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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam

Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

Multiple choice questions/ Fill in the blanks/ Match the following.


1. Process costing systems are effective in environments that mass produce relatively identical
products. (True)
2. In job costing, different units of the same batch might be at different stages of completion
(either in work in process or finished goods), whereas in process costing a unit is either in
process or completed. (False)
3. In computing equivalent units for the period, you must first multiply the physical units by
the percentage completion to obtain equivalent units for the units still in process and then add
this amount to the units complete. (True)
4. If a firm begins with period with beginning inventory, most firms use first-in-first-out
method for process costing to avoid complication. (False)
5. In a job-cost environment, a firm must not only allocate overhead costs, but the cost of
materials and conversion. (False)
Match the items below by entering the appropriate code letter in the space provided.
A.
B.
C.
D.
E.

Weighted Average Process Costing


Equivalent units
Standard costing
Job Costing
Process shop

F. Process-costing reports
G. Conversion costs
H. Allocation rate
I. Process Costing
J. Job shop

6. This report includes the following five steps: track the physical flow, compute equivalent
units, collect costs to allocate, calculate the rate per equivalent units, and allocate costs. (F)
7. An environment that involves continuous production. (E)
8. The process-costing systems that do not differentiate between costs from prior period and
costs incurred. (A)
9. Suitable for environments that involve mass product of similar products. (I)
10. Manufacturing costs incurred during a given month divided by equivalent units. (H)
11. The system that uses predetermined rates that comes from company standards. (C)
12. Suitable for environments that produce customized products in small amounts. (D)
13. The cost required to convert input materials into finished goods, usually includes labor and
overhead. (G)
14. The amount of output stated in terms of completed units. (B)
15. An environment that involves discrete production. (J)
16. Process costing systems:
A. Are suitable for firms that produce customized products in small amounts.
B. Use in-process units as the basis to allocate costs between ending WIP and COGM.
C. Use equivalent units to convert in-process units to equivalent completed units.
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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

D. All of the above.


17. Which is not one of the five steps in a process-costing report?
A. Compute equivalent units.
B. Allocate costs.
C. Calculate the rate per equivalent.
D. Collect revenues to allocate.
18. A(n) Process is a series of activities or operations that are linked to perform a specific
objective.
19. The costs transferred from a prior process to a subsequent process are referred to as
transferred-in costs
20. The production report is the document that summarizes the manufacturing activity that takes
place in a process department for a given period of time.
21. To calculate the periods unit cost, divide the costs of the period by the output of the
period is known as the process costing principle
22. The completed units that could have been produced given the total amount of productive
effort expended during the period under consideration are known as the equivalent units of
output
23. Under the FIFO costing method, the equivalent units and manufacturing costs in
beginning work in process are excluded from the current-period unit cost calculation.
24. Cost reconciliation is determining whether the costs in beginning work in process plus the
manufacturing costs added during the current period equal the total costs assigned to units
transferred out and to units in ending work in process.
25. The major benefit of the weighted average costing method is simplicity.
26. Operation costing is a blend of job and process costing procedures applied to batches of
homogeneous products.
27. Which of the following organizations would be most likely to use a job order costing
system?
a.the loan department of a bank
b.the check clearing department of a bank
c.a manufacturer of processed cheese food
d.a manufacturer of video cassette tapes
28. When job order costing is used, the primary focal point of cost accumulation is the
a.department.
b.supervisor.
c.item.
d.job.
29. In a job order costing system,
a. standards cannot be used.
b. an average cost per unit within a job cannot be computed.
c. costs are accumulated by departments and averaged among all jobs.
d. overhead is typically assigned to jobs on the basis of some cost driver.
30. What is the best cost accumulation procedure to use when many batches, each differing as
to product specifications, are produced?
a.job order
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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

b.process
c.actual
d.standard
31. Which of the following could not be used in job order costing?
a. standards
b. an average cost per unit for all jobs
c. normal costing
d. overhead allocation based on the job's direct labor hours
32. Which of the following are drawbacks to applying actual overhead to production?
a. A delay occurs in assigning costs to jobs or products.
b. Fluctuations in quantities produced during a period could cause varying per-unit
charges for fixed overhead.
c. Seasonality of overhead costs may cause distortions in job or product costs.
d. all answers are correct.
33. Job order costing and process costing have which of the following characteristics?
Job Order Costing

Process Costing

homogeneous products
heterogeneous products
and large quantities
and small quantities
homogeneous products
heterogeneous products
and small quantities
and large quantities
heterogeneous products homogeneous products
and large quantities
and small quantities
heterogeneous products homogeneous products
and small quantities
and large quantities
34. In a job order costing system, the amount of the entry that debits Finished Goods Inventory
and credits Work in Process Inventory is the sum of the costs charged to all jobs
a. started in process during the period.
b. in process during the period.
c. completed and sold during the period.
d. completed during the period.
35. The primary accounting document in a job order costing system is a(n)
a. bill of materials.
b. job order cost sheet.
c. employee time sheet.
d. materials requisition.
36. Production overhead does not include the costs of
a. factory depreciation and supplies.
b. factory employees' cafeteria departments.
c. production line labour.
d. the maintenance department for the factory.
37. Debits to Cost of Goods Sold typically represent the
a. transfer of completed items to Finished Goods Inventory.
b. costs of items sold.
c. selling price of items sold.
d. the cost of goods manufactured.
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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

38. After the completion of production, standard and actual costs are compared to determine
the ______ of the production process.
a. effectiveness
b. complexity
c. homogeneity
d. efficiency
39. A company producing which of the following would be most likely to use a time standard
for labor?
a. mattresses
b. picture frames
c. floral arrangements
d. stained-glass windows
40. A service organization would be most likely to use a predetermined overhead rate based on
a. machine hours.
b. standard material cost.
c. direct labor.
d. number of complaints.
41. Knowing specific job costs enables managers to effectively perform which of the
following tasks?
a. estimate costs of future jobs.
b. establish realistic job selling prices.
c. evaluate job performance.
d. all answers are correct.
42. A job order costing system is likely to provide better
(1) inventory valuations for financial statements.
(2) control over inventory.
(3) information about ability to accept additional production work.
(1)

(2)

yes
no
no
yes

no
yes
no
yes

(3)
no
yes
no
yes

43. A unit that is rejected at a quality control inspection point, but that can be reworked and
sold, is referred to as a
a. spoiled unit.
b. scrap unit.
c. abnormal unit.
d. defective unit.
44. In a job order costing system, the net cost of normal spoilage is equal to
a. estimated disposal value plus the cost of spoiled work.
b. the cost of spoiled work minus estimated spoilage cost.
c. the units of spoiled work times the predetermined overhead rate.
d. the cost of spoiled work minus the estimated disposal value.
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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

45. Abnormal spoilage is


a. spoilage that is forecasted or planned.
b. spoilage that is in excess of planned.
c. accounted for as a product cost.
d. debited to Cost of Goods Sold.
46. Normal spoilage is defined as unacceptable production that
a. arises because of a special job or process.
b. occurs in on-going operations.
c. is caused specifically by human error.
d. is in excess of that which is expected.
47. Distinguish between Job Costing & Batch Costing?
Solution: Job Costing and Batch Costing Accounting to job costing, costs are collected and
accumulated according to job. Each job or unit of production is treated as a separate entity for
the purpose of costing. Job costing may be employed when jobs are executed for different
customers according to their specification. Batch costing is a form of job costing, a lot of
similar units which comprises the batch may be used as a cost unit for ascertaining cost. Such a
method of costing is used in case of pharmaceutical industry, readymade garments, industries
manufacturing parts of TV, radio sets etc.
48. Distinguish between Job Costing and Process Costing?
Solution: The main points which distinguish Job Costing and Process Costing are as below:
Job Costing
A Job is carried out or a product is produced by specific orders.
Costs are determined for each job.
Each job is separate and independent of other jobs.
Each job or order has a number and costs are collected against the same job number.
Costs are computed when a job is completed. The cost of a job may be determined by adding
all costs against the job.
As production is not continuous and each job may be different, so more managerial attention is
required for effective control.
Process Costing
The process of producing the product has a continuous flow and the product produced is
homogeneous.
Costs are compiled on time basis i.e., for production of a given accounting period for each
process or department.
Products lose their individual identity as they are manufactured in a continuous flow.
The unit cost of process is an average cost for the period.
Costs are calculated at the end of the cost period. The unit cost of a process may be computed
by dividing the total cost for the period by the output of the process during that period.
Process of production is usually standardized and is therefore, quite stable. Hence control here
is comparatively easier.
49. What do you understand by Operating Costs? Describe its essential features and state
where it can be usefully implemented?
Solution:
Operating Costs are the costs incurred by undertakings which do not manufacture any product
but provide a service. Such undertakings for example are Transport concerns, Gas agencies;
Electricity Undertakings; Hospitals; Theatres etc. Because of the varied nature of activities
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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

carried out by the service undertakings, the cost system used is obviously different from that
followed in manufacturing concerns.
The essential features of operating costs are as follows:
(1) The operating costs can be classified under three categories. For example in the case of
transport undertaking these three categories are as follows:
(a) Operating and running charges: It includes expenses of variable nature. For example
expenses on petrol, diesel, lubricating oil, and grease etc.
(b) Maintenance charges: These expenses are of semi-variable nature and include the cost of
tyres and tubes, repairs and maintenance, spares and accessories, overhaul, etc.
(c) Fixed or standing charges: These includes garage rent, insurance, road licence, depreciation,
interest on capital, salary of operating manager, etc.
(2) The cost unit used is composite like passenger-mile; Kilowatt-hour, etc.
It can be implemented in all firms of transport, airlines, bus-service, etc., and by all firms of
distribution undertakings.
50. Explain briefly the concept of flexible budget.
Solution
Flexible Budget: A flexible budget is defined as a budget which, by recognizing the
difference between fixed, semi-variable and variable cost is designed to change in relation to
the level of activity attained. In flexibility budgetary control system, a series of budgets are
prepared one for the each of a number of alternative production levels or volumes. Flexible
budgets represent the amount of expense that is reasonably necessary to achieve each level of
output specified. In other words, the allowances given under flexibility budgetary control
system serve as standards of what costs should be at each level of output.
51. List the eight functional budgets prepared by a business.
Solution:
The various commonly used Functional budgets are:
Sales Budget
Production Budget
Plant Utilisation Budget
Direct Material Usage Budget
Direct Material Purchase Budget
Direct Labour (Personnel) Budget
Factory Overhead Budget
Production Cost Budget.
52. Distinguish between Fixed and flexible budget.
Solution:
Difference between Fixed and Flexible Budgets

DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

53. Explain the Essentials of budget.


Solution:
Essentials of budget
It is prepared in advance and is based on a future plan of actions
It relates to a future period and is based on objectives to be attained.
It is a statement expressed in monetary and/ or physical units prepared for the implementation
of policy formulated by management.
Meaning of Process Costing
Process Costing is a method of Costing used in industries where the material has to pass
through two or more processes for being converted into a final product. It is defined as a
method of Cost Accounting whereby costs are charged to processes or operations and averaged
over units produced. A separate account for each process is opened and all expenditure
pertaining to a process is charged to that process account. Such type of costing method is useful
in the manufacturing of products like steel, paper, medicines soap, chemicals, rubber, vegetable
oil, paints, varnish etc. where the production process is continuous and the output of one
process becomes the input of the following process till completion.
Basic features: Industries, where process costing can be applied, have normally one or more of
the following features:
1. Each plant or factory is divided into a number of processes, cost centres or
departments, and each such division is a stage of production or a process.
2. Manufacturing activity is carried on continuously by means of one or more process
run sequentially, selectively or parallely.
3. The output of one process becomes the input of another process.
4. The end product usually is of like units not distinguishable from one another.
5. It is not possible to trace the identity of any particular lot of output to any lot of input
materials. For example, in the sugar industry, it is impossible to trace any lot of sugar
bags to a particular lot of sugarcane fed or vice versa.
6. Production of a product may give rise to Joint and/or By-Products.
Loss of material is inherent during processing operation. The loss of material under different
processes arises due to reasons like evaporation or a change in the moisture content etc.
Process loss is defined as the loss of material arising during the course of a processing
operation and is equal to the difference between the input quantity of the material and its
output.
There are two types of material losses viz.
(i) Normal loss and (ii) Abnormal loss.
(i) Normal process loss: It is defined as the loss of material which is inherent in the nature of
work. Such a loss can be reasonably anticipated from the nature of the material, nature of
operation, the experience and technical data. It is unavoidable because of nature of the material
or the process. It also includes units withdrawn from the process for test or sampling.
Treatment in Cost Accounts : The cost of normal process loss in practice is absorbed by good
units produced under the process. The amount realised by the sale of normal process loss units
should be credited to the process account.
(ii) Abnormal process loss: It is defined as the loss in excess of the pre-determined loss
(Normal process loss). This type of loss may occur due to the carelessness of workers, a bad
plant design or operation, sabotage etc. Such a loss cannot obviously be estimated in advance.
But it can be kept under control by taking suitable measures. Treatment in Cost Accounts: The
cost of an abnormal process loss unit is equal to the cost of a good unit. The total cost of
abnormal process loss is credited to the process account from which it arise. Cost of abnormal
process loss is not treated as a part of the cost of the product. In fact, the total cost of abnormal
process loss is debited to costing profit and loss account.
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DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

(iii) Abnormal gain: Sometimes, loss under a process is less than the anticipated normal figure.
In other words, the actual production exceeds the expected figures. Under such a situation the
difference between actual and expected loss or actual and expected production is known as
abnormal gain. So abnormal gain may be defined as unexpected gain in production under
normal conditions. Treatment in Cost Accounts: The process account under which abnormal
gain arises is debited with the abnormal gain and credited to Abnormal gain account which will
be closed by transferring to the Costing Profit and loss account. The cost of abnormal gain is
computed on the basis of normal production.
Illustration 1: Process Costing
From the following data, prepare process accounts indicating the cost of each process and the
total cost. The total units that pass through each process were 240 for the period.

DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

Illustration 2: (Treatment of normal loss, abnormal loss and abnormal gain)


A product passes through three processes. The output of each process is treated as the raw
material of the next process to which it is transferred and output of the third process is
transferred to finished stock.

DDBBA+MBA Programme-Semester 3-BM1205-MA-Objective Set-3-Exam


Preparation Material- MCQ, Fill in the Blanks, True or False and Match the
Following-Faculty Facilitator- Ms. Sheetal Thomas

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