All Free Accounting MCQs with Answers

• A. Wood used in a specific table
• B. Varnish used across many products
• C. Wages paid to a cabinet maker
• D. Commission paid to a sales agent

Explanation: Varnish used across several products cannot usually be traced economically to one unit, so it is treated as indirect material.

• A. The original cost of an old machine
• B. An unavoidable factory rent
• C. A future cost that changes between alternatives
• D. Depreciation already recorded in the books

Explanation: A relevant cost is a future cost that differs between the available alternatives.

• A. A cost that varies with output
• B. A cost already incurred and not recoverable
• C. A cost avoided by cancelling an order
• D. A cost expected to arise in the future

Explanation: A sunk cost has already been incurred and cannot be changed by a current decision.

• A. The historical cost of the factory
• B. The additional cost caused by the order
• C. The allocated head-office rent
• D. The book value of existing equipment

Explanation: With spare capacity, the decision should focus on the incremental costs and revenues created by the order.

• A. A refinery producing identical output continuously
• B. A bakery producing groups of identical cakes
• C. A hospital providing patient-specific services
• D. A construction firm building a unique bridge

Explanation: Batch costing accumulates costs for a group of similar units produced together, such as a batch of cakes.

• A. Measure completed output only
• B. Convert partly completed work into completed-unit terms
• C. Separate selling expenses from factory costs
• D. Calculate the selling price of each customer order

Explanation: Equivalent units express partially completed production as an equivalent number of fully completed units.

• A. Actual price is higher than standard price
• B. Actual quantity exceeds standard quantity
• C. Actual price is lower than standard price
• D. Standard quantity is lower than actual quantity

Explanation: A favourable material price variance occurs when the actual purchase price is below the standard price for the actual quantity bought.

• A. A single plant-wide percentage
• B. The activities that cause overhead costs
• C. The selling price of finished goods
• D. The age of production equipment

Explanation: Activity-based costing identifies cost activities and assigns overhead using cost drivers that cause those activities.

• A. Controllable cost
• B. Sunk cost
• C. Committed cost
• D. Discretionary revenue

Explanation: A controllable cost is one that a particular manager can influence during the relevant period.

• A. Rs. 15
• B. Rs. 20
• C. Rs. 24
• D. Rs. 30

Explanation: Variable cost per unit equals total variable cost divided by units produced: Rs. 240,000 divided by 12,000 equals Rs. 20.

• A. Fixed manufacturing overhead
• B. Selling commission on sales
• C. Office rent for administration
• D. Interest on business loans

Explanation: Absorption costing assigns both variable and fixed manufacturing costs to products.

• A. Factory rent that never changes
• B. Direct material cost per unit
• C. Electricity with a fixed charge and usage charge
• D. Annual insurance paid in advance

Explanation: A semi-variable cost contains both a fixed component and a variable component.

• A. To calculate the selling price of every product
• B. To collect and control costs for a specific location or function
• C. To record only the cash paid to suppliers
• D. To determine the dividend payable to shareholders

Explanation: A cost centre is a department, location or function for which costs are collected and monitored.

• A. It is charged entirely to the abnormal loss account
• B. It is absorbed by the good units produced
• C. It is transferred directly to the sales account
• D. It is ignored in calculating the process cost

Explanation: Normal loss is expected under efficient operating conditions, so its cost is usually borne by the units that successfully emerge from the…

• A. The total cost incurred in a previous accounting period
• B. The change in total cost caused by choosing one alternative over another
• C. The average cost assigned to each unit of output
• D. The fixed cost that remains after production stops

Explanation: Differential cost is the difference in total cost between two possible courses of action.

• A. Fixed cost divided by sales
• B. Contribution divided by operating profit
• C. Operating profit divided by variable cost
• D. Sales divided by total assets

Explanation: The degree of operating leverage is calculated as contribution divided by operating profit.

• A. Prime cost plus factory overhead
• B. Factory overhead plus selling expenses
• C. Administrative cost plus financial charges
• D. Sales revenue minus operating profit

Explanation: Works cost, also called factory cost, is obtained by adding factory or production overhead to prime cost.

• A. Passenger-kilometre
• B. Machine-hour
• C. Tonne of raw material
• D. Job completed

Explanation: Passenger-kilometre measures one passenger carried through one kilometre and is commonly used in passenger transport costing.

• A. Raw materials are first purchased
• B. Joint products become separately identifiable
• C. All selling expenses are paid
• D. The final product is delivered to customers

Explanation: The split-off point is where joint products can first be identified as separate products.

• A. Committed fixed cost
• B. Discretionary fixed cost
• C. Sunk fixed cost
• D. Unavoidable fixed cost

Explanation: Discretionary fixed costs arise from current management decisions, such as advertising or staff training budgets, and may be adjusted more…