most suitable where similar products are produced on a mass
scale
(d) a method of cos ng used for non-standard and non-repe ve
products

13. Batch Cos ng is a type of -

(a) Process Cos ng
(b) Job Cos ng
(c) Differen al Cos ng
(d) Direct Cos ng

14. Which of the following statements is true:

(a) A Produc on Order is an order received from a customer for
par cular jobs.
(b) There is no difference between Job Cos ng and Batch Cos ng.
(c) In Job Cos ng method, a Cost Sheet is prepared for each job.

85
 (d) Job Cos ng is applicable where a Firm undertakes mass
produc on of a homogeneous product.

15. Which of the following statements is true:

(a) Job Cost Sheet may be prepared for facilita ng rou ng and
scheduling of the job
(b) Job Cos ng can be suitably used for concerns producing
uniformly any specific product
(c) Job Cos ng cannot be used in Companies using standard cos ng
(d) Neither (a) nor (b) nor (c).

16. Job Cos ng is used in-

(a) Furniture-making
(b) Repair Shops
(c) Prin ng Press
(d) All of the above

17. In a Job Cost System, costs are accumulated -

(a) By Output Quan ty
(b) By specific job
(c) By Department or Process
(d) By kind of material used

86
1 2 3 4 5 6 7 8 9 10
C A D B B C D D A B
11 12 13 14 15 16 17
C D B C D D B

87
 COSTING CHAPTER 8
SINGLE / OUTPUT / UNIT COSTING
PART – A

1. Which are the feature of batch cos ng?

(a) Units produced are iden cal
(b) Each batch is costed separately
(c) Each batch is a cost unit
(d) All of the above

2. At Economic Batch Quan ty, sum of ________ cost & _________ cost is
minimum.
(a) Set-up and ordering
(b) Carrying and Ordering
(c) Set-up and carrying
(d) None of the above

3. Which of the following produc on batch sizes will minimize cost where
annual output is 20,000
units, set-up costs per batch are ₹ 25 and holding costs are ₹ 3 per unit.
(a) 83 units
(b) 267 units
(c) 577 units

88
(d) 480 units

4. The ____ cos ng is used when a quan ty of similar and iden cal products
are manufactured
together.
(a) Job
(b) Batch
(c) Contract
(d) Process

5. A television company manufactures several components in batches. The

following data relates
to one component: Annual demand - 32,000 units; setup cost per batch - Rs
120; Annual rate of
interest - 12%; Cost of produc on per unit - Rs 8.The economic batch quan ty
is ____ units.
(a) 4,000
(b) 3,000
(c) 2,000
(d) 1,000

6. Batch cos ng is applied to engineering workshops.

(a) True
(b) False
(c) Either (a) or (b)
(d) None of the above

89
7. Batch cos ng is a variant of job cos ng.
(a) True
(b) False
(c) Either (a) or (b)
(d) None of the above

8. Different businesses in order to determine cost of their product or service

offering follow:
(a) Different methods of cos ng (b) Uniform cos ng
(c) Different techniques of cos ng (d) None of the above

9. In order to determine cost of the product or service, following are used:

(a) Techniques of cos ng like marginal, standard etc.
(b) Methods of cos ng
(c) Compara ves
(d) All of the above

10. Unit cos ng is applicable where:

(a) Product produced are unique and no 2 products are same
(b) Dissimilar ar cles are produced as per customer specifica on
(c) Homogeneous ar cles are produced on large scale
(d) Products made require different raw materials

11. In case product produced or jobs undertaken are of diverse nature, the
system of cos ng to be
used should be:
(a) Process cos ng

90
(b) Opera ng cos ng
(c) Job cos ng
(d) None of the above

12. Job cos ng is:

(a) Applicable to all industries regardless of the products or services provided
(b) Techniques of cos ng
(c) Suitable where similar products are produced on mass scale
(d) Method of cos ng used for non-standard and non-repe ve products

13. The produc on planning department prepares a list of materials and stores
required for the
comple on of a specific job order, this list is know as:
(a) Bin card
(b) Bill of material
(c) material requisi on slip
(d) None of the above

14. Batch cos ng is a type of:

(a) Process cos ng
(b) Job cos ng
(c) differen al cos ng
(d) Direct cos ng

15. Batch cos ng is similar to that under job cos ng except with the difference
that a:
(a) Job becomes a cost unit

91
(b) Batch becomes the cost unit instead of a job
(c) Process becomes a cost unit
(d) None of the above

16. The main points of dis nc on between job and contract cos ng includes:
(a) Length of me to complete
(b) Big jobs
(c) Ac vi es to be done outside the factory area
(d) All of the above

17. Economic batch quan ty is that size of the batch of produc on where:
(a) Average cost is minimum
(b) Set-up cost of machine is minimum
(c) Carrying cost is minimum
(d) Both (b) and (c)

Answer Key

1. (d) 2. (c) 3. (c) 4. (b) 5. (c) 6. (b) 7. (a) 8. (a) 9. (b)

10. (c) 11. (c) 12. (d) 13. (b) 14. (b) 15. (b) 16. (d) 17. (d)

92
 PART – B

1. The following is an example of Direct Expenses

(a) Special Raw Material which is a substan al part of the Prime
Cost
(b) Royalty paid for Produc on Process
(c) Over me Charges paid to Direct Worker to complete work
before me
(d) Catalogue of Prices of Finished Products

2. In Product Cos ng, Warehouse Expense is an example of -

(a) Produc on Overhead
(b) Selling Overhead
(c) Distribu on Overhead
(d) Cos ng Overhead

3. Which of the following is an appropriate example of Direct

Expenses?
(a) Rent for Warehouse
(b) Royalty charged on Produc on
(c) Bonus to Employees
(d) Works Directors' Salaries

4. Unit Cos ng is applicable where -

93
 (a) Products produced are unique and no two products are the
same
(b) Dissimilar ar cles are produced as per customer specifica on
(c) Homogeneous ar cles are produced on a large scale
(d) Products made require different raw materials.

5. In Product Cos ng, Conversion Cost means

(a) Cost of Direct Materials, Direct Labour, Direct Expenses
(b) Direct Labour, Direct Expenses, Indirect Material, Indirect
Labour, Indirect Expenses
(c) Prime Cost plus Factory Overheads
(d) All costs up to the product reaching the consumer, less Direct
Material Costs

6. Different businesses, in order to determine the cost of their

product or service offering, follow:
(a) Different methods of Cos ng
(b) Uniform Cos ng
(c) Different techniques of cos ng
(d) Marginal Cos ng

7. In order to determine the cost of the product or service, the

following are used:
(a) Techniques of cos ng like Marginal, Standard, etc.
(b) Methods of Cos ng

94
 (c) Compara ves of Cos ng
(d) Principles of Cos ng

8. Which of the following items is not included in the prepara on of

Cost Sheet in Single Cos ng?
(a) Carriage Inward
(b) Purchase Returns
(c) Sales Commission
(d) Interest Paid on Debt

9. Cost units of the Automobile Industry are -

(a) Number of Cubic Meters
(b) Number of Kilometres
(c) Number of Calls
(d) Number of Vehicles

10. Which method of absorp on of Factory Overheads do you

suggest in a concern which produces only one uniform type of
product?
(a) Percentage of Direct Wages Basis
(b) Direct Labour Rate
(c) Machine Hour Rate
(d) Rate per unit of output

1 2 3 4 5 6 7 8 9 10
B C B C B A B D D D

95
 PART – C
1. The following is an example of Direct Expenses -
(a) Special Raw Material which is a substan al part of the Prime Cost
(b) Royalty paid for Produc on Process
(c) Over me Charges paid to Direct Worker to complete work before me
(d) Catalogue of Prices of Finished Products

2. In Product Cos ng, Warehouse Expense is an example of -

(a) Produc on Overhead
(b) Selling Overhead
(c) Distribu on Overhead
(d) Cos ng Overhead

3. Which of the following is an appropriate example of Direct Expenses?

(a) Rent for Warehouse
(b) Royalty charged on Produc on
(c) Bonus to Employees
(d) Works Directors' Salaries

4. Unit Cos ng is applicable where -

(a) Product produced are unique and no two products are same
(b) Dissimilar ar cles are produced as per customer specifica on
(c) homogeneous ar cles are produced on large scale
(d) Products made require different raw materials.
5. In Product Cos ng, Conversion Cost means -
(a) Cost of Direct Materials, Direct Labour, Direct Expenses

96
(b) Direct Labour, Direct Expenses, Indirect Material, Indirect Labour, Indirect
Expenses
(c) Prime Cost plus Factory Overheads
(d) All costs up to the product reaching the consumer, less Direct Material Costs

6. Different businesses in order to determine cost of their product or service

offering follow:
(a) Different methods of Cos ng
(b) Uniform Cos ng
(c) Different techniques of cos ng
(d) Marginal Cos ng

7. In order to determine cost of the product or service, following are used:

(a) Techniques of cos ng like Marginal, Standard, etc.
(b) Methods of Cos ng
(c) Compara ves of Cos ng
(d) Principles of Cos ng

8. Which of the following items is not included in prepara on of Cost Sheet in

Single Cos ng?
(a) Carriage Inward
(b) Purchase Returns
(c) Sales Commission
(d) Interest Paid on Debt

9. Cost units of Automobile Industry is-

97
(a) Number of Cubic Meters
(b) Number of Kilometres
(c) Number of Calls
(d) Number of Vehicles

10. Which method of absorp on of Factory Overheads do you suggest in a

concern which
produces only one uniform type of product?
(a) Percentage of Direct Wages Basis
(b) Direct Labour Rate
(c) Machine Hour Rate
(d) Rate per unit of output

ANSWERS

1 2 3 4 5 6 7 8 9 10
B C B C B A B D D D

98
 COSTING CHAPTER 9
JOINT AND BY PRODUCTS
PART – A
1. If the product produced or jobs undertaken are of diverse nature, the system
of cos ng to
be used should be:
(a) Process Cos ng
(b) Opera ng Cos ng
(c) Job Cos ng
(d) Mul ple Cos ng

2. Job Cos ng is -
(a) applicable to all industries regardless of the products or services provided
(b) a technique of cos ng
(c) most suitable where similar products are produced on mass scale
(d) a method of cos ng used for non-standard and non-repe ve products

3. Batch Cos ng is a type of -

(a) Process Cos ng
(b) Job Cos ng
(c) Differen al Cos ng
(d) Direct Cos ng

99
4. Batch Cos ng is similar to that under job cos ng except with the difference
that a -
(a) Job becomes a Cost Unit.
(b) Batch becomes the Cost Unit instead of a Job
(c) Process becomes a Cost Unit
(d) Batch becomes the Cost Centre

5. Batch Cos ng is applied effec vely in the following situa on:

(a) paper manufacturing
(b) drug manufacturing
(c) designer clothes manufacturing
(d) oil refining

6. Batch Cos ng is suitable for-

(a) Sugar Industry
(b) Chemical Industry
(c) Pharma Industry
(d) Oil Industry

7. The main points of dis nc on between Job and Contract Cos ng includes -
(a) Length of me to complete.
(b) Big jobs
(c) Ac vi es to be done outside the factory area
(d) ll of the above.

8. Economic Batch Quan ty is that size of the batch of produc on where -

(a) Average Produc on Cost is minimum
100
(b) Set-Up Cost per Produc on Run is minimum
(c) Carrying Cost per unit per annum is minimum
(d) Sum of annual Set Up Cost and Carrying Costs is minimum

9. Job Cos ng is similar to that under Batch Cos ng except with the difference
that a:
(a) Job becomes a Cost Unit
(b) Batch becomes the Cost Unit instead of a job
(c) Process becomes a Cost Unit
(d) Job becomes the Cost Centre

10. In Job Cos ng, which of the following documents are used to record the
issue of Direct
Material to a job?
(a) Goods Received Note
(b) Material Requisi on
(c) Purchase Order
(d) Purchase Requisi on.

11. Which of the following would best describe the characteris cs of Job
Cos ng: (i)homogeneous products;
(ii) customer driven produc on;
(iii) short period of me between the commencement and comple on of the
Cost Unit.
(a) (i) and (ii) only
(b) (ii) and (iii) only
(c) (i) and (iii) only

101
(d) (ii) only

12. The most suitable cost system where the products differ in type of
materials and work
performed is :
(a) Job Cos ng
(b) Process Cos ng
(c) Opera ng Cos ng
(d) Mul ple Cos ng

13. Which of the following statements is true:

(a) Job Cos ng is applicable for Service Sector.
(b) Job Cos ng cannot be used in conjunc on with marginal cos ng.
(c) There is no difference between Job Cos ng and Process Cos ng.
(d) Job Cost Sheet may be used for es ma ng profit of jobs.

14. Which of the following statements is true:

(a) A Produc on Order is an order received from a customer for par cular jobs.
(b) There is no difference between Job Cos ng and Batch Cos ng.
(c) In Job Cos ng method, a Cost Sheet is prepared for each job.
(d) Job Cos ng is applicable where a Firm undertakes mass produc on of a
homogeneous product.

15. Which of the following statements is true:

102
(a) Job Cost Sheet may be prepared for facilita ng rou ng and scheduling of
the job
(b) Job Cos ng can be suitably used for concerns producing uniformly any
specific product
(c) Job Cos ng cannot be used in Companies using standard cos ng
(d) Neither (a) nor (b) nor (c).

16. Job Cos ng is used in -

(a) Furniture-making
(b) Repair Shops
(c) Prin ng Press
(d) All of the above

17. In a Job Cost System, costs are accumulated -

(a) By Output Quan ty
(b) By specific job
(c) By Department or Process
(d) By kind of material used
ANSWERS
1 2 3 4 5 6 7 8 9 10
C D B B B C D D A B
11 12 13 14 15 16 17
C A D C D D B

PART – B

1. Under Net Realizable Value method of appor oning Joint Costs to

joint products, the Selling & Distribu on Cost is:

103
 (a) Added to Joint Cost
(b) Deducted from Further Processing Cost
(c) Deducted from Sales Value
(d) Not relevant for computa on at all

2. Which of the following is a Co-Product:

(a) Diesel and Petrol in an Oil Refinery
(b) Edible Oils and Oil Cakes
(c) Curd and Bu er in a Dairy
(d) Mustard Oil and Sunflower Oil in an Oil Processing Company

3. Method of appor oning Joint Costs on the basis of output of each

joint product at the point of split-off is:
(a) Sales Value Method
(b) Physical Unit Method
(c) Average Cost Method
(d) Marginal Cost and Contribu on Method

4. In the Net Realizable Value Method, for appor oning Joint Costs
over the joint products, the basis of appor onment would be:
(a) Selling Price per unit of each of the Joint Products
(b) Selling Price mul plied by units sold of each of the major Joint
Products
(c) Sales Value of each Joint Product less Further Processing Costs
of individual products

104
 (d) Net Contribu on obtained from each of the Joint Products

5. The main purpose of accoun ng of Joint Products and By-Products

is to:
(a) Determine the Opportunity Cost
(b) Determine the Replacement Cost
(c) Determine Profit or Loss on each product line
(d) Determine the Total Profit of the business

6. In Sugar Manufacturing Industries, Molasses is also produced

along with Sugar. Molasses may be of smaller value as compared with
the value of Sugar and is known as:
(a) Common Product
(b) By-Product
(c) Joint Product
(d) Co-Product

7. Joint Cost Concept is suitable for -

(a) Infrastructure Industry
(b) Ornament Industry
(c) Oil Industry
(d) Fer lizer Industry

8. Which of the following is an example of a By-Product?

(a) Diesel and Petrol in an Oil Refinery
105
 (b) Edible Oils and Oil Cakes
(c) Curd and Bu er in a Dairy
(d) Mustard Seeds and Mustard Oil

9. Which of the following methods can be used when the Joint

Products are of unequal quan ty and used for cap ve consump on:
(a) Technical es mates, using the market value of similar goods
(b) Net Realizable Value method
(c) Physical Units method
(d) Market Value at Split-Off Method

10. Which of the following statements is not correct in rela on to Co-

Products:
(a) Co-Products may also have joint products
(b) Cos ng for Co-Products is done according to Process Cos ng
Method
(c) Co-Products do not have any By-Products
(d) Co-Products are treated as a separate cost object for cos ng
purpose

11. When a By-Product does not have any Realizable Value, the Cost
of By-Product is:
(a) Transferred to Cos ng Profit & Loss A/c
(b) Borne by the good units
(c) Ignored

106
 (d) Determined taking value of similar goods

12. AB Ltd produces 2 products A and B from a joint milling process.

A standard produc on run incurs joint costs of Rs.1,00,000 and
results in 60,000 units of A and 90,000 units of B. A and B have a Sale
Price of Rs.200 and Rs.450 per unit respec vely. Assuming no further
processing work is done a er the split-off point, the amount of Joint
Cost allocated to B on a physical quan ty alloca on basis would be:
(a) Rs.60,000
(b) Rs.40,000
(c) Rs.1,00,000
(d) Rs.1,20,000

13. BV Company manufactures two items, B and V, out of a joint

process, with Joint Costs Rs.6,30,000 for a standard produc on run
that generates 1,80,000 units of B and 1,20,000 units of V. B sells for
Rs.240 per unit, and V sells for Rs.390 per unit. If Addi onal
Processing Costs beyond the split-off point are Rs.140 per unit for B
and Rs.90 per unit for V, the amount of joint cost of each produc on
run allocated to V on a Sales Value basis is:
(a) Rs.3,40,000
(b) Rs.3,27,600
(c) Rs.2,32,000
(d) Rs.5,80,000
14. For alloca ng Joint Costs to Joint Products, the Sales Price at the
point of sale, reduced by cost to complete a er split-off, is assumed
to be equal to the:

107
 (a) Joint Costs
(b) Sales Price less a Normal Profit Margin at the point of sale
(c) Net Sales Value at split-off
(d) Total Costs

1 2 3 4 5 6 7 8 9 10
B A B C C C D B A C
11 12 13 14
B C B C

PART – C
1. ___________ cos ng is applied where work is usually carried out
within a factory or workshop and
is of short dura on.
(a) Job (b) Batch
(c) Contract (d) None of the above
2. Labour me on each job are recorded on a ___________ which is
then costed and recorded on the
Job Cost Sheet.
(a) Wage Sheet (b) Job Card
(c) Either of the above (d) None of the above
3. ___________ cos ng is applied where produc on is not on
con nuous basis.
(a) Job (b) Batch
(c) Contract (d) None of the above

108
4. ___________ account is prepared for each job so that its cost and
various components of cost can be
readily ascertained.
(a) Job (b) Batch
(c) Contract (d) None of the above
5. Which of the following is not the advantage of Job cos ng?
(a) Helps to detect profitable and non-profitable job
(b) Spoilage & defec ve can be easily iden fied to the job
(c) It is me consuming
(d) All of the above
6. A company wishes to earn a 15% profit margin on selling price
when quo ng for a job which of
the following is the profit mark-up on cost which will achieve the
required profit margin?
(a) 15% (b) 17.65%
(c) 85% (d) 13.04%
7. A Job order cost accumula on system is most suitable where:
(a) Mass produc on techniques are used (b) Con nuous processing is
performed
(c) Homogeneous products are produced (d) Customized products
are produced
8. Each job has a ____ prepared for it that bears the job number and
which is used to collect all cost
data rela ng to the job.
(a) Job me sheet (b) Job cket

109
(c) Job cost card (d) Job account
9. Job cos ng is used in ____________.
(a) Paper mill (b) Prin ng press
(c) Tex le mill (d) Chemical work
10. Job card is meant to recorded the a endance or works.
(a) True (b) False
(c) Either (a) or (b) (d) None of the above
11. In case product produced or jobs undertaken are of diverse
nature, the system of cos ng to be
used should be:
(a) Process cos ng (b) Opera on cos ng
(c) Job cos ng (d) None of the above
12. The produc on planning department prepares a list of materials
and stores required for the
comple on of a specific job order, this list is known as:
(a) Bin card (b) Bill of material
(c) Material requisi on slip (d) None of the above
13. Job cos ng is similar to that under Batch cos ng except with the
difference that a:
(a) Job becomes a cost unit
(b) Batch becomes the cost unit instead of a job
(c) Process becomes a cost unit
(d) None of the above
14. In job cos ng which of the following documents are used to
record the issue of direct material to

110
a job:
(a) goods received note (b) Material requisi on note
(c) Purchase order (d) Purchase requisi on
15. The most suitable cost system where the products differ in type
of materials and work
performed is:
(a) Job cos ng (b) Process cos ng
(c) Opera ng cos ng (d) None of the above
16. Which of the following statements is true:
(a) Job cost sheet may be used for es ma ng profit of jobs.
(b) Job cos ng cannot be used in conjunc on with marginal cos ng.
(c) A produc on order is an order received from a customer for
par cular jobs.
(d) None of the above.
17. Which of the following statement is true:
(a) Job cost sheet may be prepare for facilita ng rou ng and
scheduling of the job.
(b) Job cos ng can be suitably used for concerns producing uniformly
any specific product.
(c) Job cos ng cannot be used in companies using standard cos ng.
(d) None of the above

Answer Key

1. (a) 2. (b) 3. (a) 4. (a) 5. (c) 6. (b) 7. (d) 8. (c) 9. (b) 10. (b)

111
11. (c) 12. (b) 13. (a) 14. (b) 15. (a) 16. (a) 17. (d)

112
 COSTING CHAPTER 10
PROCESS COSTING
PART – A

1. The type of Process Loss that should not be allowed to affect the cost of
good units is -
(a) Abnormal Loss
(b) Normal Loss
(c) Seasonal Loss
(d) Standard Loss.

2. 200 units were introduced in a process in which 20 units is the normal loss. If
the actual
output is 150 units, then there is:
(a) No Abnormal Loss
(b) No Wastage in Produc on
(c) Abnormal Loss of 30 units
(d) Abnormal Gain of 30 units

3. 200 units are processed at a total cost of Rs. 16,700, Normal Loss is 10%.
Scrap units are sold
at Rs.25 each. If the output is 150 units, then the value of abnormal loss is:
(a) Rs.90
(b) Rs.108
113
(c) Rs.2,700
(d) Rs.3,240

4. When Average Method is used in Process Cos ng, the Opening Inventory
Costs are:
(a) Subtracted from the Current Costs
(b) Added to the Current Costs
(c) Kept separate from the Costs of the Current Period
(d) Averaged with other costs to arrive at Total Cost

5. Spoilage that occurs under inefficient opera ng condi ons and is ordinarily
controllable is
called -
(a) Normal Spoilage
(b) Abnormal Spoilage
(c) Normal Defec ves
(d) Rec fied Work

6. The cost of Normal Process Loss is

(a) Absorbed by good units produced and amount realised by the sale of loss
units should be debited to Process A/c
(b) Debited to Cos ng Profit and Loss Account
(c) Absorbed by good units produced
(d) Debited to Cos ng Profit and Loss Account and amount realised by the sale
of loss units should be credited to the Process A/c

7. The value of Abnormal Loss is equal to:

114
(a) Total Cost of Materials
(b) Total Process Cost less Realizable Value of Normal Loss
(c) Total Process Cost less Cost of Scrap
(d) Total Process Cost less Realizable Value of Normal Loss less Value of
Transferred Out Goods.

8. Inter-Process Profit is calculated, because:

(a) a process is a Cost Centre
(b) each process has to report profit
(c) the efficiency of the process is measured
(d) the wages of employees are linked to the process profitability.

9. In a Process, 8,000 units are introduced during a period. 5% of input is

Normal Loss. Closing WIP is 60% complete is 1,000 units. 6600 completed units
are transferred to next process. Equivalent Produc on for the period is:
(a) 9000 units
(b) 7440 units
(c) 5400 units
(d) 7200 units

10. Total Input to a process was 1,000 units. There was no WIP at the beginning
of the period. There was no Process Loss during the period. At the end of the
period, it was observed that the units in process were 60% complete in all
respects. What is the Equivalent Produc on for the period?
(a) 1000 units
(b) 1600 units
(c) 600 units

115
(d) Nil units

11. In Process A, 6,000 units are introduced during a period. Normal Loss is 5%
of Input. Closing WIP was 800 units, each 60% complete. 4,900 completed units
are transferred to next Process. Equivalent Produc on for the period is -
(a) 6,000 units
(b) 4,900 units
(c) 5,220 units
(d) 5,380 units

12. Under Weighted Average (Average) Method -

(a) The Cost to complete the Opening WIP is ignored.
(b) The Cost to complete the Opening WIP and other completed units are
calculated separately.
(c) The Cost of opening WIP and cost of the current period are aggregated and
the aggregate cost is divided by output in terms of completed units.
(d) Closing Stock of WIP is valued at current cost.

13. A Process Account is debited by abnormal gain, the value is determined as:
(a) Equal to the value of Normal Loss
(b) Cost of Good Units less Realizable Value of Normal Loss
(c) Cost of Good Units less realizable value of Actual Loss
(d) Equal to the Value of Good Units less Closing Stock.

14. “K Labs" develops a product using a four-step process that moves

progressively through four departments. The Company specializes in overnight

116
service and has the largest drug store chain as its Primary Customer. Currently,
Direct Labour, Direct Materials, and Overhead are accumulated by
departments. The cost accumula on system that best describes the system in
the Company is -
(a) Opera on Cos ng
(b) Ac vity-Based Cos ng
(c) Job-Order Cos ng
(d) Process Cos ng

15. When compared with Normal Spoilage, Abnormal Spoilage -

(a) arises more frequently from factors that are inherent in the manufacturing
process
(b) is given the same accoun ng treatment as normal spoilage
(c) is generally thought to be more controllable by Purchase Department than
Produc on Department
(d) is not typically influenced by the " ghtness" of produc on standards.

16. Assume 550 units were worked on during a period in which a total of 500
good units were completed. Normal Spoilage was 30 units; Abnormal Spoilage
was 20 units. Total Produc on Costs were Rs.2,20,000. The Company accounts
for Abnormal Spoilage separately in its Income Statement as Loss due to
Abnormal Spoilage. Normal Spoilage is not accounted for separately. What is
the cost of the good units produced?
(a) Rs.2,08,000
(b) Rs.2,11,538
(c) Rs.2,20,000
(d) Rs.2,33,222

117
17. In a period. Good Units completed (units) 15,000, Normal Spoilage (units)
300, Abnormal Spoilage (units) 100. Unit Costs were: Material Rs.2.50 and
Conversion (Labour & Overheads) Rs.6.00. The number of units that the
Company would transfer to its Finished Goods Stock and the related cost of
these units are -
(a) 15,000 units transferred at a cost of Rs. 1,27,500
(b) 15,000 units transferred at a cost of Rs. 1,30,050
(c) 15,000 units transferred at a cost of Rs. 1,35,000
(d) 15,300 units transferred at a cost of Rs. 1,30,050

ANSWERS
1 2 3 4 5 6 7 8 9 10
A C C B B C D C D C
11 12 13 14 15 16 17
D C B D D B B

PART – B

1. In Process A, 6,000 units are introduced during a period. Normal

Loss is 5% of Input. Closing WIP was 800 units, each 60% complete.
4,900 completed units are transferred to the next Process. Equivalent
Produc on for the period is:
(a) 6,000 units
(b) 4,900 units
(c) 5,220 units
(d) 5,380 units

118
2. Under Weighted Average (Average) Method:
(a) The Cost to complete the Opening WIP is ignored.
(b) The Cost to complete the Opening WIP and other completed
units are calculated separately.
(c) The Cost of opening WIP and cost of the current period are
aggregated, and the aggregate cost is divided by output in terms of
completed units.
(d) Closing Stock of WIP is valued at current cost.

3. 200 units are processed at a total cost of Rs. 16,700. Normal Loss is
10%. Scrap units are sold at Rs. 25 each. If the output is 150 units,
then the value of abnormal loss is:
(a) Rs. 90
(b) Rs. 108
(c) Rs. 2,700
(d) Rs. 3,240

4. When Average Method is used in Process Cos ng, the Opening

Inventory Costs are:
(a) Subtracted from the Current Costs
(b) Added to the Current Costs
(c) Kept separate from the Costs of the Current Period
(d) Averaged with other costs to arrive at Total Cost

119
5. Spoilage that occurs under inefficient opera ng condi ons and is
ordinarily controllable is called:
(a) Normal Spoilage
(b) Abnormal Spoilage
(c) Normal Defec ves
(d) Rec fied Work

6. The cost of Normal Process Loss is:

(a) Absorbed by good units produced and amount realized by the
sale of loss units should be debited to Process A/c
(b) Debited to Cos ng Profit and Loss Account
(c) Absorbed by good units produced
(d) Debited to Cos ng Profit and Loss Account and amount realized
by the sale of loss units should be credited to the Process A/c

7. The value of Abnormal Loss is equal to:

(a) Total Cost of Materials
(b) Total Process Cost less Realizable Value of Normal Loss
(c) Total Process Cost less Cost of Scrap
(d) Total Process Cost less Realizable Value of Normal Loss less
Value of Transferred Out Goods

8. Inter-Process Profit is calculated because:

(a) A process is a Cost Centre
(b) Each process has to report profit

120
 (c) The efficiency of the process is measured
(d) The wages of employees are linked to the process profitability

9. In a Process, 8,000 units are introduced during a period. 5% of

input is Normal Loss. Closing WIP is 60% complete is 1,000 units.
6,600 completed units are transferred to the next process. Equivalent
Produc on for the period is:
(a) 9,000 units
(b) 7,440 units
(c) 5,400 units
(d) 7,200 units

10. Total Input to a process was 1,000 units. There was no WIP at the
beginning of the period. There was no Process Loss during the
period. At the end of the period, it was observed that the units in
process were 60% complete in all respects. What is the Equivalent
Produc on for the period?
(a) 1,000 units
(b) 1,600 units
(c) 600 units
(d) Nil units

11. The type of Process Loss that should not be allowed to affect the
cost of good units is:
(a) Abnormal Loss
(b) Normal Loss

121
 (c) Seasonal Loss
(d) Standard Loss

12. 200 units were introduced in a process in which 20 units are the
normal loss. If the actual output is 150 units, then there is:
(a) No Abnormal Loss
(b) No Wastage in Produc on
(c) Abnormal Loss of 30 units
(d) Abnormal Gain of 30 units

13. A Process Account is debited by abnormal gain, the value is

determined as:
(a) Equal to the value of Normal Loss
(b) Cost of Good Units less Realizable Value of Normal Loss
(c) Cost of Good Units less realizable value of Actual Loss
(d) Equal to the Value of Good Units less Closing Stock

14. "K Labs" develops a product using a four-step process that moves
progressively through four departments. The Company specializes in
overnight service and has the largest drug store chain as its Primary
Customer. Currently, Direct Labour, Direct Materials, and Overhead
are accumulated by departments. The cost accumula on system that
best describes the system in the Company is:
(a) Opera on Cos ng
(b) Ac vity-Based Cos ng
(c) Job-Order Cos ng
122
 (d) Process Cos ng

15. When compared with Normal Spoilage, Abnormal Spoilage:

(a) Arises more frequently from factors that are inherent in the
manufacturing process
(b) Is given the same accoun ng treatment as normal spoilage
(c) Is generally thought to be more controllable by the Purchase
Department than the Produc on Department
(d) Is not typically influenced by the " ghtness" of produc on
standards

16. Assume 550 units were worked on during a period in which a

total of 500 good units were completed. Normal Spoilage was 30
units; Abnormal Spoilage was 20 units. Total Produc on Costs were
Rs. 2,20,000. The Company accounts for Abnormal Spoilage
separately in its Income Statement as Loss due to Abnormal Spoilage.
Normal Spoilage is not accounted for separately. What is the cost of
the good units produced?
(a) Rs. 2,08,000
(b) Rs. 2,11,538
(c) Rs. 2,20,000
(d) Rs. 2,33,222

17. In a period, Good Units completed (units) 15,000, Normal

Spoilage (units) 300, Abnormal Spoilage (units) 100. Unit Costs were:
Material Rs. 2.50 and Conversion (Labour & Overheads) Rs. 6.00. The

123
number of units that the Company would transfer to its Finished
Goods Stock and the related cost of these units are:
(a) 15,000 units transferred at a cost of Rs. 1,27,500
(b) 15,000 units transferred at a cost of Rs. 1,30,050
(c) 15,000 units transferred at a cost of Rs. 1,35,000
(d) 15,300 units transferred at a cost of Rs. 1,30,050

1 2 3 4 5 6 7 8 9 10
D C C B B C D C D C
11 12 13 14 15 16 17
A C B D D B B

124
 COSTING CHAPTER 11
SERVICE COSTING
PART – A

1. Composite Cost Unit for a Hospital is:

(a) Per Pa ent
(b) Per Pa ent-Day
(c) Per Day
(d) Per Bed

2. Cost Unit of Cargo Transport Industry is

(a) Kilometers
(b) Passenger Kilometres
(c) Tonne Kilometers
(d) Number of Vehicles

3. In Passenger Transport Sector, Cost of Diesel and Lubricants is an

example of:
(a) Opera ng Cost
(b) Fixed Charges
(c) Semi-Variable Cost

125
(d) Running Charges

4. Absolute Tonne-Km is an example of Composite Cost Units in -

(a) Power Sector
(b) Cargo Transport
(c) Bus Opera on
(d) Oil and Natural Gas

5. Opera ng Cos ng is NOT applicable to -

(a) Hospitals
(b) Cinemas
(c) Transport Undertaking
(d) Oil Refinery

6. Deprecia on is treated as Fixed Cost if it is related to

(a) Ac vity Level
(b) Related with Machine Hours
(c) Efflux of me
(d) No onal Value of Asset

7. Generally, Deprecia on on Assets is an example of-

(a) Fixed Cost
(b) Variable Cost
(c) Semi Variable Cost

126
(d) Non-Cost Expenditure

8. Jobs undertaken by IT & ITES organiza ons are considered as:

(a) Project
(b) Batch Work
(c) Contract
(d) Mul ple Cost Unit

9. In Toll Road Cos ng, the repe ve costs includes -

(a) Maintenance Cost
(b) Annual Opera ng Costs
(c) Neither (a) nor (b)
(d) Both (a) and (b).

10. BOT approach means:

(a) Build, Operate and Transfer
(b) Buy, Operate and Transfer
(c) Build, Operate and Trash
(d) Build, Own and Trash.

11. Pre-Product Development ac vi es in Insurance Companies,

include:
(a) Processing of Claim
(b) Selling of Policy

127
(c) Provision of Condi ons
(d) Policy Applica on Processing.

12. Which of the following cos ng method is not appropriate for

cos ng of Educa onal
Ins tutes:
(a) Batch Cos ng
(b) Ac vity Based Cos ng
(c) Absorp on Cos ng
(d) Process Cos ng

13. Cost of Services under Opera ng Cos ng is ascertained by

preparing -
(a) Cost Sheet
(b) Process Account
(c) Job Cost Sheet
(d) Produc on Account

14. A Hotel has 100 rooms of which 80% are normally occupied in
summer and 25% in winter.
Summer and Winter to be taken as 6 months each and normal days
in a month be assumed
to be 30. The Total Occupied Room Days per annum will be -
(a) 4500 Room Days
(b) 18900 Room Days

128
(c) 36000 Room Days
(d) 14400 Room Days

ANSWERS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

(b) (c) (d) (b) (d) (c) (a) (a) (d) (a) (c) (d) (a) (b)

PART – B
1. Pre-Product Development ac vi es in Insurance Companies
include:
(a) Processing of Claim
(b) Selling of Policy
(c) Provision of Condi ons
(d) Policy Applica on Processing

2. Which of the following cos ng methods is not appropriate for

cos ng of Educa onal Ins tutes:
(a) Batch Cos ng
(b) Ac vity Based Cos ng
(c) Absorp on Cos ng
(d) Process Cos ng

3. In Passenger Transport Sector, Cost of Diesel and Lubricants is an

example of:
129
 (a) Opera ng Cost
(b) Fixed Charges
(c) Semi-Variable Cost
(d) Running Charges

4. Absolute Tonne-Km is an example of Composite Cost Units in:

(a) Power Sector
(b) Cargo Transport
(c) Bus Opera on
(d) Oil and Natural Gas

5. Opera ng Cos ng is NOT applicable to:

(a) Hospitals
(b) Cinemas
(c) Transport Undertaking
(d) Oil Refinery

6. Deprecia on is treated as Fixed Cost if it is related to:

(a) Ac vity Level
(b) Related with Machine Hours
(c) Efflux of me
(d) No onal Value of Asset

7. Generally, Deprecia on on Assets is an example of:

130
 (a) Fixed Cost
(b) Variable Cost
(c) Semi-Variable Cost
(d) Non-Cost Expenditure

8. Jobs undertaken by IT & ITES organiza ons are considered as:

(a) Project
(b) Batch Work
(c) Contract
(d) Mul ple Cost Unit

9. In Toll Road Cos ng, the repe ve costs include:

(a) Maintenance Cost
(b) Annual Opera ng Costs
(c) Neither (a) nor (b)
(d) Both (a) and (b)

10. BOT approach means:

(a) Build, Operate and Transfer
(b) Buy, Operate and Transfer
(c) Build, Operate and Trash
(d) Build, Own and Trash

11. Composite Cost Unit for a Hospital is:

131
 (a) Per Pa ent
(b) Per Pa ent-Day
(c) Per Day
(d) Per Bed

12. Cost Unit of Cargo Transport Industry is:

(a) Kilometers
(b) Passenger Kilometres
(c) Tonne Kilometers
(d) Number of Vehicles

13. Cost of Services under Opera ng Cos ng is ascertained by

preparing:
(a) Cost Sheet
(b) Process Account
(c) Job Cost Sheet
(d) Produc on Account

14. A Hotel has 100 rooms of which 80% are normally occupied in
summer and 25% in winter. Summer and Winter to be taken as 6
months each and normal days in a month be assumed to be 30. The
Total Occupied Room Days per annum will be:
(a) 4500 Room Days
(b) 18900 Room Days
(c) 36000 Room Days

132
 (d) 14400 Room Days

1 2 3 4 5 6 7 8 9 10
C D D B D C A A D A
11 12 13 14
B C A B

PART – C
1. State which of the following are the characteris cs of service
cos ng.
1. High levels of indirect costs as a propor on of total costs
2. Use of composite cost units
3. Use of equivalent units
(a) (1) only
(b) (1) & (2) only
(c) (2) only
(d) (2) & (3) only

2. Which of the following organiza ons should not be advised to use

service cos ng?
(a) Distribu on service
(b) Hospital
(c) Maintenance department of a manufacturing company
(d) A light engineering company

133
3. _______is the most suitable method in a transport industry.
(a) Opera on Cos ng
(b) Service Cos ng
(c) Process Cos ng
(d) Job Cos ng

4. Room/day is the cost unit used in _________.

(a) Hotels
(b) Hospitals
(c) Schools
(d) None of these

5. In electricity supply company uses ___________ as cost unit.

(a) Kilo wa hour
(b) Per household
(c) Voltage
(d) None of these

6. In transporta on cos ng a composite unit such as ___________ is

used.
(a) Passenger km
(b) Per km
(c) Per passenger ton

134
(d) Per passenger

7. Boiler house cos ng is an example of ___________ cos ng.

(a) Opera on
(b) Service
(c) Process
(d) Job

8. Service cos ng is not used in one of the following:

(a) Electricity
(b) Hospitals
(c) Transport
(d) Electronics

9. Opera ng Cos ng is used in __________ concerns.

(a) Manufacturing
(b) Trading
(c) Service providing
(d) All of the above

10. An example of a simple cost unit in transport cos ng is ______.

(a) Per Mile
(b) Per passenger mile
(c) Per km

135
(d) Both (a) & (c)

11. The per unit cost of a powerhouse is calculated by machine hour

rate.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above
12. The unit under opera ng cos ng is selected according to nature
of business.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

13. For finding expenses a daily log book is maintained of each

vehicle.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

14. Absolute tonne kilometer and commercial tonne kilometer are

synonyms.
(a) True

136
(b) False
(c) Either of (a) or (b)
(d) None of the above

15. Which of the following pair is not correct with regard to

Opera ng Cos ng:
(a) Passenger Transport — per passenger km
(b) Electricity Genera on — per KWh
(c) Hotel — per person hour
(d) Medical Service —per pa ent day

16. Composite cost unit for a hospital is:

(a) per pa ent
(b) per pa ent-day
(c) per day
(d) per bed

17. Cost of diesel and lubricant is an example of:

(a) opera ng cost
(b) fixed charges
(c) semi-variable cost
(d) none of the above

18. Cost units used in power sector is:

137
(a) Kilo meter (KM)
(b) Kilowa -hour (kWh)
(c) Number of electric points
(d) Number of hours

19. Absolute Tonne-km is an example of:

(a) Composite unit in power sector
(b) Composite unit of transport sector
(c) Composite unit for bus opera on
(d) Composite unit for oil and natural gas

20. Deprecia on is treated as fixed cost if it is related to:

(a) Ac vity level
(b) Related with machine hours
(c) Efflux of me
(d) None of the above

21. Jobs undertaken b IT & ITES organiza ons are considered as:
(a) project
(b) batch work
(c) contract
(d) all of the above

22. In toll Road cos ng, the repe ve costs include:

138
(a) Maintenance cost
(b) Annual opera ng costs
(c) None of the above
(d) Both (a) and (b)

23. BOT approach means:

(a) Build, operate and Transfer
(b) Buy, Operate and Transfer
(c) Build, operate and Trash
(d) Build, Own and Trash

24. Pre-product development ac vi es in insurance companies,

include:
(a) Processing of claim
(b) Selling of policy
(c) Provisions of condi ons
(d) policy applica on processing

25. Which of the following cos ng method is not appropriate for

cos ng of educa onal ins tutes:
(a) Batch cos ng
(b) Ac vity based cos ng
(c) Absorp on cos ng
(d) Process cos ng

139
26. A hotel has a capacity of 100 single and 20 double rooms .The
average occupancy of both single and double rooms is expected to be
80% throughout the year of 365 days . The rent of double room has
been fixed at 125% of the rent of a single room. The total no onal
single rooms/day are _________.
(a) 36,000
(b) 35,040
(c) 36,500
(d) 35,500

27. The hospital is opened for 365 days ,but bed occupancy is 25
pa ents per day in 120 days and 20 bed occupied in another 80 days.
Extra beds occupied during the year is 400. The pa ent days of the
hospital are ______.
(a) 3,500
(b) 4,000
(c) 4,500
(d) 5,000

28. The sea ng capacity of a school bus is 60 students one way. The
sea ng capacity is fully occupied during the whole year. The school
follows differen al bus fee based on distance travelled as under
:Distance to and from school Buss fee Students availing the facility
4 kms 25% of Full 15%
8 kms 50% of Full 30%
16 kms Full 55%
140
The total students, equivalent to 25% fare students per tripe are:
(a) 177
(b) 264
(c) 354
(d) 424

29. Calculate the most appropriate unit cost for a distribu on division
of a mul na onal company
using the following informa on.
• Miles travelled 636,500
• Tonnes carried 2,479
• Number of drivers 20
• Hours worked by drivers 35,520
• Tonnes miles carried 375,200
• Cost incurred 562,800
(a) ₹0.88
(b) ₹1.50
(c) ₹15.84
(d) ₹28,140

30. The following informa on is available for the W hotel for the
latest thirty day period.
• Number of rooms available per night 40
• Percentage occupancy achieved 65%

141
• Room servicing cost incurred ₹3,900
• The room servicing cost per occupied room-night last period, to the
nearest ₹was:
(a) ₹3.25
(b) ₹5.00
(c) ₹97.50
(d) ₹150.00

Answer Key

1. (c) 2. (c) 3. (b) 4. (a) 5. (a) 6. (a) 7. (b) 8. (d) 9. (c) 10. (d)
11. (b) 12. (a) 13. (a) 14. (b) 15. (c) 16. (b) 17. (a) 18. (b) 19. (b) 20. (c)
21. (a) 22. (a) 23. (a) 24. (c) 25. (d) 26. (c) 27. (d) 28. (c) 29. (b) 30. (b)

142
 COSTING CHAPTER 12
STANDARD COSTING
PART- A
1. Standard cost is a __________ cost.
(a) Predetermined
(b) Historical
(c) Actual
(d) Final

2. Standard cos ng is more widely applied in_________ industries.

(a) Jobbing
(b) Construc on
(c) Process and engineering
(d) All of the above

3. Three types of standards are __________.

(a) Actual standard, base standard and normal standard
(b) Currency standard, basic standard & normal standard
(c) Expected standard, ideal standard and normal standard
(d) Current standard, basic standard & normal standard

143
4. The devia on of the actual cost or profit or sales from the standard
cost or profit or sale is known as _________.
(a) Difference
(b) Variance
(c) Discrepancy
(d) Inconsistency

5. Management by excep on is exercising control over __________.

(a) Costs
(b) Favorable items
(c) Unfavorable items
(d) All of the above

6. An unfavourable material price variance occurs because of:

(a) Less than an cipated normal wastage in the manufacturing
process
(b) Price increase in raw materials
(c) More than an cipated normal wastage in the manufacturing
process
(d) Price decrease in raw materials

7. Volume variance arises because of:

(a) Increase or decrease in actual output as compared to the
budgeted output
(b) Increase in overhead rate per hour

144
(c) Difference in budgeted overheads and actual overheads
(d) Decrease in overhead rate per hour

8. _________ represents the difference between hours paid and

hours worked.
(a) Actual hours
(b) Standard hours
(c) Idle hours
(d) Budgeted hours

9. _________ is a predetermined calcula on of how much costs

should be under specified working condi ons.
(a) Standard cost
(b) Actual cost
(c) Historical cost
(d) None of the above

10. A standard that is developed using theore cal condi ons for a
given manufacturing process is known as:
(a) Expected standard
(b) Ideal standard
(c) Current standard
(d) Normal standard

145
11. Analysis of variance is done in order to determine the reasons for
increase or decrease in profit.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

12. Labour efficiency variance is due to the different between

standard hours for actual output and actual hours for actual output.
(a) True
(b) False
(c) Either of (a) or (b)
(d) None of the above

13. Which of the following is not a reason for an idle me variance.

(a) Wage rate increase
(b) Machine breakdown
(c) Illness or injury of worker
(d) Non-availability of material

14. Which of the following would explain an adverse variable

produc on overhead efficiency variance?
(1) Employees were of a lower skill level than specified in the
standard

146
 (2) Unexpected idle me resulted from a series of machine
breakdown
(3) Poor quality material was difficult to process
(a) (1), (2) & (3)
(b) (1) & (2)
(c) (2) & (3)
(d) (1) & (3)

15. Standard costs are already adjusted for __________ losses.

(a) Normal
(b) Abnormal
(c) Both (a) & (b)
(d) None of the above

16. Which of the following is the cause of material price variance?

(a) Use of non-standard material
(b) Pilferage
(c) Rush purchases
(d) Change in the quality of materials

17. Which of the following is the not the cause of material price
variance?
(a) Change in the delivery cost
(b) Change in the market price of materials

147
(c) Change in the method of produc on
(d) Change in the rate of excise duty etc.

18. Which of the following is not the cause of material usage

variance?
(a) Defect in plant & machinery
(b) Change in the design of the product
(c) Inefficient purchasing
(d) Use of subs tute material

19. Which of the following is not the cause of material yield variance?
(a) Lack of due card in handling
(b) Defec ve methods of opera on
(c) Lack of proper supervision
(d) None of the above

20. Which of the following is not the cause of labour efficiency

variance?
(a) Use of non-standard grade of workers
(b) Use of defec ve method of opera on
(c) Poor working condi ons
(d) Break-down of plant and machinery

21. Which of the following is not the cause of idle me variance?

148
(a) Power failure
(b) Breakdown of plant & machinery
(c) Delay in giving produc on instruc ons
(d) Poor working condi ons

22. Which of the following is not the cause of fixed overhead

expenditure variance?
(a) Rise in price due to infla on
(b) Power failure
(c) Change in methods of opera on
(d) Improperly set standards

23. Which of the following is not the cause of fixed overhead volume
variance?
(a) Machine breakdown
(b) Labour strikes or lock outs
(c) Defec ve scheduling & rou ng of produc on
(d) None of the above

24. Which of the following is the cause of fixed overhead efficiency

variance?
(a) Poor supervision
(b) Frequent power failure
(c) Improperly set standards
(d) All of the above
149
25. Which of the following is not the cause of fixed overhead capacity
variance?
(a) Labour troubles
(b) Shortage of material
(c) Frequent power failure
(d) Defec ve material

26. If the control ra o is 100% or more, it indicates a __________

posi on.
(a) Favorable
(b) Unfavorable
(c) Either of (a) or (b)
(d) None of the above

27. Under standard cost system the cost of the product determined
at the beginning of produc on is its:
(a) Direct cost
(b) Pre-determined cost
(c) Historical cost
(d) Actual cost

28. The devia ons between actual and standard cost is known as:
(a) Mul ple analysis
(b) Variable cost analysis
150
(c) Variance analysis
(d) Linear trend analysis

29. The standard which is a ainable under favourable condi ons is:
(a) Theore cal standard
(b) Expected standard
(c) Normal standard
(d) Basic standard

30. The standard most suitable from cost control point of view is:
(a) Normal standard
(b) Theore cal standard
(c) Expected standard
(d) Basic standard

31. Overhead cost variance is:

(a) The difference between overheads recovered on actual output –
actual overheads incurred
(b) The difference between budgeted overhead cost and actual
overhead cost.
(c) Obtained by mul plying standard overhead absorp on rate with
the difference between
standard hours for actual output and actual hours worked.
(d) None of the above

151
32. Which of the following variance arises when more than one
material is used in the manufacture of a product?
(a) Material price variance
(b) Material usage variance
(c) Material yield variance
(d) Material mix variance

33. If standard hours for 100 units of output are 400 @ ₹2per hour
and actual hours take are 380 @ ₹2.25 per, then the labour rate
variance is:
(a) ₹95 (adverse)
(b) ₹100 (adverse)
(c) ₹25 (favourable)
(d) ₹120 (adverse)

34. Controllable variances are best disposed-off by transferring to:

(a) Cost of goods sold
(b) Cost of goods sold and inventories
(c) Inventories of work-in-progress and finished goods
(d) Cos ng profit & loss account

35. Idle me variance is obtained by mul plying:

(a) The difference between standard and actual hours by the actual
rate of labour pe hour

152
(b) The difference between actual labour hours paid and actual
labour hours worked by the
standard rate
(c) The difference between standard and actual hours by the
standard rate of labour per hour
(d) None of the above

36. Basic standards are:

(a) Those standards, which require high degree of efficiency and
performance
(b) Average standards and are useful in long term planning
(c) Standards, which can be a ained or achieved
(d) Assuming to remain unchanged for a long me.

37. During a period 17,500 labour hours were worked at a standard

cost of ₹6.50 per hour. The labour efficiency variance was ₹7,800
favourable. How many standard hours were produced?
(a) 1,200
(b) 16,300
(c) 17,500
(d) 18,500

38. During April, 300 labour horus were worked for a total cost of
₹4,800. The variable overhead expenditure variance was ₹600 (A).
Overheads are assumed to be related to direct labour hours of ac ve
working. What was the standard cost per labour hour?

153
(a) ₹14
(b) ₹16.50
(c) ₹17.50
(d) ₹18

39. The actual output of 1,62,500 units and actual fixed costs of
₹87,000 were exactly as budgeted. However, the actual expenditure
of 3,00,000 was ₹18,000 over budget. What was the budget variable
cost per unit?
(a) ₹1.20
(b) ₹1.31
(c) ₹1.42
(d) ₹1.50

40. The budgeted fixed overheads for a budgeted produc on of

10,000 units is ₹20,000. For a certain period the actual produc on
was 11,000 units and actual expenditure came to ₹24,000. Then, the
volume variance is ₹_________.
(a) 4,000 (A)
(b) 4,000 (F)
(c) 2,000 (A)
(d) 2,000 (F)

41. In a factory where standard cos ng is followed 9,600 kgs. of

materials at ₹10.50/kg were actually consumed resul ng in a price

154
variance of ₹4,800 (A) and usages variance of ₹4,000(F)the standard
cost of actual produc on is ₹_________.
(a) 96,000
(b) 1,00,000
(c) 1,10,000
(d) 1,20,000

42. If the capacity usages ra o of a produc on department is 99%

and ac vity ra o is 90% then the efficiency ra o of the department is
________.
(a) 100 %
(b) 80%
(c) 110%
(d) 89.10%

43. The standard variable overhead cost of a product is ₹10 (5 hours

@ ₹2/hr). In a certain month it took 1800 hours at a cost of ₹4,200 to
manufacture 400 units. Then, the variable overhead expenditure
variance is ₹__________.
(a) 600 (A)
(b) 600 (F)
(c) 400 (A)
(d) 400 (F)

44. The standard variable overhead cost of a product is ₹10 (5 hours

@ ₹2/hr). In a certain month it took 1800 hours at a cost of ₹4,200 to
155
manufacture 400 units. Then, the variable overhead efficiency
variance is ₹__________.
(a) 600 (A)
(b) 600 (F)
(c) 400 (A)
(d) 400 (F)

45. In a factory of ABC Ltd. where standard cos ng is followed, the

budgeted fixed overheads for a budgeted produc on of ₹4,800 units
is ₹24,000 for a certain period. Actual expenditure incurred was
₹22,000 resul ng in a fixed overhead volume variance of ₹3,000 (A).
Then actual produc on for the period was _________.
(a) 5,400 units
(b) 3,000 units
(c) 4,200 units
(d) None of the above

46. In a factory of XYZ Ltd. opera ng standard cost system, 2000 kgs.
of a material @12 per kg were used for a product resul ng in price
variance of ₹6,000 (F) and usage variance of ₹3,000 (A). Then
Standard material cost of actual produc on was ₹__________.
(a) 24,000
(b) 27,000
(c) 30,000
(d) 33,000

156
47. Acompany budgets for fixed overhead of ₹24,000 and produc on
of 4,800 unitsActual produc on is ₹4,200 units and fixed overhead
cost incurred is ₹22,000 .The fixed overhead volume variance is
₹___________.
(a) 3,000 (A)
(b) 3,000 (F)
(c) 2,000 (A)
(d) 2,000 (F)

48. SK Ltd. purchased 6,850 kg of materials for ₹21,920. The material

price variance was ₹1,370 (F). The standard price per kg was
₹__________.
(a) 3.00
(b) 3.20
(c) 3.40
(d) 3.60

49. The informa on rela ng to the direct material cost is as under:

• Standard price per unit ₹3.60
• Actual quan ty allowed for actual produc on 1,600 units
• Standard material allowed for actual produc on 1,450 units
• Material price variance on purchase ₹240 (F)
What is the actual purchase price per unit?
(a) ₹3.15
(b) ₹3.25

157
(c) ₹3.35
(d) ₹3.45

Answer Key

1. (a) 2. (c) 3. (d) 4. (b) 5. (c) 6. (b) 7. (a) 8. (c) 9. (a) 10. (b)
11. (b) 12. (a) 13. (a) 14. (d) 15. (a) 16. (c) 17. (c) 18. (c) 19. (d) 20. (d)
21. (d) 22. (b) 23. (d) 24. (d) 25. (c) 26. (a) 27. (b) 28. (c) 29. (a) 30. (c)
31. (a) 32. (d) 33. (a) 34. (d) 35. (b) 36. (d) 37. (d) 38. (a) 39. (a) 40. (d)
41. (b) 42. (c) 43. (b) 44. (c) 45. (c) 46. (b) 47. (a) 48. (c) 49. (d)

PART- B

1. Material Cost Variance is equal to:

(a) Material Usage Variance + Material Mix Variance
(b) Material Price Variance Variance Material Usage
(c) Material Price Variance + Material Yield Variance
(d) Material Mix Variance Material Yield Variance

2. Standard Price of Material per kg Rs.50, Standard Usage per unit of

produc on is 5 kg. Budgeted Output is 120 units, while Actual Output
is 100 units. Output During the period 625 kg of Material were
purchased of which 75 kg were s ll in stock at period end. There was

158
no opening Stock, What is the Standard Quan ty of Raw Material in
this case?
(a) 600 kg
(b) 625 kg
(c) 500 kg
(d) 550 kg

3. Difference between Standard Cost and Actual Cost is called:

(a) Wastage
(b) Loss
(c) Variance
(d) Profit

4. The standard which is a ainable under most favourable condi ons

is:
(a) Theore cal Standard
(b) Expected Standard
(c) Normal Standard
(d) Basic Standard

5. The standard most suitable from a cost control point of view is:
(a) Normal Standard
(b) Theore cal Standard
(c) Expected Standard

159
 (d) Basic Standard

6. Overhead Cost Variance is:

(a) the difference between overheads recovered on Actual Output,
and incurred the Actual Overhead
(b) the difference between Budgeted Overhead Cost and Actual
Overhead Cost
(c) obtained by mul plying Standard Overhead Absorp on Rate
with the difference between Standard Hours for actual output and
actual hours worked
(d) a no onal concept and cannot be computed at all

7. Excess of Actual Cost over Standard Cost is known as:

(a) Abnormal Effec veness
(b) Unfavourable Variance
(c) Favourable Variance
(d) Overabsorp on

8. Excess of Standard Cost over Actual Cost is known as:

(a) Abnormal Effec veness
(b) Unfavourable Variance
(c) Favourable Variance
(d) Underabsorp on

9. Standard Cost is used:

160
 (a) To ascertain the Break-Even Point
(b) To establish Cost-Volume Profit Rela onship
(c) As a basis for price fixa on and cost control through Variance
Analysis
(d) All of the above

10. Standard Price of Material per kg Rs.50, Standard Usage per unit
of produc on is 5 kg. Budgeted Output is 120 units, while Actual
Output is 100 units. In this case, Standard Material Cost is:
(a) Rs.25,000
(b) Rs.30,000
(c) Rs.250
(d) Rs.Nil

11. Under Standard Cost System, the cost of the product determined
at the beginning of produc on is its:
(a) Direct Cost
(b) Pre-Determined Cost
(c) Historical Cost
(d) Actual Cost

12. Analysis of the differences between Actual and Standard Cost is

known as:
(a) Mul ple Analysis
(b) Variable Cost Analysis

161
 (c) Variance Analysis
(d) Linear Trend Analysis

13. Which of the following variance arises ONLY when more than one
material is used in the manufacture of a product?
(a) Material Price Variance
(b) Material Usage Variance
(c) Material Yield Variance
(d) Material Mix Variance

14. Standard Material Price per kg is Rs.20, Standard Usage per unit
of produc on is 5 kg. Actual Usage of Material for produc on of 100
units is 520 kgs, all of which was purchased at Rs.22 per kg. Material
Usage Variance in this case is:
(a) 1,040 (A)
(b) 1,440 (A)
(c) 400 (F)
(d) 400 (A)

15. Standard Material Price per kg is Rs.20, Standard Usage per unit
of produc on is 5 kg. Actual Usage of Material for produc on of 100
units is 520 kgs, all of which was purchased at Rs.22 per kg. Material
Price Variance in this case is:
(a) 1,040 (A)
(b) 1,040 (F)
(c) 1,440 (A)
162
 (d) 400 (A)

16. Standard Material Price per kg is Rs.20, Standard Usage per unit
of produc on is 5 kg. Actual Usage of Material for produc on of 100
units is 520 kgs, all of which was purchased at Rs.22 per kg. Material
Cost Variance in this case is:
(a) 1,040 (A)
(b) 1,040 (F)
(c) 1,440 (A)
(d) 1,440 (F)

17. If Standard Hours for 100 units of output are 400 at Rs.200 per
hour and Actual Hours taken are 380 at Rs.225 per hour, then the
Labour Rate Variance is:
(a) Rs.9,500 (Adverse)
(b) Rs.10,000 (Adverse)
(c) Rs.2,500 (Favourable)
(d) Rs.12,000 (Adverse)

18. Abnormal Non-Controllable Variances are best disposed of by

transferring to:
(a) Cost of Goods Sold
(b) Cost of Goods Sold and Inventories
(c) Inventories of Work-in-Progress and Finished Goods
(d) Cos ng Profit and Loss Account

163
19. Idle Time Variance is obtained by mul plying the difference
between:
(a) Standard and Actual Hours by the Actual Rate of Labour per
hour
(b) Actual Produc ve Labour Hours and Actual Labour Hours Paid,
by the Standard Rate of Labour per hour
(c) Standard Hours and Actual Produc ve Labour Hours, by the
Standard Rate of Labour per hour
(d) Standard Hours and Actual Labour Hours Paid, by the Standard
Rate of Labour per hour

20. Basic Standards are standards which:

(a) require a high degree of efficiency and performance
(b) are average in nature and useful in long-term planning
(c) which can be a ained or achieved
(d) are assumed to remain unchanged for a long me

21. During a period, Standard Labour is 24 Skilled Labour Hours and

30 Unskilled Labour Hours at Rs.60 and Rs.40 respec vely as the
Standard Labour Rates. Actually, 20 skilled and 25 unskilled Labour
Hours were used at Rs. 50 and Rs.50 respec vely. Then, the Labour
Mix Variance will be:
(a) Adverse
(b) Favourable
(c) Zero

164
 (d) Favourable for Skilled and unfavourable for Unskilled

22. Budgeted Material Cost for 10,000 units is Rs.15,000, and 9,000
units were actually produced at a Material Cost of Rs. 16,200. The
Material Cost Variance is:
(a) Rs. 1,200 (A)
(b) Rs. 2,700 (A)
(c) Rs. 1,500 (A)
(d) Rs.1,200 (F)

23. During a period, 3,600 Labour Hours were worked and Standard
VOH Rate was Rs.8 per hour. The VOH Efficiency Variance was
Rs.8,800 (Adv). How many Standard Hours were produced?
(a) 3,600 hours
(b) 2,500 hours
(c) 4,700 hours
(d) 1,100 hours

24. During a period, 5,120 Labour Hours were worked at a Standard

Rate of Rs.75 per hour. The Direct Labour Efficiency Variance was
Rs.33,000 (A). How many Standard Hours were produced?
(a) 5,120 hours
(b) 5,560 hours
(c) 4,680 hours
(d) 3,300 hours

165
 1 2 3 4 5 6 7 8 9 10
B C C A C A B C C A
11 12 13 14 15 16 17 18 19 20
B C D C A C A D B D
21 22 23 24
C B B C

PART- C

1. Under Standard Cost System, the cost of the product determined at the
beginning of
produc on is its:
(a) Direct Cost
(b) Pre-Determined Cost
(c) Historical Cost
(d) Actual Cost

2. Analysis of the differences between Actual and Standard Cost is known as -

(a) Mul ple Analysis
(b) Variable Cost Analysis
(c) Variance Analysis
(d) Linear Trend Analysis.

3. Difference between Standard Cost and Actual Cost is called as

(a) Wastage
(b) Loss
(c) Variance
(d) Profit
166
4. The standard which is a ainable under most favourable condi ons is -
(a) Theore cal Standard
(b) Expected Standard
(c) Normal Standard
(d) Basic Standard

5. The standard most suitable from cost control point of view is -

(a) Normal Standard
(b) Theore cal Standard
(c) Expected Standard
(d) Basic Standard

6. Overhead Cost Variance is:

(a) the difference between overheads recovered on Actual Output, and the
Actual Overhead
incurred
(b) the difference between Budgeted Overhead Cost and Actual Overhead Cost
(c) obtained by mul plying Standard Overhead Absorp on Rate with the
difference between Standard Hours for actual output and actual hours worked
(d) a no onal concept and cannot be computed at all

7. Excess of Actual Cost over Standard Cost is known as

(a) Abnormal Effec veness
(b) Unfavourable Variance
(c) Favourable Variance
(d) Overabsorp on

167
8. Excess of Standard Cost over Actual Cost is known as
(a) Abnormal Effec veness
(b) Unfavourable Variance
(c) Favourable Variance
(d) Underabsorp on

9. Standard Cost is used -

(a) To ascertain the Break-Even Point
(b) To establish Cost-Volume Profit Rela onship
(c) As a basis for price fixa on and cost control through Variance Analysis
(d) All of the above

10. Standard Price of Material per kg Rs.50, Standard Usage per unit of
produc on is 5 kg.
Budgeted Output is 120 units, while Actual Output is 100 units. In this case.
Standard
Material Cost is -
(a) Rs.25,000
(b) Rs.30,000
(c) Rs.250
(d) Rs.Nil

11. Material Cost Variance is equal to -

(a) Material Usage Variance + Material Mix Variance
(b) Material Price Variance + Material Usage Variance
(c) Material Price Variance + Material Yield Variance

168
(d) Material Mix Variance + Material Yield Variance

12. Standard Price of Material per kg Rs.50, Standard Usage per unit of
produc on is 5 kg. Budgeted Output is 120 units, while Actual Output is 100
units. During the period 625 kg of Material were purchased of which 75 kg
were in s ll in stock at period end. There was no
opening Stock. What is the Standard Quan ty of Raw Material in this case?
(a) 600 kg
(b) 625 kg
(c) 500 kg
(d) 550 kg

13. Which of the following variance arises ONLY when more than one material
is used in the manufacture of a product?
(a) Material Price Variance
(b) Material Usage Variance
(c) Material Yield Variance
(d) Material Mix Variance

14. Standard Material Price per kg is Rs.20, Standard Usage per unit of
produc on is 5 kg. Actual Usage of Material for produc on of 100 units is 520
kgs, all of which was purchased at Rs.22 per kg. Material Usage Variance in this
case is -
(a) 1,040 (A)
(b) 1,440 (A)
(c) 400(F)
(d) 400 (A)

169
15. Standard Material Price per kg is Rs.20, Standard Usage per unit of
produc on is 5 kg. Actual Usage of Material for produc on of 100 units is 520
kgs, all of which was purchased at Rs.22 per kg. Material Price Variance in this
case is -
(a) 1,040 (A)
(b) 1,040 (F)
(c) 1,440 (A)
(d) 400 (A)

16. Standard Material Price per kg is Rs.20, Standard Usage per unit of
produc on is 5 kg. Actual Usage of Material for produc on of 100 units is 520
kgs, all of which was purchased at Rs.22 per kg. Material Cost Variance in this
case is -
(a) 1,040 (A)
(b) 1,040 (F)
(c) 1,440 (A)
(d) 1,440 (F)

17. If Standard Hours for 100 units of output are 400 at Rs.200 per hour and
Actual Hours taken are 380 at Rs.225 per hour, then the Labour Rate Variance
is:
(a) Rs.9,500 (Adverse)
(b) Rs. 10,000 (Adverse)
(c) Rs.2,500 (Favourable)
(d) Rs. 12,000 (Adverse).

18. Abnormal Non-Controllable Variances are best disposed-off by transferring

to -
(a) Cost of Goods Sold

170
(b) Cost of Goods Sold and Inventories
(c) Inventories of Work-in-Progress and Finished Goods
(d) Cos ng Profit and Loss Account

19. Idle Time Variance is obtained by mul plying the difference between -
(a) Standard and Actual Hours by the Actual Rate of Labour per hour
(b) Actual Produc ve Labour Hours and Actual Labour Hours Paid, by the
Standard Rate
of Labour per hour
(c) Standard Hours and Actual Produc ve Labour Hours, by the Standard Rate
of Labour
per hour
(d) Standard Hours and Actual Labour Hours Paid, by the Standard Rate of
Labour per hour

20. Basic Standards are standards, which:

(a) require high degree of efficiency and performance.
(b) are average in nature and useful in long term planning.
(c) which can be a ained or achieved
(d) are assumed to remain unchanged for a long me.

21. During a period. Standard Labour is 24 Skilled Labour Hours and 30

Unskilled Labour Hours at Rs.60 and Rs.40 respec vely as the Standard Labour
Rates. Actually, 20 skilled and 25 unskilled Labour Hours were used at Rs. 50
and Rs.50 respec vely. Then, the Labour Mix
Variance will be -
(a) Adverse
(b) Favourable

171
(c) Zero
(d) Favourable for Skilled and unfavourable for Unskilled

22. Budgeted Material Cost for 10,000 units is Rs. 15,000, and 9,000 units were
actually produced at a Material Cost of Rs. 16,200. The Material Cost Variance
is:
(a) Rs. 1,200 (A)
(b) Rs. 2,700 (A)
(c) Rs. 1,500 (A)
(d) Rs. 1,200 (F)

23. During a period, 3,600 Labour Hours were worked and Standard VOH Rate
was Rs.8 per hour. The VOH Efficiency Variance was Rs.8,800 (Adv). How many
Standard Hours were produced?
(a) 3,600 hours
(b) 2,500 hours
(c) 4,700 hours
(d) 1,100 hours

24. During a period, 5,120 Labour Hours were worked at a Standard Rate of
Rs.75 per hour. The Direct Labour Efficiency Variance was Rs.33,000 (A). How
many Standard Hours were
produced?
(a) 5,120 hours
(b) 5,560 hours
(c) 4,680 hours
(d) 3,300 hours

172
ANSWERS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(b) (c) (c) (a) (c) (a) (b) (c) (c) (a) (b) (c) (d) (d) (a)
16. 17. 18. 19. 20. 21. 22. 23. 24.
(c) (a) (d) (b) (d) (c) (b) (b) (C)

173
 COSTING CHAPTER 13
MARGINAL COSTING
PART – A
1. Under Marginal Cos ng, the Cost of Product for Inventory Valua on includes
-
(a) Prime Costs only
(b) Prime Costs and Variable Factory Overheads
(c) Prime Costs and Fixed Factory Overheads.
(d) Prime Costs and All Factory Overheads.

2. Repor ng under Marginal Cos ng is accomplished by

(a) Trea ng all Costs as Period Costs
(b) Elimina ng the Work-in-Progress Inventory Account.
(c) Matching Variable Costs against Revenue and trea ng Fixed Costs as Period
Costs.
(d) Including only Variable Costs in the Income Statement.

3. Period Costs are -

(a) Variable Costs
(b) Fixed Costs
(c) Prime Costs
(d) Overheads Costs

174
4. Which of the following best describes a Fixed Cost?
(a) It may change in total where such change is unrelated to changes in
produc on.
(b) It may change in total where such change is related to changes in
produc on.
(c) It is constant per unit of change in produc on.
(d) It may change in total where such change depends on produc on within the
relevant
range.

5. When Sales and Produc on (in units) are the same, then the Profit under
Marginal Cos ng
will be ...............when compared to Absorp on Cos ng.
(a) higher than
(b) lower than
(c) equal to
(d) None of the above

6. When Sales exceeds Produc on (in units), then the Profit under Marginal
Cos ng will
be...............when compared to Absorp on Cos ng.
(a) higher than
(b) lower than
(c) equal to
(d) None of above

7. When Sales is less than Produc on (in units), then the Profit under Marginal
Cos ng will be

175
...............when compared to Absorp on Cos ng.
(a) higher than
(b) lower than
(c)equal to
(d) None of above

8. The main difference between Marginal Cos ng and Absorp on Cos ng is

regarding the
treatment of:
(a) Prime Cost
(b) Fixed Overheads
(c) Direct Materials
(d) Variable Overheads

9. Under Profit Volume Ra o, the term Profit -

(a) means the Sales Proceeds in excess of Total Costs
(b) means the Net Opera ng Profit for the period
(c) represents the Profit available for distribu on for Dividend
(d) is a misnomer, it in fact refers to Contribu on i.e. (Sales Revenue less
Variable Costs).

10. PV Ra o will increase if there is -

(a) a decrease in Fixed Cost
(b) an increase in Fixed Cost
(c) a decrease in Selling Price per unit
(d) a decrease in Variable Cost per unit

176
11. Variable Cost-
(a) Remains fixed in total at all output levels
(b) Remains fixed per unit at all output levels
(c) Varies per unit for different output levels
(d) is dependent on the Profit earned

12. The technique of Differen al Cost is adopted -

(a) To ascertain PV Ra o
(b) To ascertain Marginal Cost
(c) To ascertain Total Cost per unit
(d) To make choice between two or more alterna ve courses of ac on

13. Difference between the costs of two alterna ves is known as the -
(a) Variable Cost
(b) Opportunity Cost
(c) Marginal Cost
(d) Differen al Cost

14. It is planned to sell 1,00,000 units of Product A at Rs.12 per unit. Fixed
Costs are Rs.2,80,000. To achieve a profit of Rs.2,00,000, what would the
Variable Costs be?
(a) Rs. 4,80,000
(b) Rs. 7,20,000
(c) Rs. 9,00,000
(d) Rs. 9,20,000

177
15. If Sales are Rs. 1,50,000 and Variable Cost are Rs. 50,000. Compute PV
Ra o.
(a) 66.66%
(b) 100%
(c) 133.33%
(d) 33.33%

16. Fixed Cost is Rs. 30,000 and Variable Cost Ra o is 80% Compute BEP in
Rupees.
(a) Rs. 37,500
(b) Rs. 1,50,000
(c) Rs. 1,87,500
(d) Rs. 1,12,500

17. A Firm has Fixed Expenses Rs.90,000, Sales Rs.3,00,000 and Profit
Rs.60,000. Its Variable Cost Ra o is -
(a) 30%
(b) 20%
(c) 60%
(d) 50%

18. Marginal Cos ng Technique follows the following basis of classifica on -

(a) Element wise
(b) Func on-wise
(c) Behaviour-wise
(d) Iden fiabiIity—wise

178
19. Factors which can change the Break-Even Point:
(a) Change in Total Fixed Costs
(b) Change in Variable Costs per unit
(c) Change in the Selling Price per unit
(d) All of the above

20. If PV Ra o is 40% of Sales, then the remaining 60% is called.........?

(a) Profit
(b) Fixed Cost
(c) Variable Cost
(d) Margin of Safety

21. If BEP is 40% of Sales, then the remaining 60% is called.........?

(a) Profit
(b) Fixed Cost
(c) Variable Cost
(d) Margin of Safety

22. If PVR is 60% and Profit is Rs.9,000, then Margin of Safety is -

(a) Rs. 5,400
(b) Rs. 15,000
(c) Rs.22,500
(d) Rs.3,600

23. If Sales are Rs. 90,000 and Variable Cost to Sales is 75%. Contribu on is -
(a) Rs.90,000

179
(b) Rs.22,500
(c) Rs. 1,12,500
(d) Rs. 67,500

24. Contribu on is Rs. 1,25,000, Break Even Point at 40% of Total Sales is
Rs.2,50,000. Compute
PVR.
(a) 50%
(b) 20%
(c) 17.5%
(d) 12.5%

25. Net Profit Ra o is 12% and BEP is 40% of Total Sales. Compute PV Ra o.
(a) 60%
(b) 52%
(c) 28%
(d) 20%

26. A Company manufactures a product and sells at a Unit Price of Rs.75.

Annual Fixed Cost
is Rs.90,000 per year. The Contribu on to Sales ra o is 40%. What will be the
Break Even
Quan ty of the Company?
(a) 1,200 units
(b) 2,000 units
(c) 3,000 units
(d) 4,000 units

180
27. Product A generates a Contribu on of 40% on Sales. Fixed Cost a ributable
to A is Rs.75,000. What is the Sales Revenue required to achieve a profit of
Rs.25,000?
(a) Rs 2,50,000
(b) Rs 2,25,000
(c) Rs 1,87,500
(d) Rs 62,500

28. Sales and Profit of a Firm for last year are Rs.3,00,000 and Rs.75,000. The
corresponding
figures for the current year are Rs.5,00,000 and Rs.2,00,000 respec vely. The
PV Ra o of the
Firm is
(a) 12.5%
(b) 50.0%
(c) 62.5%
(d) 37.5

ANSWERS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(b) (c) (b) (a) (c) (a) (b) (b) (d) (d) (b) (d) (d) (b) (a)
16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28.
(b) (d) (c) (d) (c) (d) (b) (b) (b) (d) (c) (a) (c)

181
 PART – B
1. Variable Cost:
(a) Remains fixed in total at all output levels
(b) Remains fixed per unit at all output levels
(c) Varies per unit for different output levels
(d) is dependent on the Profit earned

2. The technique of Differen al Cost is adopted:

(a) To ascertain PV Ra o
(b) To ascertain Marginal Cost
(c) To ascertain Total Cost per unit
(d) To make a choice between two or more alterna ve courses of
ac on

3. Period Costs are:

(a) Variable Costs
(b) Fixed Costs
(c) Prime Costs
(d) Overhead Costs

4. Which of the following best describes a Fixed Cost?

(a) It may change in total where such change is unrelated to
changes in produc on

182
 (b) It may change in total where such change is related to changes
in produc on
(c) It is constant per unit of change in produc on
(d) It may change in total where such change depends on
produc on within the relevant range

5. When Sales and Produc on (in units) are the same, then the Profit
under Marginal Cos ng will be when compared to Absorp on
Cos ng:
(a) higher than
(b) lower than
(c) equal to
(d) None of the above

6. When Sales exceeds Produc on (in units), then the Profit under
Marginal Cos ng will be:
(a) higher than
(b) lower than
(c) equal to
(d) None of above

7. When Sales are less than Produc on (in units), then the Profit
under Marginal Cos ng will be:
(a) higher than
(b) lower than

183
 (c) equal to
(d) None of above

8. The main difference between Marginal Cos ng and Absorp on

Cos ng is regarding the treatment of:
(a) Prime Cost
(b) Fixed Overheads
(c) Direct Materials
(d) Variable Overheads

9. Under Profit Volume Ra o, the term Profit:

(a) means the Sales Proceeds in excess of Total Costs
(b) means the Net Opera ng Profit for the period
(c) represents the Profit available for distribu on for Dividend
(d) is a misnomer, it in fact refers to Contribu on i.e. (Sales Revenue
less Variable Costs)

10. PV Ra o will increase if there is:

(a) a decrease in Fixed Cost
(b) an increase in Fixed Cost
(c) a decrease in Selling Price per unit
(d) a decrease in Variable Cost per unit
11. Under Marginal Cos ng, the Cost of Product for Inventory
Valua on includes:
(a) Prime Costs only
184
 (b) Prime Costs and Variable Factory Overheads
(c) Prime Costs and Fixed Factory Overheads
(d) Prime Costs and All Factory Overheads

12. Repor ng under Marginal Cos ng is accomplished by:

(a) Trea ng all Costs as Period Costs
(b) Elimina ng the Work-in-Progress Inventory Account
(c) Matching Variable Costs against Revenue and trea ng Fixed
Costs as Period Costs
(d) Including only Variable Costs in the Income Statement

13. Difference between the costs of two alterna ves is known as:
(a) Variable Cost
(b) Opportunity Cost
(c) Marginal Cost
(d) Differen al Cost

14. It is planned to sell 1,00,000 units of Product A at Rs.12 per unit.

Fixed Costs are Rs.2,80,000. To achieve a profit of Rs.2,00,000, what
would the Variable Costs be?
(a) Rs. 4,80,000
(b) Rs. 7,20,000
(c) Rs. 9,00,000
(d) Rs. 9,20,000

185
15. If Sales are Rs.1,50,000 and Variable Costs are Rs.50,000.
Compute PV Ra o.
(a) 66.66%
(b) 100%
(c) 133.33%
(d) 33.33%

16. Fixed Cost is Rs.30,000 and Variable Cost Ra o is 80%. Compute

BEP in Rupees.
(a) Rs.37,500
(b) Rs.1,50,000
(c) Rs.1,87,500
(d) Rs.1,12,500

17. A Firm has Fixed Expenses Rs.90,000, Sales Rs.3,00,000, and

Profit Rs.60,000. Its Variable Cost Ra o is:
(a) 30%
(b) 20%
(c) 60%
(d) 50%

18. Marginal Cos ng Technique follows the following basis of

classifica on:
(a) Element-wise
(b) Func on-wise

186
 (c) Behavior-wise
(d) Iden fiability-wise

19. Factors which can change the Break-Even Point:

(a) Change in Total Fixed Costs
(b) Change in Variable Costs per unit
(c) Change in the Selling Price per unit
(d) All of the above

20. If PV Ra o is 40% of Sales, then the remaining 60% is called:

(a) Profit
(b) Fixed Cost
(c) Variable Cost
(d) Margin of Safety

21. If BEP is 40% of Sales, then the remaining 60% is called:

(a) Profit
(b) Fixed Cost
(c) Variable Cost
(d) Margin of Safety

22. If PVR is 60% and Profit is Rs.9,000, then the Margin of Safety is:
(a) Rs.5,400
(b) Rs.15,000

187
 (c) Rs.22,500
(d) Rs.3,600

23. If Sales are Rs.90,000 and Variable Cost to Sales is 75%,

Contribu on is:
(a) Rs.90,000
(b) Rs.22,500
(c) Rs.1,12,500
(d) Rs.67,500

24. Contribu on is Rs.1,25,000, Break Even Point at 40% of Total

Sales is Rs.2,50,000, Compute PVR.
(a) 50%
(b) 20%
(c) 17.5%
(d) 12.5%

25. Net Profit Ra o is 12% and BEP is 40% of Total Sales. Compute PV
Ra o.
(a) 60%
(b) 52%
(c) 28%
(d) 20%

188
26. A Company manufactures a product and sells at a Unit Price of
Rs.75. Annual Fixed Cost is Rs.90,000 per year. The Contribu on to
Sales ra o is 40%. What will be the Break Even Quan ty of the
Company?
(a) 1,200 units
(b) 2,000 units
(c) 3,000 units
(d) 4,000 units

27. Product A generates a Contribu on of 40% on Sales. Fixed Cost

a ributable to A is Rs.75,000. What is the Sales Revenue required to
achieve a profit of Rs.25,000?
(a) Rs.2,50,000
(b) Rs.2,25,000
(c) Rs.1,87,500
(d) Rs.62,500

28. Sales and Profit of a Firm for last year are Rs.3,00,000 and
Rs.75,000. The corresponding figures for the current year are
Rs.5,00,000 and Rs.2,00,000 respec vely. The PV Ra o of the Firm is:
(a) 12.5%
(b) 50.0%
(c) 62.5%
(d) 37.5%

189
1 2 3 4 5 6 7 8 9 10
B D B A C A B B D D
11 12 13 14 15 16 17 18 19 20
B C D B A B D C D C
21 22 23 24 25 26 27 28
D B B B D C A C

190
 COSTING CHAPTER 14
BUDGETARY CONTROL
PART – A

1. Budgets are shown in............Terms

(a) systema c
(b) quan ta ve
(c) abstract
(d) pessimis c

2. Which of the following is not an element of Master Budget?

(a) Capital Expenditure Budget
(b) Produc on Schedule
(c) Opera ng Expenses Budget
(d) All of the above

3. Sales Budget is a-
(a) Expenditure Budget
(b) Func onal Budget
(c) Master Budget
(d) Cash Budget

191
4. If a Company wishes to establish a Factory Overhead Budget
System in which es mated
costs can be derived directly from es mates of ac vity levels, it
should prepare a:
(a) Master Budget
(b) Cash Budget
(c) Flexible Budget
(d) Fixed Budget

5. The classifica on of Fixed and Variable Cost is useful for the

prepara on of:
(a) Master Budget
(b) Flexible Budget
(c) Cash Budget
(d) Capital Budget

6. The basic difference between a Fixed Budget and Flexible Budget is

that a Fixed Budget -
(a) is concerned with a single level of ac vity, while Flexible Budget is
prepared for
different levels of ac vity
(b) is concerned with Fixed Costs, while Flexible Budget is concerned
with Variable Costs.
(c) is fixed while Flexible Budget changes

192
(d) cannot be differen ated from a Flexible Budget

7. A Flexible Budget requires a careful study of -

(a) Actual and Standard Expenses
(b) Past and Current Expenses
(c) Produc on Overheads, Selling and Administra ve Expenses.
(d) Fixed, Semi-Fixed and Variable Expenses

8. Budget Manual is a document:

(a) Which contains different type of Budgets to be formulated only.
(b) Which contains the details about Standard Cost of the products to
be made.
(c) Se ng out the budget organiza on and procedures for preparing
a budget including fixa on of responsibili es, formats and records
required for the purpose of preparing a budget and for exercising
budgetary control system.
(d) None of the above.

9. The Budget Control Organiza on is usually headed by a top

execu ve who is known as -
(a) General Manager
(b) Budget Director/Budget Controller
(c) Accountant of the Organiza on
(d) None of the above.

193
10. "A Favourable Budget Variance is always an indica on of efficient
performance". Do you agree, give reason?
(a) A favourable variance indicates, saving on the part of the
organiza on hence it indicates efficient performance of the
organiza on.
(b) Under all situa ons, a Favourable Variance of an organiza on
speaks about its efficient performance.
(c) A Favourable Variance does not necessarily indicate efficient
performance, because such a Variance might have been arrived at by
not carrying out the expenses men oned in the budget.
(d) None of the above.

11. A Budget Report is prepared on the principle of excep on and

thus-
(a) Only Unfavourable Variances should be shown
(b) Only Favourable Variance should be shown
(c) Both Favourable and Unfavourable Variances should be shown
(d) Need not be prepared at all.

12. Which of the following is not a poten al benefit of using a

Budge ng System?
(a) More mo vated Managers
(b) Enhanced co-ordina on of Firm ac vi es
(c) Improved Inter-Departmental Communica on
(d) More accurate Financial Statements for External Repor ng

194
13. Cash Budget of a Company indicates a possibility of a short-term
surplus. Which of the following would be appropriate ac on to be
taken in such a situa on?
(a) Purchase new Fixed Assets
(b) Repay Long-Term Loans
(c) Write off Preliminary Expenses
(d) Pay Creditors early to obtain a Cash Discount

14. Efficiency Ra o is:

(a) Ac vity Ra o mul plied by Capacity Ra o
(b) Ac vity Ra o divided by Capacity Ra o
(c) Calendar Ra o mul plied by Capacity Ra o
(d) Calendar Ra o divided by Capacity Ra o

15. Ac vity Ra o depicts whether -

(a) the actual capacity u lized exceeds or falls short of the budgeted
capacity
(b) the actual hours used for actual produc on were more or less
than the standard hours
(c) the actual ac vity was more or less than the budgeted capacity
(d) the actual days worked was more or less than the planned days

16. Which of the following is usually a Short-Term Budget?

(a) Capital Expenditure Budget
(b) Research and Development Budget

195
(c) Cash Budget
(d) All of the above

17. Which of the following is a Long-Term Budget?

(a) Master Budget
(b) Flexible Budget
(c) Cash Budget
(d) Capital Expenditure Budget

18. If an organiza on has all the resources it needs for produc on,
then the Principal Budget Factor will be -
(a) non-exis ng
(b) Sales Demand
(c) Raw Materials
(d) Labour Supply

19. Materials become Key Factor, if

(a) quota restric ons exist
(b) insufficient adver sement prevails
(c) there is low demand
(d) there is no problem with supplies of materials

20. The budget that is prepared first of all is -

(a) Master Budget

196
(b) Budget with Key Factor
(c) Cash Budget
(d) Capital Expenditure Budget

ANSWERS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

(b) (b) (b) (c) (b) (a) (d) (c) (b) (c) (c) (d) (d) (b) (c)
16. 17. 18. 19. 20.
(c) (d) (b) (a) (b)
PART – B

1. A Budget Report is prepared on the principle of excep on and thus

-
(a) Only Unfavourable Variances should be shown
(b) Only Favourable Variance should be shown
(c) Both Favourable and Unfavourable Variances should be shown
(d) Need not be prepared at all

2. Which of the following is not a poten al benefit of using a

Budge ng System?
(a) More mo vated Managers
(b) Enhanced co-ordina on of Firm ac vi es

197
 (c) Improved Inter-Departmental Communica on
(d) More accurate Financial Statements for External Repor ng

3. Sales Budget is a -
(a) Expenditure Budget
(b) Func onal Budget
(c) Master Budget
(d) Cash Budget

4. If a Company wishes to establish a Factory Overhead Budget

System in which es mated costs can be derived directly from
es mates of ac vity levels, it should prepare a:
(a) Master Budget
(b) Cash Budget
(c) Flexible Budget
(d) Fixed Budget

5. The classifica on of Fixed and Variable Cost is useful for the

prepara on of:
(a) Master Budget
(b) Flexible Budget
(c) Cash Budget
(d) Capital Budget

198
6. The basic difference between a Fixed Budget and Flexible Budget is
that a Fixed Budget -
(a) is concerned with a single level of ac vity, while Flexible Budget
is prepared for different levels of ac vity
(b) is concerned with Fixed Costs, while Flexible Budget is
concerned with Variable Costs
(c) is fixed while Flexible Budget changes
(d) cannot be differen ated from a Flexible Budget

7. A Flexible Budget requires a careful study of -

(a) Actual and Standard Expenses
(b) Past and Current Expenses
(c) Produc on Overheads, Selling and Administra ve Expenses
(d) Fixed, Semi-Fixed, and Variable Expenses

8. Budget Manual is a document:

(a) Which contains different types of Budgets to be formulated only
(b) Which contains the details about Standard Cost of the products
to be made
(c) Se ng out the budget organiza on and procedures for
preparing a budget including fixa on of responsibili es, formats, and
records required for the purpose of preparing a budget and for
exercising budgetary control system
(d) None of the above

199
9. The Budget Control Organiza on is usually headed by a top
execu ve who is known as:
(a) General Manager
(b) Budget Director/Budget Controller
(c) Accountant of the Organiza on
(d) None of the above

10. "A Favourable Budget Variance is always an indica on of efficient

performance". Do you agree, give a reason?
(a) A favourable variance indicates saving on the part of the
organiza on, hence it indicates efficient performance of the
organiza on
(b) Under all situa ons, a favourable variance of an organiza on
performance speaks about its efficient
(c) A favourable variance does not necessarily indicate efficient
performance because such a variance might have been arrived at by
not carrying out the expenses men oned in the budget
(d) None of the above

11. Budgets are shown in ....... Terms.

(a) systema c
(b) quan ta ve
(c) abstract
(d) pessimis c

12. Which of the following is not an element of Master Budget?

200
 (a) Capital Expenditure Budget
(b) Produc on Schedule
(c) Opera ng Expenses Budget
(d) All of the above
13. Cash Budget of a Company indicates a possibility of a short-term
surplus. Which of the following would be the appropriate ac on to
be taken in such a situa on?
(a) Purchase new Fixed Assets
(b) Repay Long-Term Loans
(c) Write off Preliminary Expenses
(d) Pay Creditors early to obtain a Cash Discount

14. Efficiency Ra o is:

(a) Ac vity Ra o mul plied by Capacity Ra o
(b) Ac vity Ra o divided by Capacity Ra o
(c) Calendar Ra o mul plied by Capacity Ra o
(d) Calendar Ra o divided by Capacity Ra o

15. Ac vity Ra o depicts whether:

(a) the actual capacity u lized exceeds or falls short of the
budgeted capacity
(b) the actual hours used for actual produc on were more or less
than the standard hours
(c) the actual ac vity was more or less than the budgeted capacity

201
 (d) the actual days worked were more or less than the planned
days

16. Which of the following is usually a Short-Term Budget?

(a) Capital Expenditure Budget
(b) Research and Development Budget
(c) Cash Budget
(d) All of the above

17. Which of the following is a Long-Term Budget?

(a) Master Budget
(b) Flexible Budget
(c) Cash Budget
(d) Capital Expenditure Budget

18. If an organiza on has all the resources it needs for produc on,
then the Principal Budget Factor will be -
(a) non-exis ng
(b) Sales Demand
(c) Raw Materials
(d) Labour Supply

19. Materials become the Key Factor if:

(a) quota restric ons exist

202
 (b) insufficient adver sement prevails
(c) there is low demand
(d) there is no problem with supplies of materials

20. The budget that is prepared first of all is:

(a) Master Budget
(b) Budget with Key Factor
(c) Cash Budget
(d) Capital Expenditure Budget

1 2 3 4 5 6 7 8 9 10
C D B C B A D C B C
11 12 13 14 15 16 17 18 19 20
B B D B C C D B A B

203