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Meaning, elements and classification of cost - class-XII

Description: meaning, elements and classification of cost
Number of Questions: 29
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Tags: commercial applications book keeping and accountancy fundamental concepts of cost cost accounting: an introduction
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Absorption costing technique is also termed as ___________________.

  1. Traditional or full cost method

  2. Contribution in Marginal costing

  3. Direct costing technique

  4. Incremental costing technique


Correct Option: A
Explanation:

Absorption costing, is also termed as Traditional or full costing method , it includes everything that is a direct cost in producing a good in its cost centre.

Cost, which is related to specific cost object and economically traceable, will be classified as ____________.

  1. direct cost

  2. indirect cost

  3. line cost

  4. staff cost


Correct Option: A
Explanation:

 A direct cost is a cost that can be completely attributed to the production of specific goods or services.

Aggregate of direct costs is known as _________.

  1. Direct material costs

  2. Direct wages

  3. Direct expenses

  4. Prime cost


Correct Option: D
Explanation:
 Direct Material  xxxx
 Direct Labor  xxxx
 Direct Expense  xxxx
 PRIME COST  XXXX
   

Variable cost per unit ___________________.

  1. Remains fixed

  2. Fluctuates with volume of production

  3. Varies in consideration with the volume of sales

  4. None of the above


Correct Option: B
Explanation:

Cost may be classified as fixed cost and variable cost.  


Fixed cost is that cost which remains constant in terms of value. It does not change with the level of production. For example, rent or salary.

Variable cost is just opposite to fixed cost. Its fixed in terms of per unit but fluctuate with the level of production. For example, raw material cost.

The work of factory employees that can be physically associated with converting raw material into finished goods is classified as ________________.

  1. Manufacturing overhead

  2. Indirect materials

  3. Indirect labour

  4. Direct labour


Correct Option: D
Explanation:

Employees who are involved directly in to the production activity are direct labor. The cost of labor is directly associated to a specific unit or cost or product.

The principle types of inventories are raw materials, ___________ and finished goods.

  1. Processed materials

  2. Goods-in-progress

  3. Stored goods

  4. Goods for dispatch


Correct Option: B
Explanation:

Inventories may be classified as raw material, work in progress and finished goods. Goods which is partly finished is considered as goods in progress or work in progress. 

When factory overhead control account has an ending debit balance, factory overhead was ___________.

  1. Over applied

  2. Under applied

  3. Both A and B

  4. None of the above


Correct Option: B
Explanation:

This is the situation in which the overheads applied to a product is less than the actual overhead incurred. This results in the overheads having a debit balance.

When _________ is used on the basis of budgeted overheads and the rate is applied to the actual base, the actual overhead expenses may be different from the charged overheads.

  1. A predetermined rate

  2. Actual rate method of absorption

  3. Both A and B

  4. None of the above


Correct Option: A
Explanation:

A predetermined rate of overhead is calculated by dividing the estimated overhead cost by the estimated number of hours. It refers to the estimation hence actual overheads may be different from the charged overheads.

________ forms part of cost of production.

  1. Abnormal waste

  2. Normal waste

  3. Both A and B

  4. None of these


Correct Option: B
Explanation:

Wastage can be classified as normal waste and abnormal waste. There is a part of input which constitutes as waste in the normal course of production. This kind of waste is considered as normal waste, the value of which should be recorded as part of cost of production.

A flexible budget requires careful study and classification of expenses into_____________.

  1. Product expenses and period expenses

  2. Past and current expenses

  3. Administrative, selling and factory expenses

  4. Fixed, semi-variable and variable expenses


Correct Option: D
Explanation:

A flexible budget requires careful study and classification of expenses into Fixed, semi-variable and variable expense. A flexible budget is a budget which changes with the change in level of activity. 

Period cost means

  1. Fixed cost

  2. Variable cost

  3. Prime cost

  4. Average cost


Correct Option: A
Explanation:

period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A period cost is more closely associated with the passage of time than with a transactional event.

Examples of period costs are general and administrative expenses, such as rent, office depreciation, office supplies, and utilities.

The type of costing which is most suitable for cost control purpose is

  1. Post costing

  2. Marginal costing

  3. Continuous costing

  4. Standard costing


Correct Option: D
Explanation:

In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance. A standard costing system involves estimating the required costs of a production process.

All costs are controllable in the __________ .

  1. Short run

  2. Long run

  3. Medium run

  4. Very short run


Correct Option: B
Explanation:

All costs are controllable in long run. In long run all costs are controllable because of the time period. Controllable costs are those cost which can be controlled if taken care of. 

The type of standard that is best suited from cost control point of view is

  1. Expected standard

  2. Normal standard

  3. Basic standard

  4. Ideal standard


Correct Option: A
Explanation:

Expected or attainable Standards: This standard is a compromise between extremes of normal standard & extremes of idle standard. The main features of these standards are:  (a) for the purpose of providing for operating inefficiencies which are unavoidable, these standards are set; (b) conditions prevailing in the period for which use of standards are made are taken into account; (c) for the purpose of evaluation of performance, these standards provide best criterion & are very realistic in nature; (d) as all requirements of good standards are fulfilled by these standards, i.e., these standards are consistent, are attainable, realistic & provide incentive for improvement; they have got the maximum usage. Level of performance expected in these standards is higher than level of performance expected in normal standard. 

Standard costs are

  1. Ideal costs

  2. Normal costs

  3. Average cost

  4. Reasonable attainable costs


Correct Option: D
Explanation:

standard cost is a pre-determined or pre-established cost to make a unit of finished product.

Practical standards, which consider normal and reasonable product inefficiencies, are tight, yet attainable.

Excess direct labour wages will be disclosed in which type of variance?

  1. Yield

  2. Quantity

  3. Direct labour efficiency

  4. Direct labour rate (price)


Correct Option: D
Explanation:

Direct labour rate variance is the difference between the standard rate of labour and the actual labour rate on standard ouput/hour.


This variance represent the excess or short wages against the standard cost of labour.

Preliminaries to setting of standards:
I. Establishment of cost centres
II. Classification and Codification of accounts
III. Period of use
IV. Reasonable or desirable level of attainment
Of these

  1. I and II are correct

  2. II and IV are correct

  3. I and IV are correct

  4. All are correct


Correct Option: D
Explanation:

The following preliminaries are to be carefully considered before introducing standard costing system in any firm:

A. Setting up or Establishment of Cost Centres;

B. Classification and Coding of Accounts;

C. Types of Standards; and

D. Setting up or Establishment of Standards.

Product costs under direct costing included.

  1. Prime cost only

  2. Prime cost and fixed factory overhead

  3. Prime cost and variable factory overhead

  4. Fixed factory overhead only


Correct Option: C
Explanation:

Product cost includes direct materials, direct labor, and overhead. These are the costs that are included in the cost of goods sold and inventory. Only these costs can be included in the inventory.

Match the following:

1. Total fixed cost a) increase in proportion to output
2. Total variable cost b) remains constant in total
3. Unit variable cost c) decrease with rise in output
4. Unit fixed cost d) remains constant per unit
  1. a b c d

  2. b a d c

  3. b a c d

  4. d c b a


Correct Option: B

Process Cost is very much applicable in _____________.

  1. Construction Industry

  2. Pharmaceutical Industry

  3. Air line company

  4. None of these


Correct Option: B
Explanation:

 Companies that produce identical units such as lumber, tile, brick manufacturers, cereal makers, or pharmaceutical companies utilize process costing. Generally, companies utilize process costing when: Mass production of identical products. Output of products is of low value.

An input of 5,000 kg of material introduced into the process and the expected loss is 8% and if the actual output from the process is 4,300, the abnormal loss is __________ kg.

  1. 400

  2. 300

  3. 500

  4. 600


Correct Option: B
Explanation:

In every production activity, a predetermined % is considered as normal loss. If the actual loss is more than the predetermined loss, difference is considered as abnormal loss. 


Input                                             5000 Kg

Actual output should be             4300 Kg
Total Loss during production        700 Kg
Normal Loss @8% on 5000 Kg     400 Kg
Abnormal Loss                               300 Kg

Out of the overheads given, the following is an example of distribution overheads.

  1. Advertisement expenses

  2. Packing expenses

  3. Commission of selling agents

  4. None


Correct Option: B
Explanation:

Packing material is the cost of material which is incurred to bring the product in salable condition. 

Its an overhead and to be classified as selling and distribution overheads. 

EOQ is the quantity that minimizes ________________.

  1. Total Ordering Cost

  2. Total Inventory Cost

  3. Total interest Cost

  4. Safety Stock Level


Correct Option: A
Explanation:

Economic order quantity is the ordering quantity a firm should add to the inventory with each order to minimize the cost of total inventory such as inventory holding cost, ordering cost and shortage cost.

Ordering cost are the cost of creating and processing an order.

In considering a special order situation that will enable a company to make use of currently idle capacity, which of the following cost will be irrelevant?

  1. Materials

  2. Depreciation

  3. Direct labour

  4. Variable factory overhead


Correct Option: A

Recorder quantity is ___________________.

  1. Quantity of material to be ordered

  2. Quantity level at which reorder is to be made

  3. Quantity which is to be ordered for second time

  4. None of the above


Correct Option: B
Explanation:

Inventory level of an item which signals the need for placement of a replenishment order, taking into account the consumption of the item during order lead time and the quantity required for the safety stock. 

Also called reorder level, reorder quantity, or replenishment order quantity.

Factory overhead application rates best reflect anticipated fluctuations in sales over several year when rates are computed using figures based on

  1. Maximum capacity

  2. Normal capacity

  3. Practical capacity

  4. Expected capacity


Correct Option: D

ABC Analysis is useful for analyzing the inventories based on __________.

  1. Their quality

  2. Their usage and value

  3. On physical volume

  4. All of the above


Correct Option: B
Explanation:

ABC analysis is a technique of inventory management. In this method, inventory is categorized in to A, B and C class depending on their importance. 

A category includes those inventory which are very important to the organization and consist of 70-80% of inventory value but only 10-20 % of the quantity. 
B category includes those inventory which are of moderate importance to the organization and consist of 20-30% of inventory value but only 20-30 % of the quantity. 
C category includes those inventory which are of lesser importance to the organization and consist of only 10-20% of inventory value but records 70-80 % of the quantity. 

A company sells goods on credit valued at Rs 25000 to a customer. At what point in the sales cycle should this sale be recognized in the accounts?

  1. When the customer's order is received.

  2. When the goods are ready for dispatch to the customer.

  3. When the goods are sent, accepted and invoiced.

  4. When the customer pays.


Correct Option: C
Explanation:

Sales is completed only when the legal title of the goods passed to the buyer. 

In such case, goods sent and accepted by the buyer along with the invoice is considered as point of sale. 

_________ cost refers to the cost which have already been incurred and cannot be altered by any decision in the future.

  1. Opportunity cost

  2. Sunk cost

  3. Incremental cost

  4. Decremental cost


Correct Option: B
Explanation:

The sunk cost is that cost which has already been incurred and can not be recovered. Sunk cost is considered irrelevant in future decision making as this has already been incurred. 

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