Costing MCQ Questions and Solutions with Explanations | Commerce

Assisting Shareholders in decision making is not an objective of Cost Accounting. Objectives of cost accounting are ascertainment of cost, fixation of selling price, proper recording and presentation of cost data to management for measuring efficiency and for cost control and cost reduction, ascertaining the profit of each activity, assisting management in decision making and determination of break-even point.

A profit centre is a centre where the manager has the responsibility of generating and maximising profits. In a profit centre, the manager has the responsibility and the authority to make decisions that affect both costs and revenues (and thus profits) for the department or division. The main purpose of a profit centre is to earn profit. Profit centre managers aim at both the production and marketing of a product.

Responsibility Centre can be categorised into Cost Centres, Profit Centres and Investment Centres. Responsibility centers are often categorized by the degree of authority and responsibility given to the manager.

Cost Unit is defined as Unit of quantity of product, service or time in relation to which costs may be ascertained or expressed. A cost unit refers to the unit of quantity of product, service or time (or combination of these) in relation to which costs may be ascertained or expressed.

Fixed cost is a cost which do not change in total during a given period despite changes in output. A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any specific business activities.

Uncontrollable costs are the costs which can not be influenced by the action of a specified member of an undertaking. For example: a foreman incharge of a tool room can only control costs pertaining to the same department and the matters which come directly under his control, not the costs apportioned to other department. The expenditure which is controllable by an individual may be uncontrollable by another individual.

Element/s of Cost of a product are Material, Labour and expenses.

Abnormal cost is the cost not normally incurred at a given level of output. These costs are not normally incurred at a given level of output in conditions in which normal levels of output occur.

Conversion cost includes cost of converting Raw material into Finished goods. There are two main components of conversion costs: direct labor and manufacturing overheads.

Sunk costs are not relevant for decision making. A sunk cost is a cost that cannot be recovered or changed and is independent of any future costs a business may incur. Since decision-making only affects the future course of business, sunk costs should be irrelevant in the decision-making process.