Chapter 31: An Overview of Cost And Management Accounting (JAIIB – Paper 3)
1. Which of the following best defines cost accounting?
A. A system to track only financial transactions
B. Preparation of tax returns
C. A technique to ascertain, control, and analyze costs
D. Recording only fixed assets
Cost accounting is concerned with ascertaining, analyzing, and controlling costs to help management in decision-making.
2. Which of the following is an objective of cost accounting?
A. Determining cost of production
B. Filing income tax returns
C. Maintaining employee attendance
D. Auditing statutory accounts only
One main objective of cost accounting is to determine the cost of production or services for better planning and control.
3. Cost accounting evolved primarily to:
A. Comply with GST regulations
B. Replace financial accounting
C. Manage payroll alone
D. Assist management in cost control and decision-making
Cost accounting evolved to provide management with cost information for controlling expenses and making informed decisions.
4. Which of the following is NOT a concept of cost?
A. Fixed Cost
B. Market Price
C. Variable Cost
D. Direct Cost
Market price is not a cost concept; it refers to the selling price, whereas fixed, variable, and direct costs are key cost concepts.
5. In cost accounting, indirect costs are also known as:
A. Overheads
B. Direct labor
C. Prime costs
D. Marginal costs
Indirect costs, which cannot be traced to a specific product, are termed as overheads in cost accounting.
6. Prime cost includes:
A. Overheads only
B. Fixed cost only
C. Direct materials, direct labor, and direct expenses
D. Administrative expenses
Prime cost refers to all direct costs of production: direct materials, direct labor, and direct expenses.
7. Which of the following best describes the scope of cost accounting?
A. Only recording costs of materials
B. Cost ascertainment, cost control, and cost analysis
C. Auditing accounts of a company
D. Calculating profit only
The scope of cost accounting includes cost ascertainment, controlling costs, and analyzing costs to support management decisions.
8. Which of the following is an example of a direct cost?
A. Factory rent
B. Raw materials used in production
C. Salaries of administrative staff
D. Depreciation of office equipment
Direct costs can be directly traced to a product, such as raw materials used in production.
9. Which of the following is considered an element of cost?
A. Selling price
B. Profit
C. Market demand
D. Labor, material, and overheads
The elements of cost include materials, labor, and overheads which together form the total cost of a product or service.
10. What is a cost centre?
A. A unit where sales are recorded
B. The location of a company head office
C. A department or location where costs are accumulated
D. A unit to calculate profit only
A cost centre is a specific department or location in an organization where costs are collected and monitored.
11. What is a cost unit?
A. A unit of product or service for which costs are ascertained
B. Total sales achieved in a month
C. Profit earned per department
D. Market share percentage
A cost unit represents a product, service, or unit of output for which costs are calculated.
12. Which of the following is a method of costing?
A. Financial accounting
B. Job costing
C. Budgeting
D. Auditing
Job costing is a method where costs are accumulated for each specific job or order.
13. Process costing is most suitable for:
A. Custom furniture manufacturing
B. Consultancy projects
C. Specialized printing orders
D. Continuous production industries like chemicals or steel
Process costing is used where production is continuous and homogeneous, such as chemicals, steel, or textiles.
14. Which technique of costing is used to control overheads by assigning them to different departments?
A. Job costing
B. Distribution/Apportionment of overheads
C. Activity-based costing
D. Marginal costing
Overhead apportionment and allocation is a technique to assign indirect costs to different departments or cost centres.
15. Which of the following is a modern technique of costing used to analyze activities and assign costs more accurately?
A. Job costing
B. Process costing
C. Activity-based costing (ABC)
D. Standard costing
Activity-based costing assigns overheads based on actual activities, improving accuracy in cost analysis and control.
16. Cost Accounting Standards (CAS) are primarily issued to:
A. Regulate stock market transactions
B. Standardize cost accounting principles and practices
C. Determine income tax liability
D. Audit financial statements
Cost Accounting Standards are issued to ensure uniformity and consistency in cost accounting principles and practices.
17. Which of the following best defines management accounting?
A. Recording financial transactions for tax purposes
B. Auditing financial statements
C. Providing financial and non-financial information for management decision-making
D. Preparing cost sheets only
Management accounting focuses on analyzing financial and non-financial data to assist management in planning, control, and decision-making.
18. One of the main objectives of management accounting is:
A. Assisting management in decision-making
B. Filing corporate tax returns
C. Maintaining statutory records
D. Conducting internal audits only
Management accounting provides relevant information to assist managers in making informed decisions.
19. Which of the following is NOT a scope area of management accounting?
A. Financial planning and control
B. Preparation of statutory audit reports
C. Cost control and analysis
D. Decision-making support
Management accounting supports managerial decisions, planning, and control; statutory audit reporting is not part of its scope.
20. Which tool of management accounting helps in comparing actual performance with standards?
A. Break-even analysis
B. Ratio analysis
C. Standard costing
D. Fund flow statement
Standard costing involves setting standard costs and comparing them with actual costs to measure performance.
21. Activity-based costing (ABC) is classified as a tool of:
A. Financial accounting
B. Tax accounting
C. Budgetary control
D. Management accounting
Activity-based costing is a management accounting tool that assigns overhead costs based on actual activities, improving decision-making.
22. Break-even analysis is mainly used to:
A. Calculate depreciation
B. Determine the level of sales at which total revenue equals total cost
C. Allocate overheads to departments
D. Prepare cash flow statements
Break-even analysis identifies the point where total revenue equals total costs, helping management in planning and pricing decisions.
23. Ratio analysis in management accounting is used for:
A. Tax computation
B. Auditing only
C. Evaluating financial performance and efficiency
D. Recording journal entries
Ratio analysis helps management assess profitability, liquidity, solvency, and operational efficiency.
24. Which of the following is a technique used to plan and control costs in management accounting?
A. Financial auditing
B. Tax planning
C. Stock verification
D. Budgetary control
Budgetary control involves preparing budgets and comparing actual performance to plan, helping in cost control and decision-making.
25. Which of the following statements correctly describes the relationship between financial accounting and cost accounting?
A. Financial accounting replaces cost accounting
B. Financial accounting provides data for cost accounting, and cost accounting provides detailed cost analysis
C. Cost accounting is unrelated to financial accounting
D. Both are used solely for tax computation
Financial accounting records overall transactions, which provide the base for cost accounting to analyze and control costs.
26. How does management accounting relate to financial management?
A. Management accounting is only for statutory reporting
B. Financial management is independent and does not use management accounting data
C. Management accounting provides information to aid financial management decisions like investment and financing
D. Both focus solely on cost calculation
Management accounting supplies financial and operational data that financial management uses for planning, investment, and funding decisions.
27. Which statement best explains the difference between cost accounting and management accounting?
A. Cost accounting focuses on cost determination and control; management accounting focuses on decision-making support
B. Management accounting deals only with financial statements
C. Cost accounting is used only for budgeting
D. Both are identical in purpose and scope
Cost accounting is mainly concerned with ascertaining and controlling costs, whereas management accounting uses this and other data to support managerial decisions.
28. Which of the following correctly shows the flow of information among these accounting disciplines?
Financial accounting provides data for cost accounting; cost accounting helps management accounting in analysis; management accounting supports financial management decisions.
29. Which of the following areas is common between management accounting and financial management?
A. Statutory reporting only
B. Planning, decision-making, and performance evaluation
C. Payroll processing
D. Tax filing
Both management accounting and financial management focus on planning, decision-making, and evaluating organizational performance.
30. Which of the following statements is TRUE?
A. Cost accounting replaces management accounting
B. Financial accounting is mainly used for managerial decision-making
C. All four disciplines are interrelated and provide information for decision-making, control, and planning
D. Financial management does not use data from cost or management accounting
Financial accounting, cost accounting, management accounting, and financial management are interrelated and collectively support planning, control, and decision-making in organizations.
