Classification of Cost MCQs

1. Identify the different ways in which total product/service costs can be classified into:
   1. Element, Function
   2. Nature, Behavior
   3. Controllable or Non-controllable
   4. All of the above
2. By element/type- costs are classified as:
   1. Materials
   2. Labour
   3. Overheads
   4. All of the above
3. By function- costs are classified as:
   1. Production costs
   2. Non-Production costs
   3. Both A&B
   4. None
4. By nature- costs are classified as:
   1. Direct costs
   2. Indirect costs
   3. Both A&B
   4. None
5. By behavior- costs are classified as:
   1. Fixed
   2. Variable
   3. Semi-variable or stepping fixed
   4. All of the above
6. The cost of having the materials brought to the organization is known as:
   1. Carriage inwards
   2. Carriage outwards
   3. Purchases
   4. None
7. Raw materials, components, consumables, maintenance materials are subdivision examples of:
   1. Overheads
   2. Materials
   3. Labour
   4. None
8. Production costs are the costs which are incurred when raw materials are converted into finished goods and part finished goods (work in progress).
   1. The above statement is true
   2. The above statement is false
9. Production costs includes:
   1. Direct materials
   2. Direct labour
   3. Direct expenses
   4. Variable production overheads
   5. Fixed production overheads

Identify which of the above are included?

1. 1. (I) (II) (IV)
   2. (I) (II) (III)
   3. Only (I) and (II)
   4. All of the above

10. Non-Production costs are cost that are not directly associated with the production processes in a manufacturing organization.

1. 1. The above statement is true
   2. The above statement is false

11. Examples of Non-Production costs includes:

1. 1. Administrative costs
   2. Selling and Distribution costs
   3. Finance costs
   4. All of the above

12. A cost card (or unit cost card) lists out all of the costs involved in making one unit of a product.

1. 1. The above statement is false
   2. The above statement is true

13. The costs that can be clearly identified with the cost object we are trying to cost is known as:

1. 1. Indirect costs
   2. Direct costs
   3. Overheads
   4. None

14. The sum of direct costs (i.e. direct material, direct labour, direct expenses) is known as:

1. 1. Prime cost
   2. Marginal cost
   3. Full production cost
   4. None

15. Indirect costs cannot be directly attributed to a particular cost unit, although it is clear that they have been incurred in the production process.

1. 1. The above statement is false
   2. The above statement is true

16. Variable costs are costs that tend to vary in total with the level of activity. As activity levels increase then total variable costs will also increase.

1. 1. The above statement is true
   2. The above statement is false

17. The cost per unit of variable costs ______________.

1. 1. Increases with increase in volume
   2. Remains constant
   3. Constant to a certain volume
   4. None

18. A fixed cost is a cost which is incurred for an accounting period, and which____________.

1. 1. Always remains fixed
   2. Increases with increase in activity level
   3. Within certain activity levels remains constant
   4. None

19. Stepped fixed costs is a type of fixed cost that is only fixed within certain levels of activity.

1. 1. The above statement is true
   2. The above statement is false

20. For Identical (similar) products in large numbers (e.g. Bottles of soft drink, Mobile phones, Garments) which of the following costing system would be suitable?

1. 1. Basic manufacturing costing
   2. Standard costing
   3. Both A&B
   4. None

21. For Identical products in large amounts by passing the product through a series of processes (e.g. Pharmaceuticals, Paint, Petroleum) which of the following costing system would be suitable?

1. 1. Standard costing
   2. Process costing (including joint product and byproduct costing)
   3. Batch costing
   4. None

22. Training and education, Healthcare, Travel and tourism, Financial services, Entertainment and leisure are examples of different kinds of:

1. 1. Manufacturing organizations
   2. Service organization
   3. Both A&B
   4. None

23. One of the key differences between manufacturing and service industries is the perishability of product – manufacturing output is generally tangible and can be stored whereas output from the service industry is generally perishable.

1. 1. The above statement is true
   2. The above statement is false

24. An accountant, providing consultancy service, who has spent 15 hours working on a tax advice project that will take 30 hours in total to complete. The first 15 hours would be described as WIP.

1. 1. False
   2. True
   3. There’s no WIP in service costing system
   4. None

25. Costing systems typically used in service organizations include:

1. 1. Standard costing
   2. Job costing
   3. Process costing
   4. Both A&B

26. Sales and distribution costs include:

1. 1. The wages and salary costs of all employees working in the selling and distribution departments, including sales commissions for sales representatives
   2. Advertising costs and other marketing costs
   3. Operating costs for delivery vehicles
   4. All of the above

27. Administration costs are the costs of providing administration services for the entity. They might be called ‘head office costs’.

1. 1. The above statement is true
   2. The above statement is false

28. Some costs might be partly production costs, partly administration costs and partly selling and distribution costs. When costs are shared between two or more functions, they are divided between the functions on a fair basis.

1. 1. The above statement is false
   2. The above statement is true

29. Dividing shared costs on a fair basis is called _______________ of the cost.

1. 1. Allocation
   2. Apportionment
   3. Sharing
   4. None

30. Total production costs during a period must therefore be divided or shared between:

1. 1. goods produced and sold in the period
   2. goods produced but not yet sold (finished goods)
   3. work-in-progress
   4. All of the above

31. Non-production costs e.g. salaries of sales persons are never included in the cost of inventory.

1. 1. The above statement is true
   2. The above statement is false

32. A manufacturing account shows the cost of producing the goods that are sold during an accounting period. It is split into the following sections:

1. 1. Prime cost
   2. Overhead cost

Identify whether the statement is correct.

1. 1. The above statement is incorrect
   2. The above statement is correct

33. Cost behavior refers to the way in which costs change as the volume of activity changes. The volume of activity may be:

1. 1. the volume of sales
   2. the volume of production
   3. total labour hours worked, machine hours worked
   4. the number of production units inspected
   5. the number of batches, the number of journeys (for buses or trains)

Which of the above is correct?

1. 1. All of the above are correct
   2. (I) (II) (III) are correct
   3. Only (V) is correct
   4. None

34. The variable cost of a cost unit is also called the marginal cost of the unit.

1. 1. True
   2. False

35. A stepped fixed cost is a cost which:

1. 1. has a fixed cost behaviour pattern within a limited range of activity
   2. goes up or down in steps when the volume of activity rises above or falls below certain levels.
   3. Both A&B
   4. None

36. The prime cost of an item is its total direct cost.

1. 1. True
   2. False

37. Which of the following is correct for indirect costs?

1. 1. An indirect cost (overhead cost) is any cost that is not a direct cost.
   2. Indirect costs (overheads) cannot be attributed directly and in full to a cost unit.
   3. Indirect costs include production overheads and non-production overheads.
   4. All of the above are correct

38. Prime cost plus a share of production overheads are the:

1. 1. Full production cost of the cost unit
   2. Fully absorbed production cost of the cost unit
   3. Marginal cost of the cost unit
   4. Both A&B

39. Costs that become part of the cost of goods manufactured are called?

1. 1. Product costs
   2. Period costs
   3. Unit costs
   4. None

40. Product costs include:

1. 1. The prime cost
   2. Direct materials + Direct labour + Direct expenses
   3. The production overhead.
   4. All of the above

41. Period costs are expensed as and when they occur.

1. 1. True
   2. False

42. Period costs are the non-production overheads.

1. 1. False
   2. True

43. Production overhead includes:

1. 1. Indirect Material
   2. Indirect wages
   3. Indirect Expenses
   4. All of the above

44. Administration overhead is all indirect material costs, wages and expenses incurred in the direction, control and administration of an undertaking.

1. 1. True
   2. False

45. Selling overhead is all indirect materials costs, wages and expenses incurred in promoting sales and retaining customers.

1. 1. False
   2. True

46. Distribution overhead is all indirect material costs, wages and expenses incurred in making the packed product ready for dispatch and delivering it to the customer.

1. 1. True
   2. False

47. If the relationship between total variable cost and volume of output can be shown as a curved line on a graph, the relationship is said to be curvilinear.

1. 1. False
   2. True

48. A semi-variable/semi-fixed/mixed cost is a cost which contains both fixed and variable components and so is partly affected by changes in the level of activity.

1. 1. The above statement is correct
   2. The above statement is incorrect

49. What happens when activity levels rise?

1. 1. The variable cost per unit remains constant.
   2. The fixed cost per unit falls.
   3. The total cost per unit falls
   4. All of the above

50. Assumptions about cost behaviour include:

1. 1. Within the normal or relevant range of output, costs are often assumed to be either fixed, variable or semi-variable (mixed)
   2. Departmental costs within an organisation are assumed to be mixed costs, with a fixed and a variable element.
   3. Departmental costs are assumed to rise in a straight line as the volume of activity increases. In other words, these costs are said to be linear.
   4. All of the above

51. A cost code is a system of letters/numbers designed to be applied to a classified set of items, to give a brief accurate reference, which helps entry to the records, collation and analysis.

1. 1. The above statement is true
   2. The above statement is false

52. The main purpose of cost codes is to:

1. 1. Assist precise information
   2. Facilitate data processing/logical arrangement of records
   3. Simplify comparisons of similar expenses
   4. All of the above

53. An efficient and effective coding system, whether manual or computerized, should incorporate the following features.

1. 1. The code must be easy to use and communicate.
   2. Each item should have a unique code.
   3. The coding system must allow for expansion.
   4. The code should be flexible
   5. There should be a readily available index or reference book of codes.

1. 1. All of the above
   2. (I) and (IV) only
   3. (I) (III) and (IV) only
   4. None

54. Identify the types of coding systems.

1. 1. Composite codes. Sequence (or progressive) codes
   2. Group classification codes, Faceted codes
   3. Significant digit codes, Hierarchical codes
   4. All of the above

55. The advantages of a coding system:

1. 1. A code is usually briefer than a description, thereby saving clerical time in a manual system and storage space in a computerized system.
   2. A code is more precise than a description and therefore reduces ambiguity.
   3. Coding facilitates data processing.
   4. All of the above

56. A cost center is a _____________ for which costs are accumulated.

1. 1. Production or service location
   2. A function
   3. An activity or an item of equipment
   4. All of the above

57. Cost centres are collecting places for costs before they are further analysed. Costs are further analysed into cost units once they have been traced to cost centres.

1. 1. True
   2. False

58. Cost centres are an essential ‘building block’ of a costing system. They are the starting point for the following:

1. 1. The classification of actual costs incurred
   2. The preparation of budgets of planned costs
   3. The comparison of actual costs and budgeted costs (management control)
   4. All of the above

59. A cost object is anything for which costs can be ascertained.

1. 1. The above statement is false
   2. The above statement is true

60. If the users of management information wish to know the cost of something, this something is called a cost object. Examples include the following.

1. 1. The cost of a product
   2. The cost of operating a department
   3. The cost of a service
   4. All of the above

61. All of the cost units and cost centers are types of cost object.

1. 1. The above statement is true
   2. The above statement is false

62. A cost unit is a unit of product or service to which costs can be related. The cost unit is the basic control unit for costing purposes.

1. 1. True
   2. False

63. A responsibility center is an individual part of a business whose manager has personal responsibility for its performance.

1. 1. The above statement is false
   2. The above statement is true

64. The main responsibility centers include:

1. 1. Cost center
   2. Profit center
   3. Revenue and Investment center
   4. All of the above

65. A profit center is a part of the business for which both the costs incurred and the revenues earned are identified.

1. 1. Profit centers are often found in large organizations with a divisionalized structure, and each division is treated as a profit center.
   2. Within each profit center, there could be several costs center and revenue centers.
   3. Data and information relating to both costs and revenues must be collected and allocated to the relevant profit centers.

Which of the above statement is correct?

1. 1. All of above are correct
   2. Only (III) is correct
   3. (I) and (II) are correct
   4. None

66. A revenue center is a part of the organization that earns sales revenue. It is similar to a cost center, but only accountable for revenue, and not costs.

1. 1. Revenue centers are generally associated with selling activities.
   2. Sales revenues earned must be able to be traced back to individual revenue centers.

Which of the above statement is correct?

1. 1. Only (I) is correct
   2. Only (II) is correct
   3. Both (I) and (II) are correct
   4. None

67. Any activity for which a separate measurement of costs is needed is called:

1. 1. Cost object
   2. Cost center
   3. Cost unit
   4. None

68. Examples of cost objects include:

1. 1. The cost of a product
   2. The cost of a service
   3. The cost of a department or a project
   4. All of the above

69. A unit of product or service for which costs are determined is called:

1. 1. Cost center
   2. Cost unit
   3. Cost object
   4. None

70. The term cost unit is same as the term unit cost.

1. 1. False
   2. True

71. Unit cost is the cost incurred by a company to produce, store and sell one unit of a particular product.

1. 1. The above statement is true
   2. The above statement is false

72. Unit cost includes ______________ involved in production.

1. 1. Only variable costs
   2. Only fixed costs
   3. All fixed costs and all variable costs
   4. None

73. Which of the following is a characteristic of an investment centre?

1. 1. Managers have control over marketing.
   2. Management have a sales team.
   3. Management have a sales team and are given a credit control function.
   4. Managers can purchase capital assets.

74. A number of methods exist for analyzing semi-variable costs into their fixed and variable elements. Identify which of the following are methods for that:

1. 1. High/Low method
   2. Least squares regression
   3. Repeated distribution
   4. A&B Only

75. Making a distinction between fixed and variable costs might be used:

1. 1. In product costing
   2. To analyze profitability of a product or department
   3. To help managers to make decisions about increasing/decreasing activity levels
   4. To estimate future costs (forecasting and budgeting)
   5. To estimate what costs should have been

1. 1. All of the above
   2. (I) (IV) and (V) only
   3. (II) and (III) only
   4. None

76. Sometimes there may be changes in the variable cost per unit. The variable cost per unit may change because prices may be forecast to increase in future periods.

1. 1. True
   2. False

77. The limitations of the high/low method include:

1. 1. It relies on historical cost data and assumes this data can reliably predict future costs
   2. It assumes that activity levels are the only factor affecting costs and uses only two values (highest and lowest) to predict future costs and these results may be distorted because of random variations which may have occurred.
   3. Bulk discounts may be available for purchasing resources in large quantities
   4. All of the above

78. y = a + bx is the formula for:

1. 1. Equation of a straight line
   2. Linear functions
   3. Cost equations
   4. All of the above

79. For the cost equations formula (y = a + bx) which of the following is correct:

1. 1. y’ is the total cost = fixed cost + variable cost
   2. a’ is the fixed cost per period
   3. b’ is the variable cost per unit
   4. x’ is the activity level
   5. All of the above are correct

80. The high-low method refers to the:

1. 1. Highest and lowest volume
   2. Highest and lowest cost
   3. Both A&B
   4. None