P‐2: 

Fundamentals of Accounting ‐ Bit Questions  

62. True 
63. False 
64. False 
65. False 
66. True 
67. True 
68. True 
69. True 
70. False
71. True
72. False
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FUNDAMENTALS OF COSTING
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I. Choose the correct answer from the given four alternatives:

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1. Carriage outward is a part of

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(A) Office and Administrative overhead

(B) Factory overhead
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(C) Selling and Distribution overhead

(D) Prime Cost
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2. Notional cost is also known as

(A) Variable cost
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(B) Imputed cost

(C) Opportunity cost
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(D) Out of Pocket cost

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3. Which one of the following is not a cost unit?

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(A) Kilo watt hour

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(B) Credit division

(C) Patient day
(D) Tonne-mile
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4. Cost reduction -
(A) Long term phenomena
(B) It challenges the standards.
(C) It is carried out without compromising the quality.
(D) All of the above

5. Statement showing break up of costs is known as

(A) Cost sheet
(B) Tender
(C) Production account
(D) Statement of profit

6. Prime cost may be correctly termed as

The Institute of Cost Accountants of India                                                                                                             23 

 P‐2: Fundamentals of Accounting ‐ Bit Questions  

(A) the total of all cost items which can be directly charged to product units.
(B) the sums of all direct materials and labour cost excluding all other cost.
(C) the total costs incurred in producing a finished unit.
(D) the sum of the large cost in product cost.

7. Which one is included in financial accounts but not in cost accounts?

(A) Royalty
(B) Dividend paid
(C) Excise duty
(D) Carriage and freight

8. Which of the following term is excluded from the cost accounts?

(A) Income tax
(B) Interest on debenture
(C) Cash discount
(D) All of the above
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9. Variable costs are fixed

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(A) depend upon the entity

(B) for a period
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(C) per unit

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(D) for a particular process of production

10. Costs are classified into fixed costs, variable costs and semi-variable costs, it is known as
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(A) Behavioural classification

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(B) Classification according to controllability

(C) Functional classification
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(D) Element wise classification

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11. The main purpose of cost accounting is to

(A) maximize profit
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(B) inventory valuation

(C) provide information for decision making.
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(D) fixation of selling price

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12. Process cost is very much applicable in

(A) Construction industry
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(B) Pharmaceutical industry

(C) Airline company
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(D) Printing industry

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13. All indirect costs are termed as

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(A) Prime cost

(B) Factory cost
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(C) Conversion cost

(D) Overheads

14. CAS-21 is related to

(A) Cost Accounting Standard on Overburden Removal Cost.
(B) Cost Accounting Standard on Interest and Financing Charges
(C) Cost Accounting Standard on Joint Cost
(D) Cost Accounting Standard on Quality Control

15. On the basis of “Relationship with accounting period” costs are classified as
(A) Historical Costs and Pre-determined Costs.
(B) Capital Costs and Commercial Costs.
(C) Capital Costs and Revenue Costs.
(D) Product Costs and Period Costs

The Institute of Cost Accountants of India                                                                                                             24 

 P‐2: Fundamentals of Accounting ‐ Bit Questions  

16. Cost of staff services is an example of

(A) Committed Costs
(B) Policy and Managed Costs
(C) Discretionary Costs
(D) Step Costs

17. Which of the following is not a method of costing?

(A) Process Costing
(B) Batch Costing
(C) Direct Costing
(D) Operating Costing

18. The written down value of the abandoned plant less its salvage value is
(A) Imputed cost
(B) Sunk cost
(C) Avoidable Cost
(D) Opportunity cost
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19. The costs are differentiated between fixed and variable costs under
(A) Marginal Costing
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(B) Direct Costing

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(C) Standard Costing

(D) Absorption Costing
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20. Which of the following is a suitable cost unit for the BPO Services/Call Centers?
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(A) Cost per item

(B) Cost per hour
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(C) Cost per account handled

(D) Cost per minute
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21. Interest on own capital is

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(A) Cash Cost

(B) Notional Cost
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(C) Part of Prime Cost

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(D) Semi-Variable Cost

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22. Advertisement costs are termed as

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(A) Direct Expenses

(B) Cost of Production
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(C) Selling Overhead

(D) Distribution Overhead
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23. Direct Wages ` 2,05,000 and Factory Cost ` 5,60,000. If the ratio of direct wages and factory
overhead is 5 : 3 then Direct Material Cost will be
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(A) ` 2,32,000
(B) ` 3,50,000
(C) ` 3,41,667
(D) ` 2,24,000

24. A technique and process of ascertaining costs is known as

(A) Cost
(B) Costing
(C) Cost Accounting
(D) Cost Accountancy

25. The branch of the accounting dealing with the classification, recording, allocation,
summarizing and reporting of current and prospective costs, is known as
(A) Financial Accounting
(B) Management Accounting

The Institute of Cost Accountants of India                                                                                                             25 

 P‐2: Fundamentals of Accounting ‐ Bit Questions  

(C) Cost Accounting

(D) Cost Accountancy

26. Which of the following is not a function of Cost Accountancy?

(A) Cost Control
(B) Cost Ascertainment
(C) Cost Analysis
(D) Cost Accounting

27. Which of the following ‘CAS’ is related to “Pollution Cost”?

(A) CAS - 11
(B) CAS - 13
(C) CAS - 14
(D) CAS – 17

28. Costs are classified between direct and indirect costs according to method of classification
by
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(A) Nature or Element

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(B) Functions
(C) Degree of traceability to product
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(D) Change in Activity or Volume

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29. Depreciation on building is an example of

(A) Committed Costs
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(B) Policy and Managed Costs

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(C) Discretionary Costs

(D) Step Costs
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30. When the volume of output is increased then the per unit fixed cost will be
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(A) increase in the proportion of output.

(B) decrease in the reverse proportion of output
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(C) changed but not in proportion of output.

(D) unchanged
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31. Which of the following costing method is suitable for Toy Making Industry?
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(A) Contract Costing

(B) Process Costing
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(C) Job Costing

(D) Batch Costing
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32. Which of the following is not a technique of costing?

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(A) Managerial Costing

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(B) Process Costing

(C) Standard Costing
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(D) Budgetary Costing

33. Excise duty is an example of

(A) Chargeable expense
(B) Factory overhead
(C) Administrative overhead
(D) Non-cost item

34. Over which the following costs, management is likely to have least control?
(A) Wages cost
(B) Building Insurance cost
(C) Machinery Breakdown cost
(D) Advertisement cost

35. The works cost plus administration expenses represents

The Institute of Cost Accountants of India                                                                                                             26 

 P‐2: Fundamentals of Accounting ‐ Bit Questions  

(A) Total cost

(B) Cost of Production
(C) Cost of sales
(D) Factory cost

36. Opportunity cost is the best example of

(A) Sunk cost
(B) Standard cost
(C) Relevant cost
(D) Irrelevant cost

37. Which method of costing is used for determination of costs for printing industry?
(A) Process costing
(B) Operating costing
(C) Batch costing
(D) Job costing
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38. Prime cost plus factory overheads is known as

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(A) Marginal Costing

(B) Conversion Cost
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(C) Commercial Cost

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(D) Factory Cost

39. From the following information, find out purchases when raw material consumed is ` 26,500;
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Closing stock ` 4,500 and opening stock ` 3,000.

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(A) ` 26,500
(B) ` 25,000
or

(C) ` 28,000
(D) ` 34,000
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40. Bad debts are included as

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(A) Direct expenses

(B) Distribution overhead
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(C) Cost of production

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(D) Selling overhead

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41. When re-ordering level is 200 units, minimum usage is 20 units, minimum lead time is 5 days,
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maximum stock is 400 units then re-ordering quantity will be:

(A) 400 units
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(B) 200 units

(C) 300 units
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(D) 100 units

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42. In the situation of increasing prices, the valuation of closing stock is more under:
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(A) Simple average

(B) Weighted average
(C) FIFO
(D) LIFO

43. Payment of Royalties is

(A) Direct Expenses
(B) Administrative Cost
(C) Charged to Profit & Loss A/c
(D) Factory Overheads

44. Which one of the following statement is true?

(A) Abnormal cost is not controllable
(B) Financial Expenses are included in Cost Sheet
(C) All overheads changes with the change in volume and in the same proportion.

The Institute of Cost Accountants of India                                                                                                             27 

 P‐2: Fundamentals of Accounting ‐ Bit Questions  

(D) Primary packing is an item of prime cost.

45. Costing is a technique of

(A) Recording of Cost transactions
(B) Ascertaining Cost
(C) Preparation of final accounts
(D) Decision making

46. Which of following is appropriate Cost Unit for timber industry?

(A) Per tonne
(B) Per article
(C) Per Kg.
(D) Per foot

47. Which of the following is a Cost Control Technique?

(A) Marginal Costing
(B) Uniform Costing
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(C) Standard Costing

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(D) Absorption Costing

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48. Cost of free samples and gifts are included in

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(A) Prime Cost

(B) Factory Overhead
(C) Office and Administrative Overheads
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(D) Selling & Distribution Overheads

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49. In behavioural analysis, costs are divided into

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(A) Production and Non-Production costs

(B) Controllable and Non-Controllable costs
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(C) Direct and indirect costs

(D) Fixed and Variable costs
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50. Which of the following is a part of both Prime cost and Conversion cost?
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(A) Direct Material

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(B) Indirect Labour

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(C) Direct Labour

(D) All of the above
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51. Which of the following is not a Relevant Cost?

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(A) Replacement Cost

(B) Sunk Cost
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(C) Marginal Cost

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(D) Standard Cost

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52. Direct Expenses are also known as

(A) Overhead Expenses
(B) Process Expenses
(C) Chargeable Expenses
(D) None of the above

53. Indirect material cost is a part of

(A) Prime Cost
(B) Factory Overhead
(C) Chargeable Expenses
(D) None of the above

The Institute of Cost Accountants of India                                                                                                             28 

 P‐2: Fundamentals of Accounting ‐ Bit Questions  

Answer:

1. C 2. B 3. B 4. D 5. A
6. A 7. B 8. D 9. C 10. A
11. C 12. B 13. D 14. D 15. C
16. B 17. C 18. B 19. A 20. C
21. B 22 C 23 A 24 B 25 C
26 C 27 C 28 C 29 A 30 B
31 B 32 D 33 A 34 C 35 B
36 C 37 D 38 D 39 C 40 D
41 C 42 C 43 A 44 D 45 B
46 D 47 C 48 D 49 D 50 C
51 B 52 C 53 B

 
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The Institute of Cost Accountants of India                                                                                                             29