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CIMA - Management Accounting Fundamentals Paper - Multiple Choice Questions
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1. Which of the following best describes a fixed cost? A cost which:
A. ? represents a fixed proportion of total costs
B. ? remains at the same level up to a particular level of output
C. ? has a direct relationship with output
D. :-) remains at the same level when output increases
2. 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
3. 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
4. There are 40,000 units of Part Number LC36 on order from suppliers and 28,000 units outstanding on existing customers' orders. If the free stock is 16,000 units, what is the physical stock of units?
A. ? 12,000
B. ? 4,000
C. ? 24,000
D. ? 44,000
5. A business has high stock turnover and uses the FIFO method of pricing stock issues. If our supplier purchase prices are currently, generally rising, the valuation of closing stock will be:
A. ? based on prices of those items received first
B. ? lower than current supplier prices
C. ? near to current supplier purchase prices
D. ? based on the average of all the stock purchased in the latest period
6. A job needs 3,000 actual labour hours to be completed. It is expected there will be 25% idle time. If the wage rate is £12.50 per hour, what is budgeted labour cost for the job?
A. ? £26,000
B. ? £37,500
C. ? £50,000
D. ? £42,000
7. A business always absorbs its overheads on labour hours. In the 8th period 18,000 hours were worked, actual overheads were £279,000 and there was a £36,000 over-absorption. The overhead absorption rate per hours was
A. ? £15.50
B. ? £17.50
C. ? £18.00
D. ? £13.50
8. A way of dealing with overheads uses a method of spreading common cost values over the cost centres on the basis of benefits received. This is referred to as
A. ? overhead apportionment
B. ? overhead allocation
C. ? overhead analyis
D. ? overhead absorption
9. A manufacturer produced 22,500 units at a total cost of £26 each. Seventy-five per cent of the costs were variable and the remainder were fixed. 15,500 units were sold at £53 each. There were no opening stocks. By how much wiil the profit calculated using absorption costing principles differ from the profit if the marginal costing basis had been used?
A. ? The absorption costing profit will be £38,500 less
B. ? The absorption costing profit would be £45,500 less
C. ? The absorption costing profit would be £50,375 more
D. ? The absorption costing profit would be £45,500 more
10. ACG Plc makes a single product with the following values - all per unit
Selling price £15.00; Direct Materials cost £3.50; Direct Labour £4.00
Variable Overhead £2.00; Budgeted fixed production overhead costs are £60,000 per annum charged evenly across each month of the year. Budgeted production costs are 30,000 units per annum. In July when actual production was 2,400 units and exceed sales by 180 units the profit reported under absorption costing was:
A. ? £8,200
B. ? £7,770
C. ? £6,660
D. ? £7,570
11. The following items may be used to cost jobs:
i) Actual labour cost
ii) Actual material cost
iii) Actual manufacturing overheads
iv) Absorbed manufacturing overheads

Which of the above are contained in a typical job cost?
A. ? All four of them
B. ? (i) (ii) & (iii) only
C. ? (i) & (ii) only
D. ? (i), (ii) & (iv) only
12. A large management consultancy has prepared the the following information:

Overhead absorption rate per consultancy hour : £25.00
Salary cost per Senior consultant hour £60.00
Salary cost per Junior consultant hour £35.00

The firm adds 50% to total cost to arrive at a selling price for invoicing purposes.

A consultancy job CY 3987 took 120 hours using a senior consultant and 430 hours using a junior consultant. What will be the invoice price charged to the client for CY 3987.
A. ? £36,000
B. ? £54,000
C. ? £13,750
D. ? £20,625
13. The following information relates to activity of an outpatients' department at a local hospital near where you live.

Number of consultations received by patients: 7,000 (June) 8,600 (July)
Total cost £507,500 £543,500

Fixed costs are £350,000 per month. What is the variable cost per patient consultation in June and July? Is it?
A. ? £72.50 in June and £63.20 in July
B. ? £50.00 in June and £40.70 in July
C. ? £22.50 in June and £22.50 in July
D. ? £67.37 in June and £67.37 in July
14. In process costing an equivalent unit is:
A. ? a unit made in more than one process cost centre
B. ? a unit being currently made which is the same as previously manufactured
C. ? a notional whole unit representing incomplete work
D. ? a unit made at standard performance
15. In process costing, the value attributed to any abnormal gain is:
A. ? debited to abnormal gain account & credited to normal loss account
B. ? debited to normal loss account and credited to abnormal gain account
C. ? debited to abnormal gain account & credited to process account
D. ? debited to process account & credited to abnormal gain account
16. Process Beta had no opening stock. 13,500 units of raw material were transferred in £4.50 per unit. Additional material at £1.25 per unit was added into process. Labour & overheads were £6.25 per completed unit and £2.50 per unit incomplete.
If 11,750 completed units were transferred out, what was the value of the closing stock of Process Beta?
A. ? £24,000
B. ? £89, 450
C. ? £14,437.50
D. ? £152,000.00
17. The most relevant costs that should be used in decision making are:
A. ? current costs
B. ? estimated future costs
C. ? notional costs
D. ? costs already incurred which are
known with certainity
18. Acclerate Ltd has fixed costs of £72,000 per annum. It makes one product which it sells for £32 per unit. Its contribution to sales ratio is 45%.

Accelerate's break even point in units is:
A. ? 5,000 units
B. ? 7,000 units
C. ? 2,250 units
D. ? 2,750 units
19. Good Job Plc makes one product which sells for £80 per unit. Fixed costs are £28,000 per month and marginal costs are £42 a unit. What sales level in units will provide a profit of £10,000?
A. ? 1,350 units
B. ? 350 units
C. ? 1,000 units
D. ? 667 units
20. Railway Product Ltd makes one product that sells for £72 per unit. Fixed costs are £81,000 per month & the product has a contribution to sales ratio of 37.5%. In a period when actual sales were £684,000 the company's unit margin of safety was :
A. ? 4,000 units
B. ? 6,500 units
C. ? 5,500 units
D. ? 4,800 units
21. The master budget comprises:
A. ? the budgeted profit and loss account
B. ? the capital expenditure budget
C. ? the budgeted profit and loss account, budgeted, cash flow and budgeted balance sheet
D. ? the budgeted cashflow
22. In Creative Products Ltd the actual output was 200,000 units and the actual fixed costs of £94,000 were as budgeted. However, the actual total expenditure of £440,000 was £26,000 over budget. What was the budgeted variable cost per unit for Creative Products Ltd?
A. ? £2.20
B. ? £1.60
C. ? £2.07
D. ? £1.86
23. LPG Limited purchased 6,850 kilos of material at a total cost of £21,920. The material price variance was £1,370 favourable. The standard price per kilo was:
A. ? £3.10
B. ? £0.80
C. ? £2.80
D. ? £3.40
24. In the 10th period 22,600 labour hours were worked at a standard cost of £8.00 per hour. The labour efficiency variance was £11,200 favourable, How many standard hours were produced?
A. ? 24,000 hours
B. ? 22,600 hours
C. ? 20,800 hours
D. ? 21,600 hours
25. A flexible budget is defined as:
A. ? a budget of variable production costs only
B. ? a budget which shows the costs and revenues at different levels of activity
C. ? a budget which is prepared using a computer spreadsheet model
D. ? a budget which is updated with actual costs and revenues as they occur during the budget period
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ADVANCED COST ACCOUNTING MULTIPLE CHOICE QUESTIONS
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ADVANCED COST ACCOUNTING MULTIPLE CHOICE QUESTIONS


1. Absorption costing measures contribution to profit as:
A) Sales less unit- level costs spent of goods sold.
B) Sales less absorption cost of goods sold.
C) Sales less absorption cost of goods sold.
D) Sales less all costs including operating expenses.

2. In a job-order costing system, the journal entry to record depreciation on factory equipment would be recorded by a:
A) Debit to Depreciation Expense, credit to Accumulated Depreciation
B) Debit to Manufacturing Overhead, credit to Depreciation Expense
C) Debit to manufacturing Overhead, credit to Work-in-Process
D) Debit to Manufacturing Overhead, credit to Accumulated Depreciation

3. Which of the following statements regarding traditional cost accounting systems is False?
A) Products are often over or under costed in traditional cost accounting systems
B) Most traditional cost accounting systems do not trace individual costs to products.
C) The advantage of traditional cost accounting systems is their simplicity.
D) Traditional cost accounting systems can be sufficient to meet managers' cost information needs as long as the level of indirect costs is relatively high compared to the level of direct costs.

4. Which of the following indicates that a company may benefit from an Activity-Based Costing system?
A) Standard high-volume goods and services show significant profits.
B) Indirect costs are insignificant in proportion to direct costs.
C) The company loses relatively high priced bids.
D) Goods and services are complex and may require many different processes or inputs

5. Which of the following is not a planning issue in Activity-Based-Management?
A) The intended scope of the project
B) The current customer base
C) Information gathering
D) Resistance to change

6. Under what conditions will the FIFO method produce the same cost of goods manufactured as the weighted-average method?
A) When there is no ending inventory
B) When the beginning and ending inventories are both 50% complete
C) When there is no beginning inventory
D) When the beginning and ending inventories are equal

7. Which of the following is not a step needed to maximize the profits from joint products?
A) Forecasting the sales price of each final product.
B) B) Identifying alternative sets and quantities of final products possible from the joint process.
C) Determining how to allocate joint costs to the final products.
D) Estimating the costs required to further process joint products into salable products.

8. Which of the following is not a method of allocating joint costs?
A) Sales value at split-off
B) Net realizable value
C) By-product method
D) Physical-measures method

9. Which of the following statements best describes the account analysis approach to cost estimation?
A) Cost estimates are based on optimal or ideal operating conditions.
B) Discernible patterns of the past are used to predict future behavior.
C) Historical operating costs are plotted against some past operating activity.
D) Relies heavily on the accounting personnel's experience and judgment.

10. Which cost estimation method is based on both past and future data?
A) Engineering method.
B) Regression method.
C) Account analysis method.
D) All of the above.

11. Cost-volume profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the break-even point. Once the break-even point has been reached, operating income will increase by the
A) contribution margin per unit for each additional unit sold
B) fixed cost per unit for each additional unit sold.
C) variable cost per unit for each additional unit sold
D) none of the above.

12. Break-even analysis assumes that:
A) total revenue is constant.
B) unit variable cost is constant.
C) unit fixed cost is constant.
D) all of the above.

13. Which of the following is typically considered fixed under traditional budgeting processes, but considered variable under activity based budgeting:
A) Set ups, inspections and purchasing
B) Material handling, designing and quality control
C) A and B
D) None of the above

14. Which of the following does not affect a material purchase price variance?
A) Increases in the demand for the firm's output
B) Need to purchase component parts with precise engineering specifications
C) Rush order requests from the production department
D) World-wide shortages of critical input materials

15. Subjective performance evaluation:
A) Compares an individual's performance to that of others.
B) Bases rewards on a performance evaluation formula.
C) Compares individual performance to set objectives or expectations.
D) Uses non-quantified criteria to evaluate individuals.

16. In a multi-product firm, activity levels for a flexible budget are based on
A) output measures
B) input measures
C) Either
D) Neither

17. Which of the following companies would most likely use a process costing system?
A) A large computer manufacturer where each computer is made to customer specifications.
B) A luxury home builder
C) A law firm
D) A manufacturer of cereals
The purpose of recording depreciation on productive assets is to
a.reflect the decline in the market value of the assets each period.
b.reduce income when the company has an exceptionally profitable year.
c.be in conformity with the revenue recognition principle.
d.allocate the original cost of a productive asset to expense over its useful life.

Newell Company debited Prepaid Insurance for $600 on July 1, 2003 for a one-
year fire insurance policy. If he company prepares monthly financial statements,
failure to make an adjusting entry on July 31, for the amount of insurance that has
expired would cause
a. assets to be overstated by $600 and expenses to be understated by $600.
b. expenses to be overstated by $50 and assets to be understated by $50.
c. assets to be overstated by $50 and expenses to be understated by $50.
d. expenses to be overstated by $600 and assets to be understated by $600.

Edited by Customer (name blocked for privacy) on October 25 2006 at 7:19 PM
Customer (name blocked for privacy)
Status: Closed Value: $10
Answer
October 25 8:42 PM (1 hour and 52 minutes and 24 seconds later)

ACCEPTED
The purpose of recording depreciation on productive assets is to
a.reflect the decline in the market value of the assets each period.
b.reduce income when the company has an exceptionally profitable year.
c.be in conformity with the revenue recognition principle.
d.allocate the original cost of a productive asset to expense over its useful life.

Newell Company debited Prepaid Insurance for $600 on July 1, 2003 for a one-
year fire insurance policy. If he company prepares monthly financial statements,
failure to make an adjusting entry on July 31, for the amount of insurance that has
expired would cause
a. assets to be overstated by $600 and expenses to be understated by $600.
b. expenses to be overstated by $50 and assets to be understated by $50.
c. assets to be overstated by $50 and expenses to be understated by $50.
d. expenses to be overstated by $600 and assets to be understated by $600.

RD -- Certified Public Accountant (CPA) -- 99% Positive Feedback on 529 Finance Accepts
April/May 1999
1. Define overhead.



2. Mention the differences between cost of goods sold and cost of sales.
Cost of goods sold includes cost of materials, labour and factory overheads. Selling and administrative expenses are normally excluded whereas Cost of sales includes cost of good sold along with selling and administrative expenses.


3. What are the techniques of costing?
(i) Job Costing
(ii) Batch Costing
(iii) Contract Costing
(iv) Single or Output Costing
(v) Process Costing
(vi) Operating Costing
(vii) Multiple Costing


4. Give two types of undertakings which use operating costing.
It is used in the case of concerns rendering services like :
(i) Transport
(ii) Supply of water
(iii) Retail trade


5. What is E.O.Q.? Give its utility.
Economic Order Quantity or Re-order Quantity is the quantity for which the order is placed when stock reaches the re-order level. It is known as Economic Order Quantity because it is a quantity which is most economical to order.
By fixing this quantity, the purchaser need not re-calculate the quantity to be purchased each time he orders for materials.


6. What are the methods used in Time-keeping?
There are two methods of time keeping :
(i) Manual Methods
(a) Attendance Register Method
(b) Metal Disc Method
(ii) Mechanical Methods
(a) Time Recording Clocks
(b) Dial Time Records


7. What is meant by absorption of overhead?
It is defined as the process of absorbing all overhead costs allocated to or apportioned over particular cost centre or production department by the units produced. For example, the overhead costs of a lathe centre may be absorbed by using a rate per lathe hour.


8. What do you mean by controllable costs? Give example.
These are the costs which can be influenced by the action of a specified member of an undertaking. Controllable costs incurred in a particular responsibility centre can be influenced by the action of the executive heading that responsibility centre.
e.g. Direct costs comprising direct labour, direct materials, direct expenses and some of the overhead are generally controllable by the shop level management.


9. What are Joint products? Give example.
Joint products represent "two or more products separated in the course of the same processing operation usually requiring further processing, each product being in such proportion that no single product can be designated as a major product".
In other words, two or more products of equal importance, produced simultaneously from the same process, are known as joint products.
For example, in the oil industry, gasoline, fuel oil, lubricants, paraffin, coal tar, asphalt and kerosene are all produced from crude petroleum.


10. How do you treat plant used in a contract and lost in fire?



11. What do you mean by margin of safety?



12. What are variable overheads? Write examples.
Expenses that change in proportion to the change in the volume of activity; when output goes up by 10% the variable expenses also go up by 10%. Correspondingly, on a decline in the output, these expenses also decline proportionately.
e.g. power consumed; consumable stores; repairs and maintenance and depreciation are dependent on the use of assets.


November/December 1999
1. Mention any two uses of cost accounting system to management.
(a) Budgeting : Nowadays detailed estimates in terms of quantities and amounts are drawn up before the start of each activity. This is done to ensure that a practicable course of action can be chalked out and the actual performance corresponds with the estimated or budgeted performance. The preparation of the budget is the function of Costing Department.
(b) Price determination : Cost accounts should provide information which enables the management to fix remunerative selling prices for various items of products and services in different circumstances.


2. What is Bill of material?
It is also known as Material Specification List or simply Material List. It is a schedule of standard quantities of materials required for any job or other unit of production. A comprehensive Material List should rigidly lay down the exact description and specifications of all materials required for a job or other unit of production and also required quantities so that if there is any deviation from the standard list, it can easily be detected.


3. What are fixed overheads? Give examples.
These are expenses that are not affected by any variation in the volume of activity. e.g. rent. Fixed or constant expenses remain the same from one period to another except when they are deliberately changed. e.g. additional staff being engaged.


4. What is meant by retention money? What is its objective?
Usually the contractee stipulates in the contract deed that he would withhold a part of the contract price to be paid at a later stage after completion of the contract. This is to make sure that the contractor has performed all work relating to contract on the most satisfactory manner and that no repair work arises within a prescribed time limit. The amount so withheld by the contractee is known as retention money. It safeguards the interest of the contractee against the contractor, who may at time perform sub-standard work and gain therefrom.


5. What are indirect labour costs? Give two examples.
Labour costs which cannot be allocated but can be apportioned to or absorbed by cost units or cost centres is known as indirect labour. Examples of indirect labour includes – charge hands and supervisors; maintenance workers; etc.


6. What are notional rent and notional interest?



7. How do you calculate bonus under Rowan Premium Plan?
According to this system, a standard time allowance is fixed for the performance of a job and bonus is paid if time is saved. Under Rowan system, the bonus is that proportion of the time wages as time saved bears to the standard time.
Bonus = (Time Saved / Standard Time) * Time taken * Rate per hour


8. What is meant by Escalation clause?
Sometimes, owing to fluctuation in the prices of materials and labour costs, the contract price is altered so that neither party suffers the loss arising out of the change in price level. To protect his interest against the rise in prices, the contractor inserts a clause known as the 'escalation clause', under which, the contractee will be obliged to pay the enhanced price of the contract because of increase in the rates of materials, labour and other expenses.


9. What is meant by continuous stock verification?
The system of continuous stock-taking consists of counting and verifying the number of items daily throughout the year so that during the year, all items of stores are covered three or four times. The stock verifiers are independent of the stores, and the stores staff have no foreknowledge as to the particulars items that would be checked on any particular day.


10. Distinguish between waste and scrap.
(a) Waste represents the portion of basic raw materials lost in processing, having no recoverable value whereas scrap is the incidental residue from certain types of manufacture, usually of small amount and low value, recoverable without further processing.
(b) Normal waste is absorbed in the cost of net output. Abnormal waster is transferred to the Costing Profit and Loss Account. When the value of scrap is negligible, it may be excluded from costs. When scrap is identifiable with a particular job or process and its value is significant, the scrap account should be charged with full cost.


11. What is meant by centralised buying?
Purchasing should be centralised i.e. all purchases should be done by the purchasing department except for small purchases which may be done by the user's department. What is needed is that there should be staff wholly devoted to purchasing and becoming expert in the various matters to be attended to. e.g. units of materials to be purchased and licences to be obtained, transport, sources of supply, probable price, etc.


12. What are the types of budgets, as per functions?



April/May 2000
1. Define Cost Accounting.
Cost Accounting is defined as "the process of accounting for cost which begins with the recording of income and expenditure or the basis on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs."


2. What is a Cost Centre?
It is defined as a location, person or an item of equipment (or group of these) for which cost may be ascertained and used for the purpose of Cost Control. Cost Centres are of two types, viz., Personal and Impersonal.


3. State two differences between Bincard and Store Ledger Card.
(i) In the case of Bin Cards, store records are dispersed over a wide area whereas Store Ledger Card enables stock records to be centralised in case of an organisation having a number of depots.
(ii) The bin cards are liable to be smeared with dirt and grease because of proximity to material and also because of handling materials whereas the records in the Store Ledger Card are clearer and neater.


4. Define overheads.
[April/May 1999]


5. State two reasons responsible for the differences in profit shown by cost accounts and financial accounts.
(i) Items included in financial accounts but not in cost accounts.
(ii) Items included in cost accounts only.
(iii) Under or over absorption of overheads.
(iv) Adoption of different basis for stock valuation.
(v) Adoption of different basis for depreciation.
(vi) Adoption of different basis for valuing work-in-progress.
(vii) Expenses of abnormal nature are excluded in cost accounts.
(viii) Recording of costs while approximation in cost accounts in some cases.


6. What do you mean by ABC Analysis?
It is a system of inventory control. It exercises discriminating control over different items of stores classified on the basis of the investment involved. Usually the items are divided into three categories according to their importance, namely, their value and frequency of replenishment during a period.


7. State the features of Contract Costing.
(i) The major part of the work in connection with each contract is ordinarily carried out at the site of the contract.
(ii) The bulk of the expenses incurred by the contractor are considered as direct.
(iii) The indirect expenses mostly consist of office expenses of the yards, stores and works.
(iv) A separate account is usually maintained for each contract.
(v) The number of contracts undertaken by a contractor at a time is not usually very large.
(vi) The cost unit in contract costing is the contract itself.


8. Distinguish between joint products and by-products.
The main points of distinction as apparent from the definitions of Joint Products and By-Products are :
(i) Joint products are of equal importance whereas by-products are of small economic value.
(ii) Joint products are produced simultaneously but the by-products are produced incidentally in addition to the main products.


9. How do you calculate bonus under Rowan Premium Plan?
[November/December 1999]


10. Define the term 'Material Control'?
The publication of the Institute of Cost and Management Accountants on Budgetary Control defines Material Control as "the function of ensuring that sufficient good are retained in stock to meet all requirements without carrying unnecessarily large stocks".


11. What is meant by 'Work Certified'?
Work certified represents that portion of the contract that has been duly approved by the architect of the contractee. This is denoted in terms of money value in contract account and appears on the credit side of the contract account.


12. What is Uniform Costing?
When several undertakings start using the same costing principles and/or practices they are said to be following uniform costing. The basic idea behind uniform costing is that the different concerns in an industry should adopt a common method of costing and apply uniformly the same principles and techniques for better cost comparison and common good.


October/November 2000
1. What is cost unit?
It is a unit of product, service or time (or combination of these) in relation to which costs may be ascertained or expressed. We may for instance determine the cost per tonne of steel, per tonne kilometer of a transport service or cost per machine hour.


2. What is contract costing?
Contract or terminal costing, as it is termed, is one form of application of the principles of job costing. In fact a bigger job is referred to as a contract. Contract costing is usually adopted by building contractors engaged in the task of executing Civil Contracts.


3. Give any two differences between Cost Accounting and Financial Accounting.
(i) Cost Accounting is used for management control and internal reporting whereas Financial Accounting is used to portray a true and fair view of the financial position of the organization during a period.
(ii) Cost Accounting can provide information to assess the performance of various persons and departments and to see that costs do not exceed a reasonable limit for a given quantum of work of the requisite quality whereas Financial Accounting cannot.
(iii) Cost Accounting can help the management to decide whether investment should be made in a new project or whether a product given up but Financial Accounting cannot.


4. Distinguish between allocation and apportionment of overhead.
(i) Allocation implies relating overheads directly to the various departments whereas apportionment implies the allotment of proportions of items of cost to cost centres or departments.
(ii) Overhead items will remain unallocated after allocation whereas Apportionment deals with spreading over the unallocable expenses to the various departments or cost centres on an equitable basis.
(iii) Apportionment succeeds allocation.


5. What is meant by absorption of overhead?
[April/May 1999]


6. Give the meaning of job costing.
According to Job Costing, costs are collected and accumulated to jobs, contracts, products or work orders. Each job or unit of production is treated as a separate entity for the purpose of costing. Job costing is carried out for the purpose of ascertaining cost of each job and takes into account the cost of materials, labour and overheads, etc.
e.g. Motor workshop, etc.


7. Define the term Joint Product.
Joint Products is defined as "two or more products separated in the course of the same processing operation usually requiring further processing, each product being in such proportion that no single product can be designated as a major product".


8. What is Memorandum Reconciliation Statement?
Memorandum Reconciliation Account is an account prepared for reconciliation of Cost and Financial Accounts. In this account, the items charged in one set of accounts but not in the other or those charged in excess as compared to that in the other are collected and by adding or subtracting them from the balance of the amount of profit shown by one of the accounts, shown by the other can be reached.


9. Give four examples of office overheads.
(i) Expenses on the routine office work.
(ii) Salaries of managerial personnel.
(iii) Cost of facilities provided to managerial personnel.
(iv) Salaries of their personal staff.


10. Mention any two benefits which a firm may derive from the introduction of Cost Accounting System in the organization.
(i) A good Cost Accounting System helps in identifying unprofitable activities, losses or inefficiencies in any form.
(ii) Cost Accounting is quite useful for price fixation. It serves as a guide to test the adequacy of selling prices. The price determined may be useful for preparing estimates or filling tenders.
(iii) Cost comparison helps in cost control. Such a comparison may be made from period to period by using the figures in respect of the same unit of firms or of several units in an industry by employing uniform costing and inter-firm comparison methods. Comparison may be made in respect of costs of jobs, processes or cost centres.
(iv) The cost of idle capacity can be easily worked out, when a concern is not working to full capacity.


11. What do you mean by Operating Cost?



12. Give four examples of idle time.
Normal idle time :
(i) Time lost between factory gate and the place of work
(ii) The interval between one job and another
(iii) The setting up time for machine
(iv) Normal fatigue

Abnormal idle time :
(v) Power failure
(vi) Breakdown of machines
(vii) Non-availability of raw materials
(viii) Strikes


April/May 2001
1. What is works on cost? How does it differ from works cost?



2. What is the difference between direct and indirect materials? Give two examples each.
Materials which are present in the finished product or can be identified in the product are called direct materials whereas materials which do not normally form part of the finished product are known as indirect materials.
e.g. Direct Materials – Cloth in dress making
Indirect Materials – Stores used for maintaining machines and buildings


3. What is a purchase requisition? To whom is it submitted?
A purchase requisition is a form used for making a formal request to the purchasing department to purchase materials. This form is usually filled up by the store keeper for regular materials and by the departmental head for special materials (not stocked as regular items). The requisition form is duly signed by either works manager or plant superintendent, in addition to the one originating it.


4. What is 'Retention money'? Why is it retained?
[November/December 1999]


5. How do you calculate bonus under Halsey Premium Plan?
Under Halsey scheme, bonus is given for 50% of the time saved at the hourly rate.
Bonus = 50% * Time saved * Time rate


6. Distinguish between normal loss and abnormal loss?
(i) Normal loss can be reasonably anticipated from the nature of material, nature of operation, the experience or technical data whereas Abnormal loss is the loss in excess of the pre-determined loss.
(ii) The cost of normal loss in practice is absorbed by good units produced under the process whereas cost of abnormal loss is not treated as a part of the cost of the product.


7. What is a 'fixed overhead'? Give two examples.
[November/December 1999]


8. Differentiate between LIFO and FIFO system of Material Issue?
(i) Under LIFO method, the items of the last batch purchased are the first to be issued whereas under FIFO method, the materials are issued in the order in which they arrive in the store.
(ii) During the period of rising prices, LIFO would help to ensure that the cost of production determined on the above basis is approximately the current one, whereas FIFO method is considered suitable in times of falling prices because the material cost charged to production will be high.


9. Distinguish between waste and scrap? Give examples.
[November/December 1999]
Examples :
Waste – Disappearance of basic raw materials through evaporation, smoke, etc.
Scrap – Trimmings from timber on which operations are performed.


10. What do you mean by 'Uncertified' work in contract?
Work uncertified refers to that portion of work completed by the contractor but disapproved by the architect on the ground that it has not reached a stipulated stage. The value of work uncertified also appears on the credit side of the contract account.


11. What is inter-process profit?
In some process industries, the output of one process is transferred to the next process not at cost but at market value or cost plus a percentage of profit. The difference between cost and the transfer price is known as inter-process profits. The system shows profits which are not realised because of stock not sold out.


12. What is 'operating costing'? In which industry do you apply? Give two examples.
It is a method of ascertaining costs of providing or operating a service. This method of costing is applied by those undertakings which provide services rather than production of commodities. This costing method is usually made use of by transport companies, gas and water works departments, electricity supply companies, canteens, hospitals, theatres, schools, etc.


October/November 2001
1. Define Prime Cost. What are its components?
Prime Cost consists of the cost of materials consumed, direct wages and direct expenses.


2. Name any four service departments in a factory.
(i) Stores keeping
(ii) Purchase department
(iii) Time keeping department or Payroll department
(iv) Canteen, welfare and recreation services
(v) Maintenance department
(vi) Internal transport department
(vii) Inspection department


3. What do you mean by Minimum level? How do you calculate?
It indicates the lowest figure of inventory balance, which must be maintained in hand at all times, so that there is no stoppage of production due to non-availability of inventory. The formula used for its calculation is as follows :
Minimum level of inventory = Re-order level - (Average rate of consumption * Average time of inventory delivery)


4. Define cost centre.
[April/May 2000]


5. What do you mean by "Cost Plus Contract"?
Under Cost plus Contract, the contract price is ascertained by adding a percentage of profit to the total cost of the work. Such type of contracts are entered into when it is not possible to estimate the Contract Cost with reasonable accuracy due to unstable condition of material, labour services, etc.


6. What do you mean by Codification of Materials? How many methods are there?
Proper classification and codification of various items of stores is essential for a good system of store keeping. Under codification, each item of stores is given a distinctive code number. Codification of classified material can be done by using alphabetic, numerical or alphanumerical approaches. Numerical system of Codification is commonly used.


7. Mention what method of costing you suggest for the following industries?
a) Printing press : Job Costing
b) Oil refinery :
c) Cinema Theatre : Operating/Service Costing
d)T.V. and Radio :


8. Mention any four examples of factory overheads.
(i) Expenses connected with purchasing and handling of materials.
(ii) Expenses connected with labour.
(iii) Expenses connected with administration of the factory.


9. Name any four items of expenses which are not taken in Cost Accounts.
(i) Expenses of the company's share transfer office, if any.
(ii) Interest paid on bank overdraft.
(iii) Damages and penalties payable at law.
(iv) Losses on scrapping of machinery.
(v) Losses arising out of natural calamities.
(vi) Donations and charities.
(vii) Loss on sale of investment.


10. What is Bincard? How does it differ from Store ledger card?
[April/May 2003 & April/May 2000]


11. Who are 'Out Workers'?



12. What is 'Muster Roll'? Explain.
Muster Roll is a register wherein the time-keeper, under Metal Disc Method of time-keeping, records the attendance of workers which is subsequently passed on to the Pay Roll Department. There are chances of inclusion of dummy or ghost workers by the time-keeper in the attendance register or Muster Roll.


April/May 2003
1. What is cost?
(a) The amount of expenditure (actual or notional) incurred on or attributable to a given thing.
(b) To ascertain the cost of a given thing.


2. What is direct material?
Direct materials are the materials that can be identified with and allocated to cost centres and cost units. It's that material that becomes part of a product. For example, cloth in dress making; materials purchased for a specific job, etc. Materials which become part of a product but are of negligible cost or used in comparatively small quantities are however grouped under indirect materials.


3. What is overhead?
It is the aggregate of indirect material costs, indirect labour costs and indirect expenses. Overheads also represent expenses that have been incurred in providing certain ancillary facilities or services which facilitate or make possible the carrying out of the production process; by themselves these services are not of any use.


4. Mention any four examples of Administrative overhead.
[October/November 2000]

5. What is Cost Unit?
[October/November 2000]


6. What do you mean by "Cost plus contract"?
[October/November 2001]


7. Mention any four service departments in a factory.
[October/November 2001]


8. Define Cost Centre.
[April/May 2000]


9. Mention what method of costing you suggest for the following industries :
a) Printing press : Job Costing
b) T.V. and Radio manufacturing concern : Batch Costing


10. What is Bin Card?
Bin cards are a form of maintaining store records. They are kept attached to the bins or receptacles or quite near thereto so that these also assist in the identification of stock. There are less chances of mistakes being made under such system since entries will be made at the same time as goods are received or issued by the person actually handling the materials.


11. What are 'out workers'?
[October/November 2001]


12. Mention four examples for 'idle time'.
[October/November 2000]


March/April 2004
1. What do you mean by 'cost unit'?
[October/November 2000]


2. State the elements of cost.
(i) Materials Cost (Direct and Indirect Materials Cost)
(ii) Labour Cost (Direct and Indirect Labour Cost)
(iii) Other Expenses (Direct and Indirect Expenses)
(iv) Overheads (Production or Works Overheads, Administration Overheads, Selling Overheads and Distribution Overheads)


3. What do you mean by opportunity cost?
This cost refers to the value of sacrifice made or benefit of opportunity foregone in accepting an alternative course of action. For example, a firm financing its expansion plan by withdrawing money from its bank deposits. In such a case the loss of interest on the bank deposit is the opportunity cost for carrying out the expansion plan.


4. Give the meaning of 'Cost plus Contract'.
[October/November 2001]


5. What is secondary overhead distribution summary?



6. How do you treat opening and closing stock of finished goods in Cost Sheet?
When opening and closing figures of finished goods are given, the same may be adjusted before calculating cost of goods sold. Opening stock of finished goods is added to cost of production and closing stock of finished goods deducted therefrom.


7. Mention four features of Job Costing.
(i) Costs are collected and accumulated according to jobs, contracts, products or work orders.
(ii) Each job or unit of production is treated as a separate entity for the purpose of costing.
(iii) Job costing is carried out for the purpose of ascertaining cost of each job and takes into account the cost of materials, labour and overhead, etc.
(iv) The basic principles enunciated for the job costing method are valid for all types of industry.


8. What do you mean by Joint Products? Give an example.
[April/May 1999]


9. How do you calculate bonus under 'Rowan plan'?
[November/December 1999]


10. What do you mean by absorption of overhead?
[April/May 1999]


11. Define the term 'Material Control'.
[April/May 2000]


12. How do you calculate maximum level?
Maximum level indicates the maximum figure of inventory quantity held in stock at any time. The formula used for its calculation is as follows :
Maximum level of inventory = Re-order level + Re-order quantity - (Minimum consumption * Minimum re-order period)