Cost Accounting Basics MCQs 2026

Scrap refers to

1. A the main product ✓
2. B a defective machine ✓
3. C direct labour ✓
4. D the residual material of small value arising from production ✓

Cost accounting is mainly concerned with

1. A preparing tax returns ✓
2. B recording only cash transactions ✓
3. C ascertaining, recording and controlling the cost of products and services ✓
4. D external auditing ✓

The main objective of cost accounting is to

1. A determine cost per unit and aid cost control and decision making ✓
2. B prepare the balance sheet only ✓
3. C calculate income tax ✓
4. D count employees ✓

Which of the following are the three elements of cost

1. A sales, purchases and profit ✓
2. B assets, liabilities and capital ✓
3. C fixed, variable and semi-variable ✓
4. D material, labour and expenses (overheads) ✓

Direct material cost is a

1. A period cost ✓
2. B prime cost element that can be directly traced to a product ✓
3. C fixed overhead ✓
4. D selling expense ✓

Prime cost equals direct material plus direct labour plus

1. A direct (chargeable) expenses ✓
2. B factory overhead ✓
3. C office overhead ✓
4. D selling overhead ✓

Works (factory) cost equals prime cost plus

1. A office overhead ✓
2. B factory (works) overhead ✓
3. C selling overhead ✓
4. D net profit ✓

A cost that remains constant in total regardless of the level of output is a

1. A variable cost ✓
2. B direct cost ✓
3. C fixed cost ✓
4. D prime cost ✓

A cost that varies in total directly with the level of output is a

1. A fixed cost ✓
2. B sunk cost ✓
3. C period cost ✓
4. D variable cost ✓

A semi-variable (mixed) cost is one that

1. A is always fixed ✓
2. B is always variable ✓
3. C follows no pattern ✓
4. D has both a fixed and a variable component ✓

Indirect costs that cannot be traced to a single product are collectively called

1. A prime cost ✓
2. B direct cost ✓
3. C overheads ✓
4. D sales ✓

The Economic Order Quantity (EOQ) is the order size that minimizes

1. A sales revenue ✓
2. B the total of ordering and carrying (holding) costs ✓
3. C production output ✓
4. D profit ✓

The reorder level is the stock level at which

1. A a fresh purchase order should be placed ✓
2. B production stops ✓
3. C stock becomes zero ✓
4. D the maximum level is reached ✓

Under the FIFO method of inventory valuation, materials issued are priced at the cost of the

1. A latest purchases ✓
2. B earliest (oldest) purchases first ✓
3. C average cost ✓
4. D standard cost ✓

Under the LIFO method, materials issued are priced at the cost of the

1. A oldest purchases ✓
2. B average cost ✓
3. C standard cost ✓
4. D most recent purchases first ✓

The weighted average method values material issues at

1. A the weighted average cost of materials in stock ✓
2. B the highest price ✓
3. C the lowest price ✓
4. D the selling price ✓

Direct labour cost is the wages of workers who

1. A work in the office ✓
2. B only supervise ✓
3. C are directly engaged in producing the product ✓
4. D do the selling ✓

Idle time is the time for which workers are

1. A producing goods ✓
2. B on unpaid leave ✓
3. C paid but not productively working ✓
4. D doing overtime ✓

The process of charging overheads to cost centres is called

1. A allocation and apportionment of overheads ✓
2. B sales ✓
3. C depreciation ✓
4. D forfeiture ✓

Overhead absorption is the process of charging overheads to

1. A the balance sheet ✓
2. B cost units (products) ✓
3. C creditors ✓
4. D sales returns ✓

A cost unit is

1. A a department ✓
2. B a person ✓
3. C a machine only ✓
4. D a unit of product or service in terms of which cost is measured ✓

A cost centre is

1. A a location, person or item for which costs are ascertained and controlled ✓
2. B a profit figure ✓
3. C a sales target ✓
4. D a tax office ✓

A cost sheet (statement of cost) shows

1. A only sales ✓
2. B only profit ✓
3. C only cash ✓
4. D the build-up of total cost and cost per unit under various elements ✓

Marginal cost is the

1. A total cost ✓
2. B fixed cost ✓
3. C additional cost of producing one more unit ✓
4. D selling price ✓

Contribution is calculated as

1. A sales minus fixed cost ✓
2. B sales minus variable cost ✓
3. C profit plus sales ✓
4. D fixed cost minus profit ✓

Under marginal costing, fixed costs are treated as

1. A product costs ✓
2. B part of inventory value ✓
3. C direct costs ✓
4. D period costs charged in full to the period ✓

Under absorption costing, fixed manufacturing overheads are

1. A ignored ✓
2. B treated as product costs and included in inventory value ✓
3. C treated as period costs only ✓
4. D added to sales ✓

Job costing is most suitable for

1. A work done to specific customer orders or jobs ✓
2. B continuous mass production ✓
3. C oil refining ✓
4. D electricity generation ✓

Process costing is used in industries with

1. A unique custom jobs ✓
2. B no production ✓
3. C continuous mass production of homogeneous products ✓
4. D single one-off contracts ✓

Contract costing is typically used by

1. A retailers ✓
2. B banks ✓
3. C construction and civil engineering firms ✓
4. D software firms ✓

Batch costing is used when

1. A each unit is unique ✓
2. B identical items are produced in distinct batches ✓
3. C there is continuous flow ✓
4. D only one product exists ✓

Cost control aims to

1. A keep costs within predetermined limits or standards ✓
2. B increase costs ✓
3. C ignore costs ✓
4. D raise selling prices only ✓

Cost reduction differs from cost control in that it seeks to

1. A permanently lower unit costs without impairing quality ✓
2. B keep costs at standard ✓
3. C increase overheads ✓
4. D raise prices ✓

Activity-based costing (ABC) assigns overheads on the basis of

1. A direct labour hours only ✓
2. B sales value ✓
3. C the activities (cost drivers) that cause the costs ✓
4. D machine cost only ✓

Overtime premium is generally treated as

1. A direct material ✓
2. B a fixed asset ✓
3. C a selling cost only ✓
4. D overhead, unless incurred at a customer's specific request ✓

Cost of goods manufactured plus opening finished goods minus closing finished goods gives the

1. A prime cost ✓
2. B cost of goods sold ✓
3. C works cost ✓
4. D contribution ✓

Which of the following is an example of a direct expense

1. A factory rent ✓
2. B royalty paid per unit produced ✓
3. C office salaries ✓
4. D audit fee ✓

Depreciation of factory machinery is treated as

1. A a factory (works) overhead ✓
2. B a direct material ✓
3. C a selling overhead ✓
4. D a prime cost ✓

The main difference between cost accounting and financial accounting is that cost accounting

1. A is for outsiders only ✓
2. B is legally required for all businesses ✓
3. C provides detailed internal information for management decisions ✓
4. D ignores costs entirely ✓

A by-product is a product that

1. A is the main output ✓
2. B has the highest value ✓
3. C is always scrapped ✓
4. D is produced incidentally along with the main product and has some value ✓

The maximum stock level is fixed to avoid

1. A stockouts ✓
2. B the need to reorder ✓
3. C idle labour ✓
4. D excessive investment in and overstocking of inventory ✓

Piece-rate wage payment pays workers according to

1. A hours worked ✓
2. B mere attendance ✓
3. C the number of units produced ✓
4. D seniority ✓

The formula opening stock plus purchases minus closing stock gives the cost of

1. A materials consumed ✓
2. B labour ✓
3. C overheads ✓
4. D sales ✓

Which of the following is NOT an element of overhead

1. A factory rent ✓
2. B direct material used in the product ✓
3. C factory insurance ✓
4. D office lighting ✓

The primary purpose of a stores ledger is to record the

1. A sales of finished goods ✓
2. B wages of workers ✓
3. C receipt, issue and balance of each material item ✓
4. D overhead absorption rates ✓