Tag: methods of costing

Questions Related to methods of costing

Period cost means

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

  1. Fixed cost

  2. Variable cost

  3. Prime cost

  4. Average cost

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Correct Option: A
Explanation:

A period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A period cost is more closely associated with the passage of time than with a transactional event.

Examples of period costs are general and administrative expenses, such as rent, office depreciation, office supplies, and utilities.

The type of costing which is most suitable for cost control purpose is

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

  1. Post costing

  2. Marginal costing

  3. Continuous costing

  4. Standard costing

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Correct Option: D
Explanation:

In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance. A standard costing system involves estimating the required costs of a production process.

All costs are controllable in the __________ .

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

  1. Short run

  2. Long run

  3. Medium run

  4. Very short run

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Correct Option: B
Explanation:

All costs are controllable in long run. In long run all costs are controllable because of the time period. Controllable costs are those cost which can be controlled if taken care of. 

The type of standard that is best suited from cost control point of view is

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

  1. Expected standard

  2. Normal standard

  3. Basic standard

  4. Ideal standard

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Correct Option: A
Explanation:

Expected or attainable Standards: This standard is a compromise between extremes of normal standard & extremes of idle standard. The main features of these standards are:  (a) for the purpose of providing for operating inefficiencies which are unavoidable, these standards are set; (b) conditions prevailing in the period for which use of standards are made are taken into account; (c) for the purpose of evaluation of performance, these standards provide best criterion & are very realistic in nature; (d) as all requirements of good standards are fulfilled by these standards, i.e., these standards are consistent, are attainable, realistic & provide incentive for improvement; they have got the maximum usage. Level of performance expected in these standards is higher than level of performance expected in normal standard. 

Standard costs are

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

  1. Ideal costs

  2. Normal costs

  3. Average cost

  4. Reasonable attainable costs

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Correct Option: D
Explanation:

A standard cost is a pre-determined or pre-established cost to make a unit of finished product.

Practical standards, which consider normal and reasonable product inefficiencies, are tight, yet attainable.

Excess direct labour wages will be disclosed in which type of variance?

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

  1. Yield

  2. Quantity

  3. Direct labour efficiency

  4. Direct labour rate (price)

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Correct Option: D
Explanation:

Direct labour rate variance is the difference between the standard rate of labour and the actual labour rate on standard ouput/hour.


This variance represent the excess or short wages against the standard cost of labour.

Preliminaries to setting of standards:
I. Establishment of cost centres
II. Classification and Codification of accounts
III. Period of use
IV. Reasonable or desirable level of attainment
Of these

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

  1. I and II are correct

  2. II and IV are correct

  3. I and IV are correct

  4. All are correct

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Correct Option: D
Explanation:

The following preliminaries are to be carefully considered before introducing standard costing system in any firm:

A. Setting up or Establishment of Cost Centres;

B. Classification and Coding of Accounts;

C. Types of Standards; and

D. Setting up or Establishment of Standards.

Product costs under direct costing included.

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

  1. Prime cost only

  2. Prime cost and fixed factory overhead

  3. Prime cost and variable factory overhead

  4. Fixed factory overhead only

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Correct Option: C
Explanation:

Product cost includes direct materials, direct labor, and overhead. These are the costs that are included in the cost of goods sold and inventory. Only these costs can be included in the inventory.

Match the following:

1. Total fixed cost a) increase in proportion to output
2. Total variable cost b) remains constant in total
3. Unit variable cost c) decrease with rise in output
4. Unit fixed cost d) remains constant per unit
commercial applications fundamental concepts of cost meaning, elements and classification of cost methods of costing cost accounting: an introduction

  1. a b c d

  2. b a d c

  3. b a c d

  4. d c b a

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Correct Option: B

Process Cost is very much applicable in _____________.

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

  1. Construction Industry

  2. Pharmaceutical Industry

  3. Air line company

  4. None of these

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Correct Option: B
Explanation:

 Companies that produce identical units such as lumber, tile, brick manufacturers, cereal makers, or pharmaceutical companies utilize process costing. Generally, companies utilize process costing when: Mass production of identical products. Output of products is of low value.