Cost Accounting Basics MCQs 2026

Scrap refers to

1. Athe main product✓
2. Ba defective machine✓
3. Cdirect labour✓
4. Dthe residual material of small value arising from production✓

Cost accounting is mainly concerned with

1. Apreparing tax returns✓
2. Brecording only cash transactions✓
3. Cascertaining, recording and controlling the cost of products and services✓
4. Dexternal auditing✓

The main objective of cost accounting is to

1. Adetermine cost per unit and aid cost control and decision making✓
2. Bprepare the balance sheet only✓
3. Ccalculate income tax✓
4. Dcount employees✓

Which of the following are the three elements of cost

1. Asales, purchases and profit✓
2. Bassets, liabilities and capital✓
3. Cfixed, variable and semi-variable✓
4. Dmaterial, labour and expenses (overheads)✓

Direct material cost is a

1. Aperiod cost✓
2. Bprime cost element that can be directly traced to a product✓
3. Cfixed overhead✓
4. Dselling expense✓

Prime cost equals direct material plus direct labour plus

1. Adirect (chargeable) expenses✓
2. Bfactory overhead✓
3. Coffice overhead✓
4. Dselling overhead✓

Works (factory) cost equals prime cost plus

1. Aoffice overhead✓
2. Bfactory (works) overhead✓
3. Cselling overhead✓
4. Dnet profit✓

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

1. Avariable cost✓
2. Bdirect cost✓
3. Cfixed cost✓
4. Dprime cost✓

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

1. Afixed cost✓
2. Bsunk cost✓
3. Cperiod cost✓
4. Dvariable cost✓

A semi-variable (mixed) cost is one that

1. Ais always fixed✓
2. Bis always variable✓
3. Cfollows no pattern✓
4. Dhas both a fixed and a variable component✓

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

1. Aprime cost✓
2. Bdirect cost✓
3. Coverheads✓
4. Dsales✓

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

1. Asales revenue✓
2. Bthe total of ordering and carrying (holding) costs✓
3. Cproduction output✓
4. Dprofit✓

The reorder level is the stock level at which

1. Aa fresh purchase order should be placed✓
2. Bproduction stops✓
3. Cstock becomes zero✓
4. Dthe maximum level is reached✓

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

1. Alatest purchases✓
2. Bearliest (oldest) purchases first✓
3. Caverage cost✓
4. Dstandard cost✓

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

1. Aoldest purchases✓
2. Baverage cost✓
3. Cstandard cost✓
4. Dmost recent purchases first✓

The weighted average method values material issues at

1. Athe weighted average cost of materials in stock✓
2. Bthe highest price✓
3. Cthe lowest price✓
4. Dthe selling price✓

Direct labour cost is the wages of workers who

1. Awork in the office✓
2. Bonly supervise✓
3. Care directly engaged in producing the product✓
4. Ddo the selling✓

Idle time is the time for which workers are

1. Aproducing goods✓
2. Bon unpaid leave✓
3. Cpaid but not productively working✓
4. Ddoing overtime✓

The process of charging overheads to cost centres is called

1. Aallocation and apportionment of overheads✓
2. Bsales✓
3. Cdepreciation✓
4. Dforfeiture✓

Overhead absorption is the process of charging overheads to

1. Athe balance sheet✓
2. Bcost units (products)✓
3. Ccreditors✓
4. Dsales returns✓

A cost unit is

1. Aa department✓
2. Ba person✓
3. Ca machine only✓
4. Da unit of product or service in terms of which cost is measured✓

A cost centre is

1. Aa location, person or item for which costs are ascertained and controlled✓
2. Ba profit figure✓
3. Ca sales target✓
4. Da tax office✓

A cost sheet (statement of cost) shows

1. Aonly sales✓
2. Bonly profit✓
3. Conly cash✓
4. Dthe build-up of total cost and cost per unit under various elements✓

Marginal cost is the

1. Atotal cost✓
2. Bfixed cost✓
3. Cadditional cost of producing one more unit✓
4. Dselling price✓

Contribution is calculated as

1. Asales minus fixed cost✓
2. Bsales minus variable cost✓
3. Cprofit plus sales✓
4. Dfixed cost minus profit✓

Under marginal costing, fixed costs are treated as

1. Aproduct costs✓
2. Bpart of inventory value✓
3. Cdirect costs✓
4. Dperiod costs charged in full to the period✓

Under absorption costing, fixed manufacturing overheads are

1. Aignored✓
2. Btreated as product costs and included in inventory value✓
3. Ctreated as period costs only✓
4. Dadded to sales✓

Job costing is most suitable for

1. Awork done to specific customer orders or jobs✓
2. Bcontinuous mass production✓
3. Coil refining✓
4. Delectricity generation✓

Process costing is used in industries with

1. Aunique custom jobs✓
2. Bno production✓
3. Ccontinuous mass production of homogeneous products✓
4. Dsingle one-off contracts✓

Contract costing is typically used by

1. Aretailers✓
2. Bbanks✓
3. Cconstruction and civil engineering firms✓
4. Dsoftware firms✓

Batch costing is used when

1. Aeach unit is unique✓
2. Bidentical items are produced in distinct batches✓
3. Cthere is continuous flow✓
4. Donly one product exists✓

Cost control aims to

1. Akeep costs within predetermined limits or standards✓
2. Bincrease costs✓
3. Cignore costs✓
4. Draise selling prices only✓

Cost reduction differs from cost control in that it seeks to

1. Apermanently lower unit costs without impairing quality✓
2. Bkeep costs at standard✓
3. Cincrease overheads✓
4. Draise prices✓

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

1. Adirect labour hours only✓
2. Bsales value✓
3. Cthe activities (cost drivers) that cause the costs✓
4. Dmachine cost only✓

Overtime premium is generally treated as

1. Adirect material✓
2. Ba fixed asset✓
3. Ca selling cost only✓
4. Doverhead, unless incurred at a customer's specific request✓

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

1. Aprime cost✓
2. Bcost of goods sold✓
3. Cworks cost✓
4. Dcontribution✓

Which of the following is an example of a direct expense

1. Afactory rent✓
2. Broyalty paid per unit produced✓
3. Coffice salaries✓
4. Daudit fee✓

Depreciation of factory machinery is treated as

1. Aa factory (works) overhead✓
2. Ba direct material✓
3. Ca selling overhead✓
4. Da prime cost✓

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

1. Ais for outsiders only✓
2. Bis legally required for all businesses✓
3. Cprovides detailed internal information for management decisions✓
4. Dignores costs entirely✓

A by-product is a product that

1. Ais the main output✓
2. Bhas the highest value✓
3. Cis always scrapped✓
4. Dis produced incidentally along with the main product and has some value✓

The maximum stock level is fixed to avoid

1. Astockouts✓
2. Bthe need to reorder✓
3. Cidle labour✓
4. Dexcessive investment in and overstocking of inventory✓

Piece-rate wage payment pays workers according to

1. Ahours worked✓
2. Bmere attendance✓
3. Cthe number of units produced✓
4. Dseniority✓

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

1. Amaterials consumed✓
2. Blabour✓
3. Coverheads✓
4. Dsales✓

Which of the following is NOT an element of overhead

1. Afactory rent✓
2. Bdirect material used in the product✓
3. Cfactory insurance✓
4. Doffice lighting✓

The primary purpose of a stores ledger is to record the

1. Asales of finished goods✓
2. Bwages of workers✓
3. Creceipt, issue and balance of each material item✓
4. Doverhead absorption rates✓