Abnormal loss is:
Abnormal loss is excess loss and is written off separately so that it does not distort unit cost.
Cost & Management Accounting MCQs
Joint costs are costs:
Joint costs are the common processing costs before products become separately identifiable.
A by-product is a product that:
By-products are secondary outputs of low value arising from the production of main products.
Budgeted overhead is Rs. 240,000 and budgeted direct labor hours are 12,000. The predetermined overhead rate is:
Rate = 240,000 / 12,000 = Rs. 20 per direct labor hour.
Under absorption costing, fixed manufacturing overhead is treated as:
Absorption costing includes both variable and fixed manufacturing overhead in product cost.
Under variable (direct) costing, fixed manufacturing overhead is treated as:
Variable costing charges fixed manufacturing overhead to the period in which it is incurred.
If production exceeds sales in a period, profit under absorption costing compared with variable costing will be:
Part of fixed overhead is carried forward in closing inventory under absorption costing, so profit is higher.
Job order costing is most suitable for:
Job costing collects costs for each distinct job or batch.
Process costing is most suitable for:
Industries such as chemicals, cement and textiles use process costing.
A department has no opening WIP, completes 1,000 units and has 400 units in closing WIP that are 50% complete for conversion. Equivalent units for conversion cost are:
Equivalent units = 1,000 + (400 x 50%) = 1,200.
Contribution margin is calculated as:
Contribution margin = sales - variable costs; it contributes towards fixed costs and profit.
Sales are Rs. 200,000 and variable costs are Rs. 120,000. The contribution margin ratio is:
CM = 200,000 - 120,000 = 80,000. CM ratio = 80,000 / 200,000 = 40%.
Fixed costs are Rs. 60,000, selling price is Rs. 50 per unit and variable cost is Rs. 30 per unit. The break-even point in units is:
CM per unit = 50 - 30 = 20. Break-even units = 60,000 / 20 = 3,000.
Fixed costs are Rs. 90,000 and the contribution margin ratio is 30%. The break-even sales value is:
Break-even sales = fixed costs / CM ratio = 90,000 / 0.30 = Rs. 300,000.
Actual sales are Rs. 500,000 and break-even sales are Rs. 350,000. The margin of safety is:
Margin of safety = actual sales - break-even sales = 500,000 - 350,000 = Rs. 150,000.
Fixed costs are Rs. 80,000, the target profit is Rs. 40,000 and CM per unit is Rs. 20. The units required to reach the target profit are:
Required units = (80,000 + 40,000) / 20 = 6,000.
Contribution margin is Rs. 120,000 and operating income is Rs. 30,000. The degree of operating leverage is:
DOL = contribution margin / operating income = 120,000 / 30,000 = 4.
Conversion cost is the sum of:
Conversion cost is the cost of converting raw materials into finished goods: direct labor + factory overhead.
As production volume increases within the relevant range, fixed cost per unit:
Total fixed cost is constant, so the cost per unit falls as units increase.
Total variable cost:
Variable costs vary in total with the level of activity.
A mixed (semi-variable) cost is a cost that:
Examples include utility bills with a fixed line rental plus a charge per unit used.
Opportunity cost is:
Opportunity cost measures the value of the best alternative forgone.
A sunk cost is a cost that:
Sunk costs are past costs that do not change with any decision.
Relevant costs are costs that:
Only future, differential (avoidable) costs matter for decision making.
Prime cost is the sum of:
Prime cost = direct materials + direct labor + direct expenses.