Costing — Part 1 MCQs with Explanations

Basic objective of cost accounting is cost ascertainment. It involves the ascertainment of the cost of every job, order, product, process or service.

Process costing is suitable for oil refing firms. Process costing is suitable for industries producing homogeneous products and where production is a continuous flow.

Cost classification can be done in several ways. Cost classification in economics might involve categories of fixed, variable, opportunity, production and sunk costs. On the other hand, accounting costs can be classified as either direct or indirect for a business.

The cost which is to be incurred even when a business unit is closed is a shutdown cost. The shut down price is the minimum price a business needs to justify remaining in the market in the short run.

Direct expenses are also called chargeable expenses. Chargeable expenses are any costs that your agency or client has agreed to reimburse to you. These will usually be invoiced through the umbrella company and may well require an expense form, signed by the client, to support the claim.

Indirect material used in production is classified as factory overhead. Indirect materials are materials used in the production process but are not directly traceable to the product.

The correct answer is (C) distribution cost . Let's break down why: * Prime Cost: This includes the direct materials and direct labor that go directly into making a product. Think of the raw materials and the wages of the workers on the assembly line. Warehouse rent isn't directly part of making the product. * Factory Cost (or Production Cost): This includes all the costs involved in manufacturing a product *within* the factory. This would include the cost of running the machines, factory supervisor salaries, and factory rent. Warehouse rent for storing finished goods isn't part of this. * Distribution Cost: This refers to the expenses incurred in getting the finished goods from the factory to the customer. This includes warehousing finished goods, transportation, advertising, and sales salaries. Since the warehouse is used to store finished products before they are sold , the rent falls under distribution. * Production Cost: This is similar to Factory cost and includes cost of production of Goods in Factory and it does not include rent of finished goods . Therefore, warehouse rent is most accurately a distribution cost .

Indirect material scrap is adjusted along with factory cost. Factory cost refers to the total cost required to manufacture goods. This concept is the basis for several cost accounting analyses.

Tender is an estimation of selling price. Tender is used in response to Request for tender.

Total of all direct costs is termed as prime cost. A prime cost is the total direct costs, which may be fixed or variable, of manufacturing an item for sale.

Audit fess is a part of administration overhead. Administrative overhead is those costs not involved in the development or production of goods or services. This is essentially all overhead that is not included in manufacturing overhead.

Cost accounting concepts include all the following except profit sharing. Cost accounting is an accounting method that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs, such as depreciation of capital equipment.

Toy manufacturing industry should use batch costing. Batch costing is another form of job costing. Under this method, homogeneous products are taken as cost unit. A batch consists of a specific number of products or units or articles.

Cost unit of a sugar industry can be per tonne. A cost unit refers to the unit of quantity of product, service or time (or combination of these) in relation to which costs may be ascertained or expressed.

The ascertainment of costs after they have been incurred is known as historical costing. In this type of costing system, the costs are ascertained only after they have been incurred.

Over time is actual hours being more than normal time. Overtime is the amount of time someone works beyond normal working hours.

Time keeping refers to time spent by workers in the factory. Time-keeping department is concerned with the recording of time of each worker engaged in the factory.

Labour productivity can NOT be measured by comparing total wage and total output. Labor productivity measures the hourly output of a country's economy.

Standard Time: 8 hrs Rate per Hour: Rs 2 Case (1): Time Taken = 8 hrs Earnings = 8 x 2 = Rs 16 Case (2): Time Taken = 10 hrs Earnings = 10 x 2 = Rs 20 Case (3): Time Taken= 6 hrs Earnings: Time wages = 6x 2 = Rs 12 Bonus = ½ x 2 x 2 = Rs Rs 2 Thus, the worker’s total earnings are Rs 14 (time wages +bonus), if he has completed the work in 6 hrs, less than the standard time.

Comparing Rowan plan and Halsey plan, it is seen that when the time saved is less than 50% of the standard time, Rowan plan allows more wages to a worker than Halsey plan.

Bonus under Rowan scheme is paid as a proportion of time saved to standard time. In the Halsey Plan, bonus is usually set at 50% of the time saved. It does not serve as a strong incentive. On the other hand under the Rowan Plan, bonus is that proportion of the wages of the time taken which the time saved bears to the standard time.

Labour cost is the second element of cost. Labor cost covers one of the major portion of the total cost of a product or job.

Two rate are used to calculate wages under Taylor's differential piece rate system. Taylor's Differential Piece-Rate System was introduced by F.W. Taylor, who believed that the workers should be paid on the basis of their degree of efficiencies.

The loss which arise in manufacturing activity on account of inherent nature of the product is normal loss. Normal loss means that loss which is inherent in the processing operations. It can be expected or anticipated in advance i.e. at the time of estimation.

Generally types of stores are classified into three types.

In order to avoid the stoppage of production due to shortage of material minimum stock level is maintained. The minimum level of stock is a certain predetermined minimum quantity of raw materials or merchandise inventory which should always be available in stock in the normal course of business.

Discarded material substances having no value is called waste. Waste is defined as discarded material which has no value in normal use or for ordinary use.

Discarded material substances having some value is scrap. It represents fragments or remnants of material that are left from certain type of manufacture. It is a material loss but has small value without further processing.

Legal cost on debt realization is not a selling overhead. Selling expenses are those expenses which are incurred to promote sales and service to customers.

Idle capacity of a plant refers to the difference between maximum capacity and actual capacity. Idle capacity is the remaining amount of capacity left in a company after productive capacity and protective capacity have been eliminated from consideration.

Number of worker employed is used as basis for the apportionment of canteen expenses.

Fixed cost per unit increases when production volume decreases. Total fixed costs remain the same, within the relevant range. However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.

The process of grouping of costs according to some common characteristics classification. Cost may be classified according to their nature, i.e., material, labour and expenses and a number of other characteristics.

Telephone expenses is an example of semi-variable cost. A semi-variable cost, also known as a semi-fixed cost or a mixed cost, is a cost composed of a mixture of both fixed and variable components.

Fire insurance of stock can be apportioned on the basis of value of stock. A value stock is a stock that trades at a lower price relative to its fundamentals, such as dividends, earnings, or sales, making it appealing to value investors.

Appropriate basis for apportionment of material handling charges is material consumed. Material handling costs are a crucial component of a manufacturing company's profit calculations.

Recreation expenses in factory are apportioned on the basis of number of employees. Canteen subsidy or expenses, pension, medical expenses, personnel department expenses, cost of recreational facilities. Expenses of wage department.

Charging output with overhead at reasonable rate is called apportionment. Distribution of an overhead cost to several departments or cost centers is known as apportionment of overheads.

Comprehensive machine hour rate includes machine operators wages. Composite machine hour rate means the total variable expenses per hour plus the total fixed, constant or standing charges per hour not directly connected with the operation of the machine, but are the general factory overheads of the department.

In labour oriented manufacturing industry Labour hour method of absorption is suitable. Under this method, direct labour hours are considered for determining the overhead absorption rate. This rate is obtained by dividing the overheads by the total productive hours of workers. This method is suitable for labour intensive industries where manual labour is a dominant factor of production.