1.

The wage costs which are incurred in converting materials into finished
goods would be known as:

Your Answer: Direct labour

2. Allocating indirect overheads to the direct cost of production is known

as:

Your Answer: Absorption costing

3. Which of the following is a reason why a firm would want to implement

ABC?

Your Answer: Costs of implementation are too high

Correct Answer: It may help make decision making more accurate

4. When costing takes into account only the variable cost and not the full
production cost we will be using:

Your Answer: Activity based costing

Correct Answer: Marginal costing

5. Marking up the cost of a product by an amount to represent profit is

known as:

Your Answer: Price discrimination

Correct Answer: Full cost pricing

6. An area of a business which collects costs is known as:

Your Answer: Cost centre

7. Repairs to factory machinery would be classed as:

Your Answer: Factory indirect expenses

8. Contribution can be defined as:

Your Answer: Selling price less variable costs

9. Any abnormal losses on production are recorded by which one of the

following?

Debit Credit
A Abnormal loss account Process account
B Abnormal loss account Cashbook
C Profit & Loss account Cashbook
D Process account abnormal loss account

Your Answer: A

10. A collection of individual costs within a single heading is known as:

Your Answer: Cost pool

11. The total of all direct costs of production is also known as:

Your Answer: Prime cost

12. If a firm experiences an underabsorption of overheads then the closing

stock should be adjusted in which way?

Your Answer: No adjustment should be made

13. The best way of allocating fixed overheads between products is:

Your Answer: As a proportion of direct cost incurred by each

product
Correct Answer: There is no ‘best’ way of allocating overheads
14. Raw materials which are incorporated into goods sold but are not
easily identifiable to the goods being made would be known as:

Your Answer: Work in progress

Correct Answer: Indirect overheads

15. Wages for staff maintaining machines in factory would be classed as:

Your Answer: Administration expenses

Correct Answer: Factory indirect expenses

16. Which of the following would not appear as a direct cost?

Your Answer: Royalties on each unit produced

Correct Answer: Power costs for factory buildings

17. Sales staff salaries would be classed as:

Your Answer: Indirect expenses

Correct Answer: Selling and distribution expenses

18. A minor product produced at the same time as the main product may
be known as a:

Your Answer: Scrap

Correct Answer: By product

19. When deciding to accept a special order at below the normal selling
price a firm would consider which cost?

Your Answer: Absorption cost

Correct Answer: Marginal cost

20. Which of the following would not appear as a factory overhead?

Your Answer: Depreciation of factory equipment

 Correct Answer: Delivery costs for raw materials

21. Which of the following would not normally be included in the prime
cost of production?

Your Answer: Carriage on raw materials.

Correct Answer: Salaries.

22. Which of the following costs has no relationship with the level of
output?

Your Answer: Stepped fixed costs.

Correct Answer: Fixed costs.

23. Depreciation of machinery would be classed as:

Your Answer: direct expenses.

Correct Answer: factory indirect expenses.

24. Adding indirect production expenditure to the direct cost of production

can be known as:

Your Answer: full costing.

25. The correct treatment of an amount paid per item produced to the
owner of a patent would be to include it in which of the following?

Your Answer: Administration expenses.

Correct Answer: Direct expenses.

26. When using Activity Based Costing, a cost centre would be normally be
known as a:

Your Answer: cost driver.

Correct Answer: cost pool.
27. Which of the following would not normally be classed as an
administration expense?

Your Answer: Secretarial wages.

Correct Answer: Salary of factory manager.

28. A cost which is connected with production but does not vary directly
with the level of output may be known as:

Your Answer: factory indirect expense.

The wage costs which are incurred in

converting materials into finished goods would
be known as:
Salaries

Direct labour

Wages & salaries

Indirect labour

Allocating indirect overheads to the direct

cost of production is known as:
Absorption costing

Contribution costing

Marginal costing

Activity based costing

Which of the following is a reason why a firm

would want to implement ABC?
Costs of implementation are too high
 The precision of ABC may be to small to justify
its implementation
It may help make decision making more
accurate
The firm only produces a single product

When costing takes into account only the

variable cost and not the full production cost
we will be using:
Absorption costing

Activity based costing

Full costing

Marginal costing

Marking up the cost of a product by an

amount to represent profit is known as:
Full cost pricing

Price discrimination

Price skimming

Predatory pricing

An area of a business which collects costs is

known as:
Branch

Profit centre

Cost unit

Cost centre
Repairs to factory machinery would be
classed as:
Direct expenses

Factory indirect expenses

Administration expenses

Direct materials

Contribution can be defined as:

Sales revenue less fixed costs

Selling price less total costs

Fixed costs less variable costs

Selling price less variable costs

Any abnormal losses on production are

recorded by which one of the following?
Debit Credit
Abnormal loss
A Process account
account
Abnormal loss
B Cashbook
account
Profit & Loss
C Cashbook
account
abnormal loss
D Process account
account
A

C
 D

A collection of individual costs within a single

heading is known as:
Cost total

Cost pool

Cost centre

Overhead centre

The total of all direct costs of production is

also known as:
Prime cost

Production costs

Variable cost

Total cost

If a firm experiences an underabsorption of

overheads then the closing stock should be
adjusted in which way?
Shortfall should be added to closing stock value

A provision equivalent to amount should be

deducted from value
No adjustment should be made

Shortfall should be subtracted from closing

stock value
The best way of allocating fixed overheads
between products is:
Equally between different products

There is no ‘best’ way of allocating overheads

As a proportion of direct cost incurred by each

product
Based on number people involved in production
of each product

Raw materials which are incorporated into

goods sold but are not easily identifiable to
the goods being made would be known as:
Indirect overheads

Direct materials

Direct overheads

Work in progress

Wages for staff maintaining machines in

factory would be classed as:
Factory indirect expenses

Direct materials

Direct labour

Administration expenses

Which of the following would not appear as a

direct cost?
Carriage inwards of raw materials
 Power costs for factory buildings

Wages for production staff

Royalties on each unit produced

Sales staff salaries would be classed as:

Direct labour

Administration expenses

Selling and distribution expenses

Indirect expenses

A minor product produced at the same time

as the main product may be known as a:
By product

Supplementary product

Joint product

Scrap

When deciding to accept a special order at

below the normal selling price a firm would
consider which cost?
Absorption cost

Full cost

Overhead cost

Marginal cost
Which of the following would not appear as a
factory overhead?
Power for machines

Depreciation of factory equipment

Delivery costs for raw materials

Wages of factory supervisors

Which of the following would not normally be

included in the prime cost of production?
Cost of raw materials.

Salaries.

Direct expenses.

Carriage on raw materials.

Which of the following costs has no

relationship with the level of output?
Fixed costs.

Variable costs.

Semi-variable costs.

Stepped fixed costs.

Depreciation of machinery would be classed

as:
administration expenses.
 factory indirect expenses.

direct materials.

direct expenses.

Adding indirect production expenditure to the

direct cost of production can be known as:
marginal costing.

full costing.

activity based costing.

contribution costing.

The correct treatment of an amount paid per

item produced to the owner of a patent
would be to include it in which of the
following?
Administration expenses.

Indirect expenses.

Distribution expenses.

Direct expenses.

When using Activity Based Costing, a cost

centre would be normally be known as a:
cost driver.

profit centre.

cost unit.

cost pool.
 Which of the following would not normally be
classed as an administration expense?
Depreciation of office photocopier.

Salary of factory manager.

Secretarial wages.

Office heating.

A cost which is connected with production

but does not vary directly with the level of
output may be known as:
variable cost.

factory indirect expense.

direct cost.

selling and distribution expense.

1. The role of management accounting does not normally include the

function of

Your Answer: decision-making

Correct Answer: cash management

2. The role of financial management does not usually include

responsibility for

Your Answer: treasury management

Correct Answer: compliance with accounting standards
3. The management accounting concepts, additional to the fundamental
accounting concepts do not include the

Your Answer: going concern concept

4. Total costs are comprised of

Your Answer: variable costs plus fixed costs

Correct Answer: variable costs plus fixed costs plus semi-variable
costs

5. Prime costs are comprised of

Your Answer: materials costs plus direct labour costs

Correct Answer: production overheads plus materials costs plus
direct labour costs

6. Cost allocation is the charging of a

Your Answer: cost centre with the direct labour and materials
costs relating to the cost centre
Correct Answer: cost centre with the overhead costs resulting solely
from the existence of the cost centre

7. Which of the following examples of bases of cost apportionment may

relate to rent, heating and lighting?

Your Answer: number of employees

Correct Answer: area

8. Which costs are charged to a product using the method of absorption

costing

Your Answer: materials costs plus direct labour costs

Correct Answer: total production costs
9. Using the marginal costing method, contribution is equal to total sales
revenue less

Your Answer: variable costs

10. Marginal costing may be preferred to absorption costing because it

Your Answer: complies with International Accounting Standard

(IAS) 2
Correct Answer: enables use of the opportunity cost approach

The role of management accounting does not normally include

the function of
decision-making

planning and control

cash management

product costing

The role of financial management does not usually include

responsibility for
corporate finance

risk management

treasury management

compliance with accounting standards

The management accounting concepts, additional to the

fundamental accounting concepts do not include the
reliability concept

going concern concept

controllability concept
 interdependency concept

Total costs are comprised of

variable costs plus fixed costs plus semi-variable costs

variable costs plus fixed costs

variable costs plus semi-variable costs

fixed costs plus semi-variable costs

Prime costs are comprised of

direct labour costs plus production overheads

materials costs plus direct labour costs

materials costs plus production overheads

production overheads plus materials costs plus direct labour costs

Cost allocation is the charging of a

cost centre with the direct labour and materials costs relating to the cost
centre
cost centre with the overhead costs resulting solely from the existence of
the cost centre
product with the direct labour costs relating to the product

product with the direct labour and materials costs relating to the product

Which of the following examples of bases of cost apportionment

may relate to rent, heating and lighting?
 weight

area

number of products

number of employees

Which costs are charged to a product using the method of

absorption costing
production overheads plus direct labour costs

total production costs

materials costs plus direct labour costs

direct labour costs

Using the marginal costing method, contribution is equal to total

sales revenue less
fixed costs

variable costs

total costs

direct labour costs

Marginal costing may be preferred to absorption costing because it

ensures the recovery of total costs in sales pricing

complies with the accruals or matching concept

enables use of the opportunity cost approach

complies with International Accounting Standard (IAS) 2

1-Cost estimation include(s) the following expenditure(s)
(A) pattern making

(B) tool making

(C) selling expenses

(D) all of the above

2-To calculate the probable cost of the product, knowledge of following factors involves
(A) Production time required

(B) Use of previous estimates of comparable parts

(C) Effect of change in facilities on costing rates

(D) All of the above

3-Cost accounting is a specialized branch of accounting which deals with

(A) classification, recording, allocation and control of costs

(B) classification, processing, allocation and directing

(C) classification, recording, planning and control of costs

(D) classification, recording, allocation and directing

4-Expenditure incurred on material, labour, machinery, production and inspection are

summed up to find the
(A) Total cost of product

(B) Selling price of product

(C) Factory cost of product

(D) None of the above

5-Which of the following calculate the actual cost of product

(A) Cost estimation

(B) Costing

(C) Both (A) and (B)

(D) None of the above

6-The cost data provide invaluable information for taking the following managerial
decision(s)
(A) To make or buy

(B) To own or hire fixed asset

(C) Determining the expansion or contraction policy

(D) All of the above

7-Match the following

Type of costing Type of industry
a. Job costing 1. Utility services
b. Process costing 2. Automobile industry
c. Departmental costing 3. ship building
d. Operating costing 4. paper making
The correct answer is

(A). a-2, b-3, c-1, d-4

(B). a-3, b-4, c-2, d-1

(C). a-4, b-2, c-1, d-3

(D). a-3, b-2, c-1, d-4

8-The method of unit costing is adopted by

(A) Transport services

(B) Steel industry

(C) Mines

(D) Bicycle industry

9- ____ costing is a type of job costing.

(A) Multiple

(B) Operating

(C) Unit

(D) Batch

10-The following is cost of direct materials

(A) Freight charges
(B) grease

(C) coolant

(D) cotton waste

11-The following is cost of indirect materials

(A) Lubricating oil

(B) Octroi

(C) Import duties

(D) Insurance

12-The payment made to the following is cost of direct labour.

(A) Machinist

(B) Supervisor

(C) Inspector

(D) Sweeper

13-The payment made to the following is cost of indirect labour.

(A) Time keeper

(B) Welder

(C) Moulder

(D) Turner

14-Cost of preparing drawings for the manufacture of a particular product is

(A) Cost of direct labour

(B) Cost of indirect labour

(C) Direct expenses

(D) Indirect expense

15-The following is also known as overhead costs or on costs.

(A) Cost of direct labour

(B) Cost of indirect labour

(C) Direct expenses

(D) Indirect expenses

Answers:
1-(D), 2-(D), 3-(A), 4-(C), 5-(B), 6-(D), 7-(B), 8-(C), 9-(D), 10-(A), 11-(A), 12-(A), 13-(A), 14-
(C), 15-(D)
16-The following is(are) the overhead cost(s)
(A) Factory expenses

(B) Selling expenses

(C) Distribution expenses

(D) All of the above

17-All such expenses which are incurred for creating and enhancing the demands for the
products are
(A) Selling expenses

(B) Administrative expenses

(C) Distribution expenses

(D) All of the above

18-Prime cost=
(A) cost of direct labour + cost of direct material + direct expenses

(B) cost of indirect labour + cost of indirect material + direct expenses

(C) cost of direct labour + cost of direct material + indirect expenses

(D) cost of indirect labour + cost of direct material + indirect expenses

19-Factory Cost =
(A) Prime cost + factory expenses

(B) Prime cost + administrative expenses

(C) Prime cost + selling expenses

(D) Prime cost + distribution expenses

20-Manufacturing cost=
(A) Factory cost + selling cost
(B) Factory cost + distribution cost

(C) Factory cost + administrative expenses

(D) None of the above

21-The following is(are) the method(s) to increase profit

(A) Increase the sales price

(B) Increase the market

(C) Reduce total cost

(D) All of the above

22-Which of the following is variable cost?

(A) Salaries of higher officers

(B) Prime cost

(C) Insurance cost

(D) Repair cost

23-Which of the following is not a method of calculating (allocating) overhead cost?

(A) Percentage on prime cost

(B) Percentage on direct labour cost

(C) Percentage on indirect labour cost

(D) Percentage on direct material cost

24-The following method is an improvement over the percentage on direct labour cost
method.
(A) Machine hour rate

(B) Percentage on prime cost

(C) Percentage on direct material cost

(D) Man hour rate

25-This method is useful where the products are manufactured by manual operations.
(A) Percentage on prime cost
(B) Percentage on direct material cost

(C) Percentage on direct labour cost

(D) Machine hour rate

26-The overhead cost for a particular job =

(A) man hour rate x man hours spent on that job

(B) man hour rate / man hours spent on that job

(C) man hour rate + man hours spent on that job

(D) man hour rate – man hours spent on that jab

27- Labour cost per product is Rs. 2/hr and time taken by each product is 2 hr. The factory
overhead is 20% of the labour costs. The factory cost for 100 products if material cost per
product is Rs. 3, is.
(A) Rs. 700

(B) Rs. 740

(C) Rs. 780

(D) Rs. 820

28-The following is (are) true for variable costs

(A) Variable costs are the functions of output

(B) Variable costs vary directly with the quantity produced

(C) These become zero when the production is suspended

(D) All of the above

29-The following cost helps in taking ‘make or buy’ decision.

(A) Standard cost

(B) Marginal cost

(C) Differential cost

(D) Sunk cost

30-To control costs it is essential to keep control on

(A) Prime cost

(B) Overheads

(C) Indirect materials and tools cost

(D) All of the above

Answers:
16-(D), 17-(A), 18-(A), 19-(A), 20-(C), 21-(D), 22-(B), 23-(C), 24-(D), 25-(C), 26-(A), 27-(C),
28-(D), 29-(C), 30-(D)

MCQs 1 To 10

1. A financial statement that summarizes company revenue and expenses is?

(a) Balance sheet
(b) Statement of owner equity
(c) Income statement
(d) Cash flow statement
2. Which one of the following tangible fixed assets would not normally be depreciated?
(a) Buildings
(b) Machinery
(c) Land
(d) Equipment
3. Which financial statement presents a summary of the Assets, Liabilities, and Owners'
Equity of a firm?
(a) General ledger
(b) Work sheet
(c) Balance sheet
(d) Cash flow statement
4. Subtracting all expenses from revenues yields?
(a) Net profit/Loss
(b) Carrying value
(c) Long-term assets
(d) Net liabilities
5. A financial statement to show what a business owns and owes at a particular point in
time?
(a) A cash flow statement
(b) The bank statement for the business
(c) A balance sheet
(d) A statement of retained earnings
6. If the Gross profit is Rs. 5,000 and the net profit is 25% of the Gross profit. The
expenses must be?
(a) Rs. 3,750
(b) Rs. 1,250
(c) Rs. 4,150
(d) Rs. 6,250
7. A financial document that indicates the success or failure of a business trading over
a period of time is called?
(a) A cash flow statement
(b) A retained earnings statement
(c) An income statement
(d) A bank statement
8. The report of company that shows overall profit on the sale of their goods or the
provision of their services?
(a) Trading and Profit & loss account
(b) Cash flow statement
(c) Income Statement
(d) Both a and c
9. A company has, by the end of its financial period, paid out more Tax than it has to
pay. How would this be shown in the balance sheet?
(a) As an accrual Revenue
(b) As a Prepaid within current assets
(c) As a 'creditor due within one year'
(d) As a creditor due after more than one year'
Correct !
10. Which of the following financial statements is also known as financial condition?
(a) Balance Sheet
(b) Income Statement
(c) Statement of Cash flows
(d) Bank Statement
Wrong !

>> Read Financial Statement.

MCQs 11 To 20

11. Prepaid interest given in the adjusted trial balance will be treated as a (an)?
(a) Asset
(b) Liability
(c) Revenue
(d) Deferred expense
12. Which of the following is the largest single expense of most merchandising firms?
(a) Cost of goods sold
(b) Rent Expense
(c) Amortization Expense
(d) Salaries Expense
13. The primary source of revenue for a wholesaler is?
(a) Investment income
(b) Service fees
(c) The sale of merchandise
(d) The sale of fixed assets the company owns
14. Retained earnings will change over time because of several factors. Which of the
following factors would explain a decrease in retained earnings?
(a) Net loss
(b) Net income
(c) Dividends
(d) Investments by stock holders
15. A Profit is earned if?
(a) Assets exceed Expenditure
(b) Income exceeds Expenditure
(c) Cash Inflow exceeds Cash Outflow
(d) Income exceeds Liabilities
16. What is the difference between the total incoming and the total outgoings?
(a) Net cash flow
(b) Cash inflow
(c) Direct cost
(d) Indirect cost
17. Which of the following is true regarding the income statement?
(a) The income statement is sometimes called the statement of operations
(b) The income statement reports revenues, expenses, and liabilities
(c) The income statement reports only revenue at the point of sale
(d) It shows financial position of a business at a particular period of time
18. Presents the revenue earned and expenses are incurred by an entity during a
specific time period?
(a) Income statement
(b) Statement of owner equity
(c) Balance sheet
(d) None of them
19. The format of the balance sheet reflects which of the following?
(a) The basic accounting equation
(b) Worksheet
(c) Statement of Owner Equity
(d) Income statement
20. How is the balance sheet linked to the other financial statements?
(a) The beginning retained earnings balance on the statement of retained earnings becomes the
amount of retained earnings reported on the balance sheet
(b) Retained earnings is added to total assets and reported on the balance sheet
(c) Net income increases retained earnings on the statement of retained earnings, which ultimately
increases retained earnings on the balance sheet
(d) There is no link between the balance sheet and the other statements