Free Cost Accounting MCQs with Answers

• A. Factory rent for the production building
• B. Salary of the production supervisor
• C. Wood used in making a specific table
• D. Electricity used by the entire factory

Explanation: Wood can be traced directly and economically to the table being produced, so it is a direct material cost.

• A. Total cost remains unchanged per unit
• B. Total cost remains unchanged in total
• C. Total cost increases in direct proportion
• D. Total cost decreases when output increases

Explanation: A fixed cost remains constant in total over a relevant activity range, although its cost per unit falls as output rises.

• A. Producing identical cement continuously
• B. Refining petroleum through several stages
• C. Printing customized wedding invitations
• D. Generating electricity for a national grid

Explanation: Job costing accumulates costs for a separately identifiable and often customized job.

• A. Unique buildings under separate contracts
• B. Customized machines for individual customers
• C. Identical units through continuous operations
• D. Consulting assignments with separate budgets

Explanation: Process costing collects costs by department or process and averages them over large quantities of similar units.

• A. 4,000 units
• B. 6,000 units
• C. 8,000 units
• D. 10,000 units

Explanation: Contribution per unit is Rs. 50 minus Rs. 30, or Rs. 20. Break-even output is Rs. 120,000 divided by Rs. 20, which equals 6,000 units.

• A. 30.00 percent
• B. 37.50 percent
• C. 50.00 percent
• D. 62.50 percent

Explanation: Contribution per unit is Rs. 30, calculated as Rs. 80 minus Rs. 50. The contribution margin ratio is Rs. 30 divided by Rs.

• A. Rs. 15 per hour
• B. Rs. 20 per hour
• C. Rs. 30 per hour
• D. Rs. 50 per hour

Explanation: The predetermined overhead rate is estimated overhead divided by estimated activity. Rs.

• A. The managing director's office rent
• B. Advertising expense for the finished product
• C. Direct materials consumed in production
• D. Interest paid on a bank loan

Explanation: Direct materials are a manufacturing cost and become part of product cost until the goods are sold.

• A. Direct material cost
• B. Direct labour cost
• C. Variable production overhead
• D. Fixed production overhead

Explanation: Marginal costing values inventory using variable production costs and treats fixed production overhead as a period cost.

• A. Rs. 270,000
• B. Rs. 300,000
• C. Rs. 360,000
• D. Rs. 450,000

Explanation: Break-even sales revenue equals fixed costs divided by the contribution margin ratio. Rs. 90,000 divided by 0.30 equals Rs.

• A. Direct materials, direct labour and direct expenses
• B. Direct materials, factory rent and office salaries
• C. Direct labour, selling expenses and administration costs
• D. Factory overhead, selling costs and direct expenses

Explanation: Prime cost consists of all directly traceable production costs: direct materials, direct labour and direct expenses.

• A. Direct materials plus direct labour
• B. Direct labour plus manufacturing overhead
• C. Prime cost plus selling expenses
• D. Manufacturing overhead plus office expenses

Explanation: Conversion cost is the cost of converting raw materials into finished goods, so it includes direct labour and manufacturing overhead.

• A. Direct materials used in production
• B. Wages of assembly-line workers
• C. Depreciation of factory machinery
• D. Salary of the sales manager

Explanation: The sales manager's salary is a selling expense incurred for a period and is therefore a period cost.

• A. Total cost stays constant as output changes
• B. Unit cost increases as output increases
• C. Total cost changes in proportion to activity
• D. Total cost changes only after capacity expands

Explanation: A variable cost changes in total in proportion to the level of activity within the relevant range.

• A. Rs. 150,000
• B. Rs. 350,000
• C. Rs. 500,000
• D. Rs. 850,000

Explanation: Margin of safety equals actual sales minus break-even sales. Therefore, it is Rs. 500,000 minus Rs. 350,000, or Rs. 150,000.

• A. 1,200 units
• B. 2,000 units
• C. 3,000 units
• D. 4,000 units

Explanation: The contribution per unit is Rs. 40. Required units equal fixed costs plus target profit divided by contribution per unit, or Rs.

• A. A past cost that cannot be recovered
• B. A benefit sacrificed by choosing one alternative
• C. A cost recorded in the financial ledger
• D. A fixed cost allocated to a department

Explanation: Opportunity cost is the benefit forgone when one alternative is selected instead of the next best alternative.

• A. Rs. 10,000 over-absorption
• B. Rs. 10,000 under-absorption
• C. Rs. 200,000 under-absorption
• D. Rs. 210,000 over-absorption

Explanation: Overhead is under-absorbed when the amount applied to production is less than the actual overhead incurred. The difference is Rs.

• A. Number of sales invoices
• B. Machine hours used
• C. Number of employees in the office
• D. Units of finished goods sold

Explanation: Machine hours provide a logical basis when overhead is mainly caused by the use of machinery.

• A. Contribution per unit of the limiting factor
• B. Fixed cost per unit of the product
• C. Selling price per unit only
• D. Total overhead per department

Explanation: A limiting factor restricts the level of activity, so products should be compared by contribution earned per unit of that scarce resource.