Costing MCQs

1. Revenue minus all direct costing of making the goods or supplying the
services is known as?
(a) Gross profit

(b) Cost of sales

(c) Expenses

(d) Net profit

2. During costing process, to arrive at the gross profit o f a trading business,
which one of the following formula is applied?
(a) Sales - (Opening Stock - Purchases - Closing Stock)

(b) Sales - (Opening Stock + Purchases + Closing Stock)

(c) Sales - (Opening Stock + Purchases - Closing Stock)

(d) Sales - (Opening Stock - Purchases + Closing Stock)

3. Direct expenses are?
(a) Carriage inward

(b) Carriage outward

(c) Carriage outward

(d) Both a & c

4. Net Purchases equal the invoice amount and?
(a) Plus freight-in, plus discounts

(b) Less purchase returns, plus purchase allowances

(c) Plus freight-in, less purchase discounts

(d) Plus discounts, less purchase returns

5. Cost of Goods sold is classified as which type of account?
(a) Asset
(b) Liability

(c) Revenue

(d) Expense
6. Consider the following information for costing purpose?

(a) Rs. 10,000

(b) Rs. 15,000

(c) Rs. 5,000

(d) Rs. 25,000

7. Which of the following would not be considered a component of 'cost' of
Goods Sold?
(a) Sales force Salaries

(b) Transportation for purchase

(c) Import duties or raw material

(d) Factory electricity expense

8. Which of the following is used to determine the cost of goods sold?
(a) Beginning inventory + Purchases

(b) Beginning inventory + Purchases – Sales

(c) Beginning inventory + Net Purchases + Direct expenses – Ending inventory

(d) Ending inventory + Purchases – Beginning inventory
9. Which of the following would not be considered as a component of 'cost' of
stock?
(a) Salaries of selling staff

(b) Transportation inward costs

(c) Import duties

(d) Purchase price

10. As a costing team member, calculate the gross profit if; Sales Rs. 6000;
cost of sales Rs. 5,000; opening stock Rs. 1,000; purchases Rs. 4,000;
wages Rs. 2,000 and office rent Rs. 1,000?
(a) Loss Rs. 2,500

(b) Loss Rs. 1,500

(c) Profit Rs. 2,500

(d) Profit Rs. 1,000

11. Selling expenses are shown in which of the following statement?

(a) Cost of goods sold

(b) Profit and loss account

(c) Manufacturing account

(d) Profit and loss appropriation account

12. Which one of the following could not be used to describe a summary of a
company's assets, liabilities and capital at a specific date?
(a) Profit and loss account

(b) Balance sheet

(c) Position statement

(d) Statement of financial condition
13. All Indirect factory cost is record under costing head?
(a) Prime cost

(b) FOH cost

(c) Direct labor cost

(d) None of the given options

14. If business purchases goods for resale purposes, such purchases are
charged to?
(a) Expenses account

(b) Sales account

(c) Purchases account

(d) None of the given options

15. Costing information can be used for?
(a) Budget control and evaluation

(b) Determining standard costs and variances

(c) Pricing and inventory valuation decisions

(d) All of these

16. Which one of the following types of costs is most likely to be included in
determining the cost of inventory?
(a) Freight-in

(b) Interest cost for amounts borrowed to finance the purchase of inventory

(c) Freight-out

(d) Marketing costs

17. Which of the following equation is correct and used in costing?
(a) Opening stock + purchases + closing stock = Cost of goods sold
(b) Cost of goods sold – closing stock – purchases = Opening stock

(c) Cost of goods sold + closing stock – opening stock = Purchases

(d) Opening stock + cost of goods sold – purchases = Closing stock

18. The Synonyms of financial statements are?
(a) Financial analysis

(b) Financial reports

(c) Financial statistics

(d) Financial management

19. Profit is the difference between?
(a) Assets and liabilities

(b) Assets and equities

(c) The assets purchased with cash contributed by the owner and the cash spent to
operate the business

(d) The assets received for goods and services and the amounts used to provide the
goods and services
20. Following are the inventories of Manufacturing Concern except?
(a) Fuel and Power

(b) Work in process

(c) Finished goods

(d) Raw material

1. Net sales = Sales less?

(a) Sales returns

(b) Sales discounts

(c) Sales returns & allowances

(d) Sales returns & allowances and sales discounts

2. If the Gross profit is Rs. 5,000 and the net profit is 25% of the Gr oss
profit. The expenses?
(a) Rs. 3,750

(b) Rs. 1,250

(c) Rs. 4,150

(d) Rs. 6,250

3. Cost of Goods sold is classified as which type of account?
(a) Asset

(b) Liability

(c) Revenue

(d) Expense
4. Conversion cost = Direct labor +___________?
(a) Labor

(b) F.O.H

(c) Material

(d) None of these

5. Which one of the following assets could be described as a current asset?
(a) Stock of goods for resale

(b) Machinery to manufacture goods for resale

(c) Buildings to house the machinery

(d) Land on which the buildings stand

6. The largest expense of most manufacturing firms is?
(a) Salaries Expense

(b) Amortization Expense

(c) Rent Expense

(d) Cost of goods sold

7. The specific cost of the workforce used to produce a product such cost is
called?
(a) Direct labor cost

(b) Direct material cost

(c) Other than production cost

(d) None
8. Which of the following product costs is both a prime cost and conversion
cost?
(a) Direct labor

(b) Manufacturing overhead

(c) Indirect material

(d) All of the above

9. Which of the following is NOT included under the head of FOH cost?
(a) Indirect Material

(b) Indirect Labor

(c) Indirect Expense

(d) Direct labor

10. A firm had beginning finished goods inventory of Rs. 15,000, ending
finished goods inventory of Rs. 20,000 and cost of goods sold of Rs. 80,000.
What was the cost of goods manufactured?
(a) Rs. 80,000
(b) Rs. 85,000

(c) Rs. 75,000

(d) Rs. 65,000

11. Direct Labor is an element of?

(a) Prime cost

(b) Conversion cost

(c) Total production cost

(d) All of the given options

12. Total Manufacturing costs are also known as product costs. Which of the
following best describes those costs which are considered to be
manufacturing costs?
(a) Direct materials, direct labor, and factory overhead

(b) Direct materials and direct labor only

(c) Direct materials, direct labor, factory overhead, and administrative overhead

(d) Direct labor and factory overhead

13. On a multiple-step income statement, the excess of net sales over the
cost of merchandise sold is called?
(a) Cost of Goods Sold

(b) Operating income

(c) Net income

(d) Gross profit

14. Which of the following cost is used in the calculation of cost per unit?
(a) Total production cost

(b) Cost of goods available for sales

(c) Cost of goods manufactured

(d) Cost of goods Sold

15. Direct expenses are such expenses?
(a) Which are directly paid to the employee

(b) Which are directly associated with the purchase

(c) Which are directly associated with the sale

(d) All of above

16. Factory overhead includes all manufacturing costs except direct material
and direct labor. Which of the following items would not be considered to be
a factory overhead cost?
(a) Repainting the corporate office building

(b) Indirect labor

(c) Repair and maintenance expenditures on multiple factory machinery

(d) Small expenditures pertaining to items like rags, screws, etc., used in the production
process
17. Which of the following is correct?
(a) Units sold= Opening finished goods units + Units produced – Closing finished goods
units

(b) Units Sold = Units produced + Closing finished goods units - Opening finished goods
units

(c) Units sold = Sales + Average units of finished goods inventory

(d) Units sold = Sales - Average units of finished goods inventory

18. Direct expenses are such expenses?
(a) Which are directly paid to employee

(b) Which are directly associated with sale

(c) Which are directly associated with purchase

(d) None of above

19. Wages paid to laborers working in the manufacturing d epartment is
treated as an expense of?
(a) Cost of goods sold

(b) Administrative expenses

(c) Selling expenses

(d) Marketing expenses

20. Which of the following expressions is incorrect?
(a) Gross profit – operating expenses = operating income

(b) Sales – cost of goods sold – operating expenses = operating income

(c) Operating income + operating expenses = gross profit

(d) Operating expenses – cost of goods sold = gross profit

1. What does FIFO mean?
(a) Finished stock In Finished stock out

(b) Fabrications Inward Fabrications Outward

(c) Final Input Final Output

(d) First In First Out

2. Regardless of how long it takes to produce and sell inventory, inventory is
always considered to be a?
(a) Current asset

(b) Current liability

(c) Long-term asset

(d) Stockholder's equity

3. The latest cost of inventories is changed to production but the old prices
are changed to inventories on hand?
(a) Average

(b) LIFO

(c) FIFO

(d) Perpetual
4. An increase in inventories indicates that?
(a) More merchandise was purchased then the amount sold to customer

(b) Less merchandise was purchased then sold to the customer

(c) Not all purchases were cash

(d) Cash payments were more than purchases on account

5. Which type of inventory system is updated inventory system?
(a) Periodic inventory system

(b) Contingency inventory system

(c) LIFO

(d) Perpetual inventory system

6. What is the principal criterion used to distinguish between tangible assets
and inventories?
(a) The physical substance of the asset

(b) The acquisition cost of the asset

(c) The nature of the company’s activity, which determines the purpose for which the
asset is held

(d) The moment in the accounting period when the asset is acquired
7. Which of the following method is suitable for calculating the cost of
inventory when actual costs of individual units of merchandise can be
determined from the accounting records?
(a) FIFO Method

(b) LIFO Method

(c) Specific Identification Method

(d) Average Method

8. The inventories are recorded at the latest price but the production cost is
changed old cost price?
(a) FIFO

(b) Average

(c) Both A & B

(d) None
9. Which one of the following methods for inventory valuation may be
misleading when the units are identical?
(a) FIFO Method

(b) LIFO Method

(c) Specific Identification Method

(d) None
10. During September, Khan had sales of 148,000, which made a gross profit
of 40,000. Purchases amounted to 100,000 and opening inventory was
34,000. The value of closing inventory was?
(a) Rs. 24,000

(b) Rs. 26,000

(c) Rs. 42,000

(d) Rs. 54,000

11. W hich type of inventory system requires updating the inventory balance
at the end of the accounting period?
(a) Periodic inventory system

(b) LIFO

(c) Perpetual inventory system

(d) FIFO
12. In LIFO method of inventory valuation?
(a) Issue of stocks to production is at latest price

(b) Closing stock is at latest price

(c) Both (a) & (b)

(d) Neither (a) nor (b)

13. The inventory method that will always produce the same amount for cost
of goods sold in a periodic inventory system as in a perpetual inventory
system would be?
(a) FIFO

(b) LIFO

(c) Weighted average

(d) None of these

14. Inventory does not include?
(a) Materials used in the production of goods to be sold

(b) Assets intended to be sold in the normal course of business

(c) Equipment used in the manufacturing are sold

(d) Assets currently in production for normal sales

15. Net Purchases equal the invoice amount and?
(a) Plus freight-in, plus discounts
(b) Less purchase returns, plus purchase allowances

(c) Plus freight-in, less purchase discounts

(d) Plus discounts, less purchase returns

16. In FIFO method of inventory valuation?
(a) Closing stock is at latest price

(b) Issue of stocks to production is at earliest price

(c) Both (a) & (b)

(d) Neither (a) nor (b)

17. The average inventory costing method which results in a changed unit
inventory cost after each successive purchase?
(a) Weighted average

(b) Moving average

(c) Specific cost

(d) Simple average

18. The specific cost identification inventory cos t flow method has all of the
following characteristics except?
(a) It identifies the cost of each physical item available for sale with either the ending
inventory or cost of goods sold

(b) It relates cost flow to the specific flow of physical goods

(c) It is especially applicable when small and inexpensive items are handled in large
quantities

(d) It requires individual identification of items some device like tags or serial numbers
19. Sales revenues are usually considered earned when?
(a) Cash is received from credit sales

(b) An order is received

(c) Goods have been transferred from the seller to the buyer

(d) Adjusting entries are made

20. A retail firm would normally use an inventory account titled?
(a) Finished Goods Inventory

(b) Merchandise Inventory

(c) Goods in Process Inventory

(d) Raw Materials Inventory

1. According to Taylor’s Differential plan, the worker is paid according to his?

(a) Degree of efficiency

(b) Degree of understanding

(c) Degree of flexibility

(d) Degree of loyalty

2. Under the Halsey 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

3. Standard output is 100 units per day of 8 hours and the piece rates are 20
paise per unit, under Taylor’s differential piece rate system, what will be
amount of wages if a worker produces 95 units in a day?
(a) Rs.14.00

(b) Rs.14.25

(c) Rs.15.20

(d) Rs.19.00
4. Comparing Rowan and Halsey Premium plans, it is seen that when the
time saved?
(a) Rowan plan allows more wages to a worker than Halsey plan

(b) Rowan plan allows fewer wages to a worker than Halsey plan

(c) Rowan and Halsey plan allow equal wages to a worker

(d) None of above

5. When standard output is 10 units per hour and actual output is 12 units
per hour, the efficiency is?
(a) 80%

(b) 100%

(c) 110%

(d) 120%
6. Given that for a job standard time is 8 hours, actual time taken is 6 hours
and the time rate is Rs.2 per hour. What is the total wages, under Halsey
Premium Plan?
(a) Rs.18

(b) Rs.16

(c) Rs.14

(d) Rs.12
7. In which of the following incentive plans of wage payment, wage on time
basis are not guaranteed?
(a) Halsey plan

(b) Rowan plan

(c) Taylor’s differential piece rate system

(d) Halsey wire Plan

8. Which of the following methods of wage payment is most suitable where
quality and accuracy of work is of primary importance?
(a) Rowan plan

(b) Time rate system

(c) Differential piece work system

(d) Halsey premium system

9. Which of the following is / are time base d incentive wage plan?
(a) Halsey Premium Plan

(b) Halsey Weir Premium Plan

(c) Rowan Premium Plan

(d) All of the given options

10. A worker is paid Rs. 0.50 per unit and he produces 18 units in 7 hours.
Keeping in view the straight -piece rate system, the total wages of the worker
would be?
(a) 18 x 7 x 0.50 = Rs. 63

(b) 18 x 0.50 = Rs. 9

(c) 18 x 7 = Rs. 126

(d) 7 x 0.5 = Rs. 3.5

1. Which of the following would be classified as direct material for a furniture
manufacturer?
(a) Wood

(b) Glue

(c) Screws

(d) Wood cleaner

2. Which of the following is not classified as a factory overhead cost?
(a) Electricity to run factory machines

(b) Insurance to protect the factory contents

(c) Security guards that protect the factory building

(d) Advertising cost to promote the finished goods

3. The process of assigning share of indirect costs to cost centers is called?
(a) Apportionment

(b) Variable costing

(c) Cost allocation

(d) Joint costing

4. Where there is mass production of homogeneous units or where few
products are produced in batches, which of the following cost driver would be
regarded as best base for the determination of Factory overhead absorption
rate?
(a) Number of units produced

(b) Labor hours

(c) Prime cost

(d) Machine hours

5. It is possible for an item of overhead expenses to be shared amongst
many departments. It is also possible that this same item may relate to just
one specific department. If the item was charged specifically to a single
department this would be an example of?
(a) Apportionment

(b) Allocation

(c) Re-apportionment

(d) Absorption rate

6. The predetermined overhead rate is calculated as?
(a) Budgeted total manufacturing overhead divided by budgeted activity level of
application base
(b) Budgeted total manufacturing overhead divided by actual activity level of application
base

(c) Actual total manufacturing overhead divided by budgeted activity level of application
base

(d) Actual total manufacturing overhead divided by actual activity level of application
base
7. Which of the following items would not be classified as direct material for
an automobile manufacturer?
(a) Steel

(b) Paint

(c) Tires

(d) Screws
8. The cost objective is the?
(a) Reason for allocating the cost

(b) Calculation based on budgeted amounts

(c) Product, service, or department that is to receive the allocation

(d) Maximum amount to be allocated to any single department

9. When too much overhead cost is charged to products as they are made,
the result is?
(a) Overapplied overhead

(b) Underapplied overhead

(c) Understatement of Cost of Goods Sold

(d) Inventory cost is too low

10. Absorption costing is closely related to which of the following cost
elements?
(a) Total costs
(b) Overheads

(c) Prime costs

(d) Direct labor

1. 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

2. Factory overhead should be allocated on the basis of?
(a) Direct labor hours

(b) Direct labor costs

(c) An activity basis which relates to cost incurrence

(d) Machine hours

3. The cost of material that is not completely processed, would be found in
which of the following inventory account on the Balance Sheet?
(a) Direct material inventory

(b) Work-in-process inventory

(c) Finished goods inventory

(d) Supplies inventory

4. In a process costing system, the journal entry to record the transfer of
goods from Department #2 to Finished Goods Inventory is a?
(a) Debit Work in Process Inventory #2, credit Finished Goods Inventory

(b) Debit Finished Goods Inventory, credit Work in Process Inventory #1

(c) Debit Finished Goods Inventory, credit Work in Process Inventory #2

(d) Debit Cost of Goods Sold, credit Work in Process Inventory #2

5. The statement prepared under process costing is called?
(a) Cost of goods sold statement

(b) Income statement

(c) Cost of production report

(d) Variance statement

6. The first step in preparing the production cost report is to?
(a) Account for the number of physical units

(b) calculate the cost per equivalent unit

(c) Assign costs to the items completed and items in ending Work in Process inventory

(d) Account for the amount of product cost

7. A Company had no beginning work in process. During the period, 5,000
units were completed, and there were 500 units of ending work in process.
How many units were started in production?
(a) 5,500

(b) 5,000

(c) 4,500

(d) 500
8. Which cost accumulation procedure is be st suited to a continuous mass
production process of similar units?
(a) Job order costing

(b) Standard costing

(c) Actual costing

(d) Process costing

9. W hich of the following accounts is similar to the Inventory account of a
merchandising company?
(a) Raw Materials Inventory

(b) Work in Process Inventory

(c) Finished Goods Inventory

(d) Manufacturing Overhead

10. Finished Goods Inventory decreases by the?
(a) Cost of goods manufactured

(b) Overhead applied

(c) Cost of selling the product

(d) Cost of goods sold

11. A process costing system is used by a company that?
(a) Produces heterogeneous products

(b) Produces items by special request of customers

(c) Produces homogeneous products

(d) Accumulates costs by job

12. Which of the following is a characteristi c of process cost accounting
system?
(a) Material, Labor and Overheads are accumulated by orders

(b) Companies use this system if they process custom orders

(c) Only Closing stock of work in process is restated in terms of completed units

(d) Opening and Closing stock of work in process are related in terms of completed
units
13. A cost incurred in one processing department that is transferred to the
next processing department is called a?
(a) Transferred-in cost
(b) Split cost

(c) Carry-over cost

(d) Conversion cost

14. If the beginning balance in the Raw Materials Inventory account for the
month was Rs. 25,000, the ending balance of Rs. 22,000 and material used
during the month was Rs. 130,000, what is the amount of materials
purchased during the month?
(a) Rs. 177,000

(b) Rs. 130,000

(c) Rs. 127,000

(d) Rs. 133,000

15. Which of the following companies is most likely to use a process costing
system?
(a) A law office

(b) A custom home builder

(c) A car repair business

(d) A food manufacturer

16. If the beginning balance in Raw Materials Inventory is Rs. 5,000, the
ending balance is Rs. 3,500, and Rs. 60,000 was purchased, what is the
amount of materials transferred to Work in Process Inventory during the
period?
(a) Rs. 58,500

(b) Rs. 60,000

(c) Rs. 61,500

(d) Rs. 68,500

17. The Blending Department began the period with 20,000 units. During the
period the department received another 80,000 units from the prior
department and at the end of the period 30,000 units remained which were
40% complete. How much are equivalent units in The Blending Department’s
work in process inventory at the end of the period?
(a) 12,000

(b) 28,000

(c) 40,000

(d) 52,000
18. A process costing system?
(a) Cannot use standard costs

(b) Restates Work in Process Inventory in terms of completed units

(c) Accumulates costs by job rather than by department

(d) Assigns direct labor and manufacturing overhead costs separately to units of
production
19. In a process costing system, when items are sold, the cost of the items is
moved from?
(a) Work in Process to Finished Goods

(b) Work in Process to Cost of Goods Sold

(c) Cost of Goods Sold to Finished Goods

(d) Finished Goods to Cost of Goods Sold

20. When partially completed units are converted to a comparable number of
completed units, they are referred to as?
(a) Converted units

(b) Split-off units

(c) Equivalent units

(d) Equitable units