About Costing

Costing is defined by the Institute of Cost and Management Accountants (ICMA) as the method and process of determining costs.

This is a good explanation, however, it only considers the technical and procedural aspects. To expand on this, costing may also be described as a systematic method for establishing the unit cost of a product or service.

To put it another way, costing entails examining the costs associated with producing a product or providing a service. Managers of an organization may now see not just the total cost, but also the costs of its elements.

Objectives of Costing

The following three domains are roughly classified into costing objectives.

  1. Cost Estimation: The goal is to figure out how much each product, process, or operation costs, and to make sure that all expenditures are factored into the cost of the goods, procedures, and costing process.
  2. Cost Control: Measuring costs alone isn't enough. Naturally, this is insufficient because cost affects the selling price and, as a result, profitability. As a result, everyone tries to stick to the rule that "the lower the cost, the higher the profit."
  3. Management Guidelines: Costing is a loyal servant for managers inside a business. From a practical standpoint, it assists managers in making decisions.

Conclusion

As a result, costing as a method refers to the set of principles and procedures that are utilized to determine cost. It is the technique for determining expenses as a process.

The specifics of the business, the nature of the product, and the manner in which it is manufactured all play a role in determining the approach and procedure that should be used.

Following are some of the multiple choice questions on the Costing with answers that will help the students in developing their knowledge.

Costing MCQ

1. What will the factor be to convert recipe from 6 yield to 14?

  • 2
  • 0.66
  • 0.42
  • 0.58

2. If margin of safety -20%, profit volume ratio -60%, Fixed cost = Rs.75,000. Find Actual sales.

  • Rs.1,25,000
  • Rs. 1,58,000
  • Rs. 1,50,250
  • Rs. 1,56,250

3. In process costing, each producing department is a __________

  • cost unit
  • cost centre
  • investment centre
  • sales centre

4. In cost accounting, stock is valued at

  • Cost Price
  • Market Price
  • Selling Price
  • Standard Price

5. By product has equal economic importance.

  • True
  • False

6. The main function of cost accounting is _______ reporting

  • Internal
  • External

7. Scrap value of normal loss is _____ to process account.

  • debited
  • credited
  • ignored
  • not recorded

8. The loss which arises due to abnormal circumstances is _____ loss.

  • Normal
  • abnormal
  • net
  • gross

9. The cost incurred prior to the point of separation of the joint or by-products are termed as _______.

  • process cost
  • joint cost
  • main cost
  • separable cost

10. Normal Output is calculated as __________.

  • Input less Abnormal Loss
  • Input less Normal Loss
  • Input less Abnormal Gain
  • Input add Abnormal Loss

11. Contribution margin is also known as

  • Marginal income
  • Gross Profit
  • Net Profit
  • All of the above

12. P/V Ratio is an indicator of

  • the measurement of rate at which goods and services are bought and sold
  • the measurement of change in profit due to change in volume of sales
  • the measurement of volume of profit to be earned
  • None of the above

13. When fixed cost is Rs.20,000 and P/V Ratio is 40%, the breakeven point will be

  • 75,000
  • 40,000
  • 20,000
  • 50,000

14. Work certified is valued in term of ________ .

  • contract price
  • degree of completion
  • retention amount
  • cash paid by contractee.

15. According to CIMA, England, “the technique and process of ascertaining cost” is called

  • Costing
  • Cost Accounting
  • Cost Accountancy
  • Cost

16. Object of _____ is to protect the interest of contractor.

  • contract
  • escalation
  • de-escalation
  • retention

17. Sale of scrap is _____ to contract A/c.

  • debited
  • credited
  • omitted
  • recorded

18. In Contract Costing, work uncertified is valued at _____.

  • contract price
  • sale price
  • residual price
  • cost price

19. A manager can be blamed for _____ adverse variance.

  • controllable
  • non controllable
  • improvement in quality
  • reduction in cost

20. An item of low value incidentally arising in a process is called _________.

  • joint product
  • by-product
  • scrap
  • waste

21. Budgeting and control are key features of this form of accounting

  • Financial Accounting
  • Management Accounting

22. Balance in the abnormal loss account is transferred to _____

  • Costing Profit & Loss A/c
  • Balance sheet
  • Process A/c
  • Contract A/c

23. In process accounts, _________ does not have a realisable value

  • normal loss
  • abnormal scrap loss
  • scrap loss
  • weight loss

24. In process accounts, _____ is treated as a part of the cost of production.

  • normal loss
  • abnormal loss
  • net loss
  • gross loss

25. Work certified is recorded in the contract Account at cost.

  • True
  • False

26. -------- ------are sections of a business to which costs can be charged Therefore, a ---- ---- can be any function or section of the organisation. In a manufacturing business it can be an entire factory, a department of a factory, or a particular stage in the production process.

  • Cost centre
  • Profit Centre
  • investment Centre
  • None of these

27. Hesketh is a stationary business. Classify the following elements:Insurance of office computers

  • Material
  • Labour
  • Overhead
  • None of these

28. Extra payment reuired to be paid for overtime work is called as overtime

  • Premium
  • Payment
  • Salary
  • Wages

29. _______ time refers to the time for which wages are paid without any production

  • Over
  • Under
  • Excess
  • Idle

30. ________ labour cost is the remuneration paid to the employees who are directly engaged in the manufacturing operations

  • Direct
  • Indirect
  • Normal
  • Abnormal

31. Cost incurred by undertakings which do not manufacture any product but services is

  • Operation Costing
  • Operating Costing
  • Sunk Costing
  • Joint Costing

32. Each contract is considered as a separate unit of cost.

  • True
  • False

33. A contract usually takes more than one year to complete.

  • True
  • False

34. Profit on each contract is computed every year on incomplete portion of the contract.

  • True
  • False

35. Most of the costs in a contract are direct cost.

  • True
  • False

36. __________ is debited to the contract A/c.

  • Work Certified
  • Work Uncertified
  • Cash Received
  • Sub Contract Cost

37. _____ money is paid a certain period after completion of the contract.

  • work certified
  • work uncertified
  • retention
  • escalation

38. On _____ of the contract entire profit is transferred to P & L A/c.

  • 25% completion
  • 50% completion
  • 90% completion
  • completion

39. _____ ensures the contractee that the contractor will continue the work.

  • contract price
  • work certified
  • work uncertified
  • retention

40. Work–in–progress appears as _____ in balance sheet.

  • current asset
  • non current asset
  • current liability
  • provision

41. Profit on incomplete contract is calculated on the basis of _____ of completion.

  • stage
  • degree
  • retention
  • process

42. Work done yet to be certified is called _____.

  • work certified
  • work uncertified
  • cash received
  • work in progress

43. Work certified factilitates to monitor the _____.

  • job
  • materials
  • plant
  • workers

44. In _____ there is no risk of loss.

  • Contractee’s A/c
  • fixed price contract
  • cost plus contract
  • sub contract

45. Contract A/c is debited by _____ of plant.

  • hire charges
  • job charges
  • store value
  • residual value

46. Contract work is carried out at _____ site.

  • contractee's
  • contractor's
  • sub contractors site
  • factory

47. Marginal costing technique classifies cost into

  • variable cost and fixed cost
  • operation and Maintainance cost
  • semi-variable cost
  • standard and floating cost

48. Contribution is calculated by the formula

  • Sales minus profit
  • Sales minus variable cost
  • Fixed cost minus profit
  • None of the above

49. Which is not included in primecost?

  • Raw materials
  • Manager Salary
  • Labour expenses
  • Coal

50. Marginal costing helps the management to

  • Fix the price of products
  • Take various decisions
  • Calculate profit
  • All the above

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