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CHSE Odisha Cost Accounting study materials
CHSE Odisha Cost Accounting study resources

CHSE Odisha Cost Accounting practice questions

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Question 1Introduction to Cost Accounting and Cost Concepts

Which of the following is the primary objective of cost accounting in a manufacturing organisation?

  1. To ascertain, record and control product or service costs Correct answer.
  2. To determine the taxable income of the organisation for the assessment year
  3. To record cash receipts and payments for the financial year
  4. To prepare the balance sheet as required under the Companies Act

Explanation

Cost accounting is designed to ascertain the cost of each product, process or service and to help management control those costs through comparison with standards and budgets. Recording cash receipts and payments is the function of the cash book maintained under financial accounting. Computation of taxable income and preparation of the balance sheet are statutory financial reporting tasks, not the primary purpose of cost accounting.

Question 2Introduction to Cost Accounting and Cost Concepts

In cost accounting terminology, a 'cost unit' is best described as:

  1. A location or item of equipment for which costs are collected and allocated
  2. The gap between selling price and product cost
  3. The total expenditure incurred on all products manufactured in a period
  4. A unit of product or service for which costs are ascertained Correct answer.

Explanation

A cost unit is the quantitative measure of output, such as a tonne of steel, a chair or a passenger-kilometre, for which cost is computed. A location, person or item of equipment for which costs are collected is instead called a cost centre. Total expenditure for a period is total cost, while the gap between selling price and cost is profit or margin.

Question 3Introduction to Cost Accounting and Cost Concepts

A cost that remains constant in total within the relevant range of activity but falls per unit as output rises is classified as:

  1. A fixed cost Correct answer.
  2. A variable cost
  3. An opportunity cost
  4. A semi-variable cost

Explanation

A fixed cost, such as factory rent or straight-line depreciation, does not change in total when output moves within the relevant range, so the amount recovered per unit falls as more units are produced. A variable cost changes in total with output but stays roughly constant per unit. A semi-variable cost contains both a fixed and a variable element, and an opportunity cost measures the benefit foregone from an alternative use of resources.

Question 4Introduction to Cost Accounting and Cost Concepts

From the following data, compute the prime cost: direct material ₹80,000; direct wages ₹50,000; direct expenses ₹10,000; factory overheads ₹40,000; office overheads ₹25,000.

  1. ₹1,40,000 Correct answer.
  2. ₹1,80,000
  3. ₹2,05,000
  4. ₹1,30,000

Explanation

Prime cost consists of direct material, direct wages and direct expenses only, so it equals ₹80,000 + ₹50,000 + ₹10,000 = ₹1,40,000. Factory overheads and office overheads are indirect costs and are excluded from prime cost. Factory overhead is added to prime cost at a later stage to arrive at works cost.

Question 5Introduction to Cost Accounting and Cost Concepts

Prime cost is ₹2,00,000, factory overheads are ₹60,000, opening work-in-progress is ₹15,000 and closing work-in-progress is ₹25,000. What is the works cost (factory cost)?

  1. ₹2,60,000
  2. ₹2,50,000 Correct answer.
  3. ₹2,75,000
  4. ₹2,40,000

Explanation

Works cost is prime cost plus factory overheads, adjusted for opening and closing work-in-progress: ₹2,00,000 + ₹60,000 + ₹15,000 − ₹25,000 = ₹2,50,000. Opening work-in-progress is added because it represents work carried forward from the previous period, while closing work-in-progress is deducted because those units are not yet complete. Ignoring either adjustment misstates the cost of goods completed during the period.

Question 6Introduction to Cost Accounting and Cost Concepts

Cost of production is ₹5,00,000, opening finished goods stock is ₹40,000, closing finished goods stock is ₹55,000 and selling and distribution overheads are ₹30,000. What is the cost of goods sold?

  1. ₹4,85,000 Correct answer.
  2. ₹5,00,000
  3. ₹5,95,000
  4. ₹5,15,000

Explanation

Cost of goods sold is cost of production plus opening finished goods stock minus closing finished goods stock: ₹5,00,000 + ₹40,000 − ₹55,000 = ₹4,85,000. Selling and distribution overheads are not part of cost of goods sold; they are added afterwards to arrive at the cost of sales. Adding both stock figures or ignoring stock movement gives an incorrect figure.

Question 7Introduction to Cost Accounting and Cost Concepts

A trader owns the shop premises he uses for his business; if rented out, the premises would fetch ₹20,000 per month. In cost accounting, this monthly rental foregone is:

  1. An abnormal loss arising from the use of the premises
  2. A sunk cost that should be ignored in all decisions
  3. An imputed (opportunity) cost relevant to decision making Correct answer.
  4. An explicit cost recorded in the cash book each month

Explanation

An imputed or opportunity cost measures the benefit foregone by using an owned resource in its present use rather than in its next best alternative. No cash changes hands, so it does not appear in the books as a payment, but it is relevant when judging whether the business use of the premises is worthwhile. A sunk cost, by contrast, is a past outlay that cannot be recovered and is irrelevant to future decisions.

Question 8Introduction to Cost Accounting and Cost Concepts

Which statement correctly distinguishes cost allocation from cost apportionment?

  1. Allocation is direct charging to one cost centre; apportionment is sharing among several cost centres. Correct answer.
  2. Allocation is carried out after apportionment has been completed, when the factory overhead accounts are closed.
  3. Allocation is used only for service departments, whereas apportionment is used only for production departments.
  4. Allocation deals only with factory overheads, while apportionment deals only with administrative and selling overheads.

Explanation

Allocation charges an entire cost item to a single cost centre because that item is directly identifiable with it, for example the salary of a supervisor in one department. Apportionment divides a common indirect cost among two or more cost centres on an equitable basis such as floor area, machine hours or number of employees. The distinction rests on whether the cost is wholly identifiable with one centre or must be shared, not on the type of overhead or the nature of the department.

Question 9Introduction to Cost Accounting and Cost Concepts

Direct wages are ₹1,20,000, direct expenses ₹30,000, factory overheads ₹90,000 and office and administrative overheads ₹60,000. What is the conversion cost?

  1. ₹1,50,000
  2. ₹3,00,000
  3. ₹2,10,000 Correct answer.
  4. ₹2,70,000

Explanation

Conversion cost is the cost of converting raw material into finished product and comprises direct wages plus factory (production) overheads: ₹1,20,000 + ₹90,000 = ₹2,10,000. Direct expenses are part of prime cost but are not included in conversion cost. Office and administrative overheads are excluded because they are not incurred in the factory conversion process.

Question 10Introduction to Cost Accounting and Cost Concepts

Which of the following pairings of a cost classification with its example is correct?

  1. Semi-variable cost - electricity charged at a fixed minimum plus a rate per unit Correct answer.
  2. Variable cost - straight-line depreciation on factory machinery
  3. Fixed cost - royalty paid per unit of output produced
  4. Sunk cost - the salary to be paid next year to a newly appointed supervisor

Explanation

A semi-variable cost has both a fixed element and a variable element, and electricity billed as a fixed minimum charge plus a rate per unit consumed fits that pattern. Royalty paid per unit changes directly with output and is therefore a variable cost, while straight-line depreciation is constant in total within the relevant range and is a fixed cost. A salary payable in the future is a future outlay, not a sunk cost, because a sunk cost is an irrecoverable past outlay.

Question 11Introduction to Cost Accounting and Cost Concepts

In cost accounting, a cost centre is best described as:

  1. a unit of output sold to customers
  2. the total expenditure shown in the cost sheet
  3. a department that earns revenue for the firm
  4. a location or function for which costs are collected Correct answer.

Explanation

A cost centre is a location, person or item of equipment for which costs are ascertained and used for cost control. It may be a production department or a service department, and it need not generate revenue. The cost unit, by contrast, is a unit of product or service for which cost is measured.

Question 12Introduction to Cost Accounting and Cost Concepts

A cost that has already been incurred and cannot be altered by any future decision is known as:

  1. sunk cost Correct answer.
  2. imputed cost
  3. differential cost
  4. opportunity cost

Explanation

A sunk cost has already been incurred and cannot be recovered or changed by any future decision. It is therefore irrelevant for decision-making, although it remains in the accounting records. Opportunity, imputed and differential costs all relate to current or future alternatives.

Question 13Introduction to Cost Accounting and Cost Concepts

Which of the following is classified as a period cost in a manufacturing organisation?

  1. depreciation of office computers Correct answer.
  2. direct material consumed
  3. lubricants used on factory machines
  4. direct wages paid to production workers

Explanation

Period costs are expensed in the income statement of the period in which they are incurred and are not included in inventory valuation. Depreciation of office computers is an administrative period cost. Direct material, direct wages and factory lubricants are product costs attached to units produced.

Question 14Introduction to Cost Accounting and Cost Concepts

A production supervisor can influence the quantity of lubricant used in her department. For her performance report, the lubricant cost is best classified as:

  1. a sunk cost
  2. a controllable cost Correct answer.
  3. a committed cost
  4. an unavoidable cost

Explanation

A controllable cost is one that a manager can influence significantly within a given period through decisions and actions. Lubricant usage in the supervisor's department is within her control, so it is suitable for her performance report. Committed, sunk and unavoidable costs cannot be altered by current departmental action.

Question 15Introduction to Cost Accounting and Cost Concepts

A company is considering a special order that will increase total costs by ₹40,000. For this decision, the ₹40,000 is best described as:

  1. imputed cost
  2. standard cost
  3. sunk cost
  4. differential cost Correct answer.

Explanation

Differential cost is the increase or decrease in total cost between two alternatives. The ₹40,000 extra cost caused by accepting the special order is the relevant differential cost for the decision. Sunk costs are past costs, imputed costs are notional, and standard costs are predetermined benchmarks.

Question 16Introduction to Cost Accounting and Cost Concepts

Which statement correctly distinguishes cost control from cost reduction?

  1. Cost control is a one-time exercise, while cost reduction is performed at the year end.
  2. Cost control applies only to factory overheads, while cost reduction applies only to direct costs.
  3. Cost control maintains costs within established standards, while cost reduction seeks permanent improvement. Correct answer.
  4. Cost control aims at increasing selling price, while cost reduction aims at increasing output.

Explanation

Cost control compares actual costs with predetermined standards and takes corrective action to keep spending within those limits. Cost reduction is a continuous, planned effort to lower costs permanently by improving methods, design and organisation. Control works within existing standards, while reduction challenges and changes them.

Question 17Introduction to Cost Accounting and Cost Concepts

A firm manufactures custom-made machinery in distinct batches, each according to a customer's order. The most appropriate method of costing is:

  1. service costing
  2. process costing
  3. job costing Correct answer.
  4. contract costing

Explanation

Job costing is appropriate where each job or batch is distinct and produced to a customer's specification, so costs are accumulated separately for each job. Custom-made machinery in batches fits this method. Process costing suits continuous production, service costing suits service businesses, and contract costing suits long-term construction contracts.

Question 18Introduction to Cost Accounting and Cost Concepts

A cost that contains both a fixed element and a variable element is called:

  1. a semi-variable cost Correct answer.
  2. a sunk cost
  3. a stepped cost
  4. an opportunity cost

Explanation

A semi-variable cost has both a fixed component, incurred even at zero output, and a variable component that changes with activity. It is also called a mixed cost. A stepped cost is fixed over ranges but jumps at certain activity levels, while sunk and opportunity costs are decision-making concepts.

Question 19Introduction to Cost Accounting and Cost Concepts

Which of the following is most likely to be classified as a discretionary cost?

  1. wages of assembly workers
  2. depreciation of factory machinery
  3. research and development expenditure Correct answer.
  4. direct material consumed

Explanation

Discretionary costs are those whose level is set by management policy and can be varied in the short term without immediate effect on output, such as research and development, advertising or training. They are not engineered costs tied directly to production volume. Depreciation, direct material and assembly wages are committed or engineered product costs.

Question 20Introduction to Cost Accounting and Cost Concepts

A firm absorbs fixed overheads at ₹8 per unit based on a budget of 10,000 units. Actual output is 9,000 units and actual fixed overheads are ₹78,000. The fixed overheads are:

  1. over-absorbed by ₹6,000
  2. under-absorbed by ₹2,000
  3. under-absorbed by ₹6,000 Correct answer.
  4. over-absorbed by ₹2,000

Explanation

Overhead absorbed is 9,000 units × ₹8 = ₹72,000. Actual fixed overheads are ₹78,000, so actual cost exceeds absorbed cost by ₹6,000. The result is ₹6,000 of under-absorbed fixed overheads.

Question 21Introduction to Cost Accounting and Cost Concepts

Which statement best describes how cost accounting differs from financial accounting?

  1. It follows a uniform format prescribed by accounting standards
  2. It prepares statements for tax authorities at the end of each year
  3. It supplies detailed cost data to internal managers at frequent intervals Correct answer.
  4. It records only transactions with parties outside the business

Explanation

Financial accounting reports the overall results of the business to external parties, whereas cost accounting produces detailed and frequent cost information for internal planning, control and decision-making. Its focus on cost units, cost centres and cost behaviour is what distinguishes it from financial reporting.

Question 22Introduction to Cost Accounting and Cost Concepts

In cost accounting, the term 'cost object' refers to:

  1. the total expenditure incurred by the business in one financial year
  2. a location where indirect expenses are collected before distribution
  3. the smallest unit of output sold in the ordinary course of business
  4. any product, service or customer for which a separate cost is measured Correct answer.

Explanation

A cost object is anything for which a separate measurement of cost is desired. It may be a product, service, department, customer or order, so the definition is not limited to units of output.

Question 23Introduction to Cost Accounting and Cost Concepts

The three elements of cost in a manufacturing organisation are:

  1. material, labour and expenses Correct answer.
  2. direct costs, indirect costs and overheads
  3. product costs, period costs and opportunity costs
  4. fixed costs, variable costs and semi-variable costs

Explanation

Cost is built up from three elements: material, labour and expenses. These elements are further divided into direct and indirect portions, which combine into prime cost and overheads.

Question 24Introduction to Cost Accounting and Cost Concepts

A cost that remains constant in total over a range of activity and then rises to a new higher constant level when that range is exceeded is known as:

  1. a variable cost
  2. a semi-variable cost
  3. a step cost Correct answer.
  4. a committed fixed cost

Explanation

A step cost is fixed within a narrow activity band and jumps to a new level when the band is crossed, for example hiring an extra supervisor once output passes a threshold. It moves in steps rather than varying continuously with output.

Question 25Introduction to Cost Accounting and Cost Concepts

Direct material is ₹1,00,000, direct wages ₹60,000, direct expenses ₹10,000, factory overheads ₹40,000, opening work-in-progress ₹20,000 and closing work-in-progress ₹10,000. Works cost is:

  1. ₹2,40,000
  2. ₹2,20,000 Correct answer.
  3. ₹2,10,000
  4. ₹1,90,000

Explanation

Works cost equals prime cost plus factory overheads plus opening work-in-progress less closing work-in-progress. Prime cost is ₹1,70,000; adding ₹40,000 and ₹20,000 and deducting ₹10,000 gives ₹2,20,000.

Question 26Introduction to Cost Accounting and Cost Concepts

Direct wages are ₹80,000, direct expenses ₹20,000 and factory overheads ₹50,000. Conversion cost is:

  1. ₹1,00,000
  2. ₹70,000
  3. ₹1,50,000
  4. ₹1,30,000 Correct answer.

Explanation

Conversion cost is the cost of converting raw material into finished output, taken as direct wages plus factory overheads. Here ₹80,000 plus ₹50,000 gives ₹1,30,000, and direct expenses belong to prime cost rather than conversion cost.

Question 27Introduction to Cost Accounting and Cost Concepts

For a furniture manufacturer, which of the following is most likely to be treated as an indirect cost?

  1. Timber used in the frame of a table
  2. Upholstery fabric fitted to a particular sofa
  3. Rent of the workshop building Correct answer.
  4. Wages of carpenters working on a specific order

Explanation

Indirect costs cannot be traced economically to a specific cost unit. Workshop rent benefits all orders and must be apportioned, while timber, order-specific wages and upholstery for a particular sofa are directly traceable to the product.

Question 28Introduction to Cost Accounting and Cost Concepts

A factor that causes the total cost of an activity to change as its level changes is called:

  1. a cost pool
  2. a cost driver Correct answer.
  3. a cost unit
  4. a cost centre

Explanation

A cost driver is the activity or volume measure that causes cost to change, such as machine hours for power or number of setups for setup costs. It is used both to assign overheads and to understand cost behaviour.

Question 29Introduction to Cost Accounting and Cost Concepts

Total cost is ₹1,60,000 at 10,000 units and ₹2,00,000 at 15,000 units. Using the high-low method, the variable cost per unit and total fixed cost are:

  1. ₹6 per unit and ₹1,00,000
  2. ₹10 per unit and ₹60,000
  3. ₹8 per unit and ₹80,000 Correct answer.
  4. ₹8 per unit and ₹40,000

Explanation

Variable cost per unit is the change in total cost divided by the change in units: ₹40,000 divided by 5,000 units equals ₹8. Fixed cost is ₹1,60,000 less 10,000 units at ₹8, giving ₹80,000.

Question 30Introduction to Cost Accounting and Cost Concepts

A machine bought two years ago for ₹1,20,000 has a book value of ₹70,000 and a current resale value of ₹45,000. In a decision on whether to replace it, the relevant cost of retaining the machine is:

  1. ₹1,20,000, the original purchase price
  2. ₹70,000, the book value not yet written off
  3. ₹45,000, the resale value forgone Correct answer.
  4. nil, because the purchase price has already been paid

Explanation

The original cost is sunk and the book value is only an accounting allocation; neither changes with the decision. Retaining the machine means forgoing its current resale value of ₹45,000, which is the relevant opportunity cost.

Question 31Introduction to Cost Accounting and Cost Concepts

In cost accounting, the unit of product, service or time in relation to which costs are ascertained and expressed is known as a:

  1. Profit centre
  2. Cost unit Correct answer.
  3. Cost centre
  4. Responsibility centre

Explanation

A cost unit is the quantitative unit of product, service or time chosen for expressing cost, such as a tonne of cement, a passenger-kilometre or a patient-day. Cost centres, profit centres and responsibility centres are locations, persons or segments used for accumulating costs and fixing accountability, not the unit in which cost is expressed.

Question 32Introduction to Cost Accounting and Cost Concepts

When costs are classified by the function to which they relate, the standard groups into which they are divided are:

  1. Direct cost and indirect cost, based on traceability to the cost object
  2. Product cost and period cost, based on the timing of recognition
  3. Fixed cost, variable cost and semi-variable cost, based on behaviour
  4. Production, administration, selling and distribution Correct answer.

Explanation

Functional classification groups costs according to the broad activity in which they are incurred: production (factory), administration, selling and distribution. Traceability gives direct and indirect costs, behaviour gives fixed and variable costs, and association with the product gives product and period costs, so each of the other groupings uses a different basis.

Question 33Introduction to Cost Accounting and Cost Concepts

Which of the following is a primary objective of cost accounting?

  1. To compute the income tax and GST payable by the organisation to the government
  2. To fix the market price at which the company's equity shares will be traded
  3. To ascertain cost per unit and provide data for cost control Correct answer.
  4. To record transactions in double entry and prepare the balance sheet and profit and loss account

Explanation

Cost accounting exists mainly to ascertain the cost of products, services or activities and to supply management with data for control, cost reduction and decisions such as pricing and make-or-buy. Recording transactions in double entry and preparing the final accounts is the function of financial accounting, while share prices and tax computations are outside its purpose.

Question 34Introduction to Cost Accounting and Cost Concepts

A divisional manager is held accountable for the revenues as well as the costs of her division, and her performance is judged by the margin the division earns. For responsibility accounting, the division is best described as a:

  1. Revenue centre
  2. Cost centre
  3. Profit centre Correct answer.
  4. Investment centre

Explanation

A profit centre is a segment whose manager controls both revenue and cost, so performance is measured by the profit or margin generated. An investment centre would go further and make the manager accountable for the capital employed, with performance measured by return on investment.

Question 35Introduction to Cost Accounting and Cost Concepts

Direct material is ₹2,00,000, direct wages ₹1,20,000, direct expenses ₹30,000 and factory overheads ₹80,000. There is no opening or closing work-in-progress. The works (factory) cost is:

  1. ₹5,10,000
  2. ₹3,50,000
  3. ₹4,00,000
  4. ₹4,30,000 Correct answer.

Explanation

Prime cost is direct material plus direct wages plus direct expenses, that is ₹2,00,000 + ₹1,20,000 + ₹30,000 = ₹3,50,000. Works cost adds factory overheads of ₹80,000 to prime cost, giving ₹4,30,000; with no work-in-progress adjustment this is also the cost of production.

Question 36Introduction to Cost Accounting and Cost Concepts

The value of the benefit forgone when a resource is used in one course of action instead of its next best alternative is called:

  1. Opportunity cost Correct answer.
  2. Out-of-pocket cost
  3. Imputed cost
  4. Sunk cost

Explanation

Opportunity cost measures the sacrifice of the alternative that is given up when a resource is committed to a particular use, and it is a relevant cost for decision-making even though it never appears in the financial books. It must be distinguished from a sunk cost already incurred, a notional charge made in cost accounts, and a cost involving actual cash outlay.

Question 37Introduction to Cost Accounting and Cost Concepts

Which of the following is treated as a direct expense of a specific job?

  1. Hire of a machine used only on that job Correct answer.
  2. Rent of the factory building in which all jobs are carried out
  3. Salary of the works manager who supervises the whole factory
  4. Depreciation of the computers used in the general administrative office

Explanation

A direct expense is a cost other than direct material and direct wages that can be identified wholly with a particular cost unit or job, such as hire charges for a machine taken exclusively for that job. Costs that serve the factory or office as a whole cannot be traced to one job and are therefore treated as overheads and apportioned.

Question 38Introduction to Cost Accounting and Cost Concepts

Which of the following is classified as a selling overhead?

  1. Salary of the works storekeeper
  2. Commission paid to sales agents Correct answer.
  3. Power consumed in the production department
  4. Depreciation of the factory plant and machinery

Explanation

Selling overheads are the costs of creating and securing demand for the product, and they include salesmen's commission, advertisement, samples and travelling expenses of sales staff. Plant depreciation, storekeeper's salary and factory power are all incurred inside the factory and are classified as works or factory overheads.

Question 39Introduction to Cost Accounting and Cost Concepts

A firm holds 500 kg of material X that has no use other than a proposed special order; if the order is not accepted the material will be sold as scrap at ₹20 per kg. It was bought at ₹80 per kg, and its current replacement price is ₹95 per kg. For deciding whether to accept the order, the relevant cost of the material is:

  1. ₹47,500
  2. ₹40,000
  3. ₹10,000 Correct answer.
  4. ₹50,000

Explanation

Because the material has no alternative use and would otherwise be scrapped, the only benefit forgone by using it on the order is the scrap realisation of 500 kg × ₹20 = ₹10,000, which is its relevant cost. The original purchase price of ₹40,000 is a sunk cost and the replacement price of ₹47,500 is irrelevant since the material will not be replaced.

Question 40Introduction to Cost Accounting and Cost Concepts

A component can be made in-house at a variable cost of ₹45 per unit, and making it would also require an avoidable fixed cost of ₹30,000 per year. It can be bought for ₹60 per unit. For an annual requirement of 2,500 units, the position is:

  1. ₹7,500 in favour of buying
  2. ₹30,000 in favour of buying
  3. ₹37,500 in favour of making
  4. ₹7,500 in favour of making Correct answer.

Explanation

Making 2,500 units costs ₹45 × 2,500 = ₹1,12,500 of variable cost plus the avoidable fixed cost of ₹30,000, a total of ₹1,42,500, while buying costs ₹60 × 2,500 = ₹1,50,000. Making is therefore cheaper by ₹7,500, and the avoidable fixed cost must be included because it disappears if the component is purchased.

Question 41Material Cost and Labour Cost

Economic order quantity is the order size at which:

  1. carrying cost of inventory is at its minimum
  2. combined ordering and carrying cost is minimum Correct answer.
  3. ordering cost of purchases is at its minimum
  4. the purchase price per unit is the lowest

Explanation

EOQ is the order quantity at which the total of ordering cost and carrying cost is at its minimum, and at that point the two costs are equal. Choosing the cheapest supplier is a separate purchasing decision and does not define EOQ.

Question 42Material Cost and Labour Cost

A bin card maintained in the stores department records:

  1. the ledger balance of each supplier
  2. quantities received, issued and in hand Correct answer.
  3. the wages of storekeepers
  4. both quantity and value of materials received and issued

Explanation

A bin card is kept with the bin in the store and shows only the quantities received, issued and in hand. Values are recorded in the stores ledger, which is a priced account maintained for each material.

Question 43Material Cost and Labour Cost

Normal idle time of direct workers, arising from unavoidable causes such as waiting for work, is treated in cost accounts as:

  1. an overhead spread over production as a labour-related cost Correct answer.
  2. a deduction from the worker's basic wage
  3. direct wages charged to the job on which the worker was engaged
  4. an item of selling overhead

Explanation

Normal idle time is unavoidable and is paid to the worker, so it is treated as a labour-related overhead and absorbed in the cost of production. Only abnormal idle time, such as that caused by a strike or power failure, is written off to the costing profit and loss account.

Question 44Material Cost and Labour Cost

A firm consumes 18,000 units of a material in a year. The cost of placing one order is ₹200 and the carrying cost is ₹5 per unit per year. The economic order quantity is:

  1. 1,200 units Correct answer.
  2. 2,400 units
  3. 900 units
  4. 600 units

Explanation

EOQ = √(2 × annual consumption × cost per order ÷ carrying cost per unit) = √(2 × 18,000 × 200 ÷ 5) = √1,440,000 = 1,200 units. Ordering 1,200 units at a time minimises the combined ordering and carrying cost.

Question 45Material Cost and Labour Cost

A material has a maximum consumption of 400 units per week and a maximum lead time of 6 weeks. The reorder level is:

  1. 2,400 units Correct answer.
  2. 1,600 units
  3. 1,800 units
  4. 3,600 units

Explanation

Reorder level = maximum consumption × maximum reorder period = 400 × 6 = 2,400 units. It is fixed at this maximum so that stock does not run out even under the worst combination of usage rate and lead time.

Question 46Material Cost and Labour Cost

Stores records show an opening stock of 200 kg at ₹10 per kg, a receipt of 300 kg at ₹12 per kg and an issue of 250 kg. Under FIFO, the value of the issue is:

  1. ₹2,800
  2. ₹2,500
  3. ₹3,000
  4. ₹2,600 Correct answer.

Explanation

Under FIFO the earliest consignment is issued first, so the 250 kg comprises 200 kg at ₹10 and 50 kg at ₹12: (200 × 10) + (50 × 12) = ₹2,600. The remaining 250 kg stays in stock at ₹12 per kg.

Question 47Material Cost and Labour Cost

Under the Halsey plan with a 50% bonus, a worker takes 32 hours for a job with a time allowance of 40 hours, and the wage rate is ₹50 per hour. The total wages payable are:

  1. ₹1,700
  2. ₹2,000
  3. ₹1,600
  4. ₹1,800 Correct answer.

Explanation

Basic wages are 32 × ₹50 = ₹1,600. Time saved is 8 hours, so the Halsey bonus is 8 × ₹50 × 50% = ₹200, giving total wages of ₹1,800.

Question 48Material Cost and Labour Cost

At the beginning of a year a factory had 400 workers and at the end it had 600. During the year there were 100 separations and 50 replacements. Labour turnover under the separation method is:

  1. 10%
  2. 16.67%
  3. 20% Correct answer.
  4. 25%

Explanation

Under the separation method, labour turnover = separations ÷ average number of workers × 100. Average workers = (400 + 600) ÷ 2 = 500, so 100 ÷ 500 × 100 = 20%.

Question 49Material Cost and Labour Cost

At an efficiency level where time saved is 40% of time allowed, the bonus under the Rowan plan, compared with the Halsey plan with a 50% sharing ratio, is:

  1. higher Correct answer.
  2. equal
  3. impossible to determine from the given information
  4. lower

Explanation

Rowan bonus = (time saved ÷ time allowed) × time taken × rate. With time taken at 60% and time saved at 40% of time allowed, the Rowan bonus is 0.24 of the time wage while Halsey at 50% gives 0.20, so Rowan is higher whenever time saved is below half of time allowed.

Question 50Material Cost and Labour Cost

Materials costing ₹20,000 are destroyed by fire in the stores and the insurer admits a claim of ₹12,000. In cost accounts the unrecovered ₹8,000 should be:

  1. written off as abnormal loss to costing profit and loss account Correct answer.
  2. debited to the stores department overhead account and absorbed in production
  3. added to the value of the closing stock of the material
  4. charged to the cost of the good units produced during the period

Explanation

Loss of materials by fire is not a normal cost of production, so the unrecovered ₹8,000 is treated as an abnormal loss and written off to the costing profit and loss account. The ₹12,000 claim received reduces the amount of loss but does not make the remaining amount a product cost.