Unit costing is used to determine the cost of producing a single unit of output, useful in industries with homogeneous products.
2. Job costing is most suitable for which type of production?
A. Customized or unique orders
B. Mass production of identical units
C. Service industries only
D. Retail sales
Job costing is applied when products or services are made according to specific customer requirements, e.g., construction projects or customized machinery.
3. Which document is used to record the costs incurred on a specific job?
A. Unit cost sheet
B. Job cost card
C. Ledger account
D. Balance sheet
A job cost card tracks all costs related to a specific job, including direct materials, direct labor, and allocated overheads.
4. Which of the following is considered a direct cost in job costing?
A. Factory rent
B. Depreciation of machinery
C. Electricity for factory lighting
D. Raw materials used in the job
Direct costs can be directly traced to a specific job, such as raw materials or wages of workers working on that job.
5. Which method is commonly used to allocate factory overheads to individual jobs?
A. FIFO method
B. Predetermined overhead rate based on labor hours or machine hours
C. LIFO method
D. Weighted average cost
Overheads are often allocated using a predetermined rate, based on estimated total overheads and total labor or machine hours.
6. A job has direct material cost ₹50,000, direct labor ₹20,000, and applied overheads ₹15,000. What is the total job cost?
A. ₹70,000
B. ₹65,000
C. ₹85,000
D. ₹90,000
Total job cost = Direct Material + Direct Labor + Applied Overheads = 50,000 + 20,000 + 15,000 = ₹85,000.
7. Which of the following is NOT an objective of job costing?
A. To calculate cost per unit of identical products
B. To determine the profitability of each job
C. To control and monitor costs
D. To assist in tendering and pricing decisions
Unit costing, not job costing, is used for identical products; job costing focuses on specific, custom jobs.
8. Which of the following is a key feature of batch costing?
A. Used only for service industries
B. Costs are accumulated for a batch of similar units
C. Overheads are not allocated
D. Only direct costs are considered
Batch costing accumulates costs for a specific batch of products to determine cost per unit in that batch, suitable for repeated manufacturing.
9. Which of the following is a typical application of batch costing?
A. Construction of a building
B. Shipbuilding
C. Production of pharmaceuticals in lots
D. Custom software development
Batch costing is commonly used in industries producing items in lots, like pharmaceuticals, garments, and bakery products.
10. Contract costing is generally used in:
A. Large-scale, long-term construction projects
B. Production of small, identical units
C. Retail trading
D. Restaurants and catering
Contract costing is applied to long-term contracts such as construction, shipbuilding, or large engineering projects.
11. Retention money in contract costing refers to:
A. Initial advance payment
B. Full payment at project completion
C. Payment for materials only
D. Portion of payment withheld until satisfactory completion
Retention money is withheld by the client to ensure that the contractor completes all obligations satisfactorily.
12. Progress payments in contract costing are:
A. Final settlement at contract completion
B. Payments made only for materials
C. Interim payments based on work completed
D. Payments to subcontractors only
Progress payments allow the contractor to receive payment in stages as work is completed, improving cash flow.
13. The escalation clause in a contract is used to:
A. Penalize the contractor for delays
B. Adjust the contract price for changes in costs
C. Determine retention money
D. Calculate unit costs
Escalation clauses protect contractors against rising costs of materials, labor, or other inputs during long-term contracts.
14. Which is a key distinction between job costing and contract costing?
A. Job costing is for small, short-term jobs; contract costing is for large, long-term projects
B. Job costing ignores direct costs
C. Contract costing does not include overheads
D. Job costing is only for services
Job costing is applied to small, short-term jobs, whereas contract costing is suitable for large projects spanning months or years.
15. In contract costing, which of the following is usually recorded on a contract account?
A. Only labor costs
B. Only material costs
C. All direct costs, indirect costs, and progress payments
D. Only retention money
Contract accounts record all costs (direct and indirect) along with progress payments to determine profitability and monitor project expenses.
16. What is the primary purpose of a contract account?
A. To record only material costs
B. To record all costs, revenue, and profit related to a contract
C. To calculate unit cost per item
D. To track employee salaries only
Contract accounts accumulate all costs (material, labor, overheads) and revenue to determine the profit or loss on a particular contract.
17. When accounting for materials used in a contract, which of the following is included?
A. Only opening stock
B. Only purchases during the period
C. Opening stock + purchases – closing stock used in contract
D. Only wastage materials
Material cost for a contract includes all materials consumed: opening stock plus purchases during the period minus closing stock.
18. How is plant and machinery used in a contract generally accounted for?
A. Fully expensed in the first year
B. Ignored in contract costing
C. Included only if purchased specifically for the contract
D. Charged to the contract account based on usage or depreciation
Plant and machinery used in a contract are either charged based on hours used or depreciation attributable to the contract to fairly allocate costs.
19. How is contract profit usually determined in accounting?
A. Contract revenue minus total contract costs
B. Total overheads minus direct costs
C. Material cost only
D. Retention money only
Contract profit is the difference between revenue earned from the contract and the total costs incurred on that contract.
20. When recording accounting entries for a contract, which of the following is debited?
A. Bank account for received payments
B. Contract account for costs incurred
C. Profit & Loss account only
D. Retention money account only
All costs incurred on a contract (materials, labor, overheads) are debited to the contract account to track total expenditure.
21. If contract revenue is ₹10,00,000 and total costs are ₹7,50,000, with 10% retention money, what is the recognized profit for the period?
A. ₹2,50,000
B. ₹2,25,000
C. ₹2,50,000 (retention not deducted from profit)
D. ₹2,00,000
Profit = Revenue – Total Costs = 10,00,000 – 7,50,000 = ₹2,50,000. Retention money affects cash flow, not accounting profit.
22. Which of the following costs is typically treated as indirect in contract accounts?
A. Wages of contract labor
B. Materials used directly in contract
C. Cost of subcontracted work
D. Factory overheads allocated to contract
Indirect costs such as factory or site overheads are apportioned to the contract using suitable allocation methods.
23. When plant and machinery is used in multiple contracts, how is its cost treated?
A. Charged fully to the first contract
B. Apportioned based on usage or machine hours for each contract
C. Ignored for accounting purposes
D. Treated as a direct cost in all contracts
When used in multiple contracts, plant costs are apportioned based on usage to fairly allocate expenses.
24. Which of the following is a key feature of process costing?
A. Costs are accumulated for individual jobs
B. Costs are accumulated for each process or department
C. No allocation of overheads is required
D. Only direct material costs are considered
Process costing accumulates costs for each process or department in continuous production, suitable for homogeneous products.
25. Process costing is most suitable for which type of industry?
A. Custom construction projects
B. Software development
C. Oil refining, chemical, or food processing
D. Retail trading
Process costing is ideal for continuous production industries like oil refining, chemicals, textiles, and food processing where units are identical.
26. What is an abnormal loss in process costing?
A. Normal wastage expected in production
B. Loss due to machine maintenance
C. Planned reduction of output
D. Loss exceeding normal expected loss
Abnormal loss is the loss exceeding the normal or expected process loss, often due to accidents, defects, or errors.
27. Equivalent units in process costing are used to:
A. Measure only completed units
B. Measure machine hours
C. Convert partially completed units into full unit equivalents
D. Record raw material usage only
Equivalent units help allocate costs fairly by converting partially completed units into an equivalent number of fully completed units.
28. Inter-process profit arises when:
A. One process sells output to the next process at a profit
B. Material costs increase unexpectedly
C. Labor efficiency improves
D. Overheads are under-applied
Inter-process profit occurs when one process charges the next process a price above cost, which must be eliminated for final costing.
29. Which type of process costing considers losses or gains separately for cost allocation?
A. Job costing
B. Process costing with abnormal gains or losses
C. Contract costing
D. Batch costing
Process costing systems account for abnormal gains or losses separately to ensure accurate cost allocation to units completed.
30. Which of the following is NOT a type of process costing?
A. Weighted average process costing
B. FIFO process costing
C. Job-order process costing
D. Process costing with normal loss
Job-order costing is a separate costing method for specific jobs; it is not a type of process costing.
31. Joint products are:
A. Products of secondary importance produced in a process
B. Two or more products of significant value produced simultaneously from the same process
C. Products produced individually for specific customers
D. Products that are discarded as waste
Joint products are multiple products of significant value obtained simultaneously from a common production process.
32. By-products differ from joint products in that:
A. They are the main products of the process
B. They are always sold at a higher value than joint products
C. They have relatively small value and are secondary outputs
D. They are considered separate contracts
By-products are secondary outputs of a production process, generally of low value compared to joint products.
33. Service costing is primarily used in:
A. Manufacturing of homogeneous goods
B. Construction contracts
C. Batch production industries
D. Service industries like hospitals, transport, hotels
Service costing applies to industries providing services rather than physical products, e.g., hospitals, transport, hotels, and utilities.
34. A cost unit in service costing refers to:
A. The total cost of service department
B. A unit of service for which cost is measured
C. Direct material only
D. Overheads allocation only
The cost unit is a measurable unit of service, such as a passenger kilometer, bed occupied, or patient treated, for cost determination.
35. Multiple costing refers to:
A. Using a single costing method for all products
B. Costing applied only to one department
C. Applying different costing methods to different departments or products in an organization
D. Ignoring indirect costs
Multiple costing involves using different costing methods (unit, job, batch, contract, process, or service costing) within the same organization for different departments or products.
36. Which of the following is an objective of unit costing and multiple costing?
A. To prepare only financial statements
B. To ignore material costs
C. To calculate overheads only
D. To determine cost per unit/service and aid in control and decision-making
Unit and multiple costing help determine cost per unit or service, control expenses, and assist in pricing and management decisions.
37. Identification of the cost unit is important because:
A. It helps in calculating profit only
B. It provides a standard measure for assigning costs and comparing efficiency
C. It is required for taxation only
D. It avoids the need for overhead allocation
Identifying the cost unit allows consistent allocation of costs and comparison of efficiency across units or services.
38. In service costing, which of the following is usually a cost-determining factor?
A. Raw materials only
B. Direct labor only
C. Units of service provided (e.g., patient treated, passenger km)
D. Retention money
Service cost is measured in terms of the output of the service unit, like passenger kilometers, beds occupied, or patients treated.
39. Which of the following is NOT an application of multiple costing?
A. Ignoring departmental cost differences
B. Controlling costs in different departments
C. Assisting in pricing decisions for various products
D. Evaluating departmental efficiency
Multiple costing specifically recognizes and controls cost differences between departments; ignoring them would defeat its purpose.
