ADDIS ABABA UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

COST AND MANAGEMENT ACCOUNTING
SELF-CHECK EXERCISE
PART ONE: MULTIPLE CHOICE QUESTIONS
1.
Cost estimation include(s) the following expenditure(s)
A. pattern making
B. tool making
C. selling expenses
D. all of the above
2. To calculate the probable cost of the product, knowledge of following factors involves
A. Production time required
B. Use of previous estimates of comparable parts
C. Effect of change in facilities on costing rates
D. All of the above
3. Cost accounting is a specialized branch of accounting which deals with
A. classification, recording, allocation and control of costs
B. classification, processing, allocation and directing
C. classification, recording, planning and control of costs
D. classification, recording, allocation and directing
4. Expenditure incurred on material, labour, machinery, production and inspection are summed up to find the
A. Total cost of product
B. Selling price of product
C. Factory cost of product
D. None of the above
5. Which of the following calculate the actual cost of product
A. Cost estimation
B. Costing
C. Both (A) and (B)
D. None of the above
6. The cost data provide invaluable information for taking the following managerial decision(s)
A. To make or buy
B. To own or hire fixed asset
C. Determining the expansion or contraction policy
D. All of the above
7. The method of unit costing is adopted by
A. Transport services
B. Steel industry
C. Mines
D. Bicycle industry
8. The following is cost of direct materials
A. Freight charges C. coolant
B. grease D. cotton waste

9. The payment made to the following is cost of direct labour.

A. Machinist C. Inspector
B. Supervisor D. Sweeper
10. The payment made to the following is cost of indirect labour.
A. Time keeper
B. Welder
C. Moulder
D. Turner

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11. Cost of preparing drawings for the manufacture of a particular product is
A. Cost of direct labour
B. Cost of indirect labour
C. Direct expenses
D. Indirect expenses
12. The following is also known as overhead costs or on costs.
A. Cost of direct labour
B. Cost of indirect labour
C. Direct expenses
D. Indirect expenses

13. The following is(are) the overhead cost(s)

A. Factory expenses C. Distribution expenses

B. Selling expenses D. All of the above

14. All such expenses which are incurred for creating and enhancing the demands for the products are

A. Selling expenses C. Distribution expenses

B. Administrative expenses D. All of the above

15. Prime cost=

A. cost of direct labour + cost of direct material + direct expenses

B. cost of indirect labour + cost of indirect material + direct expenses

C. cost of direct labour + cost of direct material + indirect expenses

D. cost of indirect labour + cost of direct material + indirect expenses

16. Factory Cost =

A. Prime cost + factory expenses

B. Prime cost + administrative expenses

C. Prime cost + selling expenses

D. Prime cost + distribution expenses

17. Manufacturing cost=

A. Factory cost + selling cost C. Factory cost + administrative expenses

B. Factory cost + distribution cost D. None of the above

18. The following is(are) the method(s) to increase profit

A. Increase the sales price C. Reduce total cost

B. Increase the market D. All of the above

19. Which of the following is variable cost?

A. Salaries of higher officers C. Insurance cost

B. Prime cost D. Repair cost

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20. Which of the following is not a method of calculating (allocating) overhead cost?

A. Percentage on prime cost C. Percentage on indirect labour cost

B. Percentage on direct labour cost D. Percentage on direct material cost

21. The following method is an improvement over the percentage on direct labour cost method.

A. Machine hour rate C. Percentage on direct material cost

B. Percentage on prime cost D. Man hour rate

22. This method is useful where the products are manufactured by manual operations.

A. Percentage on prime cost

B. Percentage on direct material cost

C. Percentage on direct labour cost

D. Machine hour rate

23. Labour cost per product is Rs. 2/hr and time taken by each product is 2 hr. The factory overhead is 20% of the labour costs. The
factory cost for 100 products if material cost per product is Rs. 3, is.

A. Rs. 700 C. Rs. 780

B. Rs. 740 D. Rs. 820

24. The following is (are) true for variable costs

A. Variable costs are the functions of output

B. Variable costs vary directly with the quantity produced

C. These become zero when the production is suspended

D. All of the above

25. To control costs it is essential to keep control on

A. Prime cost

B. Overheads

C. Indirect materials and tools cost

D. All of the above

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26. Purpose of management accounting is to
A. past orientation
B. help banks make decisions
C. help managers make decisions
D. help investors make decision
27. In management accounting, an emphasis and focus must be
A. future oriented
B. past oriented
C. communication oriented
D. bank oriented
28. Point at which the control functions and the planning of management come together is known as
A. Functioning
B. Variance
C. Variation
D. deviation

29. The role of management accounting does not normally include the function of
A. decision-making
B. product costing
C. cash management
D. planning and control
30. The role of financial management does not usually include responsibility for
A. risk management
B. corporate finance
C. treasury management
D. compliance with accounting standards
31. The management accounting concepts, additional to the fundamental accounting concepts do not include the
A. going concern concept
B. controllability concept
C. interdependency concept
D. reliability concept

32. Total costs are comprised of

A. fixed costs plus semi-variable costs
B. variable costs plus fixed costs
C. variable costs plus fixed costs plus semi-variable costs
D. variable costs plus semi-variable costs
33. Prime costs are comprised of
A. materials costs plus direct labour costs
B. direct labour costs plus production overheads
C. materials costs plus production overheads
D. production overheads plus materials costs plus direct labour costs
34. Cost allocation is the charging of a
A. product with the direct labour costs relating to the product
B. cost centre with the direct labour and materials costs relating to the cost centre
C. cost centre with the overhead costs resulting solely from the existence of the cost centre
D. product with the direct labour and materials costs relating to the product
35. Which of the following examples of bases of cost apportionment may relate to rent, heating and lighting?
A. weight
B. area
C. number of products
D. number of employees

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36. Which costs are charged to a product using the method of absorption costing
A. direct labour costs
B. materials costs plus direct labour costs
C. total production costs
D. production overheads plus direct labour costs
37. Using the marginal costing method, contribution is equal to total sales revenue less
A. direct labour costs
B. fixed costs
C. total costs
D. variable cost
38. Cost, which is related to specific cost object and economically traceable, will be classified as
A. direct cost
B. indirect cost
C. line cost
D. staff cost

39. Material or anything for which cost is to be measured is known as

A. measurement object
B. cost object
C. accounting object
D. budget object
40. Cost which is changed in proportion to level total volume is
A. fixed cost
B. variable cost
C. total cost
D. infeasible cost
41. Costs are classified as fixed or variable on basis of
A. specific activity
B. given time period
C. common activity
D. both a and b

42. Process of tracing direct costs and allocation of indirect costs is known as
A. cost assignment
B. direct assignment
C. indirect assignment
D. economic assignment

43. Total costs incur in a production process, is divided by total number of output units, to calculate the
A. cost of indirect labor
B. cost of direct labor
C. cost of direct material
D. unit costs
44. .A semi-variable cost
A. increases and decreases directly and proportionately with changes in volume
B. changes in response to a change in volume, but not proportionately
C. increases if volume increases, but remains constant if volume decreases
D. changes inversely in response to a change in volume

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45. Jensen Company reported the following. What are their product costs?
Direct materials used $345,000
Direct labour incurred 250,000
Factory overhead incurred 400,000
Operating expenses 175,000

A. a.$770,000
B. b.$825,000
C. c.$920,000
D. d.$995,000

46. If a company decreases the variable expense per unit while increasing the total fixed expenses, the total expense line
relative to its previous position will:
A. shift downward and have a steeper slope.
B. shift downward and have a flatter slope
C. shift upward and have a flatter slope.
D. shift upward and have a steeper slope
47. Which phrase best describes the current role of the managerial accountant?
A. Managerial accountants prepare the financial statements for an organization.
B. Managerial accountants facilitate the decision-making process within an organization.
C. Managerial accountants make the key decisions within an organization.
D. Managerial accountants are primarily information collectors.
E. Managerial Accountants are solely staff advisors in an organization.

48. Product and service costing information is prepared for

A. manufacturing companies with inventory.
B. merchandising companies.
C. service providers.
D. each of the other four answers..
E. manufacturing companies without inventory.

49. Manufacturing costs typically consist of

A. direct materials, direct labor, and manufacturing overhead.
B. production and shipping costs.
C. production and marketing costs.
D. direct materials, direct labor, and administrative costs.
E. direct materials, direct labor, marketing and administrative costs.
50. As production increases within the relevant range,
A. variable costs will vary on a per unit basis.
B. variable costs will vary in total.
C. fixed costs will vary in total.
D. fixed and variable cost stay the same in total.
E. none of the other four answers is true.

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51. .You are given the cost and volume information below:
Volume Cost
1 unit $ 15
10 units 150
100 units 1500
What type of a cost is given?
A. fixed cost
B. variable cost
C. step cost
D. mixed cost
E. rent cost.
52. . Which of the following statements regarding graphs of fixed and variable costs is true?
A. Variable costs can be represented by a straight line where costs are the same for each data point.
B. Fixed costs can be represented by a straight line starting at the origin and continuing through each data point.
C. Fixed costs are zero when production is equal to zero.
D. Variable costs are zero when production is equal to zero.
E. Fixed and Variable costs are curvilinear form above zero on the “Y” axis.

53. All of the following statements regarding budgeting is true except

A. Budgeting helps managers determine the resources needed to meet their goals and
B. objectives.
C. Budgeting is a key ingredient in good decision-making.
D. Budgeting is a bookkeeping task
E. The focus of budgeting is planning.
F. Budgeting is an executive responsibility.

54. Coed Novelties manufactures key chains for college bookstores. During 2003, the company had the following costs:
Direct materials used $ 31,000
Direct labor 18,000
Factory rent 12,000
Equipment deprecation – factory 2,000
Equipment depreciation – office 750
Marketing expense 2,500
Administrative expenses 40,000
35,000 units produced were in 2003. What is the product cost per unit?
A. approximately $1.24
B. $1.80
C. approximately $3.04
D. $1.40
E. approximately $1.82

55. Prime cost + Factory overhead cost is:

A. Conversion cost
B. Production cost
C. Total cost
D. None of the above

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56. Basic objectives of cost accounting is__________.
A. tax compliance.
B. financial audit.
C. cost ascertainment.
D. profit analysis
57. Overhead cost is the total of ____________.
A. all indirect costs.
B. all direct costs.
C. indirect and direct costs.
D. all specific costs
58. Cost classification can be done in __________.
A. two ways.
B. three ways.
C. four ways.
D. several ways
59. Costing refers to the techniques and processes of __________
A. ascertainment of costs.
B. allocation of costs.
C. apportion of costs.
D. distribution of costs.
60. Wages paid to a labour who was engaged in production activities can be termed as.
A. direct cost.
B. indirect cost.
C. sunk cost.
D. imputed cost.
61. The cost which is to be incurred even when a business unit is closed is a.
A. imputed cost.
B. historical cost.
C. sunk cost.
D. shutdown cost.
62. Prime cost includes.
A. direct materials, direct wages and indirect expenses .
B. indirect materials and indirect labour and indirect expenses.
C. direct materials, direct wages and direct expenses.
D. direct materials, indirect wages and indirect expenses.
63. Total of all direct costs is termed as _______.
A. prime cost.
B. works cost.
C. cost of sales.
D. cost of production.
64. Depreciation of plant and machinery is a part of ___________.
A. factory overhead.
B. selling overhead.
C. distribution overhead.
D. administration overhead.
65. Financial accounting is concerned with:
A. Recording business expenses and revenues
B. Recording the cost of products and services
C. Recording day-to-day business transactions
D. None of the above

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66. The nature of financial accounting is:
A. Historical
B. Gorward-looking
C. Analytical
D. Social
67. The main objective of cost accounting is:
A. To record day-to-day business transactions
B. To measure managerial efficiency
C. To ascertain the true cost of products and services
D. To determine tender price
68. Cost accounting emerged mainly due to:
A. Statutory requirements
B. Market competition
C. Labor unrest
D. Limitations of financial accounting
69. Who benefits from cost accounting?
A. Only workers
B. Only governments
C. Only consumers
D. Management, workers, consumers, and governments
70. Cost accounting is applied to:
A. Public undertakings only
B. Large business enterprises only
C. Small business enterprises only
D. Manufacturing and services concerns
71. Marginal costing is concerned with:
A. Fixed costs
B. Variable costs
C. Semi-fixed costs
D. None of the above
72. A biscuit manufacturing company uses:
A. Operating costing
B. Departmental costing
C. Batch costing
D. Contract costing
73. Uncontrollable costs are the costs which be influenced by the action of a specified member of an undertaking.
A. can not
B. can
C. may or may not
D. must
74. Conversion cost includes cost of converting……….into……..
A. Raw material, WIP
B. Raw material, Finished goods
C. WIP, Finished goods
D. Finished goods, Saleable goods
75. Sunk costs are:
A. relevant for decision making
B. Not relevant for decision making
C. cost to be incurred in future
D. future costs

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76. Calculate the prime cost from the following information:

Direct material purchased: Birr 4,00,000

Direct material consumed: Birr 360,000
Direct labour: Birr 240,000
Direct expenses: Birr 80,000
Manufacturing overheads: Birr 120,000
A. Birr 720,000
B. Birr 8,00,000
C. Birr 680,000
D. Birr 840,000

77. Overhead refers to:

A. Direct or Prime Cost
B. All Indirect costs
C. only Factory indirect costs
D. Only indirect expenses

78. Fixed cost per unit decreases when ______________

A. Production volume increases.

B. Production volume decreases.
C. Variable cost per unit decreases.
D. Variable cost per unit increases.
79. Opportunity cost is the best example of ______________

A. Sunk Cost
B. Standard Cost
C. Relevant Cost
D. Irrelevant Cost
80. For which one of the following industry would you recommend a Job Order Costing system?

A. Oil Refining
B. Grain dealing
C. Beverage production
D. Law Cases

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81. Cost accounting concepts include all of the following EXCEPT ______________

A. Planning
B. Controlling
C. Sharing
D. Delegating.
82. Prime cost + Factory overhead cost is ______________

A. Conversion cost.
B. Production cost.
C. Total cost.
D. None of given option.

83. Period costs are ______________

A. Expensed when the product is sold

B. Included in the cost of goods sold
C. Related to specific Period
D. Not expensed
84. A An organization sold units 4000 and have closing finished goods 3500 units and opening finished goods units were
1000.The quantity of unit produced would be ______________

A. 7500 units
B. 6500 units
C. 4500 units
D. 5500 units
85. Which of these is not an objective of Cost Accounting?

A. Ascertainment of Cost
B. Determination of Selling Price
C. Cost Control and Cost reduction
D. Assisting Shareholders in decision making
86. Costs which are inventorable are:
A. Manufacturing costs incurred to produce units of output.
B. All costs associated with manufacturing other than direct labor costs and raw material costs.
C. Costs which are associated with marketing, shipping, warehousing, and billing activities.
D. The sum of direct labor costs and all factory overhead costs.
E. The sum of raw material costs and direct labor costs.

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87. Which type of cost is not recorded in the accounting records?
A. Irrelevant costs.
B. Opportunity costs.
C. Sunk costs.
D. Noncontrollable costs.
88. A step cost:
A. Contains only fixed characteristics, whereas a semivariable cost contains both fixed and variable characteristics over
various relevant ranges of operation.
B. Has a fixed portion which changes abruptly at various activity levels.
C. Is similar to a mixed cost within a very small relevant range.
D. Will usually be converted into a semivariable cost sound bookkeeping purposes.
89. Which one of the following costs would be most representative of a semivariable cost?
A. Equipment rentals.
B. Electricity for machinery.
C. Supervisor salaries.
D. Plant insurance.
90. Which statement is incorrect?
A. Within the relevant range, variable costs change on a per unit basis.
B. Middle-level management is primarily responsible for fixed costs.
C. Direct labor is an element of both prime costs and conversion costs.
D. The work of a plant supervisor would be considered direct labor.
91. The term "sunk costs" refers to:
A. Past costs that are now irrevocable.
B. Costs that are directly influenced by unit managers.
C. Costs that should be incurred in a particular production process.
D. Costs that may be eliminated if some economic activity is changed or deleted.
E. Benefits lost from rejecting the next best alternative.
92. The term "cost" refers to:
A. An asset that has given benefit and is now expired.
B. The price of products sold or services rendered.
C. The value of the sacrifice made to acquire goods or services.
D. An asset that has not given benefit and is now expired.
E. The present value of future benefits.

38) Step costs are classified as a:

A. Variable costs.
B. Fixed cost.
C. Prime cost.
D. Conversion cost.
E. Mixed cost.
93. The term "discretionary costs" refers to those:
A. Costs which management decides to incur in the current period to enable the company to achieve objectives other
than the filling of orders placed by customers.
B. Costs which are likely to respond to the amount of attention devoted to them by a specified manager.
C. Costs which are governed mainly by past decisions that established the present levels of operating and organizational
capacity and which only change slowly in response to small changes in capacity.
D. Costs amortized which were capitalized in previous periods.
E. Costs which will be unaffected by current managerial decisions.

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94. Those costs referred to as "controllable costs" are:
A. Costs which management decides to incur in the current period to enable the company to achieve objectives other
than the filling of orders placed by customers.
B. Costs which are likely to respond to the amount of attention devoted to them by a specified manager.
C. Costs which are governed mainly by past decisions that established the present levels of operating and organizational
capacity and which only change slowly in response to small changes in capacity.
D. Costs which fluctuate in total in response to small changes in the rate of utilization of capacity.
E. Costs which will be unaffected by current managerial decisions.
95. The term "variable costs" refers to:
A. All costs which are likely to respond to the amount of attention devoted to them by a specified manager.
B. All costs which are associated with marketing, shipping, warehousing, and billing activities.
C. All costs which do not change in total for a given period of time and relevant range but which become progressively
smaller on a per unit basis as volume increases.
D. All manufacturing costs incurred to produce units of output.
E. All costs which fluctuate in total in response to small changes in the rate of utilization of capacity.
96. The term "committed costs" refers to those:
A. Costs which management decides to incur in the current period to enable the company to achieve objectives other
than the filling of orders placed by customers.
B. Costs which are likely to respond to the amount of attention devoted to them by a specified manager.
C. Costs which are governed mainly by past decisions that established the present levels of operating and organizational
capacity and which only change slowly in response to small changes in capacity.
D. Costs which fluctuate in total in response to small changes in the rate of utilization of capacity.
E. Costs amortized which were capitalized in previous periods.

PART TWO: ESSAY TYPE QUESTIONS

97. What is a cost object?

98. What is the difference between a direct cost and an indirect cost?

99. What is product cost?

100. What is period cost?

101. Why product costs are called inventoriable costs?

102. Describe the difference between the accounting treatment for product costs and period costs.

103. Describe the flow of inventory costs for a merchandising operation as goods are bought and then sold.

104. What are the inventory classifications for a manufacturing type firm?

105. What are the three main cost components included in product cost for a manufacturing type firm?

106. What is the difference between direct material and indirect material?

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107. What is the difference between direct labor and indirect labor?

108. What is included in prime cost and conversion cost?

109. With respect to the cost of goods sold section of an income statement, what is the similarity between purchases
for a merchandising type company and cost of goods manufactured for a manufacturing type company?

110. What are the major differences between managerial and financial accounting?

PART THREE: FILL IN THE BLANK

111. Following are several representative costs incurred in a typical manufacturing company. For each of the costs,
indicate in the space provided whether the cost is a direct material (DM), direct labor (DL), manufacturing
overhead (MO), selling (S), or administrative (A) cost.
a) _____ Material incorporated into products
b) _____ Sales supplies
c) _____ Supplies used in the factory
d) _____ Wages of plant security guard
e) _____ Wages of security guard for the sales office
f) _____ Depreciation on a file cabinet used in the factory
g) _____ Depreciation on a file cabinet used in the general accounting office
h) _____ President's salary
i) _____ President's secretary's salary
j) _____ Manufacturing vice president's salary
k) _____ Salary of the manufacturing vice president's secretary
l) _____ Wages paid to production-line workers
m) _____ Factory rent
n) _____ Accounting office rent
o) _____ Depreciation on a copy machine used in the sales department
p) _____ Depreciation on a copy machine used to copy work orders in the factory
q) _____ Salary of plant supervisor
112. Following are several representative costs incurred in a typical manufacturing company. For each of the costs,
indicate in the space provided whether the cost is a product cost (PR) or a period cost (PE).
a. _____ Material incorporated into products
b. _____ Sales supplies
c. _____ Supplies used in the factory
d. _____ Wages of plant security guard
e. _____ Wages of security guard for the sales office
f. _____ Depreciation on a file cabinet used in the factory
g. _____ Depreciation on a file cabinet used in the general accounting office
h. _____ President's salary
i. _____ President's secretary's salary
j. _____ Manufacturing vice president's salary
k. _____ Salary of the manufacturing vice president's secretary
l. _____ Wages paid to production-line workers
m. _____ Factory rent
n. _____ Accounting office rent
o. _____ Depreciation on a copy machine used in the sales department
p. _____ Depreciation on a copy machine used to copy work orders in the factory
q. _____ Salary of plant supervisor

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PART FOUR: WORKOT QUESTIONS
113) The following cost and inventory data are taken from the accounting records of Prestige Company for the year just
completed:

Costs incurred:
Direct labor cost.. $ 50,000
Purchases of raw materials $ 100,000
Manufacturing overhead $ 60,000
Advertising expense. $ 70,000
Sales salaries..... $ 30,000
Depreciation, office equipment $ 2,000

Inventories:
Raw materials beginning year $ 5,000
Raw Materials at the End of the year $ 13,000
Work in process beginning year $ 8,000
Work in Process at the end of the year $ 3,000
Finished goods beginning year $ 18,000
Finished goods at the end of the year $ 30,000

Required
a) Prepare a schedule of cost of goods manufactured.
b) Prepare the cost of goods sold section of Mason Company's income statement for the year

114) A company's cost of goods sold for the month of December 31, 2015 represented Br. 345,000. Purchases
of direct materials during December amounted to Br. 110,000. Ending Work-in-process inventory was
90% of Beginning Work-in-process inventory. Manufacturing overhead was fifty percent of direct
labor cost.

The inventories were as follows:

Inventories December 31,2019 December 31,2018
Direct Materials Br. 26,000 Br. 20,000
Work-in-process ? 40,000
Finished Goods 105,000 102,000
Compute:
a) Cost of direct material used
b) Cost of goods manufactured
c) Total manufacturing costs incurred to date
d) Direct labor cost
e) Cost of goods sold

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