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com

MGT402 Solved MCQs With Explanation & Reference

The following data related to production of ABC Company:

Units produced 8,000

units

Direct materials Rs.6

Direct labor Rs.12

Fixed overhead Rs.24000

Variable overhead Rs.6

Fixed selling and administrative Rs.2000

Variable selling and Rs.2

administrative

Using the data given above, what will be the unit product cost under marginal
costing?

► Rs. 22

►Rs. 24

► Rs. 28

► Rs. 30

Explanation:

=16+12+6=24

Selling and admin exp are not added in marginal costing

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Brutus Company manufactures glass bottles. The company expects to sell

500,000 bottles next year. The budgeted ending inventory this year is 15,000
bottles and the desired ending inventory for next year is 12,000 bottles. It takes 5
pounds of sand to produce one bottle. The ending inventory of sand this year is
expected to be 200,000 pounds, and the desired ending inventory next year is
100,000 pounds. The amount of direct material purchases is expected to be:

►2,385,000pounds

► 2,465,000 pounds

► 2,585,000 pounds

► 2,600,000 pounds

Explanation:

Proposal Budget=E.Sales+Desire units-actual units*per unit cost

=500000+12000-15000=497000*5=2485000

=2485000+100000-200000=2385000

BDH produced 30,500 units of Kisty (a product). Each unit of Kisty takes two units
of component L. Component L is budgeted to cost Rs. 12 per unit. Current
inventory of L is 4,000 units. BDH wants 6,000 units of L on hand at the end of the
next year. How much will the direct materials budget show as the cost of
materials to be purchased?

► Rs. 756,000

►Rs. 390,000

► Rs. 684,000

► Rs. 330,000

Proposal Budget=E.Sales+Desire units-actual units*per unit cost

=30500+6000-4000=32500*12=390000

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Railway Product Ltd makes one product that sells for Rs. 72 per unit. Fixed costs
are Rs. 81,000 per month & the product has a contribution to sales ratio of 37.5%.
In a period when actual sales were Rs. 684,000 the company's unit margin of
safety was:

► 4,000 units

► 4,800 units

► 5,500 units

►6,500 units

Explanation:

Safety Margin in units=Sales in units-Break even in units

Sales in units=684000/72=9500

Fixed exp in units= 81000/72=1125

Break even in units = Fixed Exp. In units/Contribution ratio

= 1125/0.375=3000

Safety Margin =9500-3000=6500

Contribution Margin Ratio is:

Totalcontribution Margin/ Sales.

Sales / Contribution Margin per unit.
Fixed cost/ Contribution margin per unit.
Sales / Variable costs.

Contribution Margin and Contribution Margin Ratio

Formulas to calculate contribution margin and contribution margin ratio:

Contribution Margin = sales - variable costs.

Contribution Margin Ratio = (sales - variable costs)/sales.

Contribution margin and contribution margin ratio definition and explanation:

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Contribution margin is the amount generated by sales to cover fixed costs.

The contribution margin ratio indicates the percent of sales available to cover fixed
costs and profits.

Contribution margin contributes to meet which one of the following options?

Select correct option:

Variable cost
Fixedcost
Operating cost
Net Profit

Explanation:
Contribution margin contributes to meet the fixed cost. Once the fixed cost has been met
the incremental contribution margin is the profit.
Income Statement as per the marginal costing system is used as a Standard format of
Income Statement to analyze the Cost-Volume-Profit relationship.

The impact on net operating income of any given dollar change

in total sales can be computed by applying which ratio to the dollar
change?

Profit margin
Variable cost ratio
contributionmargin
Ratio of variable to fixed expenses.

for explanation visit the following link

http://www.accountingformanagement.com/contribution_margin_ratio.htm

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What will be the impact of normal loss on the overall per unit cost?
Select correct option:
Per unit cost will increase
Per unit cost will decrease
Per unit cost remain unchanged
Normal loss has no relation to unit cost
Reference:
(lesson 10)

A completed CVP graph will show that profit or loss at any level
of sales is measured by:

a.A vertical line between the fixed cost line and the x-axis.
b.A horizontal line between the revenue line and the y-axis.
c.A vertical line between the total revenue line and the total
expenses line.
d.A horizontal line between the total revenue line and the total
expenses line.

for explanation see the following link

http://74.125.153.132/search?q=cache:ZHsW2lpf1zIJ:www.csb.uncw.edu/people/applet
onb/classes/ACG203/Lecture%2520Notes/chap006.doc+completed+CVP+graph+will+s
how+that+profit+or+loss+at+any+level+of+sales+is+measured+by&cd=4&hl=en&ct=cln
k&gl=pk

The total cost of the beginning inventory was Rs. 60,000. During the month, 50,000 units
were transferred out. The equivalent unit cost was computed to be Rs. 4.00 for materials
and Rs. 7.40 for conversion costs under the weighted-average method.

With the help of given information, what was the total cost of the units completed and
transferred out during the month.

► Rs. 480,000

► Rs. 570,000

► Rs. 540,000

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► Rs. 510,000

Solution

50k units * (4 material cost + 7.40 covnversion cost per unit) = 570000

The main purpose of cost accounting is to

Select correct option:

Maximize profits
Help in inventory valuation

Provideinformationtomanagementfordecisionmaking

Aid in the fixation of selling price

Explanation:

The purpose of cost accounting is to provide information to the management.

Management need to know cost per unit as a basis for valuing inventory and for
decision making.

Which of the following is sales force payroll incentive?

Select correct option:

Commission
Shift allowance
Over time payment
Bonus

Reference:

(page # 88)

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Examples of industries that would use process costing include all of the
following EXCEPT:
Select correct option:

Beverages
Food
Hospitality
Petroleum

Reference:

(page # 131)

The Inventory Turn over ration is 5 times and numbers of days in a year is
365.Inventory holding period in days would be
Select correct option:

100 days
73days
50 days
10 days

Explanation:
Inventory holding period = no. of days in a year/inventory turnover ratio

Which of the following is an example of Statutory deductions:

Select correct option:

DeductionasIncome Tax
Deduction as social security
Subscriptions to a trade union
None of the given

Reference:

(page # 75)

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Contribution margin contributes to meet which one of the following options?

Select correct option:

Variable cost
Fixed cost
Operating cost
Net Profit

Contribution margin contributes to meet the fixed cost. Once the fixed cost has been
met the incremental contribution margin is the profit. Income Statement as per the
marginal costing system is used as a Standard format of Income Statement to analyze
the Cost-Volume-Profit relationship.

The main purpose of cost accounting is to

Select correct option:

Maximize profits
Help in inventory valuation
Provideinformationtomanagementfordecisionmaking
Aid in the fixation of selling price

The purpose of cost accounting is to provide information to the management.

Management need to know cost per unit as a basis for valuing inventory and for
decision making.

Which of the following is considered as basic systems of remunerating labor?

Select correct option:

Time rate system

Piece rate system

Halsey Premium plan

Both time rate and piece rate system

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Reference:

(Page # 82)

The main purpose of cost accounting is to

Select correct option:

Maximize profits

Help in inventory valuation

Provide information to management for decision making

Aid in the fixation of selling price

Reference:

( Page # 9)

If, Gross profit = Rs. 40,000 GP Margin = 25% of sales What will be the value of cost of
goods sold?

Select correct option:

Rs. 160,000

Rs. 120,000

Rs. 40,000

Can not be determined

Solution:

Sales-CGS=GP

GP=40000

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GP Margin 25%.........=40000/25%

Total sale..................=160000

Now putting value in formula

GP=Sales-CGS

40000 = 160000-CGS

CGS = 160000-40000

CGS = 120000

Which of the following cannot be used as a base for the determination of overhead
absorption rate?

Select correct option:

Number of units produced

Prime cost

Conversion cost

Discount Allowed
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Reference:

(Page # 101)

All of the following are essential requirements of a good wage system EXCEPT:

Select correct option:

Reduced overhead costs

Reduced per unit variable cost

Increased production

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Increased operating costs

Reference: (Page # 82) http://vustudents.ning.com

Wright Company had, at the beginning of 2001, a work in process of 10,000 units.
During 2001, 57,500 additional units were started into production. Ending work in
process on December 31, 2001, was 7,500 units. The beginning work in process
was 100% complete as to direct materials and 75% complete as to conversion
costs. The ending work in process was 100% complete as to direct materials and
50% complete as to conversion costs. Total direct material put into process cost
Rs. 57,500. Total conversion cost put into process cost Rs. 84,375. Beginning
work in process cost Rs. 21,250.; Rs. 13,250 for materials and Rs. 8000 for
conversion. All materials are added at the strat of the production process, and
conversion costs are incurred uniformly throughout manufacturing. Wright
Company uses a weighted-average process cost system. The cost per equivalent
unit for conversion cost for 2001 was:

Rs. 1.00

Rs. 1.23

Rs. 1.33

Rs.1.45

Solution:
Quantity Schedule

Beginning work in process 10,000

Units started 57,500

Units into production 67,500

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Equivalent Units

Materials
Conversion

Completed 60,000 60,000 60,000

Ending work in process 7,500 7,500 3,750

Total units 67,500 67,500 63,750

Costs Total Materials Conversion

Beginning work in process Rs 21,250 Rs. 13,250 Rs 8,000

Current period 141,875 57,500

84,375

Total cost to account for Rs163,125 Rs70,750 Rs92,375

Equivalent units ÷ 67,500 ÷ 63,750

Cost per equivalent unit Rs1.048

Rs1.449

A cost that has been incurred but cannot be changed by present or future decisions is called:

► Sunk cost

► Differential cost

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► Opportunity cost

► Marginal cost

Explanation:

Sunk cost : Sunk cost refers to the cost that has been spent in the past and that cannot be
retrieved on product or service in the current period. This cost should not be taken into account
while making the decisions by management.

Example

Stationary bought in bulk last month. In this case the cost has been incurred and will not be
important to management decisions being made for the future..

Which of the following document evidences the transaction of purchase of material?

► Material requisition

► Store requisition

► Purchase order

► Purchase invoice

Explanation:

Purchase Invoice

It is the document that evidences the transaction of purchase of material. It is issued by the seller stating
quantity, rate, discount, and amount of the purchased material. Settlement terms are also stated at bottom
of the invoice. Receiving an invoice means that money is payable to the supplier.

Material Requisition
It is a document through which work station incharge requires/receives material from the store. It is sent
to the store incharge duly approved by the production manager, stating the number of units required for
consumption based on which the store incharge issues the required material to the work shop.

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The cost that is subject to actual payment or will be paid for in future is called:
► Fixed cost

► Step cost

► Explicit cost

► Imputed cost

Reference & Explanation:

(page # 8)

3-Explicit cost : This is subject to actual payment or will be paid in the future.

Example :

1) Actual payment made to buy land for expansion of the company instead of using the owner’s land.

2) Payment made for wage, rent or material etc.

FIFO is the abbreviation of:

► Final Interest-Free Option

►Firstin FirstoutMethod

► None of the given options

► Fixed income Financial Operations

Reference:

(page # 41)

Which of the following industries would most likely use a Process cost
Accounting system?

►Construction

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► Beer

► Hospitality

► Consulting

Reference:

(page # 124)

Payroll includes:

► Salaries & Wages of direct labor

► Salaries & Wages of Indirect labor

► Salaries & Wages of Administrative

►Salaries& Wagesofdirectlabor, Indirectlabor,andAdministrative

Reference:

(Page # 69)

While calculating the EOQ, carrying cost is taken as the:

►%ageofunitcost

► %age of ordering cost

► %age of annual required units

► Total unit cost

Reference:

(Page # 56)

The average cost method of process costing has an advantage when compared
to the FIFO method relative to simplicity because under the average method:

► It provides that units started within the current period are valued at the current
period cost

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► The costs in the beginning inventory in a processing department maintain their

separate identity

► The identity of the beginning units in process is typically maintained when they
are transferred to the next department

►Allunitscompletedduringtheperiod willbe assignedthesameunitcost

Reference:

(Page # 146)

Which of the following sentences is the best description of zero-base budgeting?

► Zero-base budgeting is a technique applied in government budgeting in order to

have a neutral effect on policy issues

► Zero-base budgeting requires a completely clean sheet of paper every

year,on which each partof theorganizationmustjustify thebudgetitrequires

► Zero-base budgeting starts with the figures of the previous period and assumes
a zero rate of change

► Zero based budgeting is an alternative name of flexible budget

Explanation:

Zero-base budgeting:

A method of budgeting in which all expenses must be justified for each new
period. Zero-based budgeting starts from a "zero base" and every function within an
organization is analyzed for its needs and costs. Budgets are then built around what is
needed for the upcoming period, regardless of whether the budget is higher or lower
than the previous one.

A budget that requires management to justify all expenditures, rather than just
changes from the previous year is referred to as:

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► Self-imposed budget

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► Participative budget

► Perpetual budget

►Zero-basedbudget

Reference:

http://www.investopedia.com/terms/z/zbb.asp

All Indirect cost is charged/record in the head of

a) Prime cost
b) FOHcost
c) Direct labor cost
d) None of the given options

Referen

ce:

(Page #

2)

Amount of Depreciation on fixed assets will be fixed in nature if calculated

under which of the following method?

►Straightlinemethod

► Reducing balance method

► Some of year's digits method

► Double declining method

Referen

ce:

(page #

3)

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The point at which the cost line intersects the sales line will be called:
► Budgeted sales

►BreakEvensales

► Margin of safety

► Contribution margin

Reference

: (Page #

184)

While transporting petrol, a little quantity will be evaporated; such kind of loss
is termed as:

►NormalLoss.

► Abnormal Loss.

► Incremental Loss.

► Incremental abnormal loss.

Referenc

e: (Page

# 60)

Profit under absorption costing will be higher than under marginal costing if:

► Producedunits>Unitssold

► Produced units < Units sold

► Produced units =Units sold

► Profit cannot be determined with given statement

Reference
: (Page #
171)

The break-even point in units is calculated using which of the following factors?

► Fixed expenses and the contribution margin ratio

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► Variable expenses and the contribution margin ratio
 http://vustudents.ning.com

►Fixedexpensesandtheunit contributionmargin

► Variable expenses and the unit contribution margin

Reference

: (Page #

183) OR

Reference

http://en.wikipedia.org/wiki/Break_even_analys

is

Which of the following factor/s should be considered while constructing an

administrative selling expense budget?

► Fixed expenses

► Past experience

► Variable expenses

► All of the given options

Reference

http://www.accountingformanagement.com/selling_and_admn_expenses_budget.htm

A store ledger card is similar to the .

Select correct option:
o Stock ledger
Bincard http://vustudents.ning.com
o Material card
 http://vustudents.ning.com

o Purchase requisition card

Reference Or Explanation:

It is similar to the bin card as far as receipt and issue of the quantity of
material is concerned, but the main purpose of maintaining the store ledger
card is to know the cost of material consumed and material in store along with
the cost per unit of the material. Store ledger card is maintained using the FIFI,
LIFO and W Avg methods. (Page n. 65)
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is the cost that is incurred at the time of making transaction.

► Product Cost

► Period Cost

► Sunk Cost

►HistoricalCost
Explanation:
It is the cost which is incurred at the time of entering into the transaction. This cost is
verifiable through invoices/agreements. Historical cost is an actual cost that is borne at
the
time of purchase.

Referenc

e: (page

# 7)

Costs that change in response to alternative courses of action are called:

► Relevant costs
►Differential costs

► Target costs

► Sunk costs
Reference:

Page # 229

Which of the following is a period cost?

► Direct materials http://vustudents.ning.com

 http://vustudents.ning.com

► Indirect materials

► Factory utilities

►Administrativeexpenses
Reference:

page # 7
Which of the following items of expense are to be add in FOH cost
Select correct option:

o Rent of factory + Head office rent + salaries to factory watchman

o Rent of factory + factory lighting bill + Directors salaries
Rentof factory +factory lightingbill+Factory employeessalaries
o Head office rent + Factory property tax + Factory small tools

Reference Or Explanation:
Factory overhead costs are those costs incurred which cannot be identified directly to
cost unit.
These are incurred in many different parts of organization.
These include:
1. Indirect materials
2. Indirect labor and

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3. Indirect costs attributable to production and the service activities associated with
manufacturing.
Marketing, general administration, research and development costs that are not
associated with manufacturing are not usually treated as overheads for this purpose.
(Page no. 100)

The FIFO inventory costing method (when using a perpetual inventory system)
assumes that the cost of the earliest units purchased is allocated in which of
the following ways?
Select correct option:

o First to be allocated to the ending inventory

o Last to be allocated to the cost of goods sold
o Last to be allocated to the ending inventory
Firsttobeallocated tothecostof goodsold

Explanation:

FIFO

21. The FIFO method assumes that the costs of the earliest goods purchased
are the first to be sold.

a. This methodoften parallels the actualphysicalflow of the merchandise.

b. Under this method, the ending inventory is based on the latest units
purchased.

Reference:

http://74.125.153.132/search?q=cache:sWEsb5A_egoJ:ocw.kfupm.edu.sa/user062%25
5CACCT20101%255CSummary/ch06.doc+The+FIFO+inventory+costing+method+(whe
n+using+a+perpetual+inventory+system)+assumes+that+the+cost+of+the+earliest+unit
s+purchased+is+allocated+in+which+of+the+following+ways%3F&cd=2&hl=en&ct=clnk
&gl=pk

is the time worked over and above the employee's basic working
week.

Select correct option:

o Flex time

o Overtime

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o Shift allowance

o Commission

Reference and Explanation:

Overtime is the time worked over and above the employee's basic working week. (Page
no. 85)

What will be the impact of normal loss on the overall per unit cost?

Select correct option:

Perunitcost will increase

o Per unit cost will decrease

o Per unit cost remain unchanged

o Normal loss has no relation to unit cost

Reference and Explanaion:

Such a loss is inherent in manufacturing operations and cannot be avoided, for this
reason; cost of normal loss is absorbed by the good units produced. It has the affect of
increasing unit cost of good output. Total cost of the department is not divided by all
units processed, instead. It is divided only by the good units produced. (Page no. 139)

The danger Level can be calculated ?

Select correct option:

AverageconsumptionxLead timetoget urgentsupplies

o Normal consumption x Lead time to get urgent supplies
o Maximum consumption x Lead time to get urgent supplies
o Minimum consumption x Lead time to get urgent supplies

Reference and Explanation:

Formula
Average consumption x Emergency time (Page no. 52)

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If, Sales = Rs. 800,000 applied Markup = 25% of cost What would be the value of
Gross profit?
Select correct option:

o Rs. 200,000
Rs.160,000
o Rs. 480,000
o Rs. 640,000

Reference and Explanation:

Gross profit = Sales x 25%
125%

= 800,000 x 25% = 1,60,000

125%
(Page no. 33) Q 1

The supervisor salary is treated as:

Select correct option:

o Direct labor cost

Indirectlaborcost
o Conversion cost
o None of the given options

The Inventory Turn over ration is 5 times and numbers of days in a year is
365.Inventory holding period in days would be
Select correct option:

o 100 days
73days
o 50 days
o 10 days

Reference and Explanation:

(Page no. 32)
Inventory turnover ratio = Cost of goods sold
Average inventory
Inventory holding period in days = Number of days in a year
Inventory turnover ratio

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Sales are Rs. 450,000. Beginning finished goods were Rs. 23,000. Ending finished
goods are Rs. 30,000. The cost of goods sold is Rs. 300,000. What is the cost of
goods manufactured?
Select correct option:

o Rs. 323,000
o Rs. 330,000
o Rs. 293,000
Noneofthegivenoptions

Explanation:
Cost of good manufactured = opening finished goods + closing finished goods =
CGS
Here we will do reverse
3,00,000 + 30,000 – 23,000 = 3,07,000

OR

Solution:

Cost of goods manufactured = 3,07,000

Add: beginning Finished goods=23000

Cost of goods available for sale=330000

Less: Ending Finished goods = 30000

Cost of goods sold = 300,000.

Increase in material Inventory means:
Select correct option:

Theendinginventory isgreaterthanopeninginventory
o The ending inventory is less than opening inventory
o Both ending and opening inventories are equal
o Can not be determined
Reference and Explanation:

Hint: Increase in inventory means closing inventory is greater than the opening
inventory. Decrease in inventory means closing inventory is lesser than the opening
inventory. (page no. 34)

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Which of the following is considered as basic systems of remunerating labor?

Select correct option:

o Time rate system

o Piece rate system
o Halsey Premium plan
Bothtimerateandpieceratesystem

Reference and Explanation:

There are two basic systems of remunerating labor. One is related to the time and the
other relates to the quantum of work. (Page no. 82)

While calculating the EOQ, number of orders is calculated by:

Select correct option:

o Multiplying the required units with cost per order

Dividingrequiredunitby orderedquantity
o Multiplying the required units with ordered quantity
o Multiplying the ordered quantity with cost per order

Reference and Explanation:

Required Units = Number of orders (Page no. 57)
Order Quantity
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An organistation sold units 4000 and have closing finished goods 3500 units and
opening finished goods units were 1000.The quantity of unit produced would be:
Select correct option:

o 7500 units
6500units
o 4500 units
o 8500 units

Reference and Explanation:

Units produced = Units sold + Closing finished goods units - Opening finished goods
units (Page no. 38)

Under/Over applied FOH cost can be adjusted in which of the following:

Select correct option:

o Entire Production
o Cost of Good sold
o Net Profit
Allofgivenoptions

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Reference and Explanation:

Such variance should be eliminated form the financial statements through adjustment.
Under/Over applied FOH cost can be adjusted in following costs/profit figures:
1. Entire Production
a) Work in process inventory
b) finished goods inventory
c) Cost of goods sold
2. Cost of Goods Sold
3. Net profit (Page no. 25)

In furniture manufacturing use of nail, pins, glue, and polish which use to
increase its esteem value that cost is treated as:
Select correct option:

o Direct material cost

Indirectmaterial cost
o FOH cost
o Prime cost
Reference or explanation:
Indirect Material/Factory Supplies is the cost that is incurred in producing product
but which can not traced in full in the cost unit. For example: polishing material in
production of furniture. (Page no. 40)

If, Gross profit = Rs. 40,000 GP Margin = 25% of sales what will be the value of
cost of goods sold?
Select correct option:

o Rs. 160,000
Rs.120,000
o Rs. 40,000
o Can not be determined

Reference and Explanation:

Cost of goods sold = Gross profit (absolute amount) x 75%/25%

Reference:

(Page no. 33)

(Q no. 3)

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Period costs are

Select correct option:

o Expensed when the product is sold

o Included in the cost of goods sold
Relatedtospecific Period
o Not expensed

Reference and Explanation:

Period Cost
The cost is not related to production and is matched against on a time period
basis. This cost is considered to be expired during the accounting period and is charged
to the profit & loss account. (Page no. 7)

Overtime that is necessary in order to fulfill customer orders is called:

Select correct option:

o Avoidable overtime
Unavoidableovertime
o Premium Overtime
o Flex time
Reference and Explanation:
Overtime that is necessary in order to fulfill customer orders is unavoidable overtime.
(Page no. 86)

A cost unit is

Select correct option:

o The cost per hour of operating a machine

o The cost per unit of electricity consumed

A unitof productorservicesinrelationto whichcostsareascertained

o A measure of work output in a standard

Reference and Explanation:

It is a unit of a product or service in relation to which the cost is ascertained, i.e. it is the
unit of the out put or product of the business. In simple words the unit for which cost of
producing the units is identified /allocated. (Page no. 6)

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 http://vustudents.ning.com
FOH applied rate of Rs. 5.60 per machine hour. During the year the FOH to
Rs.275,000 and 48,000 machine hours were used. Which one of following
statement is correct?
Select correct option:

Overhead was under-applied by Rs.6,200

Overhead wasover-appliedby Rs.6,200
Overhead was under-applied by Rs.7,200
Overhead was over-applied by Rs.7,200
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Explanation
: FOH =
275000
48000*5.60 = 268800
6200
As the predermined FOH is greater than actual so it will be Over-applied

FOH absorption rate is calculated by the way of

Select correct option:

Estimated FOH Cost/Direct labor hours

Estimated FOH Cost/No of units
produced Estimated FOH Cost/Prime
Cost
Allofthegivenoptions

Explanation:
ABSORPTION COSTING: Before diving into the specifics of variable costing, let's
revisit the basic tenants of the traditional approach known as absorption costing (also
known as "full costing"). Generally accepted accounting principles require absorption
costing for external reporting, and it formed the basis for the discussion of inventory
costing found in preceding chapters. Under absorption costing, normal manufacturing
costs are considered product costs and included in inventory. As sales occur, the cost
of inventory is transferred to cost of goods sold; meaning that the gross profit is reduced
by all costs of manufacturing, whether those costs relate to direct materials, direct labor,
variable manufacturing overhead, or fixed manufacturing overhead. Selling, general,
and administrative costs (SG&A) are classified as period expenses.

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The cost of electricity bill of the factory is treated

as: Select correct option:
Fixed cost
Variable cost
Step cost
Semivariable cost

Reference and explanation:

Semi-variable cost
This cost is partly fixed and partly variable in relation to the output. For e.g. telephone
bill, electricity bill
Reference: from http://www.docstoc.com/docs/13594184/Cost-Accounting

Opportunity cost is the best example of:

RelevantCost

► Irrelevant Cost

► Standard Cost

► Sunk Cost

Reference and explanation:

Relevant Cost

Relevant cost is which changes with a change in decision. These are future costs that
effect the current management decision. (Page no. 11)

A typical factory overhead cost is:

►Distribution

► Internal audit

Compensationofplantmanager

► Design

Reference and explanation

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Most of the factory overhead cost items are recorded (identified) straight away as
factory overhead cost; these include some sort of indirect material items, indirect labor,
electricity, insurance, rent, repair etc. etc. (Page no. 117)

Period costs are:

► Expensed when the product is sold

► Included in the cost of goods sold

Relatedtospecific period

► Not expensed

Reference and explanation:

The cost is not related to production and is matched against on a time period basis.
This cost is considered to be expired during the accounting period and is charged to the
profit & loss account. (Page no. 7)

All of the following indicate the problems in traditional budget EXCEPT:

► Programmes and activities involving wasteful expenditure are identified,
resultinginunavoidablefinancial andothercosts

► Inefficiencies of a prior year are carried forward in determining subsequent

years’ levels of performance

► Managers are not encouraged to identify and evaluate alternate means of

accomplishing the same objective

► Decision-making is irrational in the absence of rigorous analysis of all proposed

costs and benefits

Reference and explanation:

Programmes and activities involving wasteful expenditure are not identified, resulting in
avoidable financial and other costs. (Page no 119)

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A forecast set of final accounts is also known as:

► Cash budget

► Capital budget

Masterbudget

► Sales budget

Reference and explanation:

Different types of budgets are prepared for different purposes e.g. Sales. Budget,
Production Budget. Administrative Expense Budget, Raw material Budget, etc. All these
sectional budgets are afterwards integrated into a master budget- which represents an
overall plan of the organization. A budget helps us in the following ways: (Page no. 199)

Which of the following would be the effect, if inventory is not properly measured?

► Expensesand revenuescannotbe properly matched

► Unfair position in Financial Statements

► Inventory items show under or over stocking

► All of the given options

Reference and explanation:

INVENTORIES AND FINANCIAL STATEMENTS

Inventories are usually the largest current asset of a business, and proper measurement
of them is necessary to assure accurate financial statements. If inventory is not properly
measured, expenses and revenues cannot be properly matched. When ending
inventory is incorrect, the following balances of the balance sheet will also be incorrect
as a result: merchandise inventory, total assets, and owner's equity. When ending
inventory is incorrect, the cost of merchandise sold and net income will also be incorrect
on the income

Ref link

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Increased cost of production due to high labor turnover is a result of which of the
following factor?

► Interruption of production

► Coordination between new and old employee to produce more

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►Increasedproductionduetonewly motivatedemployees
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► Decrease losses as new employees will be more concerned towards output

Reference and

explanation: Labor

Turnover:

Labor turnover may be defined as the rate of change in the composition of the labor
force of an organization high rate of labor turnover denotes that labor is not stable
and there is frequent change in the labor force in the organization. The high labor
turnover rate is an important indication of high labor cost. It is therefore not
desirable.

(Page no. 97)

Increased cost of production due to high labor turnover is a result of which of the
following factor?

► Interruption of production

► Coordination between new and old employee to produce more

► Increased production due to newly motivated employees

► Decrease losses as new employees will be more concerned towards output

Reference & Explanation:

The higher rate of labor turnover results in increased cost of production. This is due to—
(i) Increased cost of new recruitment,
training, (ii) Interruption of production,
(iii) Decrease in production due to inefficiency and inexperience of
newly recruited workers,

(iv) The new workers are more accident prone and are liable to cause
more damage to machinery, tools than old employees,

The total cost of the beginning inventory was Rs. 60,000. During the month,
50,000 units were transferred out. The equivalent unit cost was computed to
be Rs. 4.00 for materials and Rs. 7.40 for conversion costs under the
weighted- average method.

With the help of given information, what was the total cost of the units completed
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and transferred out during the month.
 http://vustudents.ning.com

► Rs. 480,000

► Rs. 570,000

► Rs. 540,000

► Rs. 510,000

Unit transfer out 50000

Per unit cost with respect to material Rs 4

Total cost with respect to material 4 x 50000

=
200000

Per unit cost with respect to conversion Rs 7.40

Total cost with respect to conversion 7.40 x 50000

=
370000
Total cost = Material cost + conversion cost

= 200000 + 370000

= 570000

Net Income before Interest and tax is also called:

Select correct option:

OperatingIncome/Profit

Gross Profit
Marginal Income
Other Income

Explanation:
Sales

Less Cost of goods sold

Gross profit

Less Operating expenses

Selling and marketing

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Administrative

Operating profit

Less Financial Expenses

Interest on loan

Profit before tax

Less Income Tax

Net profit

From the following data, calculate the Economic Order Quantity.

Annual usage = 8,000 units
Cost per unit = Rs.30
Ordering cost = Rs.7 per order
Storage and carrying cost as percentage of average inventory holding 15%.

►157.76
►61.10
►864.09
►60.95

Explanation:

EOQ = Economic Order Quantity. ?

RU = Annually Required Units. 8000
OC = Ordering Costs for one order. Rs. 7
UC = Inventory Unit Cost. Rs.30
CC = Carrying Cost as %age of Unit Cost. 15% or 0.15
EOQ = ( 2xRUxOC / UC x CC% )½

= ( 2x800x7 / 30x0.15)½

= 157.76

are future costs that effect the current management decision.

Select correct option:

Sunk Cost
Standard Cost
RelevantCost
Irrelevant Cost

Reference:
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Relevant cost is which changes with a change in decision. These are future costs that
 http://vustudents.ning.com

effect the current management decision. (P#6)

“Taking steps for the fresh purchase of those stocks which have been
exhausted and for which requisitions are to be honored in future” is an easy
explanation of: Select correct option:

Overstocking
Under stocking
Replenishmentof stock
Acquisition of stock

Reference and Explanation:

Replenishment of stock therefore implies as ‘taking steps for the fresh purchase of
those stocks which have been exhausted and for which requisitions are to be honored
in future’.(Page # 50)

Which of the following would be considered to be an investment centre?

Select correct option:

Managers have control over marketing

Management have a sales team
Management have a sales team and are given a credit control function
Managers canpurchase capitalassets andaregivenacreditcontrolfunction

Reference and Explanation:

An investment centre is a segment or a profit centre where the manager has
significant degree of control over his/her division’s investment policies (P#11)

In cost Accounting, abnormal loss is charged to:

Select correct option:

Factory overhead control account

Workin process account

Income Statement
Entire production

Reference and Explanation:

Treatment in Cost Accounting

Normal loss Abnormal loss

1. Charged to FOH account. 1. Charged to specific WIP account.(P#60)

Which of the following is ahttp://vustudents.ning.com

mechanical device to record the exact time of the
workers?
 http://vustudents.ning.com

Select correct option:

ClockCard
Store Card
Token System
Attendance Register
Explanation:
Different mechanical devices have been designed for recording the exact time of
the workers. These include:

a. Clock Card

b.Dial Time Records.

The Term Maximum Level Represents:
Select correct option:

The maximum stock level indicates the maximum quantity of an item of material
which can be held in stock at any time.
The maximum stock level indicates the maximum quantity of an item of material which
cannot be held in stock at any time.
The Average stock level indicates the maximum quantity of an item of material which
can be held in stock at any time.
The Available stock level indicates the maximum quantity of an item of material which
can be held in stock at any time.

Reference and explanation:

The maximum stock level indicates the maximum quantity of an item of material
which can be held in stock at any time (Page #51)

Which of the following is / are element / s of production payroll?

Select correct option:

Direct labor force wages

Administrative wages
Selling wages
Allofthegivenoptions

Explanation:

Labor costs constitute an important part of production cost. Labor cost is and
element of total payroll expense of an entity. Payroll expense consists of

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 http://vustudents.ning.com

• Labor cost

• Administrative staff expenses

• Selling and distribution staff expenses

Direct material opening inventory add net purchases is called
Select correct option:

Material consumed
Material availablefor use
Total material purchsed
Material ending inventory

Explanation:

Opening inventory + Net Purchases = Material available for use

Question No: 1
Opportunity cost is an example of which of the following?

►Sunk Cost
►Irrelevant Cost
►RelevantCost
►Period Cost

Reference:

PAGE # 6

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Question No: 2
Wage rate per hour = Rs.1.50
Time allowed for the job = 16 hours
Time taken = 12hours
Calculate the effective rate of earnings.
►1.8
►1.75
►1.6
►1.55
Reference:

page # 83

Question No: 4
System applies when standardized goods are produced under a
series of inter-connected operations.

►Processcosting
►Job order costing
►Standard costing
►None of the given options

Reference:

page # 131

Question No: 5
Find the value of Closing stock if:
Purchases Rs.33, 000
Purchases return Rs.2, 000
Opening stock Rs.14, 000
Material consumed Rs.40, 000
►Rs.4, 000
►Rs.5, 000
►Rs.7, 000
►None of the given options

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Explanation:

Opening stock Rs.14, 000

add: Purchases Rs.33, 000

Purchases return Rs.2, 000 Rs.31, 000

Rs.45, 000

Less: Material consumed Rs.40, 000

closing stock Rs.5, 000
If Applied FOH is more than actual FOH, the difference will be in the
Net Income.
► Added
►Subtracted
►Both added and subtracted
►None of the given options
Reference:

page # 29

Question No: 8
The labor cost that is lost because of power and machinery break-down is called:
►Direct Labor Cost
►Indirect Labor Cost
►AbnormalLaborCost
►Labor related cost
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Reference:
page # 69

Question No: 9
Which of the following is not the way by which Employees may be paid their
wages?
►In cash
►By bank transfer
►Through the Banks Automated Clearing System (BACS)
►NoneofthegivenOptions

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Reference:

page # 78

Question No: 10
is an amount paid to an employee based on that employee's
performance.
►Bonus
►Commission
►Both bonus & Commission
►None of the given options

Reference:

page # 87
Opportunity cost is the best example of:

►RelevantCost

► Irrelevant Cost

► Standard Cost

► Sunk Cost
Relevant Cost
Relevant cost is which changes with a change in decision. These are future costs that
effect the current management decision. (Page no. 11)
Capacity Variance / Volume Variance arises due to
► Difference between Absorbed factory overhead and budgeted factory for capacity
attained

► Difference between Absorbed factory overhead and absorption rate

► Difference between Budgeted factory overhead for capacity attained and FOH
actually incurred

► None of the given options

Explanation:

Budget variance is the difference between budgeted factory overhead for capacity attained and

actual factory overhead incurred.

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Which of the following is TRUE regarding Departmental Rates?

► A departmental absorption rate is a rate of absorption based upon the particular

department's overhead cost and activity level

► A departmental absorption rate is a rate of absorption not based upon the particular
department'soverhead cost and activity level
► A single rate of absorption used throughout an organization’s production facility and
based upon its total production costs and activity

► None of the given options

Explanation:

.A departmental absorption rate is a rate of absorption based upon the particular department's

overhead cost and activity level This method allows the activity of each department to be
measured using a basis which is appropriate. It also ensures that the cost attributed to the cost
unit reflects the cost of the departmental resources used in its cost units.

The flux method of labor turnover denotes:

► Workers employed under the expansion schemes of the company

► The total change in the composition of labor force

► Workers appointed against the vacancy caused due to discharge or quitting of the
organization

► Workers appointed in replacement of existing employees

Explanation:

The flux method of labor turnover denotes the total change in the composition of labor
force. While replacement method takes into account only workers appointed against the vacancy
caused due to discharge or quitting of the organisation.

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In a repeated distribution method:

► Each service department in turn and allocates its costs to all departments

► Only one service department in turn and re-allocates its costs to all departments

► Each service department in turn and not re-allocates its costs to all departments

► Each service department in turn and re-allocates its costs to all departments
Repeated distribution method

This method takes each service department in turn and re-allocates its costs to all
departments which benefit. The re-allocation continues until the numbers being dealt with
become very small.
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Which of the following statement is true ragarding Repeated distribution method?

► The re-allocation continues until the numbers being dealt with become very small

► The re-allocation continues until the numbers being dealt with become very Large

► The re-allocation continues until the numbers being dealt with become small

► None of the given options

Repeated distribution method

This method takes each service department in turn and re-allocates its costs to all
departments which benefit. The re-allocation continues until the numbers being dealt with
become very small.

Railway Product Ltd makes one product that sells for Rs. 72 per unit. Fixed costs are Rs.
81,000 per month & the product has a contribution to sales ratio of 37.5%. In a period
when actual sales were Rs. 684,000 the company's unit margin of safety was:

► 4,000 units

► 4,800 units

► 5,500 units

► 6,500 units

Solution
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Sales Rs = Fixed Cost / Sales Ratio = RS81,000 / 0.375 = Rs216,000

Margin of Safety (MOS): = Actual Sales - Sales = Rs684000 - Rs216000 = Rs468000
For per unit 468000/1000=468
In units M O S = Rs468/Rs72 = 6,500 units

entities purchase and then sell tangible products without changing basic form of
product.
►Trading entities
►Manufacturing entities
►Servicing entities
►None of the given options

Reference:
(page #16)

Which of the following is an example of job order costing?

►Beverage manufactures
►Printing industry
►Ball point manufactures
►Software house

Reference:
(page125)

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Which of the following System applies when standardized goods are produced
under a series of inter-connected operations?
A. Job Order Costing
B. Process Costing
C. Standard Costing
D. All of the given options

Reference:

(page # 132)

Which of the following is not function of cash budget?

►Determining the future cash needs of the firm
►Planning for financing
►Exercising control over cash and liquidity of the firm
►None of the given options

--Reverence:

(page 212)

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