Costing MCQ Questions and Solutions with Explanations | Commerce

Basic objective of cost accounting is cost ascertainment. It involves the ascertainment of the cost of every job, order, product, process or service.

Process costing is suitable for oil refing firms. Process costing is suitable for industries producing homogeneous products and where production is a continuous flow.

Cost classification can be done in several ways. Cost classification in economics might involve categories of fixed, variable, opportunity, production and sunk costs. On the other hand, accounting costs can be classified as either direct or indirect for a business.

The cost which is to be incurred even when a business unit is closed is a shutdown cost. The shut down price is the minimum price a business needs to justify remaining in the market in the short run.

Direct expenses are also called chargeable expenses. Chargeable expenses are any costs that your agency or client has agreed to reimburse to you. These will usually be invoiced through the umbrella company and may well require an expense form, signed by the client, to support the claim.

Indirect material used in production is classified as factory overhead. Indirect materials are materials used in the production process but are not directly traceable to the product.

The correct answer is (C) distribution cost.
Let's break down why:
* Prime Cost: This includes the direct materials and direct labor that go directly into making a product. Think of the raw materials and the wages of the workers on the assembly line. Warehouse rent isn't directly part of making the product.
* Factory Cost (or Production Cost): This includes all the costs involved in manufacturing a product *within* the factory. This would include the cost of running the machines, factory supervisor salaries, and factory rent. Warehouse rent for storing finished goods isn't part of this.
* Distribution Cost: This refers to the expenses incurred in getting the finished goods from the factory to the customer. This includes warehousing finished goods, transportation, advertising, and sales salaries. Since the warehouse is used to store finished products before they are sold, the rent falls under distribution.
* Production Cost: This is similar to Factory cost and includes cost of production of Goods in Factory and it does not include rent of finished goods .
Therefore, warehouse rent is most accurately a distribution cost.

Indirect material scrap is adjusted along with factory cost. Factory cost refers to the total cost required to manufacture goods. This concept is the basis for several cost accounting analyses.

Tender is an estimation of selling price. Tender is used in response to Request for tender.

Total of all direct costs is termed as prime cost. A prime cost is the total direct costs, which may be fixed or variable, of manufacturing an item for sale.