Amity Campus

Uttar Pradesh
India 201303

ASSIGNMENTS
PROGRAM: MFC
SEMESTER-II
Subject Name
Study COUNTRY
Roll Number (Reg.No.)
Student Name

: Cost Accounting
:
:
:

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions

MARKS
10
10
10

b)
c)
d)
e)

Total weightage given to these assignments is 30%. OR 30 Marks

All assignments are to be completed as typed in word/pdf.
All questions are required to be attempted.
All the three assignments are to be completed by due dates and need to be submitted for
evaluation by Amity University.
f) The students have to attached a scan signature in the form.

Signature :
Date
:

_________________________________
_________________________________

( ) Tick mark in front of the assignments submitted

Assignment
Assignment B
Assignment C
A

Cost Accounting
SECTION A:
Q1 What is cost accounting? What are its objectives?
Q2 Briefly explain the different ways of classifying cost.
. Q2. Briefly explain the different ways of classifying cost. Answer: CLASSIFICATION OF COST
Classification of costs is the process of grouping costs according to their common characteristics. The
following are criteria that are employed in the classification of cost. By The Nature of Element Under
criterion the cost are divided into three categories of materials, labour and overheads. Materials are
the principal substances that go into the production process. These can further be classified into
direct materials and indirect materials. Labour is the human effort to produce goods and services by
application of talent, training and skills. This can also be subdivided into direct and indirect labour.
Overheads are elements of cost that are incurred in the production of an item or provision of a service
which are not directly linked to the item/service output and as such can not be determined accurately
or readily. They result from objects of expenditure that can not be traced into the finished product or
end service. They do not form an integral part of finished product. By Functions This is the
classification of cost according to the division that exist due to the various functions carried out in a
business entity, or according to the basic managerial activities of administration , production
/operations, selling and distribution Administration costs are costs incurred for planning, directing,
controlling and operating a company. Such costs include salaries of managers or directors and other
administrative staff. Production costs are all those costs that constitute the process that is called
production which includes manufacturing and construction or fabrication of units of production. This
may also constitute operations for a service oriented business. Selling costs are costs incurred during
the process of seeking to create and stimulate demand for product and securing orders. These
include advertisement, salespersons salaries, etc. Distribution costs are the costs of a sequence of
operations which begin with making the final and ready product available for dispatch, through
making it available to the customer, and return of empty packages if any available for re-use,
depending on the case. Examples are insurance on goods in transit, warehousing and transportation.
By Traceability Classification by traceability divides total cost into direct and indirect costs. Direct
costs are those incurred for, and may be conveniently identified with a particular cost centre or cost
unit. Examples include materials used or labour employed in manufacturing an item or in a particular
process of production. Indirect costs are those costs that are incurred for the benefit of a number of
cost units or cost centres and can not be conveniently traced to a particular cost centre or cost unit.
Examples include rent of a building, managerial/administrative costs and electricity bills. By
Variability The basis for this classification is the behaviour of costs in response or in relation to
changes in the level of activity or volume of production. Fixed Costs are costs that remain the same in
total regardless of the level of activity or volume of production for a given period of time or for a
given range of output. Fixed costs per unit vary inversely with volume of production, since the more
produced the less the portion of fixed cost attributed to a single unit of output. Examples include rent,
salaries of permanent employees. Variable costs are costs whose total varies directly with volume of
output. The cost per unit remains relatively constant with changes in volume of production or level of
activity but the total varies directly with output. Examples include direct material costs, direct labour
cost, and power consumption costs. Semi-variable costs are costs that are partly fixed and partly vary
with the volume of production or level of activity. Examples include post paid phone bills which are
made up of a minimum charge and another part calculated from the calls made. By Controllability
Under this criterion for classification are controllable and uncontrollable costs. Controllable costs are
costs that can be influenced by the action of a specified member of an undertaking, i.e. they are at
least partly or in full under managements control. Uncontrollable costs are costs that can not be
influenced by the action of a specified member of an undertaking, i.e. they are not within the control
of management, e.g. licensing costs. By Normality This mode of classification brings out normal and
abnormal costs. Normal costs are costs that are normally incurred at a given level of output in the
conditions in which that level of output is normally attained, and therefore form part of production
cost. Abnormal Costs are costs that are not normally incurred at a given level of output in the
conditions in which that level of output is normally attained, and are therefore not considered part of
production cost and are charged to the costing profit and loss account. By Financial Accounting
(Capital or Revenue) This classification groups costs into capital costs and revenue costs. Capital
costs or capital expenditure are costs incurred in purchasing assets either to earn income or

increasing the earning capacity of a business, e.g. cost of a processing machine in a manufacturing
plant. Capital costs are not included when computing total cost. Revenue costs or revenue
expenditure are expenditure arising from the maintenance of the earning capacity of the business
e.g. cost of maintenance of an asset or cost of material used in production, labour costs, etc. These
are included when computing total cost. By Time Under this classification are historical costs and
predetermined costs Historical costs are costs which are only ascertained after being incurred and
therefore can not be used for cost control purposes. Predetermined costs are cost estimates,
computed before being incurred basing upon previous periods costs and factors affecting such costs.
These can be used for cost planning and controlling purposes. By Association with Product Under this
classification are product costs and period costs Product costs are costs associated with units of
output the ones absorbed by or attached to units produced. These include direct material costs,
direct labour and factory overheads (either partly or fully depending on the type of costing system).
These costs are carried forward to the next accounting period in the form of unsold finished stock.
Period costs are costs associated with the period for which they are incurred, rather than the units of
output or level of manufacturing activity. They are treated as expenses for the period for which they
are incurred. Examples include administrative, selling and distribution costs. According to Planning
and Control For purposes of the two important functions of management i.e. planning and control,
costs are classified as budgeted costs and standard costs. Budgeted costs represent an estimate of
expenditure for different phases or segments of business operations, such as administration,
production, sales, research and development, for a period of time in future - which become
managerial targets to be achieved. They are projections from financial accounting data adjusted to
future trends. Standard costs are predetermined costs asked on a technical estimation of materials,
labour and overhead for a selected period of time and for a prescribed set of working conditions. They
are projections of cost accounts made on the basis of scientifically predetermining costs under a set
of conditions. For Managerial decisions For purposes of managerial decision making, costs are
classified as follows: Marginal Cost: The additional cost to be incurred if an additional unit is produced.
Out of Pocket Cost: Portion of cost that gives rise to cash expenditure. Differential Cost: The change in
cost due to change in the level of activity or pattern cost, it is called incremental costs and if it
reduces the costs it is called detrimental cost. Sunk Cost/Historical Cost: A cost that has already been
incurred and is therefore irrelevant to the decision making process e.g. depreciation of a fixed asset.
Imputed/Notional Costs: These costs appear in cost accounts only e.g. notional rent charged for
business premises owned by proprietor. Opportunity Cost: This is made up of the maximum possible
alternative earnings that will be foregone if the productive capacity or services are put to some
alternative use. Replacement Cost: The cost at which there could be purchase of an asset or material
identical to that which is being replaced or devalued thus it is the cost of replacement at current
market price. Avoidable Cost: Cost which can be eliminated if a particular product or department with
which they are directly related to is discontinued, e.g. salaries of clerks in the department. Other
Types of Costs These are costs that are a class of their own as contrasted from the above
classifications. Future Costs: Costs expected to be incurred at a later date. Programmed Costs: Costs
that are incurred due to certain decisions that reflect the policies of top management, which result in
periodical appropriation. Joint Cost: The cost of manufacturing joint products up to or prior to the splitoff point. These can not be traced to a particular product. Conversation Cost: The cost of converting
raw material into finished product. Discretionary Costs: Costs that do not have obvious relationship to
the capacity of output or levels of activity, and are determined as part of the periodic planning
process. Examples include advertising, research and development. Committed Cost: Fixed cost which
results from the decisions of management in the prior period and is not subjected to managements
control in the present on a short run basis e.g. plant & machinery depreciation, taxes insurance
premium, rent charges.

Q3 What do you mean by ABC analysis? State its advantages.

Q4 What is idle time? What are the causes for idle time? How should idle time wages be treated in cost
Accounts?
Q4. What is idle time? What are the causes for idle time? How should idle time wages be treated in
cost accounts? Answer: IDLE TIME Idle time is that time for which there is cost incurred in terms of
labour and other costs but there is no production. It is that time for which the employer pays, but
from which he obtains no production. CAUSES FOR IDLE TIME The following are the causes of idle
time: a. Time used while moving from one job to another. b. Time for waiting for materials or
instructions. c. Time for temporary absence from duty due to minor accidents, sickness, tea breaks,
personal breaks, etc. d. Time taken in travelling from one department to another. e. Idle time due to

breakdown of machinery. f. Time lost due to shortage of materials. g. Halts due to temporary absence
of parts necessary for further processing. h. Strikes, lockout, etc. TREATMENT OF IDLE TIME WAGES IN
COST ACCOUNTS Wages paid for normal idle time are treated as production overheads and are
absorbed into cost of product by adopting an absorption rate. Normal idle time of direct workers, such
as time taken for machine setting, change over, or tool setting can be added to the product cost as
direct wages by inflating the hourly rate of wages. Normal idle time hours are subtracted from the
total working hours per annum to determine the effective working hours per annum. From this labour
cost per hour is determined by dividing the total labour cost per annum by the effective working
hours per annum. For example, considering daily total working hours, if idle time is normally 5
percent of total hours and wages paid for 8 hours ( 1 days working hours) is Rs. 760, then direct
labour cost hourly rate will be Rs. 760 divided by 7.6 hours (i.e. 8 hours minus 0.4 hours, i.e. 5%) =
Rs. 100 per hour. The cost of abnormal idle time should not be included in product cost but should be
debited to costing profit and loss account direct as an extra ordinary cost. The rate determined above
is multiplied by the abnormal idle time to determine loss due to idle time. This is loss is the idle time
wages which should be charged to the costing profit and loss account. In case abnormal idle time is
frequent, as in frequent power failure, such costs are incurred often and may be debited to idle time
wages under factory overheads as a normal cost.

Q5 What is cost volume profit analysis? Explain.

SECTIONB:
Q1 What is standard costing? How is it different from Historical costing?
Q2 What is flexible budget. Explain
Q3 What is responsibility Accounting. Explain the responsibility centers.

Q3. What is Responsibility Accounting? Explain the responsibility centers. Answer: RESPONSIBILITY
ACCOUNTING Responsibility accounting is a management control system based on the principles of
delegating and locating responsibility. Under responsibility accounting, managers are made
responsible for the activities, and given decision making authority, within specific areas or segments
referred to as departments, branches, etc. RESPONSIBILITY CENTRES A responsibility centre is an area
of responsibility which is controlled by an individual. In responsibility accounting, responsibility
centres are categorized into cost centres, profit centres and investment centres, for purposes of
control. Cost Centre In a cost centre of responsibility, the accounting system records only the cost
incurred by the centre while excluding the revenues earned. A cost centre thus measures financial
performance in terms of efficiency of operation in that centre, by quantity of inputs used in producing
some given output. Actual inputs are compared with predetermined/budgeted levels to give
efficiency. Profit Centre In a profit centre, both the inputs and outputs are measured in monetary
terms. Accounting is done for both cost incurred and revenue collected. The difference between
revenue and cost is termed profit, hence the name profit centre. Investment Centre These are centres
of responsibility where assets employed are also measured and accounted for in terms of value
besides inputs and outputs. Performance is measured not only in terms of profit but also in terms of
the assets employed to generate profit.

CASE STUDY:
A retail dealer in garments is currently selling 24000 shirts annually. He supplies the following details for the
year ended 31st December,2007.
Rs
Selling Price per shirt
40
Variable Cost per shirt
25
Fixed cost:
staff salaries for the year
120000
General office cost for the year
80000
Advertising costs for the year
40000
As a cost accountant of the firm, you are required to answer the following each part independently:(i)
Calculate the break-even point and margin of safety in sales revenue and no of shirts sold.

(ii)
(iii)

Assume that 20000 shirts were sold in a year. Find out the net profit of the firm.
If it is decided to introduce selling commission of Rs 3 per shirt, how many shirts would require to
be sold in a year to earn a net income of Rs 15000/-.

CASE STUDY: A retail dealer in garments is currently selling 24000 shirts annually. He supplies the
following details for the year ended 31st December, 2007. Rs Selling Price per shirt 40 Variable Cost
per shirt 25 Fixed cost: Staff salaries for the year 120000 General office cost for the year 80000
Advertising costs for the year 40000 As a cost accountant of the firm, you are required to answer the
following each part independently:(i) Calculate the break-even point and margin of safety in sales
revenue and no of shirts sold. (ii) Assume that 20000 shirts were sold in a year. Find out the net profit
of the firm. (iii) If it is decided to introduce selling commission of Rs 3 per shirt, how many shirts
would require to be sold in a year to earn a net income of Rs 15000.
Answer: (i) BREAK-EVEN POINT, MARGIN OF SAFETY IN SALES REVENUE,

NUMBER OF SHIRTS SOLD. Breakeven point of revenue = Fixed Costs C/S where C=
selling price per unit variable cost per unit = Rs. (40-25) = Rs. 15 S= selling price per unit =
Rs. 40 Fixed costs= Rs. (120,000+80,000+40,000) = Rs. 240,000 Break Even Point revenue =
240,00015/ 40 =Rs. 640,000 Number of shirts at Break Even = Rs. 640 000 Rs. 40 = 16 000
shirts Margin of Safety in Sales Revenue = Annual Sales- Break Even point revenue = Rs.
4024,000 Rs. 640,000 = Rs. 960,000 - Rs. 640,000 = Rs. 320, 000 Number of Shirts
associated with Margin of Safety in Sales Revenue = Rs. 320 000 Rs. 40 = 8 000 shirts
Therefore: Break even point revenue = Rs. 640,000 (16 000 shirts) Margin of safety in sales
revenue = Rs. 320,000 (8000 shirts)
(ii) NET PROFIT OF THE FIRM ASSUMING 20000 SHIRTS WERE SOLD IN A YEAR
Total Sales = 20, 000 x Rs. 40 = Rs. 800, 000 Variable Cost per unit = Rs.25 Total Variable Cost
= 20, 000 x Rs. 25 = Rs. 500, 000 Net Profit= Total Sales- (Fixed+ variable Costs) Net Profit =
Rs. 800, 000- Rs. (240, 000+ 500, 000) Net profit = Rs. (800, 000- 740, 000) Net Profit = Rs.
60, 000
(iii) SHIRTS REQUIRED TO BE SOLD IN A YEAR TO EARN A NET INCOME OF RS 15,
000, IF A SELLING COMMISSION OF RS 3 PER SHIRT IS INTRODUCED Net Income
Profit = Rs. 15, 000 Variable cost = Rs. 25/unit Sales Commission = Rs. 3/unit Total Variable
costs = Rs. 28/unit Let the number of shirts be x, then: Profit = Total Sales (Fixed Costs +
Variable Costs) 15, 000 = 40x - (240,000+ 28x) 15, 000 = 40x - 240,000 - 28x 15, 000
= 12x - 240,000 12x= 240, 000+ 15, 000 12x= 255, 000 x= 21250
Thus, at a profit of Rs. 15,000 and selling commission of Rs. 3 per shirt, the number of shirts
to be sold = 21, 250

SECTION C (40 MCQs) Q1 The prime function of management accounting is to (a) Assist tax
authorities (b) Assist the management in performing its functions effectively. (c) Interpret the financial
data (d) Record business transactions Q2 P/v Ratio is an indicator of a) The rate at which goods are
sold b) The volume of sales c) The volume of profit d) The rate of profit Q3 (a) (b) (c) (d) Which of the
following best describes a fixed cost? A cost which: Represents a fixed proportion of total costs
Remains at the same level up to a particular level of output Has a direct relationship with output
Remains at the same level when output increases Q4 A business's telephone bill should be classified
into which one of these categories? (a) Fixed cost (b) Stepped fixed cost (c) Semi-variable cost (d)
Variable cost Q5 The total production cost for making 20,000 units was 21,000 & total production
cost for making 50,000 was 34,000. When production goes over 25,000 units, more fixed costs of
4,000 occur. So full production cost per unit for making 30,000 units is: (a) 0.30 (b) 0.68 (c) 0.84
(d) 0.93 Q6 Which of the following is least likely to be an objective of cost accounting system? (a)
Product Costing (b) Optimum Sale Mix determination Maximization of profits (d) Sales Commission
determination Q7 The classification of costs as either direct or indirect depends upon (a) The timing of
the cash outlay for the cost (b) The cost object to which the cost is being related (c) The behavior of
the cost in response to volume changes (d) Whether the cost is expensed in the period in which it is
incurred Q8 Which of the following is false with regard to the supplementary rate method for
accounting of under or over absorption of overheads? (a) It facilitates the absorption of actual
overhead for production (b) Correction of costs through supplementary rates is necessary for
maintaining data for comparison (c) The supplementary rate can be determined only after the end of
the accounting period (d) It requires a lot of clerical work (e) The value of stock is distorted under this
method. Q9 Which of the following factors should not be taken into consideration for determining the
basis for applying overheads to products? (a) Adequacy (b) Convenience (c) Time factor (d) Seasonal
fluctuation of overhead costs (e) Manual or machine work. Q10 Storekeeping expenses are to be
apportioned on the basis of (a) Floor area of the production departments (b) Direct labor hours of
each product (c) Number of units manufactured of each product (d) Number of material requisitions
(e) Sales price of each product. Q11 A company has a margin of safety of Rs.40 lakh and earns an
annual profit of Rs.10 lakh. If the fixed costs amount toRs.20 lakh, the annual sales will be (a) Rs.160
lakh (b) Rs.140 lakh (c) Rs.120 lakh (d)Rs.200 lakh (e) Rs.180 lak Q12 Which of the following
statements is false with respect to the use of predetermined overhead absorption rates? (a) Product
cost can be worked out promptly (b) Use of predetermined overhead rate will provide data available
for decision making but not for cost control (c) Product costs are not affected unnecessarily due to the
vagaries of the calendar or seasonal fluctuations (d) By using normal capacity as base while
determine the overhead rate, losses due to idle capacity is highlighted and real cost of production is
reflected (e) Product cost can be estimated prior to commencement of production and can help the
management in price quotation and fixing selling price well in advance. Q13 In process costing,
equivalent units, using first in first out (FIFO) are a measure of (a) Work done on the beginning as well
as ending work-in-process inventory (b) Work done on units started in the production process during
the period (c) Work done in the department during the period (d) Work required to complete the
beginning work-in-process inventory (e) Work performed on the ending work-in-process inventory.
Q14 A companys approach to a make or buy decision (a) Depends on whether the company is
operating at or below break-even level (b) Depends on whether the company is operating at or below
normal volume (c) Depends on whether the company is operating at practical capacity level (d)
Involves an analysis of avoidable costs (e) Requires use of absorption costing. Q15 Which of the
following statements is false? (a) Historical costs are useful solely for estimating costs that lie ahead
(b) Abnormal cost is controllable (c) Conversion cost is the production cost minus direct material cost
(d) Administrative expenses are mostly fixed (e) Notional costs are not included while ascertaining
costs. Q16 Ramesha Ltd. manufactures product DN for last seven years. The company maintains a
margin of safety of 37.5%with an overall contribution to sales ratio of 40%. If fixed cost is Rs.5 lakh,
the profit of the company is (a) Rs.12.50 lakh (b) Rs. 4.25 lakh (c) Rs. 3.00 lakh (d) Rs.24.00 lakh (e)
Rs.20.00 lakh. Q17 Which of the following statements is true for a firm that uses variable costing? (a)
Profits fluctuate with sales (b) An idle facility variation is calculated (c) Product costs include variable
administrative costs (d) Product costs include variable selling costs (e)The cost of a unit of product
changes because of changes in number of units manufactured. Q18 If the price rises, which of the
following methods of valuing stock will give the highest profit? (a) LIFO method (b) Replacement cost
method (c) FIFO method (d) Simple average method (e) Specific order method. Q19 An accounting
system that collects financial and operating data on the basis of underlying nature and extent to the

cost drivers is (a) Direct costing (b) Target costing (c) Activity based costing (d) Variable costing (e)
Cycle-time costing. Q20 In allocating factory service department costs to producing departments,
which of the following items would most likely be used as an activity base? (a) Salary of service
department employees (b) Units of electric power consumed (c) Direct materials usage (d) Units of
finished goods shipped to customers (e) Units of product sold. Q21 Apportionment of overhead cost
may be defined as (a) Charge to a cost center of an overhead cost item with no estimation (b) Charge
to cost center for the use of an overhead cost (c) Charge to cost units for the use of an overhead cost
(d) Classification of overhead cost as fixed or variable (e) Charge each cost center with a share of an
overhead cost using an apportionment basis to estimate the benefit extracted by each cost center.
Q22 An increase in variable costs where selling price and fixed cost remain constant will result in
which of the following? (a) An increase in margin of safety (b) No change in margin of safety (c) A fall
in the sales level at which break even point will occur (d) A rise in the sales level at which break even
point will occur (e) No change in the sales level at which break even point will occur. Q23 Which of the
following transfer pricing methods will preserve the sub-unit autonomy? (a) Cost-based pricing (b)
Negotiated pricing (c) Variable-cost pricing (d) Full-cost pricing (e) Marginal cost pricing. Q24 The
most fundamental responsibility center affected by the use of market-based transfer prices is (a)
Revenue center (b) Cost center (c) Profit center (d) Investment center (e) Production center. Q25 All of
the following statements are correct except that a. activity-based costing has been widely adopted in
service industries. b. the objective of installing ABC in service firms is different than it is in a
manufacturing firm. c. A larger proportion of overhead costs are company-wide costs in service
industries. d. the general approach to identifying activities and activity cost pools is the same in a
service company as in a manufacturing company. Q26 A segment of an organization is referred to as
a profit center if it has (a) Responsibility for developing markets and selling the output of the
organization (b) Responsibility for combining materials, labor and other factors of production into a
final output (c) Authority to provide specialized support to other units within the organization (d)
Authority to make decisions affecting the major determinants of profit, including the power to choose
its markets and sources of supply (e) Authority to make decisions affecting the major determinants of
profit, including the power to choose its markets and sources of supply and significant control over
the amount of invested capital. Q27. Activity-based costing has been found to be useful in each of the
following service industries except a. banks. b. hospitals. c. telephone companies. d. ABC has been
useful in any of these industries Q28 Which of the following service departments costs is apportioned
on the basis of rate of labor turnover? (a) Payroll department (b) Personnel department (c) Canteen
service (d) Store-keeping department (e) Maintenance department. Q29 Which of the following bases
is appropriate to apportion the cost incurred on supervision of machine? (a) Floor area occupied by
each machine (b) Equitable basis (c) Value of each machine (d) On the basis of past experience (e)
Estimated time devoted. Q30 Which of the following bases is used for apportionment of overtime
premium of workers engaged in a particular department? (a) Direct allocation (b) Direct labor hours
(c) Number of workers (d) Technical estimates (e) Relative areas of departments. Q31 The rate used
in addition to the original rates for ascertaining the true profit for adjusting the under or over
absorption of overheads is known as (a) Predetermined rate (b) Blanket rate (c) Moving average rate
(d) Supplementary overhead rate (e) Multiple overhead rate. Q32 Any activity for which a separate
measurement of costs is desired is known as (a) Cost unit (b) Cost center (c) Cost object (d) Cost pool
(e) Cost allocation. Q33 Which of the following is true regarding the difference between marginal
costing and absorption costing? (a)Under marginal costing, fixed costs are treated as product costs
while it is excluded under absorption costing (b)Under absorption costing, under absorption or over
absorption of overhead occurs but it does not occur under marginal costing (c)The net income under
absorption costing is always more than the net income under marginal costing (d)If production is
equal to sales, net income under absorption costing is greater than net income under marginal
costing (e)In case of decreased inventory, the net income under marginal costing is less than the net
income under absorption costing. Q34 Which of the following statements is false? (a) The aggregate
of indirect material, indirect wages and indirect expenses is overhead costs (b)Direct costs are never
treated as overhead costs even in cases where efforts involved in identifying and accounting are
disproportionately large (c)The overheads can be apportioned to a cost center in accordance with the
principles of benefit and/or responsibilities (d) Capital expenditure should be excluded from costs and
should not be treated as overhead (e) Expenditure that does not relate to production shall not be
treated as overhead. Q35 An increase in variable costs where selling price and fixed cost remain
constant will result in which of the following? (a) An increase in margin of safety (b) A fall in the sales
level at which break even point will occur (c) A rise in the sales level at which break even point will

occur (d) No change in the sales level at which break even point will occur (e)No change in angle of
incidence. Q36 Which of the following statements is true for a firm that uses variable costing? (a)
Product costs include variable selling costs (b) An idle facility variation is calculated (c) The cost of a
unit of product changes because of changes in number of units manufactured (d) Profits fluctuate
with sales (e) Product costs include variable administrative costs. Q37 Which of the following can
improve break-even point? (a) Increase in variable cost (b) Increase in fixed cost (c) Increase in sale
price (d) Increase in sales volume (e) Increase in production volume. Q38 Which of the following
statements is/are true? I. A cost unit is a unit of output in the production of which costs are incurred.
II. A cost center is the smallest segment of activity or area of responsibility for which costs are
accumulated. III. Typically departments are cost centers and there may be many departments in a
cost center. (a) Only (I) above (b) Only (II) above (c) Both (I) and (III) above (d) Both (I) and (II) above
(e) Both (II) and (III) above. Q39 The Rowan Plan (a) Is the best for efficient workers (b) Pays lower
bonus than that of Halsey beyond 50% saving in time. (c) Pays increased bonus at an increasing rate
as the efficiency (d) None of the above Q40. Which of the following is a limitation of activity-based
costing? a. More cost pools b. Less control over overhead costs c. Poorer management decisions d.
Some arbitrary allocations continue

SECTION C
Q1
(a)
(b)
(c)
(d)

Which of the following best describes a fixed cost? A cost which:

Represents a fixed proportion of total costs
Remains at the same level up to a particular level of output
Has a direct relationship with output
Remains at the same level when output increases

Q2 A business's telephone bill should be classified into which one of these categories?
(a)
Fixed cost
(b)
Stepped fixed cost
(c)
Semi-variable cost
(d)
Variable cost
Q3 The total production cost for making 20,000 units was 21,000 & total production cost for making 50,000
was 34,000. When production goes over 25,000 units, more fixed costs of 4,000 occur. So full production
cost per unit for making 30,000 units is:
(a)
0.30
(b)
0.68
(c)
0.84
(d)
0.93
Q4 Which of the following is least likely to be an objective of cost accounting system?
(a) Product Costing
(b) Optimum Sale Mix determination
Maximization of profits
(d) Sales Commission determination
Q5 The classification of costs as either direct or indirect depends upon
(a) The timing of the cash outlay for the cost
(b) The cost object to which the cost is being related
(c) The behavior of the cost in response to volume changes
(d) Whether the cost is expensed in the period in which it is incurred
Q6 Which of the following is false with regard to the supplementary rate method for accounting of under or
over absorption of overheads?
(a) It facilitates the absorption of actual overhead for production
(b) Correction of costs through supplementary rates is necessary for maintaining data for
comparison
(c) The supplementary rate can be determined only after the end of the accounting period
(d) It requires a lot of clerical work
(e) The value of stock is distorted under this method.
Q7 Which of the following factors should not be taken into consideration for determining the basis for applying
overheads to products?
(a) Adequacy
(b) Convenience
(c) Time factor
(d) Seasonal fluctuation of overhead costs
(e) Manual or machine work.
Q8 Storekeeping expenses are to be apportioned on the basis of

(a) Floor area of the production departments

(b) Direct labor hours of each product
(c) Number of units manufactured of each product
(d) Number of material requisitions
(e) Sales price of each product.
Q9 A company has a margin of safety of Rs.40 lakh and earns an annual profit of Rs.10 lakh. If the fixed costs
amount toRs.20 lakh, the annual sales will be
(a) Rs.160 lakh
(b) Rs.140 lakh
(c) Rs.120 lakh
(d)Rs.200 lakh
(e) Rs.180 lak
Q10 Which of the following statements is false with respect to the use of predetermined overhead absorption
rates?
(a) Product cost can be worked out promptly
(b) Use of predetermined overhead rate will provide data available for decision making but
not for cost control
(c) Product costs are not affected unnecessarily due to the vagaries of the calendar or
seasonal fluctuations
(d) By using normal capacity as base while determine the overhead rate, losses due to idle
capacity is highlighted and real cost of production is reflected
(e) Product cost can be estimated prior to commencement of production and can help the
management in price quotation and fixing selling price well in advance.
Q11 In process costing, equivalent units, using first in first out (FIFO) are a measure of
(a) Work done on the beginning as well as ending work-in-process inventory
(b) Work done on units started in the production process during the period
(c) Work done in the department during the period
(d) Work required to complete the beginning work-in-process inventory
(e) Work performed on the ending work-in-process inventory.
Q12 A companys approach to a make or buy decision
(a) Depends on whether the company is operating at or below break-even level
(b) Depends on whether the company is operating at or below normal volume
(c) Depends on whether the company is operating at practical capacity level
(d) Involves an analysis of avoidable costs
(e) Requires use of absorption costing.
Q13 Which of the following statements is false?
(a) Historical costs are useful solely for estimating costs that lie ahead
(b) Abnormal cost is controllable
(c) Conversion cost is the production cost minus direct material cost
(d) Administrative expenses are mostly fixed
(e) Notional costs are not included while ascertaining costs.
Q14 Ramesha Ltd. manufactures product DN for last seven years. The company maintains a margin of safety of
37.5%with an overall contribution to sales ratio of 40%. If fixed cost is Rs.5 lakh, the profit of the company is
(a) Rs.12.50 lakh
(b) Rs. 4.25 lakh
(c) Rs. 3.00 lakh

(d) Rs.24.00 lakh

(e) Rs.20.00 lakh.
Q15 Which of the following statements is true for a firm that uses variable costing?
(a) Profits fluctuate with sales
(b) An idle facility variation is calculated
(c) Product costs include variable administrative costs
(d) Product costs include variable selling costs
(e)The cost of a unit of product changes because of changes in number of units
manufactured.
Q16 If the price rises, which of the following methods of valuing stock will give the highest profit?
(a) LIFO method
(b) Replacement cost method
(c) FIFO method
(d) Simple average method
(e) Specific order method.
Q17 An accounting system that collects financial and operating data on the basis of underlying nature and
extent to the costdrivers is
(a) Direct costing
(b) Target costing
(c) Activity based costing
(d) Variable costing
(e) Cycle-time costing.
Q18 In allocating factory service department costs to producing departments, which of the following items
would mostlikely be used as an activity base?
(a) Salary of service department employees
(b) Units of electric power consumed
(c) Direct materials usage
(d) Units of finished goods shipped to customers
(e) Units of product sold.
Q19 Apportionment of overhead cost may be defined as
(a) Charge to a cost center of an overhead cost item with no estimation
(b) Charge to cost center for the use of an overhead cost
(c) Charge to cost units for the use of an overhead cost
(d) Classification of overhead cost as fixed or variable
(e) Charge each cost center with a share of an overhead cost using an apportionment basis
to estimate the benefit extracted by each cost center.
Q20 An increase in variable costs where selling price and fixed cost remain constant will result in which of the
following?
(a) An increase in margin of safety
(b) No change in margin of safety
(c) A fall in the sales level at which break even point will occur
(d) A rise in the sales level at which break even point will occur
(e) No change in the sales level at which break even point will occur.
Q21 Which of the following is a cause of materials usage variance?
(a) Emergency buying in smaller quantities

(b) Carriage, freight and other charges absorbed instead of being charged to suppliers
(c) Cash discount not taken
(d) Rectification required when many components do not pass through inspection
(e) Claims not made on suppliers for substandard materials or short receipt of materials.
Q22 The following are the causes of labour efficiency variance except
(a) Bad working condition
(b) Defective tools, equipment and materials
(c) Defective supervision
(d) Bad workmanship due to dissatisfaction among the workers
(e) Employing people of different grades than planned.
Q23 Which of the following transfer pricing methods will preserve the sub-unit autonomy?
(a) Cost-based pricing
(b) Negotiated pricing
(c) Variable-cost pricing
(d) Full-cost pricing
(e) Marginal cost pricing.
Q24 The most fundamental responsibility center affected by the use of market-based transfer prices is
(a) Revenue center
(b) Cost center
(c) Profit center
(d) Investment center
(e) Production center.
Q25 Target pricing
(a) Is a pricing strategy used to create competitive advantage
(b) Considers the variable costs and excludes fixed costs
(c) Is often used when costs are difficult to control
(d) Is more appropriate when applied to mature and long-established products
(e) Is well suited for complex products that require many sub-assemblies.
Q26 A segment of an organization is referred to as a profit center if it has
(a) Responsibility for developing markets and selling the output of the organization
(b) Responsibility for combining materials, labor and other factors of production into a final output
(c) Authority to provide specialized support to other units within the organization
(d) Authority to make decisions affecting the major determinants of profit, including the power to choose its
markets and sources of supply
(e) Authority to make decisions affecting the major determinants of profit, including the power to choose
its markets and sources of supply and significant control over the amount of invested capital.
Q27 Which of the following is false about standard costing system?
(a) It is based on a cost control concept
(b) It assumes stability in the current manufacturing process
(c) The goal is to meet cost performance standards
(d) It assumes production workers have the best knowledge to reduce costs
(e) It motivates employees to try to reach target established.
Q28 Which of the following service departments costs is apportioned on the basis of rate of labor turnover?
(a) Payroll department
(b) Personnel department

(c) Canteen service

(d) Store-keeping department
(e) Maintenance department.
Q29 Which of the following bases is appropriate to apportion the cost incurred on supervision of machine?
(a) Floor area occupied by each machine
(b) Equitable basis
(c) Value of each machine
(d) On the basis of past experience
(e) Estimated time devoted.
Q30 Which of the following bases is used for apportionment of overtime premium of workers engaged in a
particular department?
(a) Direct allocation
(b) Direct labor hours
(c) Number of workers
(d) Technical estimates
(e) Relative areas of departments.
Q31 The rate used in addition to the original rates for ascertaining the true profit for adjusting the under or over
absorption of Overheads is known as
(a) Predetermined rate
(b) Blanket rate
(c) Moving average rate
(d) Supplementary overhead rate
(e) Multiple overhead rate.
Q32 Any activity for which a separate measurement of costs is desired is known as
(a) Cost unit
(b) Cost center
(c) Cost object
(d) Cost pool
(e) Cost allocation.
Q33 Which of the following is true regarding the difference between marginal costing and absorption costing?
(a)Under marginal costing, fixed costs are treated as product costs while it is excluded under absorption costing
(b)Under absorption costing, under absorption or over absorption of overhead occurs but it does not
occur under marginal costing
(c)The net income under absorption costing is always more than the net income under marginal costing
(d)If production is equal to sales, net income under absorption costing is greater than net income under marginal
costing
(e)In case of decreased inventory, the net income under marginal costing is less than the net income under
absorption costing.
Q34 Which of the following statements is false?
(a) The aggregate of indirect material, indirect wages and indirect expenses is overhead costs
(b)Direct costs are never treated as overhead costs even in cases where efforts involved in identifying and
accounting are disproportionately large
(c)The overheads can be apportioned to a cost center in accordance with the principles of benefit and/or
responsibilities
(d) Capital expenditure should be excluded from costs and should not be treated as overhead
(e) Expenditure that does not relate to production shall not be treated as overhead.

Q35 An increase in variable costs where selling price and fixed cost remain constant will result in which of the
following?
(a) An increase in margin of safety
(b) A fall in the sales level at which break even point will occur
(c) A rise in the sales level at which break even point will occur
(d) No change in the sales level at which break even point will occur
(e)No change in angle of incidence.
Q36 Which of the following statements is true for a firm that uses variable costing?
(a) Product costs include variable selling costs
(b) An idle facility variation is calculated
(c) The cost of a unit of product changes because of changes in number of units manufactured
(d) Profits fluctuate with sales
(e) Product costs include variable administrative costs.
Q37 Which of the following can improve break-even point?
(a) Increase in variable cost
(b) Increase in fixed cost
(c) Increase in sale price
(d) Increase in sales volume
(e) Increase in production volume.
Q38 Which of the following statements is/are true?
I. A cost unit is a unit of output in the production of which costs are incurred.
II. A cost center is the smallest segment of activity or area of responsibility for which costs are accumulated.
III. Typically departments are cost centers and there may be many departments in a cost center.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (III) above
(d) Both (I) and (II) above
(e) Both (II) and (III) above.
Q39 The Rowan Plan
(a)
Is the best for efficient workers
(b)
Pays lower bonus that that of Halsey beyond 50% saving in time.
(c)
Pays increased bonus at an increasing rate as the efficiency
(d)
None of the above
Q40 A written request to a supplier for specified goods at an agreed upon price is called a
(a) Receiving Report
(b) Purchase order
(c) Material requisition form
(d) Purchase requisition