Costing MCQ Questions and Solutions with Explanations | Commerce

Material requisition is meant for supply of material from stores. A materials requisition form is a source document that the production department uses to request materials for manufacturing process. The production manager usually fills out the materials requisition form and delivers it to the materials or storage department where all of the raw materials are stored.

ABC analysis is a way of categorizing the material on the basis of the quantity of consumption and their relative values. Some material might be consumed in lower quantities but their period may be very high. Such materials are kept in group "A". Similarly, some material may be consumed in large quantities but their values may be lower. Such materials are kept in group 'C'. In between these two, some materials may be consumption in moderate quantity with the moderated price. Such materials are kept in group 'B' under ABC analysis very close control is exercised over the material in group 'A' whereas a very little control is exercise is exercised over the material in group 'C'.

Cost is the value of economic resources used as a result of producing or doing the thing costed. Cost is ascertained by cost centres or cost units or by both.

Perpetual inventory system involves bincard and stores ledger. Perpetual Inventory System keeps a record of every now and then of materials. It comprises of Bin Card and Stores Ledger, to keep track of various items.

"FIFO" stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold. In other words, the cost associated with the inventory that was purchased first is the cost expensed first.

LIFO method of pricing of materials is more suitable when material prices are rising. LIFO method of pricing issues is suitable because materials are issued at the current market prices which are high. This method thus helps in showing a lower profit because of increased charge to production during periods of rising prices and lower profit reduces burden of income-tax.

Average method of pricing the material issues is useful when material prices are fluctuating. Under the 'Average Cost Method', it is assumed that the cost of inventory is based on the average cost of the goods available for sale during the period. The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale.

Scrap is residue of material. It is incidental residue from the materials used in manufacturing operations which is recoverable and measurable without processing.

Economic order quantity (EOQ) is the ideal order quantity a company should purchase for its inventory given a set cost of production, a certain demand rate, and other variables.