Tag: meaning, elements and classification of cost

Questions Related to meaning, elements and classification of cost

An input of 5,000 kg of material introduced into the process and the expected loss is 8% and if the actual output from the process is 4,300, the abnormal loss is __________ kg.

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. 400

  2. 300

  3. 500

  4. 600

Show answer
Correct Option: B
Explanation:

In every production activity, a predetermined % is considered as normal loss. If the actual loss is more than the predetermined loss, difference is considered as abnormal loss. 


Input                                             5000 Kg

Actual output should be             4300 Kg
Total Loss during production        700 Kg
Normal Loss @8% on 5000 Kg     400 Kg
Abnormal Loss                               300 Kg

Out of the overheads given, the following is an example of distribution overheads.

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Advertisement expenses

  2. Packing expenses

  3. Commission of selling agents

  4. None

Show answer
Correct Option: B
Explanation:

Packing material is the cost of material which is incurred to bring the product in salable condition. 

Its an overhead and to be classified as selling and distribution overheads. 

EOQ is the quantity that minimizes ________________.

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Total Ordering Cost

  2. Total Inventory Cost

  3. Total interest Cost

  4. Safety Stock Level

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Correct Option: A
Explanation:

Economic order quantity is the ordering quantity a firm should add to the inventory with each order to minimize the cost of total inventory such as inventory holding cost, ordering cost and shortage cost.

Ordering cost are the cost of creating and processing an order.

In considering a special order situation that will enable a company to make use of currently idle capacity, which of the following cost will be irrelevant?

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Materials

  2. Depreciation

  3. Direct labour

  4. Variable factory overhead

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Correct Option: A

Recorder quantity is ___________________.

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Quantity of material to be ordered

  2. Quantity level at which reorder is to be made

  3. Quantity which is to be ordered for second time

  4. None of the above

Show answer
Correct Option: B
Explanation:

Inventory level of an item which signals the need for placement of a replenishment order, taking into account the consumption of the item during order lead time and the quantity required for the safety stock. 

Also called reorder level, reorder quantity, or replenishment order quantity.

Factory overhead application rates best reflect anticipated fluctuations in sales over several year when rates are computed using figures based on

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Maximum capacity

  2. Normal capacity

  3. Practical capacity

  4. Expected capacity

Show answer
Correct Option: D

ABC Analysis is useful for analyzing the inventories based on __________.

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Their quality

  2. Their usage and value

  3. On physical volume

  4. All of the above

Show answer
Correct Option: B
Explanation:

ABC analysis is a technique of inventory management. In this method, inventory is categorized in to A, B and C class depending on their importance. 

A category includes those inventory which are very important to the organization and consist of 70-80% of inventory value but only 10-20 % of the quantity. 
B category includes those inventory which are of moderate importance to the organization and consist of 20-30% of inventory value but only 20-30 % of the quantity. 
C category includes those inventory which are of lesser importance to the organization and consist of only 10-20% of inventory value but records 70-80 % of the quantity. 

A company sells goods on credit valued at Rs 25000 to a customer. At what point in the sales cycle should this sale be recognized in the accounts?

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. When the customer's order is received.

  2. When the goods are ready for dispatch to the customer.

  3. When the goods are sent, accepted and invoiced.

  4. When the customer pays.

Show answer
Correct Option: C
Explanation:

Sales is completed only when the legal title of the goods passed to the buyer. 

In such case, goods sent and accepted by the buyer along with the invoice is considered as point of sale. 

_________ cost refers to the cost which have already been incurred and cannot be altered by any decision in the future.

commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. Opportunity cost

  2. Sunk cost

  3. Incremental cost

  4. Decremental cost

Show answer
Correct Option: B
Explanation:

The sunk cost is that cost which has already been incurred and can not be recovered. Sunk cost is considered irrelevant in future decision making as this has already been incurred. 

Sundry overhead expenses may be apportioned in the ratio of ___________.

book keeping and accountancy cost accounting: an introduction fundamental concepts of cost meaning, elements and classification of cost methods of costing

  1. Material consumed

  2. Number of employees

  3. Labour hours

  4. Machine hours

Show answer
Correct Option: C
Explanation:

Sundry overhead expenses may be apportioned in the ratio of labour hours. Sundry expenses are expenses that are small in amount and rare in occurrence. For these rare and insignificant expenses, a company might use a general ledger account entitled Sundry Expenses for these items.