presents

CMA Inter
PAPER 8

COST
ACCOUNTING

100% Coverage

Exam Orieted

Question Bank
Included

Theory Notes

by GOURAV KABRA
 CMA Intermediate
Paper 8: Cost Accounting
(Theory Notes)

Cost Accounting is classifying, recording an appropriate allocation of

Cost expenditure for the determination of the costs of products or services, and
Accounting for the presentation of suitably arranged data for the purpose of control and
guidance of management.

Costing Costing is defined as the technique and process of ascertaining costs.

Cost Accountancy is defined as ‘the application of Costing and Cost

Cost
Accounting principles, methods and techniques to the science, art and
Accountancy
practice of cost control and the ascertainment of profitability’.

1. Financial Accounting is primarily concerned with the preparation of

Financial financial statements and is mostly concerned with external
Accounting reporting.
v/s 2. Cost Accounting is primarily concerned with determination of cost
Cost Accounting of something, which may be a product, service, a process, and is
mostly concerned with internal reporting.

1. Cost Accounting involves recording, classifying and summarizing of

Cost Accounting
cost data.
v/s
2. Management Accounting collects both quantitative and qualitative
Management
data from cost accounting and financial accounting with the
Accounting
objective to provide necessary information to the management.

Cost is defined the amount of expenditure (actual or notional) incurred on

Cost
or attributable to a given thing or to ascertain the cost of a given thing.

Cost object is the technical name for a product or a service, a project, a

Cost Object
department or any activity to which a cost relates.

Cost center is “a location, a person, or an item of equipment in relation to

Cost Center
which costs are ascertained”.

Responsibility A responsibility center is an organizational unit headed by a manager, who

Center is responsible for its activities and results.
 A profit center refers to a branch, unit or division of a company which
Profit Center
directly adds to the bottom-line or profits of the company as a whole.

Cost unit can be defined as a ‘Unit of product or service in relation to which

Cost Unit costs are ascertained’.
Recommended: Read examples of cost units from Institute Material (Page 11).

When items of cost are identifiable directly with some products or

Cost Allocation departments such costs are charged to such cost centers. This process is
known as cost allocation.

When items of cost cannot be directly charged to or accurately identifiable

Cost with any cost centers, they are prorated or distributed amongst the cost
Apportionment centers on some predetermined basis. This method is known as cost
apportionment.

Cost Control is defined as the regulation by executive action of the costs of

Cost Control operating an undertaking, particularly where such action is guided by Cost
Accounting.

Cost reduction may be defined as the real and permanent reduction in the
Cost Reduction unit costs of goods manufactured or services rendered without impairing
their suitability for the use intended.

As per Cost Accounting Standard 1 (CAS-1), the basis for cost classification
is as follows:
(a) Nature of expense – Material, Labour & Expenses
(b) Relation to Object/Element/Traceability – Direct & Indirect
Classification
(c) Functions/Activities – Prodn, Admn, R&D, Selling & Dist n
of Costs
(d) Behaviour – Fixed, Semi-variable or Variable
(e) Management decision making (Discussed later)
(f) Production or Process (Discussed later)
(g) Time Period – Historical, Predetermined (Standard & Estimated Costs)

Marginal Marginal Cost is the aggregate of variable costs, i.e. prime cost plus variable
Costing overhead.

Differential Differential cost is the change in the cost due to change in activity from one
Cost level to another.
 Opportunity
Opportunity cost is the value of alternatives foregone.
Cost

Replacement Replacement cost is the cost of an asset in the current market for the
Cost purpose of replacement.

Relevant costs are costs which are relevant for a specific purpose or
Relevant Costs
situation.

Imputed costs are hypothetical or notional costs, not involving cash outlay
Imputed Costs
computed only for the purpose of decision making.

Sunk costs are historical costs which are incurred i.e. sunk in the past and
Sunk Costs are not relevant to the particular decision making problem being
considered.

Out-of-Pocket
Cost associated with an activity that involve cash payment.
Cost

Managed Cost for which input cost is clear but the output benefit is unclear.
Cost Examples: Advertisement, Research & Development

These are costs which are incurred collectively for a number of cost centers
Common
and are required to be suitably apportioned for determining the cost of
Costs
individual cost centers.

Batch Batch costing is a method of costing used by the concerns which produce an
Costing identical product or a component in a very large number at a time.

Process Process costing is a method of costing used mainly in manufacturing where

Costing units are continuously mass-produced through one or processes.

Operating Operating cost refer to the cost of undertakings which do not manufacture
Cost any product but which provide services.

Contract
Contract cost is the cost of a contract.
Costing
 Marginal Costing is the ascertainment of marginal costs and of the effect on
Marginal
profit of changes in volume or type of output by differentiating between
Costing
fixed costs and variable costs.

Standard Costing is defined as the preparation and use of standard cost,

Standard
their comparison with actual costs and the measurement and analysis of
Costing
variances to their causes and points of incidence.

Budgetary Control involves mainly establishment of budgets, continuous

Budgetary
compassion of actual with budgets for achievement of targets, revision of
Control
budgets in the light of changed circumstances.

Uniform Costing may be defined as the application and use of the same
Uniform costing principles and procedures by different organizations under the same
Costing management or on a common understanding between members of an
association. It is thus not a separate technique or method.

Purchases Requisition is a request made to the Purchase Department to

Purchase
procure materials of given description and of the required quality and
Requisition
quantity within a specified period.

Purchase Order (PO) is a request made in writing to selected supplier to

Purchase
deliver goods of requisite quality, quantity, (as per the purchase requisition)
Order
at the prices, terms and conditions agreed upon.

Economic Order Economic Order Quantity is ‘The size of the order for which both ordering
Quantity (EOQ) and carrying cost are minimum’.

1. Centralized Stores
In case of centralized stores materials are received by and issued
from one store department.

2. Decentralized Stores
Under this type of stores, independent stores are situated in various
departments. Handling of stores is undertaken by the store keeper
Different Classes in each department.
of Stores
3. Central Stores with Sub-Stores
Here, at the end of a period, the store keepers of each sub-store will
requisition from the central stores the quantity of the materials
consumed to bring the stock up to the predetermined quantity. This
system of stores is also known as the imprest system of stores
control.
 1. Alphabetical Scheme
2. Numeric Scheme
Common Types of 3. Decimal Scheme
4. Block Scheme
Coding Systems
5. Combination Scheme

Recommended: Read more from Institute Material (Page 41).

Bin Card is a quantitative record of receipts, issues and closing balance of

Bin Card items of stores. Separate bin cards are maintained for each item and are
placed in shelves or bins. Bin card is also known as ‘Bintag’ or ‘Stock card’.

Stores Ledger is maintained by the costing department to make record of all

Stores receipts, issues of materials with quantities, values (Sometimes unit rates
Ledger also). Ledger resembles with bin cards except that receipts, issues and
balances are shown along with their money value.

Perpetual Inventory System may be defined as ‘a system of records

maintained by the controlling department, which reflects the physical
Perpetual movements of stocks and their current balance’. Thus, it is a system of
Inventory System ascertaining balance after every receipt and issue of materials through stock
records to facilitate regular checking and to avoid closing down the firm for
stock taking.

Continuous stock taking is an essential feature of perpetual inventory

Continuous
system. It matches the physical verification of the stock records with actual
Stock Taking
stocks.

Periodic Stock This system requires physical stock verification at a fixed date/period during
Verification the year.

The “ABC Analysis” is an analytical method of stock control which aims at

concentrating efforts on those items where attention is needed most.

Under this system, the materials stocked may be classified into a number of
categories according to their importance, i.e., their value and frequency of
ABC Analysis in replenishment during a period. The first category (we may call it group ‘A’
Material Control items) may consist of only a small percentage of total items handled but
combined value may be a large portion of the total stock value. The second
category, naming it as group ‘B’ items, may be relatively less important. In
the third category, consisting of group ‘C’ items, all the remaining items of
stock may be included which are quite large in number but their value is not
high.
 VED stands for Vital, Essential and Desirable- analysis is used primarily for
control of spare parts. The spare parts can be classified in to three
VED Analysis
categories i.e Vital, Essential and Desirable- keeping in view the criticality to
production.

FSN analysis is the process of classifying the materials based on their

movement from inventory for a specified period. All the items are classified
FSN Analysis
in to F-Fast moving, S- Slow moving and N-Non-moving Items based on
consumption and average stay in the inventory.

Just in time (JIT) is a production strategy that strives to improve a business

return on investment by reducing in-process inventory and associated
Just-In-Time
carrying costs. In short, the Just-in-Time inventory system focuses on “the
(JIT)
right material, at the right time, at the right place, and in the exact amount”
without the safety net of inventory.

1. Waste may or may not be physically available and it doesn’t have

any measurable sale or utility value.
2. Scrap is always physically available and has low measurable utility
or market value.
Waste v/s Scrap
3. Spoilage occurs when production does not come up to the standard
v/s Spoilage
specifications or quality it has to be rejected outright. Spoilage
involves not only loss of materials but also of labour and
manufacturing overhead incurred up to the stage when the spoilage
incurred.

The cost of primary containers should be charged off as a production

Treatment of overhead and included in production cost. On the other hand, the cost of
Packing Cost
secondary containers should charge as a selling and distribution overhead.

1. Capitalization Method: In line with large tools.

2. Revaluation Method: At the end of the year revaluation for unused
life of the tools is made and the difference between original cost
Treatment of and revalued cost is charged as factory overheads.
Tools Cost 3. Write-off-Method: Whenever such small tools are issued the
department is debited with the cost. Alternatively cost of tools
issued during a period is accumulated and distributed to various
departments on some suitable basis, e.g., hours worked.

1. Human Resources Department

2. Engineering, Industrial Engineering Department
Vital Departments 3. Time Keeping Department
for Labour Control 4. Payroll Department
5. Cost-Accounting Department
 Time keeping department is responsible for recording the attendance time
of each worker accurately.

Time Methods of Time Keeping:

Keeping 1. Attendance Records
2. Disc Method
3. Time Recording Clocks or Clock Cards
4. Bio−metric Attendance System

1. To determine the productive time spent by the worker on the job

or operation. This helps in finding out the idle time and controls the
Objectives of same.
Time Booking 2. To determine the quantity and value of work done.
3. To determine earnings like wages and bonus.
4. To determine the efficiency of workers.

1. Daily Time Sheet: In this method, each worker records the time
spent by him on the work during the day, for which a sheet is
provided to each worker.
2. Weekly Time Sheets: The only difference between the daily time
sheet and weekly time sheet is that these time sheets are
maintained on weekly basis.
3. Job Ticket: Job tickets are given to all workers where time for
commencing the job is recorded as well as the time when the job is
Time Booking
completed. After completing one job, the worker is given another
Methods
job and another job ticket.
4. Labour Cost Card: Here, only one card is passed on to all workers
and time taken on the job is recorded by each one of them. This
card shows the aggregate labour cost of the job or the product.
5. Time & Job Card: This card is a combined record, which shows both,
the time taken for completion of the job as well as the attendance
time. Therefore, there is no need to keep separate record of both,
time taken and attendance time.

Work study includes the job study and the method study which ensures the
Work Study
fixation of standard time to do a particular job.

1. Additions Method
Methods of 2. Separation Method
Labour Turnover 3. Replacement Method
4. Flux Method

1. Unavoidable Idle Time: Charged to order

Treatment 2. Normal Idle Time: Booked to Factory Overheads
of Idle Time 3. Abnormal Idle Time: Charged to Costing P/L
 1. Due to exigencies or urgencies: The basic/normal payment is
treated as direct labour cost and premium is treated as overheads.
Treatment 2. At the request of the customer: The entire amount is charged to
of Overtime the job as direct wages.
3. Due to lack of capacity: Treated as direct wages.
4. Due to abnormal conditions: Charged to Costing P/L.

1. Costs which are directly traceable/identifiable with the cost object

Inclusions in
2. Expenses incurred for the use of bought in resources
Direct Expenses
3. Price variance if such expenses are accounted for at standard cost

1. If not traceable/identifiable should be considered as overheads

2. Finance cost is not a direct expense
3. Imputed cost (example, if the owner of a company engages himself
Exclusions in for facilitating the production or gets actively engaged in production
Direct Expenses or rendering of services, this would be an imputed cost)
4. Recoveries, credits, subsidy, grant, incentive or any other which
reduces the cost
5. Penalty, damages paid to statutory authorities

Economic Batch Quantity refers to the optimum quantity batch which

Economic Batch
should be produced at a point of time so that the Set up & Processing Costs
Quantity (EBQ)
and Carrying Costs are together optimized.

Contract Costing or Terminal Costing as it is often termed, is a variant of the

Contract
job costing system, which is applied in businesses engaged in building or
Costing
other construction work.

Contractor & The person who takes contract for a price is called the Contractor and the
Contractee person from whom it is taken is called the Contractee.

Escalation clause in a contract would provide that in the event of a specified

contingency happening, the contract price would be suitably enhanced. This
Escalation clause is particularly necessary where the price of certain raw materials are
Clause likely to rise, where labour rates are anticipated to increase, or where the
quantity of material or labour time cannot be properly assessed or
estimated unless the work has sufficiently advanced.

Process costing is that aspect of operation costing which is used to ascertain

Process the cost of the product at each process or stage of manufacture. The
Costing objective is to find out the total cost of the process and the unit cost of the
process for each and every process.
 Equivalent Equivalent production represents the production (of completed and
Production incomplete units) of a process in terms of completed units.

Joint products are “two or more products separated in the course of

Joint
processing each having a sufficiently high value to merit recognition as a
Products
main product”.

By-product is “a product which is recovered incidentally from the material

used in the manufacture of recognized main products such as having either
By-Product a net realizable value or a usable value which is relatively low in comparison
with the saleable value of the main products. By products may further be
processed to increase their realizable value”.

Service Service costing applies where standardized services are provided either by
Costing an undertaking or by a service cost center within an undertaking.

Marginal costing is the ascertainment of marginal costs and of the effect on

Marginal
profit of changes in volume or type of output by differentiating between
Costing
fixed costs and variable costs.

1. Appropriate and accurate division of total cost into fixed and

variable by picking out variable portion of semi variable costs also.
2. Valuation of stocks such as finished goods, work-in-progress is
Features of valued at variable cost only.
Marginal Costing 3. The fixed costs are written off soon after they are incurred and do
not find place in product cost or inventories.
4. Prices are based on Marginal Cost and Marginal Contribution.
5. It combines the techniques of cost recording and cost reporting.

The key difference between marginal costing and differential costing is that
Marginal Costing marginal costing considers the change in costs in order to produce an
v/s Differential additional unit of output whereas differential costing is the difference
Costing between the cost of two alternative decisions, or of a change in output
levels.

Limiting Factor Limiting factor is the factor of production which is limited in the question is
or Key Factor called key factor or limiting factor.
 1. Break Even means the volume of production or sales where there is
no profit or loss.
2. CVP analysis is a way to find out how changes in variable and fixed
Break Even Point,
costs affect a firm’s profit.
CVP Analysis &
3. Angle of Incidence is an angle formed at the intersection point of
Angle of Incidence
total sales line and total cost line in a formal break-even chart. If the
angle is larger, the rate of growth of profit is higher and if the angle
is lower, the rate of growth of profit is lower.

Master budget is the budget prepared to cover all the functions of the
Master Budget
business organization.

When budgets are prepared for a fixed or standard volume of activity and
Fixed Budget
they do not change with the changes in the volume of the output.

A flexible budget is a budget that is prepared for different levels of activity

Flexible Budget
or capacity utilization or volume of output.

Principal The principal budget factor is the resource or activity which is limited and
Budget Factor which forms the base for the preparation of the budget.

Responsibility Accounting is a system of accounting that recognizes various

Responsibility responsibility centers throughout the organization and reflects the plans
Accounting and actions of each of these centers by assigning particular revenues and
costs to the one having the pertinent responsibility.

Performance A performance budget is one that reflects both the input of resources and
Budgeting the output of services for each unit of an organization.

APPRORIATION OF PROFITS
Appropriation to sinking funds; Dividends paid; Taxes on income and profits;
Transfers to general reserves; Excess provision for depreciation of buildings;
plant etc. and for bad debts, Amount written off – goodwill, preliminary
expenses, underwriting commission, discount on debentures issued,
All Items expenses of capital issue etc.; Capital expenditures specifically charged to
Excluded from revenue; Charitable donation.
Cost Accounts
PURELY FINANCIAL CHARGES
Losses on sale of investments, buildings, etc.; Expenses on transfer of
company’s office; Interest on bank loan, debentures, mortgages, etc.;
Damages payable; Penalties and fines; Losses due to scrapping of
machinery; Remuneration paid to the proprietor in excess of a fair reward
for services rendered.
 PURELY FINANCIAL INCOMES
Interest received on bank deposits; Profits made on the sale of investments,
fixed assets, etc.; Transfer fees received; Rent receivable; Interest,
dividends, etc. received on investments.; Brokerage received; Discount,
commission received.

ABNORMAL GAINS & LOSSES

Losses or gains on sale of fixed assets; Loss to business property on account
of theft, fire or other natural calamities.

CAS 1 : Classification of Cost

CAS 2 : Capacity Determination
CAS 3 : Production and Operation Overheads
CAS 4 : Cost of Production for Captive consumption
CAS 5 : Average (Equalized) Cost of Transportation
CAS 6 : Material Cost
CAS 7 : Employee Cost
CAS 8 : Cost of Utilities
CAS 9 : Packing Material Cost
CAS 10 : Direct Expenses
CAS 11 : Administrative Overheads
Cost Accounting CAS 12 : Repairs and Maintenance Costs
Standards Issued CAS 13 : Cost of Service Cost Centre
CAS 14 : Pollution Control Cost
CAS 15 : Selling and Distribution Overheads
CAS 16 : Depreciation and Amortization
CAS 17 : Interest and Financing Charges.
CAS 18 : Research and Development Costs
CAS 19 : Joint Costs
CAS 20 : Royalty and Technical Know-How Fee
CAS 21 : Quality Control
CAS 22 : Manufacturing Cost
CAS 23 : Overburden Removal Cost
CAS 24 : Treatment of Revenue in Cost Statements
 QUESTION BANK
1. Batch Costing is suitable for:
A) Sugar Industry
B) Chemical Industry
C) Pharma Industry
D) Oil Industry

2. Joint Cost is suitable for:

A) Infrastructure Industry
B) Ornament Industry.
C) Oil Industry
D) Fertilizer Industry

3. Cost units of Hospital Industry is:

A) Tonne
B) Student per year
C) Kilowatt Hour
D) Patient Day

4. Cost units of Automobile Industry is:

A) Cubic meter
B) Bed Night
C) Number of Call
D) Number of Vehicle

5. Depreciation is an example of:

A) Fixed Cost
B) Variable Cost
C) Semi Variable Cost
D) None of these

6. Process costing method is suitable for:

A) Steel industry
B) Crane manufacturing organization
C) Road roller manufacturing company
D) Transport industry

7. Which of the following classification is meant for distinction between direct cost and
indirect cost?
A) Function
B) Element
C) Variability
D) Controllability

8. Which of the following is applicable for Cost Control?

A) It is related with the future
B) It is a corrective function
C) It ends when the targets are achieved
D) It challenges the standards set
9. is anything for which a separate measurement of cost is required.
A) Cost driver
B) Cost centre
C) Cost unit
D) Cost object

10. Ticket counter in a Metro station is an example of:

A) Profit centre
B) Investment centre
C) Cost centre
D) Revenue centre

11. Which of the following is an example of functional classification of cost?

A) Direct labour cost
B) Direct material cost
C) Factory overhead
D) Indirect material cost

12. Which of the following is considered as normal loss of material?

A) Pilferage
B) Loss due to accident
C) Loss due to careless handling of material
D) None of these

13. The most important element of cost is:

A) Material
B) Labour
C) Overheads
D) All of these

14. Direct material is a –

A) Administration Cost
B) Selling and Distribution cost
C) All of these
D) None of these

15. Continuous stock taking is a part of-

A) ABC analysis
B) Annual stock taking
C) Perpetual Inventory
D) None of these

16. Which of the following is considered as accounting record?

A) Bin Card
B) Bill of material
C) Store Ledger
D) None of these
17. Direct material can be classified as:
A) Fixed cost
B) Semi−variable cost
C) Variable cost
D) Prime cost

18. In most of the industries, the most important element of cost is:
A) Labour
B) Overheads
C) Administration cost
D) Material

19. In which of following methods of pricing, costs lag behind the current economic values?
A) Replacement price method
B) Last−in−first out price method
C) First−in−first out price method
D) Weighted average price method

20. In which of the following methods, issues of materials are priced at pre−determined rate?
A) Replacement price method
B) Inflated price method
C) Specific price method
D) Standard price method

21. Which of the following methods smoothes out the effect of fluctuations when material prices
fluctuate widely?
A) FIFO
B) Simple Average
C) LIFO
D) Weighted Average

22. Under the FSN system of inventory control, inventory is classified based on:
A) Value of items of inventory
B) Criticality of the item of inventory for production
C) Frequency of items of inventory use
D) Volume of material consumption

23. Materials are issued from one process to another, based on:
A) Bill of Materials
B) Material Requisition Note
C) Purchase Requisition Note
D) Material Transfer Note

24. In which of the following incentive plan of payment, wages on time basis are not
Guaranteed?
A) Halsey plan
B) Rowan plan
C) Taylor’s differential piece rate system
D) Gantt’s task and bonus system
25. Under the high wage plan, a worker is paid
A) At a time rate higher than the usual rate
B) According to his efficiency
C) At a double rate for overtime
D) Normal wages plus bonus

26. Cost of idle time arising due to non availability of raw material is
A) Charged to costing profit and loss A/c
B) Charged to factory overheads
C) Recovered by inflating the wage rate
D) Ignored

27. When overtime is required for meeting urgent orders, overtime premium should be
A) Charged to costing profit and loss A/c
B) Charged to overhead costs
C) Charged to respective jobs
D) Ignored

28. Wages sheet is prepared by

A) Time –keeping department
B) Personnel department
C) Payroll department
D) Engineering department

29. Time and motion study is conducted by the

A) Time –keeping department
B) Personnel department
C) Payroll department
D) Engineering department

30. Labour turnover is measured by

A) Number of workers replaced average number of workers
B) Number of workers left / number in the beginning plus number at the end
C) Number of workers joining / number in the beginning of the period
D) All of these

31. Idle time is

A) Time spent by workers in factory
B) Time spent by workers in office
C) Time spent by workers off their work
D) Time spent by workers on their job

32. Over time is

A) Actual hours being more than normal time
B) Actual hours being more than standard time
C) Standard hours being more than actual hours
D) Actual hours being less than standard time
33. Time keeping refers to
A) Time spent by workers on their job
B) Time spent by workers in factory
C) Time spent by workers without work
D) Time spent by workers on their job

34. Time and motion study is conducted by

A) Personal department
B) Time keeping department
C) Engineering department
D) Payroll department

35. Labour productivity is measured by comparing

A) Total output with total man−hours
B) Added value for the product with total wage cost
C) Actual time and standard time
D) All of the above

36. If the time saved is less than 50% of the standard time, then the wages under Rowan and
Halsey premium plan on comparison gives
A) Equal wages under two plans
B) More wages to workers under Halsey plan than Rowan plan
C) More wages to workers under Rowan plan than Halsey Plan
D) None of the above

37. Idle time is the time under which

A) No productivity is given by the workers
B) Full wages are paid to workers
C) None of the above
D) All of the above

38. Identify, which one of the following, does not account for increasing labour productivity
A) Motivating workers
B) Job satisfaction
C) Proper supervision and control
D) High labour turnover

39. Under Taylor’s differential piece rate scheme, if a worker fails to complete the task within
the standard time, then he is paid
A) 83% of the piece work rate
B) 175% of the piece work rate
C) 67% of the piece work rate
D) 125% of the piece work rate

40. Royalty paid on sales ₹ 89,000 and Software development charges related to product is ₹
22,000. Calculate Direct Expenses.
A) 1,11,100
B) 1,11,000
C) 1,11,110
D) 1,10,000
41. Direct Expenses includes imputed cost.
A) Shall
B) Shall not
C) None of these
D) All of these

42. Direct Expenses does not meet the test of materiality can be part of part of
overhead.
A) Treated
B) Not treated
C) All of these
D) None of these

43. Example of Direct Expenses.

A) Rent
B) Royalty charged on production
C) Bonus to employee
D) None of these

44. A manufacturing Industry produces product P, Royalty paid on sales is ₹ 23,500 and design
charges paid for the product is 1,500. Compute the Direct Expenses.
A) 25,000
B) 22,000
C) 26,500
D) None of these

45. The allotment of whole items of cost of centres or cost unit is called
A) Cost allocation
B) Cost apportionment
C) Overhead absorption
D) None of the above

46. Packing cost is a

A) Production of cost
B) Selling cost
C) Distribution cost
D) It may be any or the above

47. Directors remuneration and expenses form a part of

A) Production overhead
B) Administration overhead
C) Selling overhead
D) Distribution overhead

48. Charging to a cost center those overheads that result solely for the existence of that cost
Center is known as
A) Allocation
B) Apportionment
C) Absorption
D) Allotment
49. Absorption means
A) Charging or overheads to cost centers
B) Charging or overheads to cost unit
C) Charging or overheads to cost centers or cost units
D) None of these

50. Which method of absorption of factory overheads do you suggest in a concern which
Produces only one uniform time of product
A) Percentage of direct wages basis
B) Direct labour rate
C) Machine hour rate
D) A rate per units of output

51. When the amount of under-or-over-absorption is significant, it should be disposed of by

A) Transferring to costing profit and loss A/c
B) The use of supplementary rates
C) Carrying over as a deferred charge to the next accounting year
D) None of above

52. When the amount of overhead absorbed is less than the amount of overhead incurred, It is
called
A) Under- absorption of overhead
B) Over-absorption of overhead
C) Proper absorption of overhead
D) None of these

53. Warehouse expense is an example of

A) Production overhead
B) Selling overhead
C) Distribution overhead
D) None of above

54. Selling and Distribution overhead are absorbed on the basis of

A) Rate per unit
B) Percentage on works cost
C) Percentage on selling price of each unit
D) Any of these

55. Primary packing cost is a part of

A) Direct material cost
B) Distribution overheads
C) Selling overheads
D) Production cost

56. Chairman’s remuneration and expenses form part of

A) Administration overhead
B) Production overhead
C) Distribution overhead
D) Selling overhead
57. Normal capacity of a plant refers to the difference between:
A) Maximum capacity and practical capacity
B) Maximum capacity and actual capacity
C) Practical capacity and estimated idle capacity as revealed by long term sales trend
D) Practical capacity and normal capacity

58. Find out from the following a scientific and accurate method of factory overhead absorption
A) Percentage of prime cost method
B) Machine hour rate method
C) Percentage of direct material cost method
D) Percentage of direct labour cost method

59. CAS 21 stands for

A) Capacity Determination
B) Joint Cost
C) Direct Expenses
D) None of these

60. CAS 13 stands for

A) Joint Cost
B) Interest and financing charges
C) Employee Cost
D) Cost of Service cost centre

61. Standard deals with the principles and methods of determining the manufacturing Cost of
excisable goods-
A) CAS 12
B) CAS 15
C) CAS 22
D) CAS 2

62. Standards deals with determination of averages/ equalized transportation cost-

A) CAS 6
B) CAS 22
C) CAS 9
D) CAS 5

63. Standards deals with the principles and methods of determining depreciation and
amortization cost-
A) CAS 9
B) CAS 12
C) CAS 15
D) CAS 16

64. Which of the following items is not included in preparation of cost sheet?
A) Carriage inward
B) Purchase returns
C) Sales commission
D) Interest paid
65. Which of the following items is not excluded while preparing a cost sheet?
A) Goodwill written off
B) Provision for taxation
C) Property tax on Factory building
D) Transfer to reserves

66. Which of the following are direct expenses?

1. The cost of special designs, drawings or layouts
2. The hire of tools or equipment for a particular job
3. Salesman’s wages
4. Rent, rates and insurance of a
factory A) (1) and (2)
B) (1) and (3)
C) (1) and (4)
D) (3) and (4)

67. What is prime cost

A) Total direct costs only
B) Total indirect costs only
C) Total non-production costs
D) Total production costs

68. Which of the following is not an element of works overhead?

A) Sales manager’s salary
B) Plant manager’s salary
C) Factory repairman’s wage
D) Product inspector’s salary

69. For the purpose of Cost sheet preparation, costs are classified based on:
A) Functions
B) Relevance
C) Variability
D) Nature

70. Salary paid to an office supervisor is a part of:

A) Direct expenses
B) Administration cost
C) Quality control cost
D) Factory overheads

71. Audit fees paid to cost auditors is part of:

A) Selling & Distribution cost
B) Production cost
C) Administration Cost
D) Not recorded in the cost sheet

72. A company has set up a laboratory for testing of products for compliance with standards.
Salary of this laboratory stuffs are part of:
A) Direct Expenses
B) Quality Control Cost
C) Works overheads
D) Research & Development Cost
73. Canteen expenses for factory workers are part of:
A) Administration Cost
B) Factory overhead
C) Marketing cost
D) None of the above

74. Which of the following does not form part of prime cost:
A)GST Paid on raw materials (input credit can be claimed B)
Cost of transportation paid to bring materials to factory
C) Cost of packing
D) Overtime premium paid to workers.

75. A company pays royalty to State Government on the basis of production, it is treated as:
A) Direct Expenses
B) Factory overheads
C) Direct Material Cost
D) Administration cost

76. In Reconciliations Statements Expenses shown only in financial accounts are.

A) Added to financial profit
B) Deducted from financial profit
C) Ignored
D) Added to costing profit

77. In Reconciliation Statement Expenses shown only in cost accounts are.

A) Added to financial profit
B) Deducted from financial profit
C) Ignored
D) Deducted from costing profit

78. In Reconciliation Statement, transfers to reserves are.

A) Added to financial profit
B) Deducted from financial profit
C) Ignored
D) Added from costing profit

79. In Reconciliation Statement, Incomes shown only in financial accounts are.

A) Added to financial profit
B) Deducted from financial profit
C) Ignored
D) Deducted from costing profit

80. In Reconciliation Statement, Closing Stock Undervalued in Financial accounts is

A) Added to financial profit
B) Deducted from financial profit
C) Ignored
D) Added from costing profit
81. Under non-integrated accounting system
A) Separate ledgers are maintained for cost and financial accounts
B) Same ledger is maintained for cost and financial accounts by accountants
C) (A) and (B) both
D) None of the above

82. Under non-integrated accounting system, the account made to complete double entry is:
A) Finished goods control account
B) Work in progress control account
C) Stores ledger control account
D) General ledger adjustment account

83. Under non- integrated system of accounting, purchase of raw material is debited to
A) Purchase account
B) Material control account/ stores ledger control account
C) General ledger adjustment account
D) None of the above

84. When costing loss is ₹ 5,600, administrative overhead under-absorbed being ₹ 600, the loss
as per financial accounts should be:
A) ₹ 5,000
B) ₹ 5,600
C) ₹ 6,200
D) None of the above

85. Which of the following items should be added to costing profit to arrive at financial profit:
A) Income tax paid
B) Over-absorption of works overhead
C) Interest paid on debentures
D) All of the above

86. Integral accounts eliminate the necessity of operating

A) Cost Ledger control account
B) Store Ledger control account
C) Overhead adjustment account
D) None of the above

87. What entry will be passed under integrated system for purchase of stores on credit?
Dr. Stores
A)
Cr. Creditors
Dr Stores ledger control A/c
B)
Cr Creditors
Dr Stores Ledger control A/c
C)
Cr General Ledger adjustment A/c

88. What entry will be passed under integrated system for payment to creditors for supplies
made?
Dr Creditors
A)
Cr Cash
Dr. Creditors
B)
Cr Stores Ledger Control A/c
 C) No entry

89. The accounting entry in integrated accounts for recording sales will be:
Dr. Cost ledger control account
A)
Cr Profit and loss account
Dr. Sales account
B)
Cr Profit and Loss A/c
Dr. Cash A/c
C)
Cr. Sales A/c

90. What will be the accounting entry for absorption of factory overhead?
Dr. Works in progress control A/c
A)
Cr Factory overhead control A/c
B) Dr. Factory overhead
Cr. Factory overhead control A/c
C) No entry is required

91. Job costing is used in

A) Furniture making
B) Repair shops
C) Printing press
D) All of the above

92. In a job cost system, costs are accumulated

A) On a monthly basis
B) By specific job
C) By department or process
D) By kind of material used

93. The most suitable cost system where the products differ in type of material and work
performed is
A) Operating Costing
B) Job Costing
C) Process Costing
D) All of these

94. Cost Price is not fixed in case of

A) Cost plus contracts
B) Escalation clause
C) De escalation clause
D) All of the above

95. Most of the expenses are direct in

A) Job Costing
B) Batch Costing
C) Contract Costing
D) None of the above
96. Cost plus contact is usually entered into those cases where
A) Cost can be easily estimated
B) Cost of certified and uncertified work
C) Cost of certified work, cost of uncertified work and amount of profit transferred to
Profit and Loss Accounts

97. In order to determine cost of the products or services, different business firms follow
A) Different techniques of costing
B) Uniform Costing
C) Different method of costing
D) None of the above

98. In case product produced or jobs undertaken are of diverse nature, the system of costing
to be used should be:
A) Operating Costing
B) Process Costing
C) Job Costing
D) None of the above

99. Job Costing is:

A) Suitable where similar products are produced on mass-scale
B) Method of costing used for non-standard and non-repetitive products
C) Technique of costing
D) Applicable to all industries regardless of the products or services provided

100. Batch costing is a type of:

A) Direct costing
B) Process costing
C) Job costing
D) Differential costing

101. Batch Costing is similar to that under job costing except with the difference that:
A) Process becomes a cost unit
B) Job becomes a cost unit
C) Batch become the cost unit instead of a job
D) None of the above

102. Economic batch quantity is that size of the batch of production where
A) Carrying cost is minimum
B) Set-up cost of machine is minimum
C) Average cost is minimum
D) Both A. and B.

103. Job costing is similar to that under Batch costing except with the difference that:
A) Batch becomes the cost unit instead of a job
B) Job becomes a cost unit
C) Process becomes a cost unit
D) None of the above
104. Which of the following documents are used in job costing to record the issue of direct
materials to a job:
A) Purchase order
B) Purchase requisition
C) Goods received note
D) Material requisition

105. Which of the following statements is true:

A) Batch costing is a variant of jobs costing
B) Job cost sheet may be used for estimating profit of jobs
C) Job costing cannot be used in conjunction with marginal costing
D) In cost plus contracts, the contractor runs a risk of incurring a loss

106. Which of the following statements is true:

A) Job costing can be suitably used for concerns producing any specific product
uniformly
B) Job costing cannot be used in companies applying standard costing
C) Job cost sheet may be prepared to facilitate routing and scheduling of the job
D) Neither A. nor B. nor C.

107. Equivalent production of 1,000 units, 60% complete in all respects, is :

A) 1,000 units
B) 1,600 units
C) 600 units
D) 1,060 units

108. In a process 8000 units are introduced during a period. 5% of input is normal loss. Closing
work in progress 60% complete is 1000 units. 6600 completed units are transferred to next
process. Equivalent production for the period is:
A) 9,000 units
B) 7,440 units
C) 5,400 units
D) 7,200 units

109. The type of process loss that should not be allowed to affect the cost of good units is called
A) Standard loss
B) Normal loss
C) Abnormal loss
D) Seasonal loss

110. 400 units were introduced in a process in which 40 units is the normal loss. If the actual
output is 300 units, then there is:
A) No abnormal gain
B) Abnormal loss of 60 units
C) No abnormal loss
D) Abnormal gain of 60 units
111. Spoilage that occurs under inefficient operating conditions and is generally controllable is
called
A) Normal defectives
B) Abnormal spoilage
C) Normal spoilage
D) None of the above

112. In which of the following situations an abnormal gain in a process occurs

A) When normal loss is equal to actual loss
B) When the actual output is greater than the planned output
C) When actual loss is more than the expected
D) When actual loss is less than the expected loss

113. The value of abnormal loss is equal to:

A) Total cost of materials
B) Total process cost less cost of scrap
C) Total process cost less realisable value of normal loss less value of transferred out
goods
D) Total process cost less realisable value of normal loss

114. A process account is debited by abnormal gain, the value is determined as:
A) Equal to the value of goods units less closing stock
B) Equal to the value of normal loss
C) Cost of good units less realisable value of normal loss
D) Cost of goods units less realisable value of actual loss

115. In sugar manufacturing industry molasses is also produced along with sugar. Molasses may
be of smaller value as compared with the value of sugar and is known as:
A) Joint Product
B) Common Product
C) By-product
D) None of them

116. Method of apportioning joint costs on the basis of output of each joint product at the point
of splitoffs is known as:
A) Physical unit method
B) Sales value method
C) Average cost method
D) Marginal cost and contribution method

117. The main purpose of a accounting of joint products and by-products is to:
A) Determine the replacement cost
B) Determine the opportunity cost
C) Determine profit or loss on each product line
D) None of the above

118. Under net realisable value method of apportioning joint costs to joint products, the selling
& distribution cost is:
A) Ignored
B) Deducted from sales value
C) Deducted from further processing cost
D) Added to joint cost
119. Which of the following is an example of by-product:
A) Mustard seeds and mustard oil
B) Diesel and Petrol in an oil refinery
C) Edible oils and oil cakes
D) Curd and butter in a dairy

120. Which of following methods can be used when the joint products are of unequal quantity
and used for captive consumption:
A) Physical units method
B) Net realisable value method
C) Technical estimates, using market value of similar goods
D) Market value at split-off method

121. Cost of service under operating costing is ascertained by preparing

A) Cost Sheet
B) Process account
C) Job cost sheet
D) Production account

122. Operating costing is applicable to

A) Hospitals
B) Cinemas
C) Transport undertaking
D) All of the above

123. Composite cost unit for a hospital is:

A) Per day
B) Per bed
C) Per patient-day
D) Per patient

124. Cost units used in power sector is called:

A) Number of hours
B) Number of electric points
C) Kilowatt-hour(KWH)
D) Kilo meter (K. M)

125. Absolute Tonne-km. is an example of:

A) Composite unit for bus operation
B) Composite unit of transport sector
C) Composite unit for oil and natural gas
D) Composite unit in power sector

126. The cost of a product under marginal costing system includes

A) Prime cost plus variable overhead
B) Prime cost plus fixed overhead
C) Prime cost plus factory overhead
D) Only prime cost
127. The difference between absorption costing and marginal costing is in regard to the
treatment of:
A) Direct materials
B) Fixed overhead
C) Prime Cost
D) Variable Overhead

128. Fixed costs are treated as

A) Overhead costs
B) Prime costs
C) Period costs
D) Conversion costs

129. When sales and production (in units) are same then profits under:
A) Marginal costing is lower than that of absorption costing
B) Marginal costing is higher than that of absorption costing
C) Marginal costing is equal to that of absorption costing
D) None of the above

130. When sales exceed production (in units) then profit under:
A) Marginal costing is higher than that of absorption costing
B) Marginal costing is equal to that of absorption costing
C) Marginal costing is lower than that of absorption costing
D) None of the above

131. Which of the following factors responsible for change in the break-even point?
A) Change in selling price
B) Change in variable cost
C) Change in fixed cost
D) All of the above

132. If sales are ₹ 90,000 and variable cost to sales is 75%, contribution is
A) ₹ 21,500
B) ₹ 22,500
C) ₹ 23,500
D) ₹ 67,500

133. Variable Cost

A) Remains fixed in total
B) Remains fixed per unit
C) Varies per unit
D) Nor increase or decrease

134. If sales are ₹ 150,000 and variable cost are ₹ 50,000. Compute P/V ratio.
A) 66.66%
B) 100%
C) 133.33%
D) 65.66%
135. Marginal Costing technique follows the following basic of classification
A) Element wise
B) Function Wise
C) Behaviour wise
D) Identifiability wise

136. P/V ratio will increase if the

A) There is an decrease in fixed cost
B) There is an increase in fixed cost
C) There is a decrease in selling price per unit
D) There is a decrease in variable cost per unit

137. The technique of differential cost is adopted when

A) To ascertain P/V ratio
B) To ascertain marginal cost
C) To ascertain cost per unit
D) To make choice between two or more alternative courses of action

138. Difference between the costs of two alternative is known as the

A) Variable cost
B) Opportunity cost
C) Marginal Cost
D) Differential cost

139. Contribution is ₹ 300,000 and sales is ₹ 1,500,000. Compute P/V ratio

A) 15%
B) 20%
C) 22%
D) 17.5%

140. Variable cost to sales ratio is 40%. Compute P/V ratio.

A) 60%
B) 40%
C) 100%
D) None of these

141. Fixed cost is 30,000 and P/V ratio is 20%. Compute breakeven point.
A) ₹ 160,000
B) ₹ 150,000
C) ₹ 155,000
D) ₹ 145,000

142. Excess of actual cost over standard cost is known as

A) Abnormal effectiveness
B) Unfavourable variance
C) Favourable variance
D) None of these
143. Difference between standard cost and actual cost is called as
A) Wastage
B) Loss
C) Variance
D) Profit

144. Standards cost is used

A) To ascertain the breakeven point
B) To establish cost-volume profit relationship
C) As a basis for price fixation and cost control through variance analysis

145. The cost of the product determined at the beginning of production under standard cost
system is known as :
A) Actual Cost
B) Direct Cost
C) Pre-determined cost
D) Historical cost

146. The deviation between standard and actual cost is known as

A) Variable cost analysis
B) Variance analysis
C) Linear trend analysis
D) Multiple analysis

147. From cost control point of view the standard most commonly used is:
A) Expected standard
B) Theoretical standard
C) Normal standard
D) Basic standard

148. When more than one material is used in the manufacture of a product, which of the
following variances arises
A) Material yield variance
B) Material mix variance
C) Material price variance
D) Material usage variance

149. Standard price of material per kg ₹ 20, standards consumption per unit of production is 5
kg. Standard material cost for producing 100 units is
A) ₹ 20,000
B) ₹ 12,000
C) ₹ 8,000
D) ₹ 10,000

150. Standard cost of material for a given quantity of output is ₹ 15,000 while the actual cost of
material used is ₹ 16,200. The material cost variance is:
A) ₹ 1,200 (A)
B) ₹ 16,200 (A)
C) ₹ 15,000 (F)
D) ₹ 31,200 (A)
151. For the purpose of Proof, Material Cost Variance is equal to:
A) Material Usage Variance + Material Mix variance
B) Material Price Variance + Material Usage Variance
C) Material Price Variance + Material yield variance
D) Material Mix Variance + Material Yield Variance

152. Cost variance is the difference between

A) The standard cost and marginal cost
B) The standards cost and budgeted cost
C) The standards cost and the actual cost
D) None of these

153. Standard price of material per kg is ₹ 20, standard usage per unit of production is 5 kg. Actual
usage of production 100 units is 520 kgs, all of which was purchase at the rate of ₹ 22 per
kg. Material usage variance is
A) ₹ 400 (F)
B) ₹ 400 (A)
C) ₹ 1,040 (F)
D) ₹ 1,040 (A)

154. Standard price of material per kg is ₹ 20, standard usage per unit of production is 5 kg. Actual
usage of production 100 units is 520 kgs, all of which was purchase at the rate of ₹ 22 per
kg. Material cost variance is
A) 2,440 (A)
B) 1,440 (A)
C) 1,440 (F)
D) 2,300 (F)

155. Standard quantity of material for one unit of output is 10 kgs. @ ₹ 8 per kg. Actual output
during a given period is 800 units. The standards quantity of raw material
A) 8,000 kgs
B) 6,400 kgs
C) 64,000 kgs
D) None of these

156. What is the labour rate variance if standard hours for 100 units of output are 400 @ ₹ 2 per
hour and actual hours taken are 380 @ ₹ 2.25 per hour?
A) ₹ 120 (adverse)
B) ₹ 100 (adverse)
C) ₹ 95 (adverse
D) ₹ 25 (favourable)

157. Budgets are shown in Terms

A) Qualitative
B) Quantitative
C) Materialistic
D) both (b) and (c)
158. Which of the following is not an element of master budget?
A) Capital Expenditure Budget
B) Production Schedule
C) Operating Expenses Budget
D) All of above

159. Which of the following is not a potential benefit of using a budget?

A) Enhanced coordination of firm activities
B) More motivated managers
C) Improved interdepartmental communication
D) More accurate external financial statements

160. Which of the following is a long-term budget?

A) Master Budget
B) Flexible Budget
C) Cash Budget
D) Capital Budget

161. Materials become key factor, if

A) quota restrictions exist
B) insufficient advertisement prevails
C) there is low demand
D) there is no problem with supplies of materials

162. The difference between fixed cost and variable cost assumes significance in the preparation
of the following budget.
A) Master Budget
B) Flexible Budget
C) Cash Budget
D) Capital Budget

162. The budget that is prepared first of all is

A) Master Budget
B) Budget, with key factor
C) Cash Budget
D) Capital expenditure budget

163. Sales budget is a

A) expenditure budget
B) functional budget
C) Master Budget
D) None of these

164. When a company wants to prepare a factory overhead budget in which the estimated costs
are directly derived from the estimates of activity levels, which of the following budget
should be prepared by the company?
A) Flexible Budget
B) Fixed Budget
C) Master budget
D) R & D budget
 165. Which of the following budgets facilitates classification of fixed and variable costs:
A) Capital expenditure budget
B) Flexible Budget
C) Cash Budget
D) Raw materials budget

166. The entire budget organisation is controlled and headed by a senior executive known as:
A) General Manager
B) Accountant
C) Budget Controller
D) None of the above

167. Which of the following is generally a long term budget?

A) Cash Budget
B) Sales Budget
C) Research and Development budget
D) Capital expenditure budget

168. A flexible budget requires a careful study of

A) Fixed, semi-fixed and variable expenses
B) Past and current expenses
C) Overheads, selling and administrative expenses
D) None of these

169. The basic difference between a fixed budget and flexible budget is that a fixed budget

A) is concerned with a single level of activity, while flexible budget is prepared for
different levels of activity
B) Is concerned with fixed costs, while flexible budget is concerned with variable costs
C) is fixed while flexible budget changes
D) None of these

Fill in the Blanks

1. Differential cost is the change in the cost due to change in Activity from one level to another.
2. Management accounting is primarily concerned with Management.
3. In Cost Accounting stock are valued at cost only.
4. Profit is the resultant of two varying factors viz sales and cost.
5. Sunk cost are historical costs which are incurred in the past.
6. A responsibility centre in which a manager is responsible for costs only is called Cost Centre.
7. Sunk costs are not considered for decision making because all past costs are not relevant.
8. Notional expenses are not included in the cost sheet.
9. Store Ledger is kept and maintained in Cost Office.
10. Goods Received Note is prepared by the Receiving department.
11. Transfer of surplus material from one job or work order is recorded in Material Transfer Note.
12. Quantity Discount is discount allowed to the bulk purchaser.
13. Material return Note is a document which records the return of unused materials.
14. In a company there were 1200 employee on the rolls at the beginning of a year and 1180 at
the end. During the year 120 persons left services and 96 replacements were made. The labour
turnover to flux method is 9.08 %.

15. In Gaylor’s differential piece rate systems, two piece rates are set for each job.
16. In Piece Rate Systems, basic of wages payment is the quantity of work.
17. The formula for computing wages under time rate is Hour worked × rate per hour.
18. In Halsey plan, a worker gets bonus equal to 50% of the time saved.
19. Under Grantt Task and Bonus Plan, no bonus is payable to a worker, if his efficiency is less
than 100%.

20. Wages sheet is prepared by Pay Roll department.

21. Cost of normal idea time is charged to Factory Overhead.
22. Ideal time arises only when workers are paid on time basis.
23. Normal idle time costs should be change to Production overhead which that due to abnormal
reasons should be change to Costing P/L A/c.

24. Direct Expenses relating to Manufacture of a product or rendering of service.

25. Penalties/ damages paid to statutory authorities’ shall not be form part of Direct Expenses.
26. A Direct Expenses related to a product form part of the Prime Cost.
27. Direct Expenses incurred for brought out resources shall be determined at Invoice Price.
28. Direct Expenses incurred lump-sum shall be Amortized.
29. Overheads are an aggregate of Indirect material and Indirect Labour and Indirect Expenses.
30. Example of after sales services are Repair and Maintenance & Replacement of Components,.
31. Administration overheads are usually absorbed as a percentage of works cost.
32. The difference b/w actual & absorbed factory overhead is under or over absorbed overheads.
33. The term used for charging of overheads to cost units is known as absorptions.
34. The difference between practical capacity and the capacity based on sales expectancy is
known as idle capacity.
35. The direct labour hour rate is computed by dividing the overheads by the aggregate of the
productive hours of direct workers.

36. Under or over absorption of overheads arises only when overheads are absorbed by
predetermined overheads rates.
37. Overhead incurred ₹ 16,000 & absorbed ₹ 15,300. There is under absorption of ₹ 700.
38. In Absorption Costing Fixed cost is added to inventory.
39. CAS 9 stands for packing material cost.
40. The Chairman of the CASB will be nominated by the council of The Institute of Cost
Accountants of India.

41. Four nominee from the regulate like CAG, RBI to the CASB Board.
42. CAS 13 stands for cost of service cost centre.
43. The function of CASB is to assists the members in preparations of uniform cost statement
under various statue.
44. Prime cost + Overheads = Total Cost
45. Total cost +Profit = Selling Price
46. Cost of Sales +Profit = Sales.
47. Direct Material + Direct Wages +Direct Expenses=Prime Cost.
48. Salary paid to factory manager is an item of Factory Overhead.
49. In Reconciliations Statements, Incomes shown only in Financial accounts are Added to costing
profit.
50. In Reconciliations Statements, Expenses shown only in cost accounts are Added to costing
profit.
51. In Reconciliations Statements, overheads Over-Recovered in cost accounts are Deducted from
costing profit.
52. In Reconciliations Statements, overheads Under Recovered in cost accounts are Added to
financial profit,.

53. Notional remuneration to owner is expense debited only in Cost Accounts,.

54. All the transactions relating to materials are recorded through Store ledger control accounts.
55. The net balance of Costing profit and loss account represents net profit or net loss.
56. WIP ledger contains the accounts of all the which are under Jobs Execution.
57. The two traditional systems of accounting for integration of cost and financial accounts are
the Double entry method and the third entry method.

58. Under integrated accounting system, the accounting entry for payment of wages is to debit
Wages control Accounts and to credit cash.
59. Cost of abnormal loss is not borne by good units.
60. If the actual loss in a process is less than the normal loss, the difference is known as Abnormal
Gain.

61. Subsequent Costs are incurred after split off point.

62. The main product generally has a greater sale value than by product.
63. Statement of cost per unit of equivalent production shows the per unit cost Element Wise.
64. Two principle method of evaluation of equivalent production are FIFO and Average Method.
65. In hospital the cost unit is per bed.
66. In electricity companies, the cost unit is Kilowatt.
67. The method of costing used in undertaking like gas companies, cinema houses, hospitals etc
is known as Operating Costing.

68. In motor transport costing two example of fixed cost are Insurance and Depreciation.
69. Variable cost per unit is Fixed.
70. Marginal cost is the Excess of sales over contribution.
71. P/V ratio is the ratio of Contribution to sales.
72. If variable cost to sales ratio is 60%, P/V ratio is 40.
73. Prime Cost + Variable overhead = Marginal Cost.
74. When sales are ₹ 300,000 and variable cost is ₹ 180,000, P/V ratio will be 40%.
75. Variable cost remains fixed per unit.
76. Margin of safety is Actual sales – Sales at breakeven point.
77. Breakeven point is Total Fixed cost / P/V ratio.
78. Contribution margin equals to Sales – Variable cost.
79. Standard cost is a Predetermined cost.
80. Standard cost when fixed is recorded on Standard cost card.
81. Historical costing uses post period costs while standards costing uses Predetermined costs.
82. Three types of standards are Current, Basic and Normal standard.
83. The Cost Accountants is usually the co-ordinator of the standards committee.
84. Basically there are two types of standards viz, a) Basic standards, and Current standard.
85. When actual cost is less than the standards cost, it is known as Favourable variance.
86. Standard Costing is one of the Cost control techniques.
87. Standard means a criterion or a yardstick against which actual activity can be compared to
determine the difference between two.

88. Budgets are action plans.

89. The key factor in a budget does not remain the same every year.
90. Cash budget is a part of Financial budget.
91. Functional budgets are subsidiary to master master budget.
92. Forecasting leads to budgeting and budgeting leads to budgetary control.
93. Budgetary Control involves checking and evaluation of actual performance.
94. The document which describes the budgeting organisation, procedure etc is known as Budget
Manual.
95. A budget is a aid to management.
96. The principle budget factor for consumer goods manufacture is normally Sales Demand.
97. A budget is a projected plan of action in Physical units & monetary terms.