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MGT402 Mid Term

Which of the following is added in purchases in order to get the value of Net
purchases?
► Purchases returns
►Carriage inward
► Trade discount
► Rebates
A typical factory overhead cost is:
► Distribution
► Internal audit
►Compensation of plant manager
► Design
Costs that change in response to alternative courses of action are called:
► Relevant costs
►Differential costs
► Target costs
► Sunk costs
Which of the following best describes the manufacturing costs?
►Direct materials, direct labor and factory overhead
► Direct materials and direct labor only
► Direct materials, direct labor, factory overhead, and administrative
overhead
► Direct labor and factory overhead

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MGT402 Mid Term

If,
COGS = Rs. 50,000
GP Margin = 25% of sales
What will be the value of Sales?
► Rs. 200,000
► Rs. 66,667
► Rs. 62,500
► Rs. 400,000
Which of the following is correct?
► Units sold= Opening finished goods units + Units produced – Closing
finished goods units
► Units Sold = Units produced + Closing finished goods units – Opening
finished goods units
► Units sold = Sales + Average units of finished goods inventory
► Units sold = Sales - Average units of finished goods inventory
When prices are rising over time, which of the following inventory costing
methods will result in the lowest gross margin?
► FIFO
► LIFO
► Weighted Average
► Cannot be determined
Which of the following would be the effect, if inventory is not properly measured?

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MGT402 Mid Term

► Expenses and revenues cannot be properly matched

► Unfair position in Financial Statements
► Inventory items show under or over stocking
► All of the given options
If, Basic Salary = Rs.10,000
Per Piece commission = Rs. 5
Unit sold = 700 pieces
What will be the total Salary?
► Rs. 3,500
► Rs. 13,500
► Rs. 10,000
► Rs. 6,500
Nelson Company has following FOH detail.
Budgeted (Rs.) Actual (Rs.)
Production Fixed overheads 36,000 39,000
Production Variable overheads 9,000 12,000
Direct labor hours 18,000 20,000
What would be the amount of under/over applied FOH
► Under applied by Rs.1,000
► Over applied by Rs.1,000
► Under applied by Rs.11,000
► Over applied by Rs.38,000

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MGT402 Mid Term

Which of the following loss is expected in manufacturing process and represents a

necessary cost of processing the marketable units?
► Operating loss
► Abnormal loss
►Normal loss
► Extraordinary loss
The components of total factory cost are:
► Direct Material + Direct Labor
► Direct Labor + FOH
► Prime Cost only
► Prime Cost + FOH
The FIFO inventory costing method (when using a perpetual inventory system)
assumes that the cost of the earliest units purchased is allocated in which of the
following ways?
► First to be allocated to the ending inventory
► Last to be allocated to the cost of goods sold
► Last to be allocated to the ending inventory
► First to be allocated to the cost of good sold
Which of the following is NOT an assumption of the basic economic-order
quantity model?
► Annual demand is known
► Ordering cost is known

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MGT402 Mid Term

► Carrying cost is known

► Quantity discounts are available
Given data that:
Work in Process Opening Inventory Rs. 20,000
Work in Process Closing Inventory 10,000
Finished goods Opening Inventory 30,000
Finished goods Closing Inventory 50,000
Cost of goods sold 190,000
What will be the value of cost of goods manufactured?
► Rs. 200,000
► Rs. 210,000
► Rs. 220,000
► Rs. 240,000
Payroll includes:
► Salaries & Wages of direct labor
► Salaries & Wages of Indirect labor
► Salaries & Wages of Administrative staff
► Salaries & Wages of direct labor, Indirect labor, and Administrative &
Selling Staff
Which of the given statement is CORRECT for Indirect Labor?
► It is charged to factory over head account
► It is charged to work in process

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MGT402 Mid Term

► It is entire production
► It is charged to administrative expenses
A production worker paid salary of Rs. 700 per month plus an extra Rs. 5 for each
unit produced during the month. This labor cost is best described as:
► A fixed cost
► A variable cost
► A semi variable cost
► A step fixed cost
With reference to cost of production report, cost accounted for as follows is also
known as:
►Cost reconciliation
► Bank reconciliation
► Cash reconciliation
► Capital reconciliation
Cost accountants are concerned about the ratios relating to the Profits and
Manufacturing costs. These ratios might include:
► Gross Mark up rate
► Inventory turnover ratio
► Cost of goods sold to sales ratio
► All of the given options

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MGT402 Mid Term

You made Rs. 10,000 loan to your cousin's company. At the end of one year, the
company returned to you Rs. 10,850. The Rs. 850 is called which one of the
following?
► Increases in loan
► Increases in dividends
► An 8.5% return on investment
► All of the given options
[{Time Allowed – Actual Time taken x 100 x Basic Pay} + Basic Pay]
Time Allowed
Above mentioned formula is derivation of:
► Rowan Plan
► Halsey Premium Plan
► Halsey Weir Plan
► Merrick's differential system
The chief financial officer is also known as the:
► Controller
► Staff accountant
► Auditor
► Finance director
Which of the following is a cost that changes in proportion to changes in volume?
► Fixed cost
► Sunk cost

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MGT402 Mid Term

► Opportunity cost
► None of the given options
Costs that change in response to alternative courses of action are called:
► Relevant costs
► Differential costs
► Target costs
► Sunk costs
Which of the following is a period cost?
► Direct materials
► Indirect materials
► Factory utilities
► Administrative expenses
Which of the following costs would NOT be a period cost?
► Indirect materials
► Administrative salaries
► Advertising costs
► Selling costs
Total production cost is combination of which of the following costs?
► Prime cost and Factory Overhead
► Conversion cost and Direct Material
► Direct material, Direct Labor and Factory Overhead
► All of the given options

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MGT402 Mid Term

Which of the following method of inventory valuation is not recommended under

IAS 02?
► LIFO
► FIFO
► Weighted Average
► Both LIFO & FIFO
EOQ is a point where:
► Ordering cost is equal to carrying cost
► Ordering cost is higher than carrying cost
► Ordering cost is lesser than the carrying cost
► Total cost is maximum
In cost Accounting, normal loss is/are charged to:
► Factory overhead control account
► Work in process account
► Income Statement
► All of the given options
Material requisition is a document that supports the requirement of the material.
This document is sent to store incharge and approved by:
► Store manager
► Production manager
► Supplier manager
► Purchase manager

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MGT402 Mid Term

If, Basic Salary Rs.10,000

Per Piece commission Rs. 5
Unit sold 700 pieces
What will be the total Salary?
► Rs. 3,500
► Rs. 13,500
► Rs. 10,000
► Rs. 6,500
If, Wage rate = Rs. 100/hr
Working hours = 8 hours
Shift allowance = Rs. 500
Total pay will be:
► Rs. 800
► Rs. 500
► Rs. 1,300
► Rs. 300
Where there is mass production of homogeneous units or where few products are
produced in batches, which of the following cost driver would be regarded as best
base for the determination of Factory overhead absorption rate?
► Number of units produced
► Labor hours
► Prime cost

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MGT402 Mid Term

► Machine hours
Which of the following is NOT included under the head of FOH cost?
► Indirect Material
► Indirect Labor
► Indirect Expense
► Direct labor
The term Cost apportionment is referred to:
► The costs that can not be identified with specific cost centers.
► The total cost of factory overhead needs to be distributed among specific
cost centers but must be divided among the concerned department/cost centers.
► The total cost of factory overhead needs to be distributed among specific
cost centers.
► None of the given options
The difference over the period of time between actual and applied FOH will
usually be minimal when the predetermined overhead rate is based on:
► Normal capacity
► Designed capacity
► Direct Labor hours
► Machine hours
The appropriate journal entry to transfer the cost of completed units from the
Work in Process account would involve a credit to Work in Process and a debit to
which of the following accounts?

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MGT402 Mid Term

► Income Summary
► Raw Materials Inventory
► Finished Goods
► Manufacturing Summary
In a process costing system, the journal entry used to record the transfer of units
from Department A, a processing department, to Department B, the next
processing department, includes a debit to:
► Work in Process Department A and a credit to Work in Process
Department B
► Work in Process Department B and a credit to Work in Process
Department A
► Work in Process Department B and a credit to Materials
► Finished Goods and a credit to Work in Process Department B
Which of the following loss is expected in manufacturing process and represents a
necessary cost of processing the marketable units?
► Operating loss
► Abnormal loss
► Normal loss
► Extraordinary loss
A chemical process has no normal wastage of input. In a period, 3,500 Kg of
material were in put and there was abnormal loss of 15% of in put. What quantity
of good production was achieved?

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► 2,175 Kg
► 2,975 Kg
► 3,325 Kg
► 4,425 Kg
The following data is available for the Bricks Company:
Particulars Rs.
Freight in 20,000
Purchases return and allowances 80,000
Marketing expenses 200,000
Finished goods Inventory, ending 90,000
Cost of goods sold 700% of marketing expenses
Calculate the cost of goods available for sales if Gross Profit is 50% of cost of
goods sold.
► Rs. 1,390,000
► Rs. 1,490,000
► Rs. 1,500,000
► Rs. 1,590,000
The Economic Order Quantity is the amount of inventory to be ordered at one
time for purpose to minimize:
► Conversion cost
► FOH cost
► Inventory cost

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► Prime cost
If management decides to buy in large quantities by placing few orders, it means
► Higher carrying cost and lower ordering cost
► Lower carrying cost and lower ordering cost
► Higher carrying cost and higher ordering cost
► Lower carrying cost and higher ordering cost
Who issues the Material Requisition form?
► Store incharge
► Work station incharge
► Supplier
► Manager
Overtime premium which is paid to direct labor is charged to which of the
following in head in case of normal circumstances?
► Work in process account
► Entire production
► Factory over head Cost account
► Selling control account
Opportunity cost is the best example of:
► Relevant Cost
► Irrelevant Cost
► Standard Cost
► Sunk Cost

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MGT402 Mid Term

____________ is the cost that is incurred at the time of making transaction.

► Product Cost
► Period Cost
► Sunk Cost
► Historical Cost
Which of the following is calculated by a formula that uses net sales as
denominator?
► Inventory turnover ratio
► Gross profit rate
► Return on Investment
► None of the given options
While transporting petrol, a little quantity will be evaporated; such kind of loss is
termed as:
► Normal Loss.
► Abnormal Loss.
► Incremental Loss.
► Incremental abnormal loss.
A typical factory overhead cost is:
► Distribution
► Internal audit
► Compensation of plant manager
► Design

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MGT402 Mid Term

An average cost is also known as:

► Variable cost
► Unit cost
► Total cost
► Fixed cost
Period costs are:
► Expensed when the product is sold
► Included in the cost of goods sold
► Related to specific period
► Not expensed
Costs that change in response to alternative courses of action are called:
► Relevant costs
► Differential costs
► Target costs
► Sunk costs
Which of the following is a period cost?
► Direct materials
► Indirect materials
► Factory utilities
► Administrative expenses
When purchases are added to raw material opening Inventory, we get the value
of:

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MGT402 Mid Term

► Material consumed.
► Material available for use.
► Material needed.
► Raw material ending inventory.
Which of the following is deducted from purchases in order to get the value of
Net purchases?
► Purchases returns
► Carriage inward
► Custom duty
► All of the given options
Which of the following cost is used in the calculation of cost per unit?
► Total production cost
► Cost of goods available for sales
► Cost of goods manufactured
► Cost of goods Sold
When prices are rising over time, which of the following inventory costing
methods will result in the lowest gross margin?
► FIFO
► LIFO
► Weighted Average
► Cannot be determined
Counting items to ensure an order is correct, is an activity relates to:

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► Ordering cost
► Carrying cost
► Stock out cost
► Holding cost

Questions:

Question No: 1 ( Marks: 3 )

50, 000 units were received from preceding department, 9,000 units were still in
process at the end of month (complete all material, 75% Labour & FOH). 500 lost
units were 60% complete as to material and conversion costs. This loss is
considered as abnormal and is to be charged to factory overhead.
Required: You are required to calculate equivalent units of material, labour and
factory overhead.

Question No: 2 ( Marks: 5 )

Irfan Industries Limited has two production departments A and B and two
mutually interdependent service departments X and Y. Cost of service
departments is apportioned on the basis of following %ages:
A B X Y
Service department X 50% 30% - 20%
Service department Y 40% 50% 10% -

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MGT402 Mid Term

Following figures of departmental costs are available after the primary

distribution:
Department A 15,750, Department B 7,500
Department X 11,750, Department Y 5,000
Required: Calculate total factory overhead of production department by
preparing a work sheet showing the secondary distribution using Repeated
apportionment method.

Question No: 3 ( Marks: 5 )

Factory overhead absorption rate of a pharmaceutical is Rs 2.50. Budgeted
Factory overhead at two activity levels is as follows for that period.
Activity level Budgeted factory overhead
Low 20,000 Hours Rs. 45,000
High 40,000 Hours Rs. 75,000
Actual Factory overhead for that period was Rs. 42,000 and actual volume was
25,000 hours.
Required:
i. Variable factory overhead absorption rate
ii. Budgeted variable factory overhead at high activity level 40,000 hours.
iii. Budgeted fixed factory overhead

Question No: 4 ( Marks: 3 )

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MGT402 Mid Term

Units transferred out to next department 20,000 units. Units lost at beginning of
production 500 units. Units in process 2,500 units which were complete as to
materials, 1/2 complete as to labor and factory overhead.
Required: Prepare the Quantity Schedule

Question No: 5 ( Marks: 5 )

Patacake Ltd produces a certain food item in a manufacturing process. On 1st
November there was no opening stock in process. During November, 500 units of
material were put in to process, with a cost of Rs, 9,000. Units completed and
transferred-out were 400 units. Direct labor cost in November was R.3840.
Production overhead is absorbed at the rate of 200% of direct labor costs.
Closing stock on 30th November consisted of 100 units which were 100%
completed as to materials and 80% completed as to labor and over head.
Required: The full production cost of completed units during November?

Question No: 6 ( Marks: 5 )

Ali Company estimates its factory overhead for the next period at Rs. 64,000. It is
estimated that 30,000 units will be produced at material cost of Rs. 65,000.
Production will require 25,000 direct labor hours at an estimated cost of Rs.
130,000. The machine will run about 18,000 hours.
Required: the predetermined factory overhead rate based on:
i. Units of production

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MGT402 Mid Term

ii. Direct labor hours

iii. Machine hours
iv. Direct labour cost
v. Material cost

Question No: 6 ( Marks: 10 )

Define the following term with examples
1- Sunk cost
2- Implicit cost
3- Explicit cost
4- Opportunity cost
5- Historic cost

Question No: 7 ( Marks: 10 )

The Mars Company applies factory overheads to production by means of
predetermined rate based on expected actual capacity. Factory overhead at
expected actual capacity of 120,000 hours is Rs. 240,000 of which Rs. 60,000 is
fixed and Rs. 180,000 is variable. Normal capacity of the company is 150,000
hours. The actual capacity attained during the year was 100,000 hours and actual
factory overhead was Rs. 180,000.

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MGT402 Mid Term

Calculate: Pre-determined overhead rate based on expected actual capacity and

normal capacity.
1. Over-applied or under-applied factory overhead based on rate used by the
company.
2. Budget variance and volume variance

Question No: 8 ( Marks: 10 )

Differentiate between process costing and job order costing.

Question No: 9 ( Marks: 10 )

Discuss the Avoidable and Unavoidable Causes of Labor Turnover.

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