COST ACCOUNTING (past question and answers)- 400L

Question 1:

Cost Accounting involves:  a. drawing up balance sheet b. writing –off of costs c. ascertaining of cost d. preparation of statement of value added e. annual audit of financial statements.

Answer:

C. Ascertaining of cost

Question 2:

Cost accounting is an integral part of a. Financial accounting b. forensic accounting d.  treasury accounting d. historical accounting e. management accounting.

Answer:

e. Management accounting.

Question 3:

One of the following is Not an objective of cost accounting; a. to provide information to aid control b. to ascertain cost and facilitate pricing c. to provide information for decision making d. to investigate fraud e. to assist in planning.

Answer:

D. To investigate fraud

Question 4:

Material costs do not include cost of ; a fixed assets b. raw materials c. work in progress d. packing materials e. cleaning materials

Answer:

A.      Fixed assets

Question 5:

Which one of the following is a direct expense? A. director’s salary b. cost of hiring special equipment for a particular production order c. advertising expenses d. electricity expenses e. insurance premiums.

Answer:

B.      Cost of hiring special equipment for a particular production order.

Question 6:

In classifying costs by elements, we have materials, labour and Expenses

Question 7:

The addition of all direct costs is known as Prime cost

Question 8:

Cost which are fixed for a given range of activity level but which change discretely for ranges of activity levels beyond the given ranges are called Stepped fixed cost

Question 9:

Costs which may be saved by the adoption of a given alternative option are known as Avoidable cost

Question 10:

Cost which vary in direct proportion with changes in activity levels are called ..Variable cost

Question 11:

The installation of a costing system is a major move in a business.  You are required to discuss the problems of installing such a system.

Answer:

The following factors define different problems for cost accounting systems:

1.      Size of organization

2.      Type of product/service

3.      The production process

4.      The methods of manufacture

5.      Availability of staff

Other specific problems include:

1.      Definition of responsibility

2.      Definition or designation of cost centers

3.      Compilation of a comprehensive cost system

4.      Availability of staff

a.      Labour hours worked

b.      Machine utilization time

c.       Scrap

d.      Rectification cost etc.

5.      The difficulty of accurately classifying cost

Question 12:

Outline possible problems which may be encountered as a result of the introduction of a system of cost control into an organization.

Answer:

1.      The overall simplistic assumption of cost linearity for variable cost per unit is not practical.

2.      Fixed cost can change as activity levels change.

3.       

 

Question 13:

Enumerate the differences, if any, between financial and cost accounting

Answer:

1.      Nature of costs/revenue; Cost accounting predetermined estimates standards and budgets while financial accounting is a historical and past costs/revenues.

2.      Users of information; Cost accounting is a management of a business enterprise while financial accounting is management as well as external stakeholders such as shareholders, creditors, debtors, investors etc.

3.      In Objectives: cost accounting provides information to aid planning, decision making and control while financial account satisfy the stewardship function of management

4.      In Conformity to concepts and standards; cost accounting – no need to comply with standards and concepts while financial accounting absolute need to comply.

5.      Scope and form of presentation; Cost accounting is determined by management on the basis of relevance and cost benefit considerations while financial accounting is determined by concepts, standards and legal provisions.

Question 14:

Describe three different methods of cost classification and explain the utility of each method.

Answer:

The cost of products or services is determined using several methods.  The following are the well established methods of costing.

1.      Job/Batch costing

2.      Process costing

3.      Service cost

4.      Contract costing

Question 15:

Cost classifications used in costing include: a. period costs b. product costs c. variable costs d. opportunity cost.  Explain each of these classifications, with examples of the types of costs that may be included.

Answer:

1.      Product cost are costs that are identified with goods produced or purchased for resale. Examples of products costs are; cost of raw materials, cost of production wages , cost of production overheads such as electricity, depreciation of plant, rent of factory premises etc.

2.     

 Period costs are costs incurred and charged against profit and a period, and not included in cost for stock valuation  purposes.

3.      Opportunity Costs are values of benefits forgone or sacrificed in favour of alternative courses of action. 

4.      Variable Cost – these are costs which vary in direct proportion with changes in activity levels.  For example, cost of raw materials, direct wages and direct expenses such as royalties. 

Question 16:

Cost may be classified in a variety of ways according to their nature and the information needs of management.  Explain and discuss this statement, illustrating with examples of the classifications required for different purposes. 

Answer:

Cost can be classified variously for different objectives.

a.      Classification according to element of cost – materials cost, labour cost and expenses

b.      Classification as direct or indirect – Direct material cost , direct labour cost, direct expenses,  indirect material cost, indirect labour cost and indirect expense

c.       Classification according to function – production overheads, selling overheads, marketing overheads, distribution overheads, administrative overheads, search and development overhead.

d.      Classification according to behaviour; fixed cost, variable cost, semi-fixed/semi-variable or mixed cost, stepped fixed  cost

e.      Classification as product cost or period cost ; Product Costs, Expired Product Cost, Unexpired Product Costs, Period Costs. 

Question 17:

Materials can be defined as all the tangible material assets of organization other than its A. Work in progress A. Raw Materials C. Cash D. Fixed Assets E. Finished Goods

Question 18:

The work of the storekeeper does not include A. Receiving stock items B. Issuing stock items C. recording of Stock items D. Custody of stock items E. Selling of Stock items

Question 19:

Purchase orders are issued by A. Quality Control Manager B. Procurement Manager C. Stores Manager D. Cost Accountant E. Production manager 

Question 20:

When ordered materials are received, they are brought into stores via A. Material Requisition B. Local Purchase Order C. Goods Received Note D. Tenders E. Materials Issue Note

Question 21:

Under the First In First Out method, store issues are priced using the prices of A. the last batches received into store B. the first batches received into store C. the middle batches received into store D. the average of the first and last batches received into store E. the next batch to be received into store

Question 22:

The stock valuation method that assumes the stocks are issued in reverse order of receipts is called Last in Frist out (LIFO)

Question 23:

What is the level of stock determined, below which quantities are not expected to fall in the store called? Minimum Stock Level

 

Question 24:

The optimum quantity of stock that should be ordered from suppliers at any one time is known as Economic Oder Quantity

 

Question 25:

What is the name of the document which the storekeeper uses in recording the receipt and issue of materials called? Bin Card

Question 26:

The system whereby bits of store items are counted at frequent intervals so that by year end all items would have been counted at least once is known as Continuous Stock Taking

 

Question 27:

Briefly explain the following, bringing out clearly the formulae of calculation where appropriate;

i.                    Minimum Stock balance – this is the lowest level at which stock may be allowed to fall.  It is not prudent to allow stock to fall below the minimum stock level.  Mathematically, the minimum stock level may be calculated as Minimum stock level =Re-order-(average consumption x average delivery period)

 ii.                  Maximum stock balance –this is the largest possible quantity of stock that may be in store at any given time.  It is not prudent to maintain a quantity of stock above this level.

 Mathematically, it is computed as Maximum stock level=Re-order level + Re-order quantity – minimum x minimum consumption delivery period.

iii.                Re-order level Stock – This is the level at which an order will be placed for additional supplies of material so that delivery will be made before the business runs out of stock.  Formula Re-order stock level = Maximum consumption x maximum delivery period

iv.                Average stock level-this is the midway between the minimum stock level and the maximum stock level.  Mathematically, it is computed as; Average stock level=minimum stock level + maximum stock level/2

Question 28:

Under labour incentive schemes, bonus is paid A. every December B. each time the company received a large order C. to very good employees D. Anytime there is surplus money in the treasure E. Over and above the basic pay to reward extra time worked or time saved

Question 29:

Overtime is A. Work done over a period of time B. Time spent in calling over production figures C. Time spent by the employee working beyond the normal working hours D. Time spent by the employee in the changing room E. Time when the production machines are idle

Question 30:

PAYE is an acronym for A. pay as you engage B. Pay According to your expectation C. Pay All Your Employees D. Payment at year End E. Pay As You Earn

Question 31:

Ghost Workers are A. former employees who are now dead B. employees who were involved in accident whilst working C. employees always on sick leave D. Workers who do not exist but in whose names salaries are being paid E. Those who work in the cemetery 

Question 32:

Gross wages are calculated by adding; A. all allowances to basic wages B. All deductions to basic wages C. pension deduction to PAYE D. bonuses and allowances together E. Twelve months wages together 

Question 33:

Time allowed minus time taken equals Time saved

Question 34:

Labour costs incurred on employees engaged in directly transforming the raw materials into finished goods is referred to as Direct Labour

Question 35:

The extent at which employees leave an organization is known as Labour Turnover

Question 36:

The product of hours worked and wage rate per hour is Basic Wage

Question 37:

The card issued in the name of each employee which is inserted into an electronic recording machine to capture time spent at work by the employee is called Clock Card

Question 38:

Outline five causes of labour turnover

Solution: 1. Dissatisfaction with the job, wages, hours of work or working condition 2. Discontent due to the relationship with supervisors and or colleagues 3. Lack of promotion opportunities 4. Personal matters e.g. ill health, marriage, pregnancy, moving to a new area 5. Sometimes employees are discharged due to redundancy, incompetence, lateness, and absenteeism ;

Question 39:

What is the difference between individual incentive scheme and group incentive scheme? Outline three advantages and three disadvantages for each of the two types of incentive schemes.

Solution:

Question 40:

Explain the difference between labour cost accounting and payroll accounting

Solution: Labour cost accounting realates to the determination of the cost of labour chargeable to various jobs, customers, clients and clients and overhead accounts.  Under labour cost accounting, the objective is to ascertain the labour cost that can be charged to products and services.   While payroll accounting relates to the process of computing the amount of earnings of employees as well as the various payments on behalf of employees:

Question 41:

List examples of labour turnover cost

Solution: A. Advertising for personnel and interviewing expenses B. Re-imbursement of removal and settling in expenses removal of furniture to new house and subsistence allowance between date of commencement and date of moving C. Tranining, including the new employees’ wages during the training, period, the wages and salaries of instructors, materials used in the training process D. Machine break-down E. Pension scheme administration etc.

Question 42:

Explain seven (7) ways of avoiding or reducing labour turnover

Solution: 1. Regular Satistics should be provided analyizing labour turnover 2. Develop better human relationship 3. Hold annual medical check-ups 4. See that the working environment is congenial 5. Introduce high wages 6. Consider fringe benefits

Question 43:

An interlocking accounting system has A. various ledger relating to one another B. separate set of financial ledgers and separate set of costing ledger C. accounting entries locked up in the ledger D. Different ledger for direct expense and indirect expenses E. a single set of ledger servicing dual purpose

Question 44:

A trail balance is A. the set of accounting records presented at court cases B. an account prepared to determine a company’s profitability C. list of account balances – both debit and credit sides balance D. the balance of the cost ledger control account E. a statement of balances on bank accounts

Question 45:

What is national charge? A. a charge on the assets of the company B. a government charge to be paid by the company C. charges introduced to reduce tax liability D. charges which though not payable are meant to reflect the normal costs of running the business E. expected income which may be recognized in the accounts.

Question 46:

In reconciliation of profits disclosed by interlocking accounts, what are purely financial matters? A. items involving cash transactions B. Balance sheet items C. Matters relating to the banks D. Salaries and wages paid to casual workers E. Financial matters outside the scope of production

Question 47:

What is a control account? A. An account in the main ledger summarizing the subsidiary ledger accounts  B. The account maintained by the financial controller C. An account maintained by the Cost controller D. A separate account for monitoring factory performance E. A secret account for monitoring factory performance

Question 48: A system where a set of accounts is kept for both financial and costing transactions is known as Integrated Accounting Systems.

Question 49: In the accounts manual, processing of large mass of data under different accounts heads are made possible through the use of Accounts codes

Question 50: Raw materials issued to production but yet to reach the finished state at period and is to be found in which account? Work in Progress Account

Question 51: The conflict between the profit figures arrived at under the financial account and cost account ledger is settled by way of Memorandum Reconciliation Statement