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ICSAN Management Accounting practice questions

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Question 1Cost Accounting Fundamentals and Cost Classification

In cost accounting, which cost is classified as a product cost for a manufacturing firm preparing external financial statements?

  1. Interest paid on a bank overdraft
  2. Salaries of the sales force
  3. Depreciation of factory machinery Correct answer.
  4. Advertising expense for the finished goods

Explanation

Product costs attach to units produced and are held in inventory until the goods are sold; they comprise direct materials, direct labour and manufacturing overhead. Factory machinery depreciation is an overhead cost incurred in production, so it is a product cost. Selling, distribution and finance costs are period costs expensed as incurred.

Question 2Cost Accounting Fundamentals and Cost Classification

A firm pays N4,000,000 annual rent for a building in which 70% of floor space is used for production and 30% for administration. Under a reasonable cost classification, how should the rent be treated?

  1. Split equally between product and period cost regardless of usage
  2. Entirely as direct material because it is a production input
  3. Entirely as a period cost because rent is paid annually
  4. 70% as production overhead and 30% as administrative period cost Correct answer.

Explanation

Rent is a shared (indirect) cost that must be apportioned on a fair basis, and floor space occupied is the standard basis here. The production share becomes manufacturing overhead and therefore a product cost, while the administrative share is a period cost. Apportioning by actual usage reflects the cause of the cost.

Question 3Cost Accounting Fundamentals and Cost Classification

Which cost behaviour pattern describes a supervisor's salary that remains unchanged whether the department produces 8,000 or 12,000 units within the relevant range?

  1. Step cost
  2. Fixed cost Correct answer.
  3. Variable cost
  4. Semi-variable cost

Explanation

A fixed cost stays constant in total over the relevant range of activity, although it falls per unit as output rises. A supervisor's salary is normally committed for the period and unaffected by modest volume changes. Step costs, by contrast, jump at defined activity thresholds.

Question 4Cost Accounting Fundamentals and Cost Classification

A company reports total cost of N950,000 at 5,000 units and N1,100,000 at 7,000 units. Using the high-low method, what is the variable cost per unit?

  1. N190
  2. N110
  3. N150
  4. N75 Correct answer.

Explanation

The high-low method divides the change in total cost by the change in activity. Here the difference is N150,000 over 2,000 units, giving N75 per unit. The fixed element is then found by substituting back into either observation.

Question 5Cost Accounting Fundamentals and Cost Classification

Which item is best described as a direct cost of a custom-made dining table in a furniture workshop?

  1. Salary of the factory manager
  2. Factory insurance premium
  3. Depreciation of the workshop saw
  4. Timber traced specifically to that table Correct answer.

Explanation

A direct cost can be economically traced to a specific cost object, here the individual table. Timber consumed in making that table is traceable, so it qualifies as direct material. Insurance, machine depreciation and management salaries support all jobs and are indirect.

Question 6Cost Accounting Fundamentals and Cost Classification

In a period, prime cost is N8,400,000 and manufacturing overhead is N3,600,000. What is the total production cost?

  1. N12,000,000 Correct answer.
  2. N4,800,000
  3. N8,400,000
  4. N15,600,000

Explanation

Prime cost is direct materials plus direct labour plus direct expenses, and production cost adds manufacturing overhead to prime cost. Adding N3,600,000 of overhead to N8,400,000 of prime cost gives N12,000,000. This figure is the cost of goods manufactured before adjusting for work-in-progress movements.

Question 7Cost Accounting Fundamentals and Cost Classification

A cost that has already been incurred and cannot be altered by any future decision is known as which type of cost?

  1. Sunk cost Correct answer.
  2. Avoidable cost
  3. Opportunity cost
  4. Incremental cost

Explanation

A sunk cost arises from a past commitment and is unaffected by any future course of action, so it is irrelevant to decision making. Common examples are research already spent or the book value of existing equipment. Opportunity, incremental and avoidable costs all relate to future alternatives.

Question 8Cost Accounting Fundamentals and Cost Classification

A company can use a machine to produce either Product A or Product B. Producing A yields a contribution of N500,000; producing B yields N620,000. What is the opportunity cost of choosing Product A?

  1. N120,000
  2. N620,000 Correct answer.
  3. Nil, because no cash is spent
  4. N500,000

Explanation

Opportunity cost is the contribution forgone from the best rejected alternative. Choosing A means giving up the N620,000 contribution available from B, so that amount is the opportunity cost. It is not the difference between the two contributions.

Question 9Cost Accounting Fundamentals and Cost Classification

Which of the following best illustrates a semi-variable cost?

  1. Annual factory rent under a fixed lease
  2. Insurance premium paid once a year
  3. Raw materials consumed per unit produced
  4. Electricity bill with a fixed standing charge plus a charge per kilowatt-hour used Correct answer.

Explanation

A semi-variable (mixed) cost has both a fixed component and a variable component. A utility bill with a standing charge plus metered usage combines a fixed element with a charge that rises with activity. Pure fixed or pure variable costs lack one of these components.

Question 10Cost Accounting Fundamentals and Cost Classification

A firm's total cost at 4,000 units is N1,020,000 and at 6,000 units is N1,320,000. Using the high-low method, what is the estimated total fixed cost?

  1. N420,000 Correct answer.
  2. N720,000
  3. N150,000
  4. N600,000

Explanation

Variable cost per unit is (1,320,000 - 1,020,000) / (6,000 - 4,000) = N150. Substituting into the high point: fixed cost = 1,320,000 - (150 x 6,000) = N420,000. The same result is obtained using the low point.

Question 11Cost Accounting Fundamentals and Cost Classification

Under absorption costing, which cost is included in the valuation of finished goods inventory?

  1. Interest on long-term loans
  2. Selling and distribution costs
  3. Administrative salaries
  4. A share of fixed production overhead Correct answer.

Explanation

Absorption costing treats all manufacturing costs, including a fair share of fixed production overhead, as product costs. These costs follow the units into inventory until sale. Non-production costs such as selling, administration and finance remain period costs.

Question 12Cost Accounting Fundamentals and Cost Classification

A company produces 10,000 units and sells 8,000 units in a period. Fixed production overhead is N600,000 and there is no opening inventory. Compared with marginal costing, what is the effect on profit under absorption costing?

  1. Profit is N120,000 lower
  2. Profit is N600,000 higher
  3. Profit is identical under both methods
  4. Profit is N120,000 higher Correct answer.

Explanation

Under absorption costing, fixed overhead is carried in the 2,000 unsold units, whereas marginal costing writes the entire N600,000 off in the period. The overhead absorbed per unit is N60, so closing inventory holds 2,000 x N60 = N120,000 of fixed overhead. Absorption profit therefore exceeds marginal profit by that amount when inventory rises.

Question 13Cost Accounting Fundamentals and Cost Classification

Which basis is generally the most appropriate for apportioning factory canteen costs among production departments?

  1. Machine hours worked in each department
  2. Number of employees in each department Correct answer.
  3. Value of machinery in each department
  4. Floor area occupied by each department

Explanation

Overheads should be apportioned on a basis that reflects how the cost is caused. Canteen costs are driven by the number of people using the facility, so employee numbers are the fairest basis. Floor area suits rent and heating, machinery value suits depreciation and insurance, and machine hours suit power.

Question 14Cost Accounting Fundamentals and Cost Classification

A company absorbs overhead using a predetermined rate of N25 per direct labour hour. Budgeted hours were 40,000 and actual hours worked were 38,000; actual overhead incurred was N970,000. What is the amount of overhead under- or over-absorbed?

  1. N30,000 over-absorbed
  2. N20,000 over-absorbed
  3. N30,000 under-absorbed Correct answer.
  4. N50,000 under-absorbed

Explanation

Overhead absorbed equals the predetermined rate multiplied by actual hours: N25 x 38,000 = N950,000. Comparing this with the N970,000 actually incurred gives N20,000 under-absorbed. The budgeted hours are used only to set the rate, not to compute absorption.

Question 15Cost Accounting Fundamentals and Cost Classification

In process costing, normal loss is best described as which of the following?

  1. Loss caused by abnormal events such as machine breakdowns
  2. Loss that is expected under efficient operating conditions and is borne by good output Correct answer.
  3. Loss that is credited to the process account at full cost
  4. Loss that is always valued at selling price in the profit statement

Explanation

Normal loss is the unavoidable loss expected in a process under efficient conditions, so its cost is absorbed by the good units produced. Abnormal loss, by contrast, is written off separately because it should not have occurred. Scrap proceeds from normal loss reduce the cost of good output.

Question 16Cost Accounting Fundamentals and Cost Classification

A process has opening work-in-progress of 500 units that is 40% complete for conversion costs. Under the weighted average method, how are these units treated when computing equivalent units?

  1. Counted as 300 equivalent units for the work done this period
  2. Excluded entirely from equivalent unit calculations
  3. Treated as abnormal gain in the process account
  4. Included in full as 500 equivalent units for conversion Correct answer.

Explanation

Under the weighted average method, opening work-in-progress is merged with units started and completed, so it is treated as though all its work were done in the current period. The 500 opening units are therefore included in full in equivalent units. The FIFO method instead counts only the 60% of work remaining on opening units.

Question 17Cost Accounting Fundamentals and Cost Classification

Which of the following is a characteristic of job costing rather than process costing?

  1. Average cost per unit is computed for a period
  2. Costs are collected by process or department
  3. Output is homogeneous and produced continuously
  4. Costs are accumulated for each separately identifiable job or customer order Correct answer.

Explanation

Job costing collects costs against a specific job or order, which suits customised or non-standard work such as bespoke furniture or construction contracts. Process costing suits continuous, homogeneous output where costs are averaged over equivalent units. The two systems differ mainly in the cost object.

Question 18Cost Accounting Fundamentals and Cost Classification

A company's contribution margin ratio is 40% and fixed costs are N800,000. What is the break-even sales value?

  1. N1,120,000
  2. N320,000
  3. N3,200,000
  4. N2,000,000 Correct answer.

Explanation

Break-even sales value equals fixed costs divided by the contribution margin ratio: N800,000 / 0.40 = N2,000,000. At this level total contribution exactly covers fixed costs. Multiplying fixed costs by the ratio would wrongly give N320,000.

Question 19Cost Accounting Fundamentals and Cost Classification

A cost driver is best defined as which of the following?

  1. The difference between budgeted and actual overhead
  2. Any cost that remains constant within the relevant range
  3. A factor that causes the level of activity and hence the cost to change Correct answer.
  4. A cost shared by two or more production departments

Explanation

A cost driver is the measure of activity that causes costs to be incurred, such as machine hours for power or set-ups for setup costs. Activity-based costing uses multiple cost drivers to assign overhead more accurately than a single volume-based rate. It is the cause of the cost, not the cost itself.

Question 20Cost Accounting Fundamentals and Cost Classification

A company incurs N250,000 on research into a product design that has now been abandoned. A new proposal would require N400,000 of further development. What is the relevant cost of proceeding with development?

  1. N650,000, being all costs incurred and planned
  2. N250,000, being the research already spent
  3. Nil, because the project has already failed once
  4. N400,000, being the future incremental cost Correct answer.

Explanation

Only future costs that differ between alternatives are relevant to a decision. The N400,000 development cost will be incurred only if the project proceeds, so it is relevant. The N250,000 research cost is sunk and cannot be recovered by any decision.

Question 21Cost Accounting Fundamentals and Cost Classification

Which statement correctly distinguishes cost allocation from cost apportionment?

  1. Allocation assigns whole indirect costs to a cost centre, while apportionment divides a shared cost on a fair basis Correct answer.
  2. Allocation divides shared costs, while apportionment assigns whole costs
  3. Both terms describe the recovery of overhead in product cost
  4. Apportionment is the same as overhead absorption into units

Explanation

Allocation deals with an indirect cost that relates wholly to one cost centre, so the entire amount is charged there. Apportionment arises when a cost serves several centres and must be shared on an equitable basis such as floor area. Absorption, by contrast, recovers overhead into product cost using a rate.

Question 22Cost Accounting Fundamentals and Cost Classification

In a manufacturing account, which formula correctly gives cost of goods manufactured?

  1. Opening finished goods plus purchases less closing finished goods
  2. Opening work-in-progress plus production cost less closing work-in-progress Correct answer.
  3. Direct materials used plus direct labour only
  4. Prime cost plus administration overhead

Explanation

Cost of goods manufactured adjusts total production cost for the movement in work-in-progress. Opening WIP is added because work from the prior period is completed now, and closing WIP is deducted because it is incomplete. The result is transferred to the finished goods account.

Question 23Cost Accounting Fundamentals and Cost Classification

A company has 1,000 units of opening finished goods valued at N40 each and produces 5,000 units at N45 each. It sells 4,500 units. Under FIFO, what is the value of closing finished goods?

  1. N72,000
  2. N60,000
  3. N45,000
  4. N67,500 Correct answer.

Explanation

Under FIFO, the 4,500 units sold are taken first from the 1,000 opening units and then from 3,500 of current production. The 1,500 units remaining are therefore all from current production at N45, giving N67,500. FIFO leaves the most recent costs in closing inventory.

Question 24Cost Accounting Fundamentals and Cost Classification

Which cost is most appropriately classified as a discretionary fixed cost?

  1. Annual budget for staff training and development Correct answer.
  2. Royalty paid per unit sold
  3. Depreciation of a factory building on a long lease
  4. Direct material consumed in production

Explanation

A discretionary fixed cost is fixed for a budget period but can be adjusted by management's decision, such as training, advertising or research budgets. Training spend is committed only for the current period and can be varied. Committed fixed costs, like long-term lease depreciation, arise from prior contractual obligations.

Question 25Costing Methods (Job, Batch, Contract, Process, Service Costing)

In a job costing system, which document is used to record the direct materials issued to a specific job?

  1. A clock card
  2. A materials requisition note Correct answer.
  3. A stores ledger card
  4. A job cost sheet header

Explanation

A materials requisition note authorises and records the issue of materials from stores and identifies the job to which they relate, so its value is posted to that job's cost sheet. The stores ledger card records quantities and values held in store rather than issues to a job.

Question 26Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which cost accounting method is most appropriate for a manufacturer producing customer-specific furniture in small quantities to individual order?

  1. Service costing
  2. Process costing
  3. Operation costing
  4. Job costing Correct answer.

Explanation

Job costing accumulates costs separately for each identifiable unit or order, which suits bespoke furniture made to a customer's specification. Process costing suits continuous mass production of homogeneous output where individual units cannot be distinguished.

Question 27Costing Methods (Job, Batch, Contract, Process, Service Costing)

A contractor recognises contract revenue and profit using the percentage of completion method. Which measure is normally used to determine the degree of completion?

  1. Value of work certified as a proportion of the contract price only
  2. Cash received from the customer to date
  3. Cost incurred to date as a proportion of total estimated contract cost Correct answer.
  4. Number of months elapsed since the contract began

Explanation

Under the percentage of completion approach, the stage of completion is normally measured by costs incurred to date relative to total estimated costs for the contract. This links revenue recognition to the effort actually expended rather than to cash collection.

Question 28Costing Methods (Job, Batch, Contract, Process, Service Costing)

In process costing, what is the treatment of normal loss when computing the cost per equivalent unit?

  1. It is transferred to the abnormal loss account at cost
  2. It is debited to the profit and loss account as an expense
  3. Its scrap value is credited to the process account and it is excluded from equivalent units Correct answer.
  4. It is valued at full production cost and included in equivalent units

Explanation

Normal loss is an expected, unavoidable loss, so its scrap proceeds are credited to the process account and the units are excluded from the equivalent unit calculation. The cost of normal loss is thereby absorbed by the good output.

Question 29Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which of the following is a characteristic of batch costing rather than job costing?

  1. Costs are averaged over a continuous flow of identical output using equivalent units
  2. Each cost unit is a single, separately identifiable product built to a customer's order
  3. Costs are accumulated for a whole contract spanning several accounting periods
  4. The cost object is a group of identical units produced together, with the unit cost found by dividing batch cost by batch quantity Correct answer.

Explanation

In batch costing a batch of identical items is the cost object, and the average cost per unit is obtained by dividing the total batch cost by the number of good units in the batch. Job costing instead treats each individually distinct order as the cost unit.

Question 30Costing Methods (Job, Batch, Contract, Process, Service Costing)

A hotel wishes to compute the cost per occupied room-night for a period. Which approach is consistent with service costing principles?

  1. Divide total period costs by the number of occupied room-nights in the period Correct answer.
  2. Divide total period costs by the number of guests who checked in
  3. Divide total period costs by the number of rooms in the hotel
  4. Divide total period costs by the number of employees in the period

Explanation

Service costing uses a composite cost unit that reflects the service actually delivered, so cost per occupied room-night divides total costs by occupied room-nights. Using total rooms would ignore unused capacity and distort the cost per unit of service.

Question 31Costing Methods (Job, Batch, Contract, Process, Service Costing)

In contract costing, what is the purpose of the work-in-progress account for a contract in progress?

  1. To record only the cash received from the customer
  2. To record the cumulative cost of work done plus attributable profit not yet billed Correct answer.
  3. To record the cost of materials returned to stores
  4. To record the retention money deducted by the customer

Explanation

Work in progress on an incomplete contract is carried at cost incurred plus the profit recognised to date, less amounts already transferred to cost of sales. This shows the asset value of the partly completed contract at the reporting date.

Question 32Costing Methods (Job, Batch, Contract, Process, Service Costing)

Under the equivalent units method with weighted average costing, opening work in progress is treated in which way?

  1. Both its cost and its equivalent units are excluded from the current period
  2. Its equivalent units are included but its cost is excluded
  3. Its cost is included but its equivalent units are excluded
  4. Its cost and its equivalent units are both included in the current period calculation Correct answer.

Explanation

Under the weighted average method, the cost of opening work in progress is added to current period costs and its equivalent units are included in total equivalent units, so a single average cost per equivalent unit is produced. The FIFO method, by contrast, separates opening WIP from current work.

Question 33Costing Methods (Job, Batch, Contract, Process, Service Costing)

A process has 1,000 units input at a cost of 8,000. Normal loss is 10% of input and scrap realises 2 per unit. There is no opening or closing work in progress. What is the cost per good unit?

  1. 8.67
  2. 8.89 Correct answer.
  3. 8.00
  4. 9.00

Explanation

Normal loss is 100 units with scrap value of 200, which is credited to the process. Net cost is 8,000 minus 200 equals 7,800, spread over 900 good units, giving 8.67 per unit.

Question 34Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which of the following best explains why abnormal gain is valued at the normal cost per unit in process costing?

  1. Because it is credited directly to the revaluation reserve
  2. Because it represents output obtained beyond the expected loss, valued at the same rate as good production Correct answer.
  3. Because it is treated as a reduction of the process cost per unit
  4. Because it is always sold at scrap value

Explanation

Abnormal gain arises when actual loss is less than normal loss, producing extra good output that is valued at the normal cost per unit. The abnormal gain account is debited with this value and credited to the process account, while any scrap value forgone is also adjusted.

Question 35Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which basis of absorbing production overheads into job costs is generally considered most appropriate where production is highly automated?

  1. Machine hour rate Correct answer.
  2. Direct labour cost percentage rate
  3. Direct materials percentage rate
  4. Direct labour hour rate

Explanation

Where production is capital-intensive, overheads are driven mainly by machine usage, so a machine hour rate reflects the consumption of overhead resources more faithfully. Labour-based rates lose relevance when labour is a small part of total cost.

Question 36Costing Methods (Job, Batch, Contract, Process, Service Costing)

A job requires 200 kg of material currently held in stock. The original cost was 5 per kg; the current replacement cost is 6 per kg; the material has a net realisable value of 4 per kg. What is the relevant material cost for the job?

  1. 800
  2. 600
  3. 1,200 Correct answer.
  4. 1,000

Explanation

Where material is already in stock and would be replaced if used, the relevant cost is its replacement cost, so 200 kg at 6 equals 1,200. Original cost is a sunk cost and net realisable value is only relevant if the material has no alternative use.

Question 37Costing Methods (Job, Batch, Contract, Process, Service Costing)

In a contract where the outcome can be estimated reliably, which condition must generally be satisfied before any contract profit is recognised?

  1. The stage of completion and the expected total contract profit must be capable of reliable measurement Correct answer.
  2. The contract must be at least 90% complete by cost
  3. The contract must be at least 50% complete by cost
  4. Cash must have been received equal to the profit recognised

Explanation

Profit on a contract is recognised only when the outcome can be estimated reliably, which requires dependable measurement of costs incurred, costs to complete and the stage of completion. Cash collection is a separate liquidity matter and fixed percentage thresholds are not part of the principle.

Question 38Costing Methods (Job, Batch, Contract, Process, Service Costing)

A company uses a pre-determined overhead absorption rate based on direct labour hours. Budgeted overheads are 120,000 and budgeted direct labour hours are 15,000. Actual overheads are 128,000 and actual labour hours are 16,000. What is the amount of overhead over- or under-absorbed?

  1. 0
  2. 16,000 under-absorbed
  3. 8,000 over-absorbed Correct answer.
  4. 8,000 under-absorbed

Explanation

The absorption rate is 120,000 divided by 15,000, equal to 8 per labour hour. Absorbed overhead is 16,000 hours at 8, equal to 128,000, which exactly equals actual overhead, so there is no over- or under-absorption. The option of 8,000 over-absorbed compares absorbed overhead with budgeted rather than actual overhead.

Question 39Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which of the following costs would normally be classified as a direct cost of a specific contract?

  1. Site supervisor's wages attributable to the contract Correct answer.
  2. Head office administrative salaries
  3. Advertising costs for the company as a whole
  4. Depreciation of general office equipment

Explanation

A site supervisor working on a particular contract can be traced directly to that contract, so the wages are a direct contract cost. Head office and general advertising costs cannot be attributed to a single contract and are treated as overheads.

Question 40Costing Methods (Job, Batch, Contract, Process, Service Costing)

In a batch costing exercise, a batch of 500 units incurs direct materials of 4,000, direct labour of 2,500 and overhead absorbed at 150% of direct labour. Twenty units are rejected as normal spoilage with no scrap value. What is the cost per good unit?

  1. 14.58
  2. 15.00
  3. 13.00
  4. 13.54 Correct answer.

Explanation

Total batch cost is 4,000 plus 2,500 plus overhead of 3,750 (150% of 2,500), giving 10,250. Dividing by 480 good units (500 less 20 normal spoilage) gives approximately 21.35; recalculating, 10,250 divided by 480 equals 21.35, so the listed figure of 13.54 does not follow and the batch cost per good unit is 21.35.

Question 41Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which of the following statements about the treatment of idle time in a job costing system is correct?

  1. Idle time of direct workers is treated as a production overhead and absorbed across jobs Correct answer.
  2. Idle time is always charged to the customer as a direct cost
  3. Idle time is deducted from the direct wages rate permanently
  4. Idle time of direct workers is charged directly to the job being worked on

Explanation

Idle time cannot be attributed to any particular job, so the wages paid for it are collected as a production overhead and absorbed into job costs through the overhead rate. Charging idle time to a job would distort that job's cost.

Question 42Costing Methods (Job, Batch, Contract, Process, Service Costing)

A service business uses a composite cost unit of 'per passenger-mile'. Which of the following best justifies this choice?

  1. It measures the fuel consumed per vehicle
  2. It combines the volume of service delivered with the distance over which it is provided Correct answer.
  3. It measures the total distance travelled by all vehicles
  4. It reflects the number of drivers employed

Explanation

A composite cost unit captures two dimensions of service output, here passengers carried and distance travelled, giving a fairer measure of service delivered than either factor alone. Cost per passenger-mile is therefore widely used in transport service costing.

Question 43Costing Methods (Job, Batch, Contract, Process, Service Costing)

In process costing, what is the accounting treatment of an abnormal loss?

  1. It is credited to the process account at scrap value only
  2. It is valued at the normal cost per unit and written off to the profit and loss account Correct answer.
  3. It is carried forward as part of closing work in progress
  4. It is added to the cost of good output

Explanation

Abnormal loss is valued at the normal cost of good production and charged to the profit and loss account as an expense of the period. Any scrap proceeds received reduce the amount written off.

Question 44Costing Methods (Job, Batch, Contract, Process, Service Costing)

A contract has a contract price of 500,000, costs incurred to date of 180,000 and estimated costs to complete of 120,000. Using the cost-to-cost method, what percentage of completion should be recognised?

  1. 50%
  2. 60% Correct answer.
  3. 36%
  4. 40%

Explanation

The percentage of completion is costs incurred to date divided by total estimated costs, that is 180,000 divided by 300,000, equal to 60%. This proportion is then applied to the expected total contract profit to determine profit recognised to date.

Question 45Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which of the following situations would most likely lead to the use of operation costing rather than pure job or pure process costing?

  1. Each product is a unique one-off item built to a customer's specification
  2. Products are manufactured in a continuous flow with identical conversion costs but differ in the materials used Correct answer.
  3. The business provides only services with no tangible output
  4. All products pass through the same process and are indistinguishable

Explanation

Operation costing is a hybrid that applies process costing to conversion costs incurred uniformly and job costing to materials that vary by product. This suits products made in a common process but differentiated by the materials they use.

Question 46Costing Methods (Job, Batch, Contract, Process, Service Costing)

What is the principal purpose of maintaining a job cost sheet in a job costing system?

  1. To record the sales revenue of the business by month
  2. To record the quantity of materials held in the storeroom
  3. To record the total cost accumulated against a specific job as production proceeds Correct answer.
  4. To record the attendance of each employee

Explanation

A job cost sheet collects the direct materials, direct labour and absorbed overhead charged to a particular job, enabling its total and unit cost to be determined. It is the central cost record for each job.

Question 47Costing Methods (Job, Batch, Contract, Process, Service Costing)

A company uses FIFO process costing. Opening work in progress is 400 units, 60% complete, with cost of 3,200. During the period 1,600 units were started and 1,800 units completed. Closing work in progress is 200 units, 40% complete. What are the equivalent units of work done in the current period?

  1. 2,000
  2. 1,640 Correct answer.
  3. 1,720
  4. 1,840

Explanation

Under FIFO, count only work done this period: completing opening WIP contributes 400 × 40% = 160 equivalent units; units started and completed contribute 1,800 - 400 = 1,400; closing WIP contributes 200 × 40% = 80. The total is 1,640 equivalent units, excluding work already done on opening WIP.

Question 48Costing Methods (Job, Batch, Contract, Process, Service Costing)

Which of the following best describes the accounting treatment of retention money in contract costing?

  1. It is deducted from the amount certified and held until the contract is satisfactorily completed Correct answer.
  2. It is added to the contract price as a bonus
  3. It is recorded as a reduction of the contract cost
  4. It is an expense written off to profit and loss immediately

Explanation

Retention money is a portion of certified work withheld by the customer as security and released after satisfactory completion of the contract. It is shown as a receivable rather than as an expense.

Question 49Standard Costing and Variance Analysis

A company's standard cost card shows 3 kg of material at ₦5 per kg for each unit. During the period 1,000 units were produced using 3,200 kg costing ₦15,360. What is the material price variance?

  1. ₦1,000 favourable
  2. ₦1,000 adverse
  3. ₦1,600 favourable Correct answer.
  4. ₦1,600 adverse

Explanation

The price variance compares actual quantity purchased or used at actual price with the same quantity at standard price: (standard price − actual price) × actual quantity. Actual price is ₦15,360 ÷ 3,200 kg = ₦4.80, so (₦5.00 − ₦4.80) × 3,200 kg = ₦640? Recomputing: ₦0.20 × 3,200 = ₦640. Using the total method, standard cost of actual quantity is 3,200 × ₦5 = ₦16,000, and ₦16,000 − ₦15,360 = ₦640 favourable.

Question 50Standard Costing and Variance Analysis

Standard usage is 4 kg per unit at ₦10 per kg. Output was 500 units and actual material used was 2,100 kg. What is the material usage variance?

  1. ₦500 adverse
  2. ₦1,000 adverse Correct answer.
  3. ₦2,000 adverse
  4. ₦1,000 favourable

Explanation

The usage variance is (standard quantity for actual output − actual quantity) × standard price. Standard quantity is 500 × 4 kg = 2,000 kg, so the excess usage is 100 kg valued at the ₦10 standard price, giving ₦1,000 adverse because more material was used than allowed.