- Which of the following statement measures the financial position of the entity on particular time?
Select correct option:
Income Statement
Balance Sheet (page no 15 on hand outs)
Cash Flow Statement
Statement of Retained Earning
REF:
Balance Sheet: Statement of financial position at a given point in time.
- All Indirect cost is charged/record in the head of
Select correct option:
Prime cost
FOH cost page no 18 on hand outs
Direct labor cost
None of the given options
REF:
Factory overhead cost includes all production costs except direct material, direct labor and other direct costs, it is completely indirect production cost.
- FOH absorption rate is calculated by the way of
Select correct option:
Estimated FOH Cost/Direct labor hours
Estimated FOH Cost/No of units produced
Estimated FOH Cost/Prime Cost
All of the given options( page no 100)
REF:
FOH Absorption Rate:
Finally FOH absorption rate is calculated at which the cost is absorbed in the cost unit. This is also known as overhead absorption rate (OAR) this can be calculated as under:
OAR = Estimated F.O.H cost
Base
Bases for FOH Absorption Rate
Following can be used as base to calculate overhead absorption rate:
1. Direct Labor hours
2. Machine hours
3. No. of unit produced
4. Direct labor cost
5. Prime cost
- In furniture manufacturing use of nail, pins, glue, and polish which use to increase its esteem value that cost is treated as:
Select correct option:
Direct material cost
Indirect material cost (page no 48 on book by matz)
FOH cost
Prime cost
REF:
- According to IASB framework, Financial statements exhibit to its users the:
Select correct option:
Financial position
Financial performance
Cash inflow and outflow analysis
All of the given options
REF:
According to IASB framework:
"Financial statements exhibit its users the financial position, financial performance, and cash inflow and outflow analysis of an entity."
- While deducting Income Tax from the gross pay of the employee, the employer acts as a (an) _________________for Income Tax Department.
Select correct option:
Agent of his own Company
Paid tax collection agent
Unpaid tax collection agent( page no 75 on handout)
None of the given options
REF:
Income tax is collected from employees every time they are paid, and this system of tax payment is therefore known as Pay As You Earn or PAYE. An employer is required by law to deduct income tax from the wages and salaries of all their employees. The employer in effect acts as an unpaid tax collection agent for Income Tax Department.
- Increase in material Inventory means:
Select correct option:
The ending inventory is greater than opening inventory (page no 34)
The ending inventory is less than opening inventory
Both ending and opening inventories are equal
Can not be determined
REF:
Increase in inventory means closing inventory is greater than the opening inventory. Decrease in inventory means closing inventory is lesser than the opening inventory.
- Where the applied FOH cost is greater than the actual FOH cost it is:
Select correct option:
Unfavorable variance
Favorable variance (page no 24)
Normal variance
Budgeted variance
REF:
Variance
Difference between the actual cost and applied cost is calculated by subtracting actual cost from the applied cost. Where the applied cost is greater than the actual cost it is favorable variance, but where the applied cost is lesser than the actual cost it is unfavorable variance.
- _____ are future costs that effect the current management decision.
Select correct option:
Sunk Cost
Standard Cost
Relevant Cost (page no 6)
Irrelevant Cost
REF:
Relevant Cost
Relevant cost is which changes with a change in decision. These are future costs that effect the current management decision.
- Inventory turnover ratio can be calculated as follow?
Select correct option:
Cost of goods sold/Average inventory( page no 32)
Gross profit/Average inventory
Cost of goods sold/sale
Cost of goods sold/Gross profit
REF:
Inventory turnover ratio
Inventory turnover ratio = Cost of goods sold
Average inventory
- Cost accounting department prepares ___________ that helps the in preparing final accounts. Select correct option:
Cost sheets
Cost of goods sold statement
Cost of production Report
Material requisition form
REF:
Financial statements prepared by the Cost Accountant
Cost accounting department prepares reports that help the accounting department in preparing final accounts, these include;
• Cost of goods manufactured statement
• Cost of goods sold statement
- Cost of finished goods inventory is calculated by:
Select correct option:
Multiplying units of finished goods inventory with the cost per unit
Dividing units of finished goods inventory with the cost per unit
Dividing per unit cost with finished goods inventory
Deducting total cost from finished goods inventory
REF:
Valuation of Closing Finish Goods inventory:
Cost of finished goods inventory is calculated by multiplying units of finished goods inventory with the cost per unit.
- Under/Over applied FOH cost can be adjusted in which of the following:
Select correct option:
Entire Production
Cost of Good sold
Net Profit
All of given options (page no 25)
REF:
Adjustment of Under/Over applied FOH cost:
Under/Over applied FOH cost can be adjusted in following costs/profit figures:
1. Entire Production
a) work in process inventory
b) finished goods inventory
c) cost of goods sold
2. Cost of Goods Sold
3. Net profit
- Which of the following element must be taken into account while calculating total earnings of a worker under different incentive wage schemes?
Select correct option:
Rate per unit
Units of production (page no 84)
Extra time taken by employee to complete the production
Number of workers employed
REF:
While calculating total earnings of a worker under different incentive wage schemes, the following four elements must be taken into account: (i) Unit of output, (ii) Standard time, (iii) Time worked, and (iv) Time saved.
- Which of the following best describes piece rate system?
Select correct option:
The increased volume of production results in decreased cost of production (page no 90)
The increased volume of production in minimum time
Establishment of fair standard rates
Higher output is a result of efficient management
REF:
Advantages of piece rate or piece work system:
1. There is a direct connection between effort and reward. Efficient workers are paid according to their performance and hence a sense of competition is created among workers.
2. Since there is a direct incentive to work there is always a tendency on the part of worker to produce more by adopting correct procedure and techniques of production.
3. The increased volume of production results in decreased cost of production specially overhead cost per unit.
4. Since the cost per unit is fixed computation of labor costs of production in advance is possible.
5. Under this system every worker assumes the responsibility of his time and output so there is considerable scope of reduction in managerial cost.
6. Since the payment is linked with results the idle time costs are reduced to minimum
- The compnent of Factory overhead are as follow
Select correct option:
Direct material + Indirect material + Direct expences
Indirect material + Indirect labor + Others indirect cost (page no 18)
Direct material + Indirect expences + Indirect labor
Direct labor + Indirect labor + Indirect expences
REF:
FACTORY OVERHEAD COST (FOH)
Factory overhead costs are those costs incurred which cannot be identified directly to cost unit. These are incurred in many different parts of organisation.
These include:
1. Indirect materials
2. Indirect labor and
3. Indirect costs attributable to production and the service activities associated with manufacturing.
- Cost of goods sold can be calculated as follow
Select correct option:
Cost of goods manufactured Add Opening finished goods inventory Less Closing finished goods inventory
Cost of goods manufactured Less Opening finished goods inventory Less Closing finished goods inventory
Cost of goods manufactured Less Opening finished goods inventory Add Closing finished goods inventory
Cost of goods manufactured Add Opening finished goods inventory Add Closing finished goods inventor
REF:
Cost of goods manufactured
Add Opening finished goods inventory
Cost of goods to be sold
Less Closing finish goods
Cost of Goods Sold
- Which of the following costs would NOT be a period cost?
Indirect materials
Administrative salaries
Advertising costs
Selling costs
REF:
Period Cost. page no.7
The cost is not related to production(indirect material is a production cost) and is matched against on a time period basis. This cost is considered to be expired during the accounting period and is charged to the profit & loss account.
Example
Selling and administrative expenses
- In cost Accounting, normal loss is/are charged to:
Factory overhead control accounts
Work in process account
Income Statement
All of the given options
REF:
Page no.60
| Treatment in Cost Accounting |
| Normal loss | Abnormal loss |
| 1. Charged to FOH account | 1. Charged to specific WIP account. |
| 2. Overall per unit cost increases | |
| 3. No impact on individual job cost. | |
- The flux method of labor turnover denotes:
Workers employed under the expansion schemes of the company
The total change in the composition of labor force
Workers appointed against the vacancy caused due to discharge or quitting of the organization
Workers appointed in replacement of existing employees
REF:
Page no.97
The flux method of labor turnover denotes the total change in the composition of labor force.
- Cost of material consumed under LIFO costing method is Rs. 6,000. Conversion Cost is Rs. 16,500. 1,000 units of the product were manufactured out of which 800 @ Rs. 30 units sold. There were no beginning and ending inventories of work in process and finished goods.
Required: Calculate per unit cost with the help of given information.
Rs. 22.50
Rs.16.50
Rs. 6.00
Rs. 28.13
REF:
Cost of material =6000
Conversion cost=16500
Total units produced=1000
Per unit cost= cost of good manufactured/no. of units produced
Cost of good manufactured= cost of material +conversion cost
=6000+16500=22500
Per unit COST using formula=22500/1000=22.50
- Capacity Variance / Volume Variance arises due to
Difference between Absorbed factory overhead and budgeted factory for capacity attained
Difference between Absorbed factory overhead and absorption rate
Difference between Budgeted factory overhead for capacity attained and FOH actually incurred
None of the given options
REF:
(ii) page no.124
Capacity Variance .
Absorbed factory overhead Rs. xxxx Budgeted factory overhead for capacity attained RS.XXX
Favorable /UNFAVOURABLE VARIENCE RS.XXX
So according to this statement capacity variance is difference Difference between Absorbed factory overhead and budgeted factory for capacity attained
- Inventory of Rs. 96,000 was purchased during the year. The cost of goods sold was Rs. 90,000 and the ending inventory was Rs. 18,000. What was the inventory turnover ratio for the year?
5.0 times
5.3 times
6.0 times
6.4 times
REF:
Inventory turnover ratio
Inventory turnover ratio = Cost of goods sold
Average inventory
Average inventory = Opening Inventory + Closing Inventory
2
We have closed entery but not opnning enventory,for opening inventory
Cost of good sold= opening inventory+ cost of good purchased- closing stock
90,000=opening inventory+96000-18000
Opening inventory=12000
So putting the values average inventory=12000+18000/2=15000
And inventory turn over ratio=90000/15000=6.0
- A store sells five cases of soda each day. Ordering costs are Rs. 8 per order, and soda costs Rs. 3 per case. Orders arrive four days from the time they are placed. Daily holding costs are equal to 5% of the cost of the soda. What is the EOQ for soda?
4 cases
8 cases
10 cases
23 cases
REF:
The Economic Order Quantity can be determined by applying the formula as under:
Suppose; the
consumption is 5 cases of soda
Cost to place one order is Rs. 8
Cost per unit is Rs. 3
Carrying cost is 5% of Unit cost
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- Nelson Company has following FOH detail.
Budgeted (Rs.) Actual (Rs.)
Production Fixed overheads 36,000 39,000
Production Variable overheads 9,000 12,000
Direct labor hours 18,000 20,000
What would be the amount of under/over applied FOH
Under applied by Rs.1,000
Over applied by Rs.1,000
Under applied by Rs.11,000
Over applied by Rs.38,000
REF:
PAGE NO.126 SEE EXAMPLE
(iv) Over or under absorbed Factory Overhead:
Actual factory overhead Rs. 39000+12000=51000
Absorbed factory overhead
Actual volume x FOH absorption rate
20,000 hrs x Rs. 2.5 RS.50,000
SO UNDER APPLIED 1000
- Consider the given information.
| Estimated FOH | Rs. 100,000 |
| Estimated Direct labour hours | 50,000 Hours |
| Over applied FOH | Rs. 50,000 |
| Under applied FOH | Rs. 15,000 |
| Overhead absorption rate | ? |
Rs. 2.00
Rs. 1.00
Rs. 0.30
Rs. 5.00
REF:
OAR = Estimated F.O.H cost
Base
Bases for FOH Absorption Rate
Following can be used as base to calculate overhead absorption rate:
1. Direct Labor hours
2. Machine hours
3. No. of unit produced
4. Direct labor cost
5. Prime cost
SO HERE WILL BE 100,000/50,000=2
- Budgeted factory overhead is Rs. 40,000 and budgeted variable factory overhead Rs. 25,000 and variable rate Rs. 2.00 per hour.
Required:
Identify the amount of Budgeted Fixed Factory overhead.
Rs. 65,000
Rs.15, 000
Rs. 20,000
Rs. 12,500
REF:
SEE ALSO PAGE NO126
Total FOH =40,000
Budgeted variable FOH = Rs 25000
Budgeted fixed FOH = Rs, 40000 less Rs. 25000 =Rs. 15000
- Department I of ABC manufacturing Company transferred 18,000 units to next department and unit cost of material, Labour and FOH is Rs. 2.00, Rs. 5.00 and Rs. 2.50 respectively.
Identify the cost transferred to next department with the help of given data.
Rs. 36,000
Rs. 45,000
Rs. 90,000
Rs. 171,000
REF:
SEE ALSO PAGE NO .139 EXAMPLE.
As to Direct Material: = 2.00
As to Direct Labor: =5.00
As to F.O.H: = 2.5
TOTAL COST/UNIT 9.5
- Apportionment of the Accumulated Cost:
Cost of units transferred to the next department.
No of completed units x Total cost per unit: 18000 x 9.5 =171,000
- Identify the FOH rate on the basis of machine hour?
| Budgeted production overheads | Rs.280,000 |
| Actual machine hours | 70,000 hours |
| Actual production overheads | Rs.295,000 |
Rs. 4.00
Rs. 4.08
Rs. 4.210
Rs. 4.35
REF:
F.O.H rate = Estimated F.O.H cost
Base
Bases for FOH Absorption Rate
Following can be used as base to calculate overhead absorption rate:
1. Direct Labor hours
2. Machine hours
3. No. of unit produced
4. Direct labor cost
5. Prime cost
SO HERE WILL BE 280,000/70,000=4.00
- Which of the following is TRUE regarding the use of blanket rate?
The use of a single blanket rate makes the apportionment of overhead costs unnecessary
The use of a single blanket rate makes the apportionment of overhead costs necessary
The use of a single blanket rate makes the apportionment of overhead costs uniform
None of the given options
REF:
See page no.107
Blanket rates
A blanket absorption rate is a single rate of absorption used throughout an organization's production facility and based upon its total production costs and activity.
The use of a single blanket rate makes the apportionment of overhead costs unnecessary since the total production costs are to be used
- The cost of Telephone bill of the factory is treated as:
Fixed cost
Variable cost
Step cost
Semi variable cost
REF:
See page no 4.
Semi Variable Cost
It is also known as mixed cost. It is the cost which is part fixed and par variable. It is in fact the mixture of both behaviors.
Examples include: Utility bills – there is a fixed line rent plus charges for units consumed
- If a predetermined FOH rate is not applied and the volume of production is reduced from the planned capacity level, the cost per unit expected to:
Remain unchanged for fixed cost and increased for variable cost
Increase for fixed cost and remain unchanged for variable cost
Increase for fixed cost and decreased for variable cost
Decrease for both fixed and variable costs
REF:
See page no.5
Increase or decrease in production volume causes no change to the variable cost per unit it remains constant, assuming there is not rebate in case of bulk purchase and the labor receives constant rate despite change in production volume. Whereas, increase in production volume causes a decrease in fixed cost per unit and in the same way a decrease in production volume causes an increase in fixed cost per unit.
- Raymond Corporation estimates factory overhead of Rs. 345,000 for next fiscal year. It is estimated that 60,000 units will be produced at a material cost of Rs. 575,000. Conversion will require 34,500 direct labor hours at a cost of Rs. 10 per hour, with 25,875 machine hours.
FOH rate on the bases of Prime cost would be?
Rs. 37.5 per unit
Rs. 56.6 per unit
Rs. 60 per unit
Rs.1 per unit
REF:
OAR = Estimated F.O.H cost
Base
Bases for FOH Absorption Rate
Following can be used as base to calculate overhead absorption rate:
1. Direct Labor hours
2. Machine hours
3. No. of unit produced
4. Direct labor cost
5. Prime cost
