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Meaning of Cost Accounting
1. What is the primary focus of cost accounting?
- A) Recording only revenues
- B) Recording, classifying, and allocating costs
- C) Preparing tax returns
- D) Auditing financial statements
Answer: B
Cost accounting is concerned with recording, classifying, and allocating expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for management guidance and control
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2. Cost accounting helps determine the cost of:
- A) Only finished goods
- B) Only raw materials
- C) Products, services, and processes
- D) Only labor
Answer: C
Cost accounting ascertains the cost of production for every process, department, or service of a business31.
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3. Cost accounting is best described as:
- A) A legal requirement for all businesses
- B) A voluntary system for internal use
- C) A tax-saving tool
- D) A public reporting system
Answer: B
Cost accounting is primarily for internal management and is generally voluntary, not a statutory requirement4.
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4. The process of cost accounting begins with:
- A) Preparation of balance sheet
- B) Recording of expenditure
- C) Filing tax returns
- D) Payment of dividends
Answer: B
Cost accounting starts with recording expenditures and ends with the preparation of statistical data1
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5. In cost accounting, 'cost' refers to:
- A) Only direct expenses
- B) The total sum of all expenditures incurred in production or service
- C) Only indirect expenses
- D) Only administrative costs
Answer: B
Cost is the total sum of all expenditures incurred in the production of goods or services rendered5.
Objectives of Cost Accounting
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6. Which of the following is NOT an objective of cost accounting?
- A) Cost ascertainment
- B) Cost control
- C) Tax evasion
- D) Cost reduction
Answer: C
The primary objectives include cost ascertainment, cost control, and cost reduction312.
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7. Cost ascertainment in cost accounting means:
- A) Estimating future profits
- B) Determining the actual cost of products or services
- C) Calculating taxes
- D) Recording only sales
Answer: B
Cost ascertainment is the process of determining the cost of a product or service with reasonable accuracy312.
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8. Cost control in cost accounting is achieved by:
- A) Ignoring variances
- B) Comparing actual costs with standard/budgeted costs
- C) Only increasing production
- D) Reducing product quality
Answer: B
Cost control involves comparing actual costs with budgets to identify variances and take corrective action3.
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9. Which of the following is an objective of cost accounting?
- A) To determine selling prices
- B) To prepare only cash flow statements
- C) To increase taxes
- D) To ignore overheads
Answer: A
Cost accounting helps determine selling prices under different circumstances1.
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10. Cost accounting helps in:
- A) Only external reporting
- B) Managerial decision-making
- C) Ignoring wastages
- D) Preparing only tax returns
Answer: B
Cost accounting provides data for managerial decision-making, planning, and control12.
Advantages of Cost Accounting
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11. Which of the following is an advantage of cost accounting?
- A) Helps set the right price
- B) Increases tax liability
- C) Reduces transparency
- D) Encourages overspending
Answer: A
Cost accounting ensures that the price covers all costs and makes a profit6.
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12. Cost accounting helps in:
- A) Tracking expenditures and maintaining budgets
- B) Ignoring financial performance
- C) Reducing profits
- D) Only external audits
Answer: A
It helps track expenditures, ensuring that the budget is maintained6.
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13. How does cost accounting contribute to profit maximization?
- A) By finding ways to cut costs and generate more revenue
- B) By increasing unnecessary expenses
- C) By reducing sales
- D) By ignoring cost analysis
Answer: A
Cost accounting finds ways to cut costs and generate more revenue, thus increasing profits6.
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14. Cost accounting helps management by:
- A) Hiding inefficiencies
- B) Showing which part of the business is performing best
- C) Only focusing on losses
- D) Ignoring inventory
Answer: B
It checks business performance and shows which part of the business is performing the best6.
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15. One of the advantages of cost accounting is:
- A) Proper management of inventory
- B) Ignoring stock levels
- C) Increasing wastage
- D) Only focusing on fixed assets
Answer: A
Cost accounting helps in the overall management of inventory6.
Limitations of Cost Accounting
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16. Which of the following is a limitation of cost accounting?
- A) Requires detailed records and calculations
- B) Is very simple to implement
- C) Needs no expertise
- D) Is always 100% accurate
Answer: A
Cost accounting requires keeping detailed records and making multiple calculations64.
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17. Setting up a cost accounting system:
- A) Is free of cost
- B) Requires investment in money, software, and trained personnel
- C) Needs no resources
- D) Is mandatory for all businesses
Answer: B
Setting up a cost accounting system requires money, software, and trained people64.
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18. One challenge of cost accounting is:
- A) Lack of need for experts
- B) Need for experts to handle and interpret data
- C) No need for data analysis
- D) No need for reconciliation
Answer: B
Businesses need experts to handle and interpret the data in cost accounting64.
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19. Cost accounting may sometimes:
- A) Lead to mistakes due to estimation
- B) Always provide exact figures
- C) Ignore indirect costs
- D) Be a substitute for financial accounting
Answer: A
Estimating the costs can sometimes lead to mistakes64.
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20. A major limitation of cost accounting is:
- A) It is always uniform across industries
- B) Lack of standardized procedures
- C) It never requires reconciliation with financial accounts
- D) It is only used for tax purposes
Answer: B
The absence of standardized procedures in cost accounting leads to inconsistencies in its application and interpretation across different industries4.
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More MCQs (21–100)
Below are further MCQs, grouped by topic.
Meaning
- Cost accounting is primarily used for:
- A) Internal management
- B) Tax authorities
- C) Public reporting
- D) Shareholders only
Answer: A
- The term 'costing' refers to:
- A) Only financial accounting
- B) Technique of ascertaining cost
- C) Only tax calculation
- D) Ignoring overheads
Answer: B
- The main users of cost accounting information are:
- A) Management
- B) Customers
- C) Creditors
- D) Government
Answer: A
- Cost accounting provides information for:
- A) Only historical analysis
- B) Planning and control
- C) Only tax returns
- D) Shareholder meetings
Answer: B
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- The process of allocating costs to different departments is called:
- A) Cost allocation
- B) Revenue recognition
- C) Depreciation
- D) Amortization
Answer: A
Objectives
- Cost accounting helps in determining:
- A) Cost per unit
- B) Only gross profit
- C) Only sales revenue
- D) Only net profit
Answer: A
- One of the objectives is to:
- A) Control efficiency by setting standards
- B) Ignore labor costs
- C) Only focus on direct materials
- D) Avoid overheads
Answer: A
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- Cost accounting provides data for:
- A) Fixing product prices
- B) Only advertising
- C) Only tax audits
- D) Ignoring product costs
Answer: A
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- Cost accounting helps in:
- A) Identifying wastages
- B) Hiding inefficiencies
- C) Only increasing expenses
- D) Ignoring cost variances
Answer: A
- Cost accounting is useful in:
- A) Budget preparation and control
- B) Only tax planning
- C) Only external audits
- D) Ignoring budgets
Answer: A
Advantages
- Cost accounting helps in:
- A) Making smart financial decisions
- B) Only increasing costs
- C) Ignoring profits
- D) Only focusing on cash flow
Answer: A
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- It is useful for:
- A) Planning for the future
- B) Only looking at the past
- C) Ignoring future costs
- D) Avoiding forecasts
Answer: A
- Cost accounting can:
- A) Reveal sources of economy
- B) Increase wastage
- C) Ignore efficiencies
- D) Only focus on sales
Answer: A
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- It aids in:
- A) Inventory control
- B) Ignoring stock levels
- C) Only external reporting
- D) Avoiding stock analysis
Answer: A
- Cost accounting reports are primarily prepared for:
- A) Management
- B) Tax authorities
- C) Public
- D) Creditors
Answer: A
Limitations
- Cost accounting may be:
- A) Expensive to implement
- B) Always cheap
- C) Free of cost
- D) Mandatory for all
Answer: A
- There can be discrepancies between:
- A) Cost and financial accounts
- B) Only cash and bank balances
- C) Only sales and purchases
- D) Only assets and liabilities
Answer: A
- Cost accounting is:
- A) Complex and burdensome for some organizations
- B) Always simple
- C) Never time-consuming
- D) Only for small businesses
Answer: A
- The results of cost accounting can be affected by:
- A) Inaccurate financial data
- B) Only accurate data
- C) Irrelevant data
- D) Ignoring data
Answer: A
- Cost accounting systems may struggle to:
- A) Predict future situations accurately
- B) Always forecast correctly
- C) Ignore future costs
- D) Only focus on historical data
Answer: A
Mixed Questions
- Cost accounting is a:
- A) Science, art, and practice
- B) Only an art
- C) Only a science
- D) Only a practice
Answer: A
- The main function of cost reports is to:
- A) Help in planning and control
- B) Only report to tax authorities
- C) Ignore management needs
- D) Only focus on cash flows
Answer: A
- The process of analyzing variances in cost accounting is called:
- A) Analysis of cost
- B) Revenue recognition
- C) Tax analysis
- D) Depreciation
Answer: A
- Cost audit refers to:
- A) Examination of cost records to ensure accuracy
- B) Only external audit
- C) Ignoring cost records
- D) Only tax audit
Answer: A
- Cost accounting is useful for:
- A) Strategic decision-making
- B) Only routine tasks
- C) Ignoring decisions
- D) Only public reporting
Answer: A
46. Which of the following is NOT a feature of cost accounting?
A) Systematic recording of costs
B) Helps in cost control
C) Mandatory for all companies
D) Provides information for decision-making
Answer: C
Cost accounting is generally not mandatory for all companies; it is usually used for internal management purposes.
47. Which cost is NOT typically included in cost accounting records?
A) Direct material cost
B) Direct labor cost
C) Overhead cost
D) Personal expenses of owner
Answer: D
Personal expenses of the owner are not included in cost accounting records as they are not related to production or service costs.
48. Cost accounting helps in identifying:
A) Profitable and non-profitable activities
B) Only profitable activities
C) Only non-profitable activities
D) None of the above
Answer: A
Cost accounting helps in identifying both profitable and non-profitable activities by analyzing costs and revenues.
49. Which of the following is a component of total cost in cost accounting?
A) Only variable costs
B) Only fixed costs
C) Both fixed and variable costs
D) Only sunk costs
Answer: C
Total cost includes both fixed and variable costs incurred in production or service delivery.
50. The main purpose of cost accounting is to:
A) Increase selling price
B) Minimize cost and maximize profit
C) Maximize cost
D) Minimize revenue
Answer: B
Cost accounting aims to minimize cost and maximize profit through effective cost control and analysis.
51. Which of the following is a direct cost?
A) Factory rent
B) Supervisor salary
C) Raw materials
D) Office stationery
Answer: C
Raw materials are direct costs directly attributable to production.
52. Cost accounting is most useful for:
A) Management
B) Shareholders
C) Creditors
D) Government agencies
Answer: A
The primary users of cost accounting information are the management for planning and control.
53. Which of the following statements is correct about cost accounting?
A) It is only concerned with historical costs
B) It is only concerned with future costs
C) It deals with both historical and future costs
D) It ignores all costs
Answer: C
Cost accounting deals with both historical and future costs for better planning and control.
54. Which is NOT an advantage of cost accounting?
A) Helps in cost control
B) Provides data for decision-making
C) Reduces management efficiency
D) Assists in fixing prices
Answer: C
Cost accounting does not reduce management efficiency; it enhances it.
55. Which of the following is a limitation of cost accounting?
A) Provides detailed cost information
B) Requires time and effort to maintain records
C) Helps in cost control
D) Assists in budgeting
Answer: B
One limitation is that cost accounting requires significant time and effort to maintain detailed records.
56. Which of the following is NOT an objective of cost accounting?
A) Cost ascertainment
B) Cost control
C) Tax evasion
D) Cost reduction
Answer: C
Tax evasion is not an objective of cost accounting.
57. Cost accounting helps in:
A) Identifying areas of wastage
B) Ignoring inefficiencies
C) Increasing unnecessary costs
D) None of the above
Answer: A
It helps in identifying areas of wastage and inefficiencies.
58. Which of the following is a function of cost accounting?
A) Preparation of cost statements
B) Preparation of balance sheet
C) Payment of dividends
D) Calculation of income tax
Answer: A
Preparation of cost statements is a function of cost accounting.
59. Cost accounting is mainly concerned with:
A) Financial position
B) Cost of production
C) Market share
D) Shareholder value
Answer: B
Cost accounting is mainly concerned with the cost of production or service provision.
60. Which of the following is NOT a type of cost recorded in cost accounting?
A) Direct cost
B) Indirect cost
C) Sunk cost
D) Personal cost
Answer: D
Personal cost is not recorded in cost accounting.
61. Which of the following is an advantage of cost accounting?
A) Helps in inventory management
B) Increases wastage
C) Reduces efficiency
D) Increases costs
Answer: A
Cost accounting helps in the effective management of inventory.
62. Cost accounting helps in:
A) Fixing responsibility for inefficiency
B) Hiding inefficiency
C) Ignoring responsibility
D) None of the above
Answer: A
Cost accounting helps fix responsibility for inefficiency by identifying cost centers.
63. Which of the following is a limitation of cost accounting?
A) Uniform procedures
B) Absence of standardization
C) Easy to implement
D) Always accurate
Answer: B
Absence of standardization is a limitation.
64. Cost accounting is NOT useful for:
A) Internal management
B) External statutory reporting
C) Cost control
D) Budgeting
Answer: B
Cost accounting is primarily for internal use, not for statutory reporting.
65. Which of the following is NOT an objective of cost accounting?
A) Determining cost per unit
B) Providing data for decision-making
C) Financial statement audit
D) Cost control
Answer: C
Financial statement audit is not an objective of cost accounting.
66. Which of the following is a feature of cost accounting?
A) Provides information for planning
B) Ignores planning
C) Only records cash transactions
D) Only records credit transactions
Answer: A
Cost accounting provides information for planning and control.
67. Cost accounting helps in:
A) Reducing costs
B) Increasing unnecessary expenses
C) Ignoring cost variances
D) None of the above
Answer: A
Cost accounting helps in reducing costs through analysis and control.
68. Which of the following is a limitation of cost accounting?
A) Provides useful information
B) Needs skilled personnel
C) Reduces wastage
D) Helps in decision-making
Answer: B
Cost accounting requires skilled personnel, which can be a limitation.
69. The main objective of cost accounting is to:
A) Ascertain cost
B) Ignore costs
C) Only increase sales
D) Only focus on revenue
Answer: A
The main objective is to ascertain the cost of products or services.
70. Which of the following is NOT an advantage of cost accounting?
A) Helps in cost control
B) Provides data for planning
C) Increases confusion
D) Assists in decision-making
Answer: C
Cost accounting does not increase confusion; it clarifies cost data.
71. Cost accounting is useful in:
A) Fixing prices
B) Ignoring costs
C) Only preparing tax returns
D) Only for external users
Answer: A
Cost accounting is useful in fixing prices by providing cost data.
72. Which of the following is a limitation of cost accounting?
A) Time-consuming
B) Easy to implement
C) Always accurate
D) Free of cost
Answer: A
Cost accounting can be time-consuming to implement and maintain.
73. Cost accounting provides information to:
A) Management
B) Tax authorities
C) Customers
D) Shareholders only
Answer: A
Cost accounting is primarily for management use.
74. Which of the following is NOT a function of cost accounting?
A) Cost ascertainment
B) Cost control
C) Tax evasion
D) Decision-making
Answer: C
Tax evasion is not a function of cost accounting.
75. Cost accounting helps in:
A) Budgetary control
B) Ignoring budgets
C) Only preparing balance sheet
D) Only focusing on sales revenue
Answer: A
Cost accounting helps in budgetary control by comparing actual and budgeted costs.
76. Which of the following is a direct cost?
A) Factory rent
B) Wages of workers
C) Office salaries
D) Administrative expenses
Answer: B
Wages of workers are direct costs.
77. Cost accounting is NOT concerned with:
A) Cost ascertainment
B) Cost reduction
C) Tax calculation
D) Cost control
Answer: C
Tax calculation is not the main concern of cost accounting.
78. Which of the following is a feature of cost accounting?
A) Systematic recording
B) Random recording
C) Ignoring records
D) Only focusing on profits
Answer: A
Cost accounting involves systematic recording of costs.
79. Which of the following is a limitation of cost accounting?
A) Requires reconciliation with financial accounts
B) Always matches financial accounts
C) Never needs reconciliation
D) Is always simple
Answer: A
Cost accounts often require reconciliation with financial accounts due to differences in treatment.
80. Which of the following is NOT an objective of cost accounting?
A) Cost ascertainment
B) Cost control
C) Profit maximization
D) Tax evasion
Answer: D
Tax evasion is not an objective.
81. Cost accounting helps in:
A) Identifying unprofitable products
B) Ignoring loss-making products
C) Only focusing on profitable products
D) None of the above
Answer: A
Cost accounting helps identify unprofitable products for corrective action.
82. Which of the following is a direct expense?
A) Factory rent
B) Power used in production
C) Office stationery
D) Sales commission
Answer: B
Power used in production is a direct expense.
83. Which of the following is a limitation of cost accounting?
A) Requires estimation
B) Only uses actual data
C) Never uses estimates
D) Is always precise
Answer: A
Cost accounting often requires estimation, which can lead to inaccuracies.
84. Cost accounting is mainly used for:
A) Internal control
B) External reporting
C) Tax calculation
D) Only for shareholders
Answer: A
Cost accounting is mainly used for internal control and management.
85. Which of the following is NOT a feature of cost accounting?
A) Provides detailed cost data
B) Only focuses on revenue
C) Assists in cost control
D) Helps in decision-making
Answer: B
Cost accounting focuses on costs, not just revenue.
86. Which of the following is an advantage of cost accounting?
A) Helps in identifying wastage
B) Increases inefficiency
C) Reduces control
D) Ignores management needs
Answer: A
Cost accounting helps in identifying and reducing wastage.
87. Cost accounting helps in:
A) Improving efficiency
B) Reducing efficiency
C) Only focusing on losses
D) None of the above
Answer: A
Cost accounting helps improve efficiency by analyzing costs and processes.
88. Which of the following is a limitation of cost accounting?
A) Complex to implement
B) Always simple
C) Never requires expertise
D) Free from errors
Answer: A
Cost accounting can be complex to implement.
89. Cost accounting is useful for:
A) Controlling overhead costs
B) Ignoring overheads
C) Only focusing on direct costs
D) None of the above
Answer: A
Cost accounting helps control overhead costs.
90. Which of the following is NOT an advantage of cost accounting?
A) Helps in decision-making
B) Provides data for planning
C) Increases confusion
D) Assists in cost control
Answer: C
Cost accounting does not increase confusion; it clarifies cost data.
91. Cost accounting helps in:
A) Analyzing profitability
B) Ignoring profits
C) Only focusing on losses
D) None of the above
Answer: A
Cost accounting helps analyze profitability of products and services.
92. Which of the following is a limitation of cost accounting?
A) Requires regular updating
B) Always up-to-date
C) Never needs updates
D) Is always static
Answer: A
Cost accounting requires regular updating to remain effective.
93. Cost accounting helps in:
A) Standard costing
B) Ignoring standards
C) Only focusing on actual costs
D) Only focusing on estimated costs
Answer: A
Cost accounting helps in standard costing and variance analysis.
94. Which of the following is NOT a feature of cost accounting?
A) Systematic process
B) Random process
C) Provides cost data
D) Assists in control
Answer: B
Cost accounting is a systematic process.
95. Cost accounting is useful for:
A) Managerial decision-making
B) Only tax planning
C) Only external audits
D) Only shareholder meetings
Answer: A
Cost accounting is primarily useful for managerial decision-making.
96. Which of the following is a limitation of cost accounting?
A) Depends on accuracy of data
B) Always accurate
C) Never needs accurate data
D) Is free from errors
Answer: A
Cost accounting depends on the accuracy of data provided.
97. Cost accounting helps in:
A) Reducing costs
B) Increasing unnecessary expenses
C) Only focusing on sales
D) None of the above
Answer: A
Cost accounting helps in reducing costs through analysis and control.
98. Which of the following is NOT an objective of cost accounting?
A) Ascertain cost
B) Control cost
C) Increase tax liability
D) Reduce cost
Answer: C
Increasing tax liability is not an objective of cost accounting.
99. Cost accounting is mainly concerned with:
A) Cost centers
B) Only profit centers
C) Only revenue centers
D) Only sales departments
Answer: A
Cost accounting is mainly concerned with cost centers for better control.
100. Which of the following is a feature of cost accounting?
A) Systematic recording and analysis
B) Random recording
C) Only focusing on profits
D) Ignoring cost data
Answer: A
Cost accounting involves systematic recording and analysis of cost data.
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