Cost and management accounting is a branch of accounting that focuses on providing information and analysis to assist managers in making decisions and controlling costs within an organization. It involves the collection, analysis, and interpretation of financial and non-financial data to support various managerial functions.
Multiple-choice questions (MCQs) are a common format used in cost and management accounting assessments. These questions present a statement or a question, followed by a set of options from which the student must select the correct answer. Here is a short note providing an overview of cost and management accounting MCQs:
Cost and management accounting MCQs with answers practice now
Cost and Management Accounting
Cost and management accounting are two interrelated branches of accounting that focus on the collection, analysis, and interpretation of financial and non-financial information within an organization. While they are closely related, they serve different purposes and provide information for different decision-making processes.
- Cost Accounting: Cost accounting is concerned with the determination and control of costs incurred in the production, distribution, and administration of goods or services. It involves the following key aspects:
a. Cost Classification: Cost accountants classify costs into various categories such as direct costs, indirect costs, fixed costs, variable costs, etc., to facilitate analysis and decision-making.
b. Cost Accumulation: Cost accountants collect and record cost data through various methods like job costing, process costing, activity-based costing, etc.
c. Cost Analysis: Cost accountants analyze cost data to identify cost drivers, cost variances, and cost behaviors. They use techniques like cost-volume-profit analysis, variance analysis, and break-even analysis to assist management in decision-making.
d. Cost Control: Cost accountants develop and implement cost control measures to ensure that costs are managed effectively. They help in establishing cost standards, monitoring actual costs, and taking corrective actions when necessary.
- Management Accounting: Management accounting focuses on providing financial and non-financial information to internal stakeholders (management) for planning, controlling, and decision-making purposes. It involves the following key aspects:
a. Financial Planning and Budgeting: Management accountants assist in the formulation of financial plans, budgets, and forecasts. They provide data and analysis to support strategic planning, goal setting, and resource allocation.
b. Performance Measurement: Management accountants develop performance metrics and key performance indicators (KPIs) to evaluate the efficiency and effectiveness of operations. They prepare management reports and dashboards to communicate financial and operational performance to the management.
c. Decision Support: Management accountants provide information and analysis to support managerial decision-making. They perform cost-benefit analysis, investment appraisal, and other financial evaluations to assess the feasibility and profitability of various options.
d. Strategic Management: Management accountants play a crucial role in strategic management by providing financial insights and participating in strategic planning exercises. They contribute to identifying opportunities, assessing risks, and formulating strategies for long-term success.
Overall, cost accounting focuses on capturing and analyzing costs within an organization, while management accounting provides information and analysis for managerial decision-making and strategic planning. Both disciplines are essential for effective financial management and decision-making in businesses.
Cost and management accounting MCQs with answers
1.Which of the following is an example of a fixed cost?
a) Direct labor
b) Raw materials
c) Rent for the factory building
d) Variable manufacturing overhead
2. The break-even point is the point where:
a) Total revenue equals total costs
b) Total revenue exceeds total costs
c) Total costs exceed total revenue
d) Total variable costs equal total fixed costs
3. Which of the following is a period cost?
a) Direct materials
b) Indirect labor
c) Advertising expenses
d) Manufacturing supplies
4. The formula to calculate the contribution margin ratio is:
a) Contribution margin per unit / Selling price per unit
b) Contribution margin per unit / Total fixed costs
c) Contribution margin per unit / Total variable costs
d) Total contribution margin / Total sales
5. Which of the following is not a method of cost allocation?
a) Direct allocation
b) Step-down allocation
c) Absorption allocation
d) Regression allocation
6. An opportunity cost is:
a) A cost that can be easily traced to a specific cost object
b) A cost that is incurred in the past and cannot be changed
c) The potential benefit given up by choosing one alternative over another
d) A cost that varies in total with changes in the level of activity
7. The predetermined overhead rate is calculated using the formula:
a) Estimated total manufacturing overhead / Estimated total direct labor hours
b) Actual total manufacturing overhead / Actual total direct labor hours
c) Actual total manufacturing overhead / Estimated total direct labor hours
d) Estimated total manufacturing overhead / Actual total direct labor hours
8. Which of the following statements is true regarding job-order costing?
a) It is used by companies that produce homogeneous products
b) It allocates manufacturing overhead
costs to individual jobs based on their actual usage of resources
c) It is commonly used in process costing systems
d) It calculates unit costs by dividing total manufacturing overhead by the number of units produced
9. Which of the following is an example of a cost driver?
a) Direct labor cost
b) Direct materials cost
c) Machine hours
d) Total sales revenue
10. The process of assigning indirect costs to cost objects is called:
a) Cost allocation
b) Cost accumulation
c) Cost tracing
d) Cost apportionment
11. Which of the following is a direct cost for a manufacturing company?
a) Depreciation on the factory building
b) Sales commissions
c) Direct materials cost
d) Advertising expenses
12. The margin of safety is calculated as:
a) Actual sales – Break-even sales
b) Target sales – Actual sales
c) Total revenue – Total variable costs
d) Target sales – Total fixed costs
13. Which of the following costs would typically be considered a period cost?
a) Direct labor cost
b) Direct materials cost
c) Rent expense for administrative offices
d) Depreciation expense on factory equipment
14. The high-low method is used to:
a) Separate mixed costs into their fixed and variable components
b) Allocate manufacturing overhead to individual jobs
c) Determine the optimal production quantity
d) Calculate the contribution margin ratio
15. The cost of goods manufactured is calculated as:
a) Beginning work in process + Direct materials used + Direct labor + Manufacturing overhead
b) Beginning work in process + Direct materials used + Direct labor – Ending work in process
c) Beginning work in process + Total manufacturing costs – Ending work in process
d) Beginning work in process + Ending work in process + Total manufacturing costs
16. Which of the following statements is true regarding variable costing?
a) Fixed manufacturing overhead is allocated to units of production
b) It treats fixed manufacturing overhead as a period cost
c) It includes fixed manufacturing overhead in the product cost
d) It is used for external financial reporting purposes
17. In a standard costing system, the standard cost per unit is determined by:
a) Actual cost per unit
b) Budgeted cost per unit
c) Target cost per unit
d) Marginal cost per unit
18. Which of the following is an example of a relevant cost?
a) Sunk cost
b) Historical cost
c) Future cost that differs between alternatives
d) Committed cost
19. The payback period is the length of time it takes to:
a) Recover the initial investment in a project
b) Earn a specified rate of return on the initial investment
c) Generate positive cash flows from a project
d) Achieve break-even point in a project
20. Which of the following statements is true regarding absorption costing?
a) Fixed manufacturing overhead is excluded from the product cost
b) It is used for internal decision making purposes
c) It assigns fixed manufacturing overhead to units of production
d) It treats fixed manufacturing overhead as a period cost
cost and management accounting multiple choice questions and answers
1. The formula to calculate the manufacturing overhead applied to a job is:
a) Actual manufacturing overhead / Actual direct labor hours
b) Estimated manufacturing overhead / Estimated total direct labor hours
c) Actual manufacturing overhead / Estimated total direct labor hours
d) Estimated manufacturing overhead / Actual direct labor hours
2. The contribution margin is calculated as:
a) Total sales – Total variable costs
b) Total sales – Total fixed costs
c) Total sales – Total costs
d) Total sales – Total direct costs
3. Which of the following is an example of an external failure cost?
a) Costs of rework
b) Costs of scrap materials
c) Costs of warranty repairs
d) Costs of quality inspections
4. The net present value (NPV) method considers:
a) The profitability of an investment project
b) The payback period of an investment project
c) The internal rate of return of an investment project
d) The time value of money in evaluating an investment project
5. Which of the following statements is true regarding job-order costing and process costing?
a) Job-order costing is used in industries with continuous production processes
b) Job-order costing is used for unique, custom-made products
c) Process costing is used for industries with batch production processes
d) Process costing assigns costs to individual jobs
6. Which of the following is an example of a nonfinancial performance measure?
a) Return on investment (ROI)
b) Net present value (NPV)
c) Customer satisfaction rating
d) Earnings per share (EPS)
7. The relevant range is the range of activity where:
a) Fixed costs remain constant per unit
b) Variable costs remain constant per unit
c) Both fixed and variable costs remain constant in total
d) Both fixed and variable costs vary in total
8. The budgeted production volume is also known as the:
a) Sales volume
b) Breakeven volume
c) Capacity volume
d) Target volume
9. Which of the following is a component of the cost of goods sold?
a) Direct labor cost
b) Rent expense
c) Administrative salaries
d) Advertising expenses
10. The direct materials quantity variance measures the difference between:
a) Actual quantity of materials used and standard quantity of materials allowed
b) Actual cost of materials used and
standard cost of materials allowed
c) Actual quantity of materials used and actual cost of materials used
d) Standard quantity of materials allowed and standard cost of materials allowed
11. The direct labour rate variance measures the difference between:
a) Actual labor hours worked and standard labor hours allowed
b) Actual labor cost and standard labor cost
c) Actual labor hours worked and actual labor cost
d) Standard labor hours allowed and standard labor cost
12. Which of the following is a component of manufacturing overhead?
a) Direct materials cost
b) Direct labor cost
c) Depreciation on factory equipment
d) Advertising expenses
13. The cost of goods sold is calculated as:
a) Beginning inventory + Purchases – Ending inventory
b) Beginning inventory + Direct materials used + Direct labor + Manufacturing overhead
c) Beginning inventory + Total manufacturing costs – Ending inventory
d) Beginning inventory + Ending inventory + Purchases
14. Which of the following is a step in the cost allocation process?
a) Assigning costs to cost objects
b) Estimating costs for budgeting purposes
c) Calculating the breakeven point
d) Analyzing variances in cost performance
15. Which of the following is a fixed cost behaviour pattern?
a) Total cost increases in direct proportion to changes in activity level
b) Total cost remains constant within the relevant range of activity
c) Total cost decreases as activity level increases
d) Total cost varies in an unpredictable manner with changes in activity level
16. The direct materials price variance measures the difference between:
a) Actual price paid for materials and standard price allowed for materials
b) Actual quantity of materials used and standard quantity of materials allowed
c) Actual price paid for materials and actual cost of materials used
d) Standard price allowed for materials and standard cost of materials allowed
17. The following is an example of a variable cost?
a) Rent expense
b) Salary of the production manager
c) Cost of raw materials
d) Property taxes
18. The break-even point is the level of sales at which:
a) Total revenue equals total variable costs
b) Total revenue exceeds total costs
c) Total revenue equals total fixed costs
d) Total revenue equals total costs
19. Which of the following is an example of a period cost?
a) Direct labor cost
b) Direct materials cost
c) Rent expense for administrative offices
d) Depreciation expense on factory equipment
20. The predetermined overhead rate is calculated by dividing:
a) Actual overhead costs by actual activity level
b) Budgeted overhead costs by budgeted activity level
c) Actual overhead costs by budgeted activity level
d) Budgeted overhead costs by actual activity level
What is management accounting used for ?
Management accounting is used to provide information and analysis to internal users, such as managers and executives, to support decision-making, planning, controlling, and performance evaluation within an organization. It focuses on providing detailed financial and non-financial information related to the organization’s operations, costs, revenues, budgets, and performance.
What is cost accounting ?
Cost accounting is a branch of accounting that focuses on determining the cost of producing goods or services by analyzing various cost components such as raw materials, labor, and overhead expenses.
What is the main objective of cost accounting ?
The main objective of cost accounting is to provide detailed information about costs, cost drivers, and cost behavior, which helps in cost control, decision-making, and improving operational efficiency.
What is cost principle ?
Cost principle, also known as the historical cost principle, states that assets should be recorded at their original cost when initially acquired and should not be adjusted to reflect current market value.
What is the full form of GAAP?
The full form of GAAP is Generally Accepted Accounting Principles. It refers to the standard framework of accounting principles, concepts, and procedures that guide financial accounting practices in a particular jurisdiction or country.
