Costing — Part 2 MCQs with Explanations

The type of loss that should not affect cost of inventories is normal loss. loss:The loss expected or anticipated prior to production is a normal process loss. It is thus called a standard loss. A provision for such a loss is made before starting production. Weight losses, shrinkage, evaporation, rusting etc. are the examples of normal loss. Normal loss increases the cost of production of the usable goods realized.

The expenses relating to a particular process is debited to that process a/c. It is credited to Process A/c and calculated as a % on the input quantity.

Normal loss in the manufacturing process leads to increase in unit price of other good units. These normal losses are expected in the manufacturing process and cannot be avoided. Due to this our total cost of production will increase.

Abnormal loss and its value are credited to process a/c. Abnormal Loss both in terms of quantity and value is recorded by. Crediting Process a/c and; Debiting Abnormal Loss a/c.

Actual loss is more than the predetermined normal loss, it is abnormal loss. Abnormal loss is the extra loss resulting when actual loss is greater than normal or expected loss, and it is given a cost. The abnormal loss is valued at the some unit rate as 'good' units and do not affect the the cost of good production. The cost is analysed separately in an abnormal loss account.

Classification and accumulation of costs by fixed and variable costs is of special importance in operating costing. Operating costing applies where standardized services are provided by an undertaking.

Process cost is ascertained and recorded in separate ledger a/c. Process costing is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production.

Batch costing is useful to determine economic batch quantity. In each batch, there are a number of units. The ascertainment of economic batch quantity is very useful. Economic batch quantity may be calculated by using the formula meant for calculating Economic Order Quantity (EOQ) in case of material control.

The basis for the payment of cash by contractee under contract is work certified. During the period of contract, Contractee has to pay sums of amount to contractor especially where a contractor is engaged in a big and long term contract. This amount is paid on the basis of certification of work done by surveyors or architects on behalf of the Contractee, who certified the value of the work done by the contractor.

Contract a/c is a nominal a/c. Nominal Accounts are accounts related and associated to losses, expenses, income or gains.

Operating costing is a method of costing. Operating costing is a process and technique of accumulating and ascertainment of cost for providing a standardized service to the public or to an undertaking.

In goods transport service the cost unit is cost per ton kilo meters.

Difference between job time and attendance time is idle time. Idle time is unproductive time on the part of employees or machines caused by management or as a result of factors beyond their control. Idle time is the time associated with waiting, or when a piece of machinery is not being used but could be.

Overhead cost is the total of all indirect costs. Overhead costs refer to those expenses associated with running a business that can't be linked to creating or producing a product or service.

Operating costing is suitable for service industries. Operating costs are expenses associated with the maintenance and administration of a business on a day-to-day basis.

Prime cost plus variable overheads is known as Marginal cost. Marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good.

Wages paid to a labour who was engaged in production activities can be termed as direct cost. A direct cost is a price that can be completely attributed to the production of specific goods or services.

Classification of cost is useful to identify costs. All the costs of a business can be classified into production costs, administration costs, finance costs, selling costs, distribution costs, research and development costs.

The purpose of financial accounting is to provide information for assessing the profitability and financial position of the firm. The general purpose of the financial statements is to provide information about the results of operations, financial position, and cash flows of an organization.

Defectives can be rectified and mad made into good units. The defective work report should draw details relating to department, process, defective units quantity, normal and abnormal defects, the cost of rectification etc.

The stores keeper should initiate a purchase requisition when stock reaches Re-order level. Reorder level (or reorder point) is the inventory level at which a company would place a new order or start a new manufacturing run.

Direct cost incurred can be identified with each unit of output. Direct costs (such as for labor, material, fuel or power) vary with the rate of output but are uniform for each unit of production, and are usually under the control and responsibility of the department manager.

Costing refers to the techniques and processes of ascertainment of costs. Costing is any system for assigning costs to an element of a business.

Cost accounting was developed because of the limitations of the financial accounting. The limitations of financial statements are those factors that a user should be aware of before relying on them to an excessive extent. The following are all limitations of financial statements: Dependence on historical costs. Transactions are initially recorded at their cost.

Multiple costing is a technique of using two or more costing methods for ascertainment of cost by the same firm. Multiple costing, also known as composite costing, is a type of accounting method used when goods are sold that contain several other processed parts, and these parts are costed differently.

Goodwill written off is not considered for preparation of cost sheet. A firm will write off goodwill when it wants to shrink the balance sheet and if it thinks that the goodwill doesnt represent anything.

Sale of defectives is reduced from cost of production. The sale value of scrap may be deducted from the cost of materials consumed or factory overhead.

Cost of sales plus profit is selling price.

Prime cost includes direct materials, direct wages and direct expenses. Prime costs are a firm's expenses directly related to the materials and labor used in production. It refers to a manufactured product's costs, which are calculated to ensure the best profit margin for a company.

Depreciation of plant and machinery is a part of factory overhead. Factory overhead is the costs incurred during the manufacturing process, not including the costs of direct labor and direct materials. Factory overhead is normally aggregated into cost pools and allocated to units produced during the period.

Factory overhead can be charged on the basis of prime cost . In costing, prime cost is the sum of direct materials cost , direct labor cost , and direct expenses involved in the production process. Therefore, factory overhead can be allocated based on the prime cost, which represents the direct costs associated with production. Therefore, the correct answer is Option C: prime cost.

Office and administrative expenses can be charged on the basis of prime cost. Administrative expenses are the expenses that an organization incurs not directly tied to a specific function such as manufacturing, production or sales.

Job costing used in printing works. The purpose of any business is to make money, and job costing is the most effective way to ensure that occurs. In a job costing system, costs may be accumulated either by job or by batch.

A document which provides for the detailed cost centre and cost unit is cost sheet. Cost sheet is a statement in which the details of expenses incurred on a particular product or job, during a specific period are presented.

Direct material is a variable cost. Direct material cost is the cost of the raw materials and components used to create a product.

The most important element of cost in manufacturing industries is material. Material is the first and most important element of cost. In most of the manufacturing organisations, materials form the single largest component of cost.

According Last In First Out method of pricing issues is close to current economic values. LIFO Accounting means inventory which was acquired last would be used up or sold first.

Continuous stock taking is a part of perpetual inventory. Perpetual inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

ABC analysis methods of stock control aims at concentrating efforts on selected items of material. ABC method of inventory control involves a system that controls inventory and is used for materials and throughout the distribution management.

Material control involves purchase, storage and issue of material. Materials control is the systematic control over the materials at all its stages procurement, storage and usage so as to help in maintaining regular and uninterrupted flow of the materials in the production pipeline.