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Accounting, Banking and Finance MCQs

Cost & Management Accounting

Quiz # 1, MCQs

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The Timer has started 10:00

1)

Brutus Company manufactures glass bottles. The company expects to sell 500,000 bottles next year. The budgeted ending inventory this year is 15,000 bottles and the desired ending inventory for next year is 12,000 bottles. It takes 5 pounds of sand to produce one bottle. The ending inventory of sand this year is expected to be 200,000 pounds, and the desired ending inventory next year is 100,000 pounds. The amount of direct material purchases is expected to be:
- A) 2,385,000 pounds
- B) 2,465,000 pounds
- C) 2,585,000 pounds
- D) 2,600,000 pounds
Right Answer is the option "A".
Proposal Budget=E.Sales+Desire units-actual units*per unit cost
=500000+12000-15000=497000*5=2485000
=2485000+100000-200000=2385000

2)

BDH produced 30,500 units of Kisty (a product). Each unit of Kisty takes two units of component L. Component L is budgeted to cost $ 12 per unit. Current inventory of L is 4,000 units. BDH wants 6,000 units of L on hand at the end of the next year. How much will the direct materials budget show as the cost of materials to be purchased?
- A) $ 756,000
- B) $ 390,000
- C) $ 684,000
- D) $ 330,000
Right Answer is the option "B"
Proposal Budget=E.Sales+Desire units-actual units*per unit cost
=30500+6000-4000=32500*12=390000

3)

Contribution Margin Ratio is:
- A) Total contribution Margin/ Sales.
- B) Sales / Contribution Margin per unit.
- C) Fixed cost/ Contribution margin per unit.
- D) Sales / Variable costs.
Right Answer is the option "A"
Contribution Margin = sales - variable costs.
Contribution Margin Ratio = (sales - variable costs)/sales.
Contribution margin is the amount generated by sales to cover fixed costs.
The contribution margin ratio indicates the percent of sales available to cover fixed
costs and profits.

4)

Contribution margin contributes to meet which one of the following options? Select correct option:
- A) Variable cost
- B) Fixed cost
- C) Operating cost
- D) Net Profit
Right Answer is the option "B". Contribution margin contributes to meet the fixed cost. Once the fixed cost has been met the incremental contribution margin is the profit. Income Statement as per the marginal costing system is used as a Standard format of Income Statement to analyze the Cost-Volume-Profit relationship.Contribution margin contributes to meet the fixed cost. Once the fixed cost has been met the incremental contribution margin is the profit. Income Statement as per the marginal costing system is used as a Standard format of Income Statement to analyze the Cost-Volume-Profit relationship.

5)

The impact on net operating income of any given dollar change in total sales can be computed by applying which ratio to the dollar change?
- A) Profit margin
- B) Variable cost ratio
- C) contribution margin
- D) Ratio of variable to fixed expenses.
Right Answer is the option "C". For explanation visit the following link
http://www.accountingformanagement.com/contribution_margin_ratio.htm

6)

What will be the impact of normal loss on the overall per unit cost?
- A) Per unit cost will increase
- B) Per unit cost will decrease
- C) Per unit cost remain unchanged
- D) Normal loss has no relation to unit cost
Right Answer is the option "A"

7)

The main purpose of cost accounting is to
- A) Maximize profits
- B) Help in inventory valuation
- C) Provide information to management for decision making
- D) Aid in the fixation of selling price
Right Answer is the option "C". The purpose of cost accounting is to provide information to the management. Management need to know cost per unit as a basis for valuing inventory and for decision making.

8)

Which of the following is sales force payroll incentive? Select correct option:
- A) Commission
- B) Shift allowance
- C) Over time payment
- D) Bonus
Right Answer is the option "A"

9)

The Inventory Turn over ration is 5 times and numbers of days in a year is 365.Inventory holding period in days would be
- A) 100 days
- B) 73 days
- C) 50 days
- D) 10 days
Right Answer is the option "B". Inventory holding period = no. of days in a year/inventory turnover ratio

10)

A cost that has been incurred but cannot be changed by present or future decisions is called:
- A) Sunk cost
- B) Differential cost
- C) Opportunity cost
- D) Marginal cost
Right Answer is the option "A". Sunk cost refers to the cost that has been spent in the past and that cannot be retrieved on product or service in the current period. This cost should not be taken into account while making the decisions by management.