JKSSB Accounts Assistant (Finance) - Cost Management & Budgetary Control Practice Test 50 MCQs

JKSSB Accounts Assistant (Finance) - Cost Management & Budgetary Control Practice Test

Targeted 50 MCQ Practice Module focusing on: Elements of Cost, Methods of Costing, Marginal Costing & CVP Analysis, Budgets, and Budgetary Control with Variance Analysis.

Select your answers and click Submit Assessment Answers at the bottom to calculate your total score and review explanations.

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SECTION I: Fundamentals of Cost & Elements of Cost [Questions 1 to 10]

1. Cost Accounting is primarily concerned with:

Recording transactions with outside parties only Ascertainment, allocation, and control of cost of production Preparation of statutory financial statements for shareholders Filing of income tax returns

Explanation: Cost Accounting is the branch of accounting concerned with classifying, recording, allocating, and controlling costs of products, services, or processes.

2. The three basic elements of cost are:

Fixed, Variable, Semi-Variable Direct, Indirect, Overhead Material, Labour, Expenses Prime, Factory, Total

Explanation: Every cost is ultimately classifiable into three basic elements: Material, Labour, and Expenses, each of which may be further split into direct and indirect.

3. A cost that can be conveniently and wholly identified with a specific product, job, or process is called:

Direct Cost Indirect Cost Sunk Cost Opportunity Cost

Explanation: Direct costs (direct material, direct labour, direct expenses) can be traced directly to a specific cost unit or job.

4. Prime Cost is computed as:

Direct Material + Factory Overheads Direct Labour + Administration Overheads Works Cost + Selling Overheads Direct Material + Direct Labour + Direct Expenses

Explanation: Prime Cost is the aggregate of all direct costs, i.e., Direct Material + Direct Labour + Direct Expenses.

5. Works Cost (Factory Cost) is arrived at by adding which item to Prime Cost?

Selling and Distribution Overheads Factory (Works) Overheads Administration Overheads Profit Margin

Explanation: Works Cost = Prime Cost + Factory/Works Overheads (indirect material, indirect labour, and indirect expenses incurred in the factory).

6. Which of the following is an example of a Semi-Variable (Semi-Fixed) cost?

Direct material consumed Factory rent Electricity bill with a fixed minimum charge plus usage-based charge Piece-rate wages

Explanation: Semi-variable costs contain both a fixed and a variable component, such as electricity or telephone bills with a minimum fixed charge plus a usage charge.

7. A location, department, or item of equipment for which costs are accumulated and ascertained is called a:

Cost Centre Cost Unit Profit Centre Cost Object only in theory

Explanation: A Cost Centre is a location, person, or item of equipment (or group of these) for which costs are ascertained and used for cost control purposes.

8. A unit of product, service, or time in relation to which cost may be ascertained or expressed is called a:

Cost Centre Responsibility Centre Budget Centre Cost Unit

Explanation: A Cost Unit is the quantitative unit (e.g., per tonne, per kilometre, per unit produced) used for measuring and expressing cost.

9. A statement that shows the various components of total cost of a product for a given period is called:

Trial Balance Cost Sheet Balance Sheet Bank Reconciliation Statement

Explanation: A Cost Sheet is a statement prepared periodically that presents Prime Cost, Works Cost, Cost of Production, and Total Cost in a structured format.

10. Unlike Financial Accounting, Cost Accounting primarily serves the needs of:

Internal management for planning and control decisions External shareholders exclusively Income tax authorities exclusively Registrar of Companies exclusively

Explanation: Cost Accounting is primarily an internal management tool for cost control, decision-making, and performance evaluation, unlike Financial Accounting, which is largely for external reporting.

SECTION II: Material, Labour & Methods of Costing [Questions 11 to 20]

11. Economic Order Quantity (EOQ) is that order size at which:

Ordering cost is at its maximum Carrying cost is at its maximum Total of ordering cost and carrying cost is at its minimum Stock-out cost is at its maximum

Explanation: EOQ is the order quantity that minimizes total inventory costs, i.e., the sum of ordering costs and carrying (holding) costs.

12. Under the FIFO (First-In-First-Out) method of material pricing, issues are priced at:

The price of the most recently purchased lot The price of the earliest (oldest) purchased lot still in stock A weighted average of all purchases The standard price fixed at the start of the year

Explanation: FIFO assumes that materials received first are issued first, so issues are valued at the price of the oldest stock available.

13. Under the LIFO (Last-In-First-Out) method of material pricing, closing stock tends to be valued at:

Older (earlier) prices The latest market price only Replacement cost only Standard cost only

Explanation: Under LIFO, the most recently purchased material is issued first, leaving the closing stock valued at older, earlier purchase prices.

14. ABC Analysis of inventory control classifies items on the basis of:

Alphabetical order of item names Colour coding of stock bins Date of purchase Value and volume of consumption (High, Medium, Low value items)

Explanation: ABC Analysis classifies inventory into 'A' (high value, low quantity), 'B' (moderate), and 'C' (low value, high quantity) categories to prioritize control effort.

15. Labour Turnover refers to:

The total wages bill paid during a period The rate at which employees leave and are replaced in an organization The number of hours worked by all employees The productivity ratio of workers

Explanation: Labour Turnover measures the rate of change in the composition of the labour force, i.e., employees leaving and being replaced during a period.

16. Idle Time in labour costing refers to:

Time spent on quality inspection Overtime hours worked Time for which wages are paid but no direct productive output is obtained Time spent on training new recruits

Explanation: Idle Time is the difference between time paid for and time actually spent on production, e.g., due to machine breakdown or power failure.

17. Time and Motion Study in cost accounting is primarily undertaken to:

Determine the standard time required to perform a job efficiently Compute income tax liability of workers Prepare the Balance Sheet Value closing stock of finished goods

Explanation: Time and Motion Study analyzes worker movements and timing to establish standard times and eliminate wasteful motions, aiding wage fixation and efficiency.

18. Which method of costing is used when production is carried out against specific customer orders, each with distinguishable characteristics?

Process Costing Operating Costing Unit Costing Job Costing

Explanation: Job Costing is applied where production is undertaken against specific orders, and cost is ascertained separately for each job.

19. Which method of costing is suitable for industries where a product passes through two or more distinct continuous stages of manufacture, such as chemicals, sugar, or paper mills?

Job Costing Process Costing Contract Costing Batch Costing

Explanation: Process Costing is used where production passes through successive, continuous processes, and average cost per unit is computed for each process.

20. Costing method applicable to large-scale, long-duration projects like construction of buildings, dams, or bridges is known as:

Contract Costing Process Costing Operating Costing Multiple Costing

Explanation: Contract Costing is a variant of Job Costing applied to big, relatively long-duration jobs such as construction contracts, executed at the site.

SECTION III: Marginal Costing & Cost-Volume-Profit Analysis [Questions 21 to 30]

21. Marginal Cost is defined as the:

Total cost of production including fixed costs Cost incurred on selling and distribution only Additional cost incurred to produce one extra unit of output Historical cost of an asset

Explanation: Marginal Cost is the amount by which total cost changes when one additional unit is produced; it broadly equals variable cost per unit.

22. Contribution is calculated as:

Sales minus Variable Cost Sales minus Total Cost Sales minus Fixed Cost Fixed Cost minus Variable Cost

Explanation: Contribution = Sales − Variable Cost. It is the amount available to first cover fixed costs and then contribute to profit.

23. Profit-Volume (P/V) Ratio is expressed as:

Fixed Cost ÷ Sales × 100 Contribution ÷ Sales × 100 Profit ÷ Variable Cost × 100 Sales ÷ Contribution × 100

Explanation: P/V Ratio = (Contribution / Sales) × 100. It measures the relationship between contribution and sales and indicates profitability of the product.

24. At the Break-Even Point (BEP), a firm's total contribution equals its:

Total Sales Total Variable Cost Net Profit Total Fixed Cost

Explanation: Break-Even Point is where total contribution exactly equals total fixed cost, so the firm makes neither profit nor loss.

25. Margin of Safety represents:

Excess of actual/budgeted sales over the Break-Even Sales Excess of fixed cost over variable cost The minimum stock level to be maintained Excess of variable cost over sales

Explanation: Margin of Safety = Actual (or Budgeted) Sales − Break-Even Sales. A higher margin of safety indicates a lower risk of loss.

26. The fundamental difference between Marginal Costing and Absorption Costing lies in the treatment of:

Direct Material Cost Direct Labour Cost Fixed Manufacturing Overheads Selling Price

Explanation: In Marginal Costing, fixed overheads are treated as period costs charged fully to P&L; in Absorption Costing, they are absorbed into product cost and carried in inventory.

27. A scarce resource that restricts production or sales and must be used most profitably is called the:

Standard Cost Key Factor (Limiting Factor) Contribution Margin Sunk Cost

Explanation: A Key/Limiting Factor is a constraint (e.g., raw material, labour hours, machine hours) that restricts the volume of output; profitability decisions are ranked by contribution per unit of the key factor.

28. In a Break-Even Chart, the angle formed between the Sales line and the Total Cost line above the break-even point is called the:

Angle of Incidence Angle of Margin Contribution Angle Safety Angle

Explanation: The Angle of Incidence shows the rate at which profits are earned once the break-even point is crossed; a wider angle indicates a higher profit rate.

29. In a "Make or Buy" decision, a component should generally be purchased from outside if:

Its fixed cost of manufacture is high Its total absorption cost of manufacture is lower than the purchase price Idle capacity is available in the factory Its marginal (variable) cost of manufacture exceeds the outside purchase price

Explanation: Under marginal costing analysis, buying is preferred when the purchase price is lower than the marginal cost of manufacturing the component in-house.

30. Under Marginal Costing, Fixed Costs are treated as:

Part of product cost and carried forward in closing stock valuation Period costs charged fully to the Costing Profit & Loss Account of the period in which incurred Deferred indefinitely to future accounting periods Capitalized as an intangible asset

Explanation: Marginal Costing treats fixed costs as period costs, written off entirely against the contribution of the period, rather than being absorbed into unit cost of inventory.

SECTION IV: Budget and Budgetary Control Basics [Questions 31 to 40]

31. A Budget is best defined as:

A statement of actual results achieved during a period A statutory financial statement filed with the Registrar A quantitative/financial statement prepared prior to a defined period of time, showing the policy to be pursued A report on variances between two accounting periods

Explanation: A Budget is a financial and/or quantitative statement prepared in advance of a defined period, outlining the policy to be pursued to attain a given objective.

32. Budgetary Control refers to the process of:

Establishing budgets and continuously comparing actual results with budgeted figures to take corrective action Only preparing budgets without any follow-up Auditing financial statements at year-end Filing GST returns on a monthly basis

Explanation: Budgetary Control is a system of controlling costs through budgets, involving continuous comparison of actual with budgeted performance and taking remedial action for variances.

33. The time span for which a budget is prepared and employed is known as the:

Budget Key Factor Budget Period Budget Manual Base Period

Explanation: The Budget Period is the length of time for which a budget is prepared and used; it may be long-term or short-term depending on the nature of the business.

34. A summary budget that consolidates all functional budgets (sales, production, purchase, cash, etc.) into one overall document is called the:

Flexible Budget Zero-Base Budget Performance Budget Master Budget

Explanation: The Master Budget is the consolidated summary of all functional budgets, typically comprising a budgeted Profit & Loss Account and Balance Sheet.

35. A budget prepared for a specific function of an organization, such as sales, production, or purchases, is called a:

Functional Budget Master Budget Rolling Budget Capital Budget only

Explanation: Functional Budgets relate to individual functions of a business, e.g., Sales Budget, Production Budget, Purchase Budget, Labour Budget, and are later consolidated into the Master Budget.

36. A Cash Budget is primarily prepared to forecast:

The quantity of raw material to be purchased The number of units to be manufactured Cash inflows and outflows to ensure adequate liquidity during the budget period Depreciation to be charged on fixed assets

Explanation: A Cash Budget forecasts cash receipts and payments over a period, helping management anticipate cash shortages or surpluses and plan financing accordingly.

37. Zero-Based Budgeting (ZBB) requires that:

Every budget starts from the previous year's approved figures Every activity is justified afresh from a "zero base" each period, regardless of past allocations Only capital expenditure is budgeted, ignoring revenue items Budgets are prepared only once every five years

Explanation: ZBB requires managers to justify every budgeted expenditure from scratch (zero base), rather than merely adjusting the previous period's budget, promoting cost-consciousness.

38. A budget that is designed to change in accordance with the actual level of activity attained is called a:

Fixed Budget Master Budget Long-term Budget Flexible Budget

Explanation: A Flexible Budget is designed to adjust automatically with changes in the level of activity, distinguishing fixed and variable cost behaviour.

39. A Fixed Budget is most suitable in a business environment where:

The level of activity/output is relatively stable and does not fluctuate significantly Sales volumes fluctuate widely and unpredictably Seasonal industries with high demand variation operate New product lines are launched every quarter

Explanation: A Fixed Budget remains unchanged regardless of the actual level of activity and is useful only where output/activity levels are fairly stable.

40. The body responsible for coordinating the preparation of budgets across various departments of an organization is the:

Board of Auditors Statutory Audit Committee Budget Committee Registrar of Companies

Explanation: The Budget Committee, generally headed by a Budget Officer/Controller, coordinates the preparation, review, and approval of functional budgets across departments.

SECTION V: Types of Budgets & Standard Costing / Variance Analysis [Questions 41 to 50]

41. The Sales Budget is usually regarded as the starting point of the budgeting process because:

It is the easiest budget to prepare Sales is generally the principal budget/key factor that governs most other functional budgets It does not require any forecasting It is prepared after the Cash Budget

Explanation: Since sales volume is often the principal budget factor, the Sales Budget is typically prepared first, and Production, Purchase, and other budgets are built around it.

42. The Production Budget is derived primarily from the:

Sales Budget, adjusted for opening and closing stock requirements Cash Budget Capital Expenditure Budget Master Budget only, after finalisation

Explanation: Production Budget = Budgeted Sales + Desired Closing Stock − Opening Stock, so it is built directly from the Sales Budget.

43. Standard Costing is a technique that involves:

Recording only actual costs incurred, with no predetermined benchmarks Preparing the Balance Sheet using historical cost only Filing statutory tax returns Setting predetermined (standard) costs and comparing them with actual costs to analyse variances

Explanation: Standard Costing establishes predetermined standard costs for materials, labour, and overheads, and compares them against actual costs to compute and analyse variances.

44. Material Cost Variance is calculated as:

Standard Price minus Actual Price only Standard Cost of Actual Output minus Actual Cost of Material Used Actual Cost minus Budgeted Sales Standard Quantity minus Budgeted Quantity

Explanation: Material Cost Variance = Standard Cost of Material for Actual Output − Actual Cost of Material Used; it is the sum of Material Price Variance and Material Usage Variance.

45. Material Price Variance arises due to the difference between:

Standard quantity and actual quantity of material used Budgeted sales and actual sales Standard price and actual price paid per unit of material, multiplied by actual quantity purchased/used Standard labour rate and actual labour rate

Explanation: Material Price Variance = (Standard Price − Actual Price) × Actual Quantity, isolating the effect of price changes on material cost.

46. Material Usage (Quantity) Variance measures the effect on cost of the difference between:

Standard quantity specified for actual output and actual quantity used, valued at standard price Standard price and actual price of material Budgeted output and actual output only Standard labour hours and actual labour hours

Explanation: Material Usage Variance = (Standard Quantity for Actual Output − Actual Quantity Used) × Standard Price, reflecting efficiency in material consumption.

47. Labour Cost Variance is the difference between:

Budgeted overheads and actual overheads Standard material cost and actual material cost Standard sales and actual sales Standard cost of labour for actual output and the actual cost of labour paid

Explanation: Labour Cost Variance = Standard Labour Cost for Actual Output − Actual Labour Cost, and is further split into Labour Rate Variance and Labour Efficiency Variance.

48. Labour Rate Variance is computed as:

(Standard Hours − Actual Hours) × Standard Rate (Standard Rate − Actual Rate) × Actual Hours Worked (Budgeted Output − Actual Output) × Standard Rate (Standard Price − Actual Price) × Actual Quantity of material

Explanation: Labour Rate Variance = (Standard Rate per Hour − Actual Rate per Hour) × Actual Hours Worked, isolating the effect of wage rate differences.

49. If the actual quantity of material used is less than the standard quantity allowed for actual output (at standard price), the Material Usage Variance is:

Adverse Zero Favourable Uncontrollable

Explanation: When actual usage is lower than standard usage allowed, the business has saved material, resulting in a Favourable Material Usage Variance.

50. Responsibility Accounting, closely linked with budgetary control, involves:

Assigning accountability for costs and revenues to specific individuals/departments (responsibility centres) for control purposes Recording only cash transactions of the business Preparing statutory audit reports for shareholders Valuing fixed assets at replacement cost

Explanation: Responsibility Accounting is a system under which costs/revenues are identified with individual managers of responsibility centres (cost, profit, or investment centres) who are held accountable for variances from budget.

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