Cost-Accounting-Test-Set-5
1. Which of the following is considered a fixed cost?
A) Raw materials
B) Direct labor
C) Factory rent
D) Sales commission
Answer: C) Factory rent
Explanation: Fixed costs remain constant regardless of production levels. Factory rent does not change with the quantity produced, making it a fixed cost.
2. Prime cost includes which of the following?
A) Direct materials + Direct labor + Factory overhead
B) Direct materials + Direct labor
C) Direct labor + Indirect labor
D) Direct materials + Factory overhead
Answer: B) Direct materials + Direct labor
Explanation: Prime cost is the total of direct materials and direct labor, which are directly attributable to the production of goods.
3. In cost accounting, overheads are classified into which of the following types?
A) Variable, Fixed, and Mixed
B) Prime, Conversion, and Variable
C) Direct, Indirect, and Prime
D) Direct, Mixed, and Marginal
Answer: A) Variable, Fixed, and Mixed
Explanation: Overheads can be classified based on behavior as variable, fixed, and mixed, depending on how they respond to changes in production levels.
4. Which of the following costing methods is most suitable for an automobile manufacturer?
A) Job costing
B) Batch costing
C) Process costing
D) Marginal costing
Answer: C) Process costing
Explanation: Process costing is ideal for industries with continuous, mass production, such as automobile manufacturing, where costs are averaged over many units.
5. Marginal cost can best be defined as:
A) The total cost of producing all units.
B) The additional cost of producing one more unit.
C) The cost of the most expensive raw material.
D) The cost of labor only.
Answer: B) The additional cost of producing one more unit.
Explanation: Marginal cost refers to the cost of producing one additional unit of a product.
6. In activity-based costing (ABC), cost drivers are:
A) Factors that increase total production cost.
B) Activities that cause costs to increase.
C) A measure of the resources consumed by an activity.
D) The direct cost of production.
Answer: B) Activities that cause costs to increase.
Explanation: In ABC, cost drivers are activities that lead to costs being incurred. They help allocate overhead costs to specific activities.
7. Break-even point is the level of output at which:
A) Total cost equals total sales revenue.
B) Total variable costs are minimized.
C) Profit is maximized.
D) Fixed costs are fully absorbed.
Answer: A) Total cost equals total sales revenue.
Explanation: At the break-even point, a company’s total costs equal its total revenue, resulting in zero profit or loss.
8. Which of the following is not a part of conversion costs?
A) Direct materials
B) Direct labor
C) Factory overhead
D) Indirect labor
Answer: A) Direct materials
Explanation: Conversion costs are the costs needed to convert raw materials into finished products, including direct labor and factory overhead but excluding direct materials.
9. In cost accounting, the term “variance analysis” refers to:
A) The difference between planned and actual results.
B) Adjustments made for inflation.
C) Comparison between companies in the same industry.
D) Changes in market prices of raw materials.
Answer: A) The difference between planned and actual results.
Explanation: Variance analysis is used to measure the difference between budgeted (planned) and actual performance to help manage costs and improve performance.
10. A standard cost is:
A) The cost that is likely to change frequently.
B) The average cost of production.
C) A predetermined cost for production activities.
D) The highest cost incurred during production.
Answer: C) A predetermined cost for production activities.
Explanation: Standard cost is a predetermined estimate of what each product or service should cost based on expected efficiency and cost levels.
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