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Cost
cost an organisation incurs to make products and services sold in the marketplace. Also, costs are the money taken out of the company to receive an income after selling the commodity. A producer must bear different costs to manufacture products and services, and these costs can be of various kinds. The cost concept requires that all assets be included within the book of account of the price they were purchased. This consists of the costs incurred for installation, transportation, and purchase. The cost notion is typical in that the asset is paid at the time of sale.
MCQs
Q.1 What’s the primary basis of the concept of cost?
- A) Financial audit
- B) Tax compliance
- C) Cost estimation
- D) Analysis of profit
Answer: (C) Cost estimation
Explanation: Cost ascertainment refers to the method of determining costs based on data that is actual. Thus, the calculation of charge in the past is known as cost ascertainment, and the calculation of the future price is called cost estimation. Cost estimation and cost ascertainment are closely linked and can be extremely useful to management.
Q.2 What kind of firm is costing the most
- A) Bricklaying companies
- B) Oil refining companies
- C) Hospitals
- D) Transport firms
Answer: (B) Oil refining companies
Explanation: Process costing is appropriate for oil refining businesses. Process costing is suitable for companies that produce homogeneous products and continuous production.
Q.3 How many ways is cost classification possible?
- A) There are many ways to use it.
- B) Two ways
- C) Three ways
- D) Four ways.
Answer: (A) There are many ways to use it.
Explanation: Cost classification can be achieved in various ways. In economics, cost classification can be based on variables, fixed or chance production, and sunk costs. However, accounting costs could be classified as indirect or direct for businesses.
Q.4 What cost will be payable even if the company is closed?
- A) Cost of shut-down
- B) Cost of the historical record
- C) Cost of sunk
- D) Imputed cost
Answer: (A) Cost of shut-down
Explanation: An imputed expense is caused by using an asset rather than investing it or in the event of a cost resulting from taking an alternative plan of decision. Imputed costs are invisible costs that do not occur directly, unlike actual costs incurred. Imputed costs do not appear on financial statements.
Q.5 How do you define direct costs, also referred to as?
- A) Chargeable expenses
- B) Other expenses
- C) Overhead expenses
- D) Major expense
Answer: (A) Chargeable expenses
Explanation: All costs that are not direct materials or direct labour can be identified with a specific process, product, or product are called “Direct Expenses.” Examples include production, royalty, hiring costs for special equipment, etc.
Q.6 Rent for warehouses is a component of what cost?
- A) Production cost
- B) Cost of factory
- C) Prime cost
- D) Distribution cost
Answer: (D) Distribution cost
Definition: Distribution cost is the total sum of all the expenses paid by the manufacturer of a product to enable the delivery to the customer from the place it was produced to the final customer.
Q.7 Which tender is it?
- A) Estimation of the cost
- B) Estimation of the price at which it will be sold.
- C) Estimation of units
- D) Estimation of profits
Answer: (B) Estimation of the price at which it will be sold.
Explanation: Cost of Tender is the sum of all charges related to the delivery and the certification of the commodity part of the futures contract. Cost of Tender is the total cost of receiving an actual item delivery.
The tender cost is only assessed if the futures contract holder wants to receive the product instead of closing the position before expiration.
Q.8 How do you calculate the sum of all direct costs referred to?
- (A) Prime cost
- B) Cost of sales
- C) Production costs
- D) Cost of the work
Answer: (A) Prime cost
Explanation: Prime costs are an expense of a business that is directly linked to the labour and materials used in the production process. It is the term used to describe the costs of a manufactured product that are calculated to provide the highest profit margin for a business. The prime cost determines the direct cost of raw materials and labour used in manufacturing
quality. Direct costs don’t include indirect costs like administration and advertising costs.
Q.9 What items aren’t part of cost accounting?
- A) Cost of the product
- B) Controlling
- C) Planning
- D) Profit sharing
Answer: (D) Profit sharing
Explanation: Profit sharing is a method by which employees receive a portion of the business’s net earnings, according to the formula in writing defined in advance. The amount of these payments, which could differ based on pay or salary, is different from regular earnings.
Q.10 What kind of costing do toy manufacturing companies make use of?
- (A) Multiple costing
- B) Batch costing
- C) Costing of the unit
- D) Costing for the process
Answer: (B) Batch costing
Explanation: Batch Costing is employed when products are manufactured in batches and kept in inventory for assembly of components to produce products that are finished or sold to clients. Costs are gathered for each set. After the collection has been completed, costs per unit are calculated by dividing the total price by the amount units included in each batch.
Q.11 Salary paid to permanent employees is an example of what cost?
- a) implicit cost
- B) variable cost
- C) fixed cost
- D) explicit cost
Answer: (C) fixed cost
Explanation: The term “fixed costs” refers to an expense or cost that stays unaffected by the increase or decrease of the number of goods or services offered. They’re typically related to time, such as rent or interest paid each month, and are commonly described as overhead costs. They are essential to achieving higher profits per unit when businesses produce more units.
Q12. AC is equivalent to MC, where
- (A) Both are equal
- B) Minimum MC
- C) AC is minimum
- D) None of the above
Answer: (3) AC is minimum
Explanation: The relation between MC and AC is as follows:
(i) If MC (i) is less than AC, AC is lowered.
(ii) If MC is AC, AC becomes constant (or the minimum).
(iii) If MC > AC (iii) When MC > AC, then AC increases.
(iv) MC curve always is intersected by the AC curve at its lowest point.
Q.13 Someone who uses his capital for the business is, e.g., of
- A) fixed cost
- B) explicit cost
- C) implicit cost
- D) variable cost
Answer: (c) implicit cost
Explanation: An implicit expense is any expense that has already been incurred but has not been declared an independent expenditure. It is an opportunity cost that occurs when a business uses its internal resources to complete a project without direct payment for the use of resources. That means that when a company assigns its resources, it will never lose the possibility of earning profits from using these resources elsewhere, and there is no cash exchange. But the implicit cost is derived from utilising an asset instead of leasing or purchasing it.
Q.14 The form of Marginal cost
- A) M-shaped
- B) S-shaped
- C) U-shaped
- D) L-shaped
Answer: (C) U-shaped
Explanation: Marginal cost curve has a U-shaped in the short-run due to the action that is a part of the “law of variable proportions.” By the law, the MC curve begins to slope downwards until it reaches its lowest point, and then, it starts to increase. This leads to U-shapes of the curve when shown graphically.
Q.15 It is the MC curve is cut AC at its
- A) All of the listed
- B) Minimum point
- C)the highest point
- D) None of the above
Answer: (B) Minimum point
Explanation: Marginal cost curve cuts the average cost curve at the least level because it is at this point that AC = MC.
The marginal cost curve crosses that of the total middle-cost curve at its lowest point. This is because the marginal cost of producing the next output unit will always influence the total cost of production. Therefore, the average price will decrease if the marginal cost is lower than the average total cost.
