Bcom Bachelor of Commerce Cost Accounting 2 — Questions and Answers
Question 1: What is 'standard costing'?
- A system using predetermined costs to measure performance against actual costs (Correct answer)
- Costing based on historical averages only
- A method that tracks only direct costs
- A budgeting technique for service firms
Correct answer: A system using predetermined costs to measure performance against actual costs
Standard costing establishes predetermined costs for materials, labor, and overhead, then compares them to actual costs to identify variances.
Question 2: A favorable labor efficiency variance indicates that:
- Actual hours worked were less than standard hours allowed (Correct answer)
- Actual wage rate was lower than standard
- More units were produced than planned
- Overhead was underapplied
Correct answer: Actual hours worked were less than standard hours allowed
A favorable labor efficiency variance means workers completed production using fewer hours than the standard, reducing labor cost.
Question 3: In process costing, 'equivalent units' are used to:
- Convert partially completed units into a measure of fully completed units (Correct answer)
- Count the number of defective units
- Allocate joint costs to by-products
- Measure idle capacity
Correct answer: Convert partially completed units into a measure of fully completed units
Equivalent units express the work done on partially complete units in terms of fully completed unit equivalents for cost allocation purposes.
Question 4: What does the term 'joint cost' refer to in cost accounting?
- Costs incurred up to the split-off point in producing multiple products from a common process (Correct answer)
- Costs shared between two departments
- Fixed costs allocated to all product lines
- Direct materials shared across jobs
Correct answer: Costs incurred up to the split-off point in producing multiple products from a common process
Joint costs are incurred in a single process that simultaneously produces two or more products up to the point where they become separately identifiable.
Question 5: The 'relevant range' in cost accounting refers to:
- The range of activity within which cost behavior assumptions remain valid (Correct answer)
- The range of selling prices a company may charge
- The volume at which a firm earns maximum profit
- The time period covered by a budget
Correct answer: The range of activity within which cost behavior assumptions remain valid
The relevant range is the span of activity levels over which fixed and variable cost classifications hold true for planning purposes.
Question 6: Which method of inventory valuation results in the lowest taxable income during periods of rising prices?
- LIFO (Last-In, First-Out) (Correct answer)
- FIFO (First-In, First-Out)
- Weighted Average
- Specific Identification
Correct answer: LIFO (Last-In, First-Out)
LIFO assigns the most recent (highest) costs to cost of goods sold, reducing taxable income when prices are rising.
Bcom Bachelor of Commerce Cost Accounting 2
What is 'standard costing'?