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Accounting, Banking and Finance MCQs

Cost & Management Accounting

Quiz # 2, MCQs

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1)

Which of the following document evidences the transaction of purchase of material?
- A) Material requisition
- B) Store requisition
- C) Purchase order
- D) Purchase invoice
Right Answer is the option "D". Purchase invoice is the document that evidences the transaction of purchase of material. It is issued by the seller stating quantity, rate, discount, and amount of the purchased material. Settlement terms are also stated at bottom of the invoice. Receiving an invoice means that money is payable to the supplier.

2)

The cost that is subject to actual payment or will be paid for in future is called:
- A) Fixed cost
- B) Step cost
- C) Explicit cost
- D) Imputed cost
Right Answer is the option "C". Explicit cost : This is subject to actual payment or will be paid in the future, example Actual payment made to buy land for expansion of the company instead of using the owner’s land.

3)

FIFO is the abbreviation of:
- A) Final Interest-Free Option
- B) First in First out Method
- C) None of the given options
- D) Fixed income Financial Operations
Right Answer is the option "B"

4)

Which of the following industries would most likely use a Process cost Accounting system?
- A) Construction
- B) Beer
- C) Hospitality
- D) Consulting
Right Answer is the option "A"

5)

Which of the following is the best description of zero-base budgeting?
- A) Zero-base budgeting is a technique applied in government budgeting in order to have a neutral effect on policy issues
- B) Zero-base budgeting requires a completely clean sheet of paper every year, on which each part of the organization must justify the budget it requires
- C) Zero-base budgeting starts with the figures of the previous period and assumes a zero rate of change
- D) Zero based budgeting is an alternative name of flexible budget
Right Answer is the option "B". A method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.

6)

The point at which the cost line intersects the sales line will be called:
- A) Budgeted sales
- B) Break Even sales
- C) Margin of safety
- D) Contribution margin
Right Answer is the option "B".

7)

A store ledger card is similar to the .
- A) Stock ledger
- B) Material card
- C) Purchase requisition card
- D) Bin card
Right Answer is the option "D". It is similar to the bin card as far as receipt and issue of the quantity of material is concerned, but the main purpose of maintaining the store ledger card is to know the cost of material consumed and material in store along with the cost per unit of the material. Store ledger card is maintained using the FIFI, LIFO and W Avg methods.

8)

___________is the cost that is incurred at the time of making transaction.
- A) Product Cost
- B) Period Cost
- C) Sunk Cost
- D) Historical Cost
Right Answer is the option "D". It is the cost which is incurred at the time of entering into the transaction. This cost is verifiable through invoices/agreements. Historical cost is an actual cost that is borne at the time of purchase.

9)

The FIFO inventory costing method (when using a perpetual inventory system) assumes that the cost of the earliest units purchased is allocated in which of the following ways?
- A) First to be allocated to the ending inventory
- B) Last to be allocated to the cost of goods sold
- C) Last to be allocated to the ending inventory
- D) First to be allocated to the cost of good sold
Right Answer is the option "D"

10)

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". Such a loss is inherent in manufacturing operations and cannot be avoided, for this reason; cost of normal loss is absorbed by the units produced. It has the affect of increasing unit cost of good output. Total cost of the department is not divided by all units processed, instead. It is divided only by the good units produced