MCQ 1 — Inventory Valuation

A trader purchased 10,000 units at Rs. 80 each and received a 5% trade discount. Non-refundable import duty and transport costs were Rs. 40,000 and Rs. 60,000 respectively. Refundable tax was Rs. 30,000.

At year-end, 1,000 units remained. Their selling price was Rs. 92 per unit, with completion and selling costs of Rs. 4 and Rs. 3 per unit respectively.

At what amount should closing inventory be valued?

A. Rs. 83,000
B. Rs. 85,000
C. Rs. 86,000
D. Rs. 89,000

MCQ 2 — Reciprocal Service Department Apportionment

Service departments S1 and S2 have initial costs of Rs. 120,000 and Rs. 80,000 respectively.

S1 provides services: P1 50%, P2 30%, S2 20%
S2 provides services: P1 40%, P2 40%, S1 20%

Using the reciprocal method, how much service department cost is allocated to P1?

A. Rs. 110,000
B. Rs. 112,500
C. Rs. 114,167
D. Rs. 116,667

MCQ 3 — Activity-Based Costing

The following activity pools apply:

Set-up costs: Rs. 720,000 for 180 set-ups
Purchase handling: Rs. 450,000 for 900 orders
Machining: Rs. 960,000 for 120,000 machine hours

Product X produces 8,000 units in 40 batches, requires three purchase orders per batch and uses 0.6 machine hours per unit.

What is the ABC overhead cost per unit?

A. Rs. 30.30
B. Rs. 31.80
C. Rs. 32.30
D. Rs. 33.50

MCQ 4 — Labour Remuneration

Standard time for a job is 10 hours. It is completed in 6 hours, and the hourly wage rate is Rs. 500.

Compared with a 50% Halsey plan, earnings under the Rowan plan are:

A. Rs. 200 lower
B. Rs. 200 higher
C. Rs. 400 higher
D. Equal under both plans

MCQ 5 — Cost Flow in Production

Total wages of Rs. 600,000 comprise:

Direct production wages: Rs. 420,000
Indirect factory wages: Rs. 120,000
Administration wages: Rs. 60,000

Which is the correct cost-ledger distribution entry?

A. Debit WIP Rs. 420,000, Production OH Rs. 120,000 and Administration OH Rs. 60,000; credit Wages Control Rs. 600,000

B. Debit Wages Control Rs. 600,000; credit WIP, Production OH and Administration OH

C. Debit WIP Rs. 540,000 and Administration OH Rs. 60,000; credit Wages Control Rs. 600,000

D. Debit Production OH Rs. 600,000; credit General Ledger Adjustment Rs. 600,000

MCQ 6 — Service Costing

A transport company operates four buses, each having 50 seats. Each bus travels 120 kilometres daily for 25 days per month. Average occupancy is 80%.

If total monthly operating cost is Rs. 1,920,000, what is the cost per passenger-kilometre?

A. Rs. 3.20
B. Rs. 4.00
C. Rs. 4.80
D. Rs. 5.00

MCQ 7 — Process Costing

A process receives 10,000 units. Normal loss is 10% of input and has a scrap value of Rs. 10 per unit. Actual output is 8,700 units.

Material and conversion costs are Rs. 500,000 and Rs. 270,000 respectively. There is no closing work in process.

What amount should be charged to profit or loss for the abnormal loss?

A. Rs. 19,333
B. Rs. 22,333
C. Rs. 25,333
D. Rs. 28,333

MCQ 8 — Joint Product Decision

At split-off, 5,000 units of Product A can be sold for Rs. 80 per unit. Alternatively, they may be processed further at a total cost of Rs. 120,000 and sold for Rs. 110 per unit.

Joint costs incurred before split-off are Rs. 300,000.

What should management do?

A. Sell at split-off because joint costs are unavoidable
B. Process further, increasing profit by Rs. 30,000
C. Process further, increasing profit by Rs. 150,000
D. Sell at split-off, avoiding a loss of Rs. 120,000

MCQ 9 — Marginal and Absorption Costing

The fixed production overhead absorption rate is Rs. 30 per unit. Opening inventory was 1,000 units and closing inventory was 1,600 units. There was no over- or under-absorption.

Compared with marginal costing profit, absorption costing profit is:

A. Rs. 18,000 higher
B. Rs. 18,000 lower
C. Rs. 48,000 higher
D. The same

MCQ 10 — Standard Costing and Variance Analysis

The standard material mix is:

Material A: 40% at Rs. 10 per kg
Material B: 60% at Rs. 5 per kg

Actual input was 11,000 kg, comprising 5,000 kg of A and 6,000 kg of B.

What is the total material mix variance?

A. Rs. 3,000 favourable
B. Rs. 3,000 adverse
C. Rs. 6,000 adverse
D. Rs. 9,000 adverse

MCQ 11 — Target Costing

A product has a market-driven selling price of Rs. 2,700. Management requires a 35% mark-up on cost. Its estimated life-cycle cost is Rs. 2,150 per unit.

What is the cost gap?

A. Rs. 100
B. Rs. 150
C. Rs. 200
D. Rs. 245

MCQ 12 — Multi-Product CVP Analysis

A company sells Products A and B in a constant sales mix of 3:2.

Contribution per unit of A: Rs. 40
Contribution per unit of B: Rs. 30
Total fixed costs: Rs. 1,080,000

What is the break-even sales volume?

A. 12,000 units of A and 18,000 units of B
B. 15,000 units of A and 10,000 units of B
C. 18,000 units of A and 12,000 units of B
D. 24,000 units of A and 16,000 units of B

MCQ 13 — Relevant Cost

A special job requires 1,500 kg of material.

The company has 1,000 kg in inventory, originally purchased for Rs. 50 per kg. It has no internal use but can be sold for net proceeds of Rs. 42 per kg. The remaining material must be purchased for Rs. 60 per kg.

What is the relevant material cost of the job?

A. Rs. 63,000
B. Rs. 72,000
C. Rs. 75,000
D. Rs. 90,000

MCQ 14 — Discontinuation Decision

A product generates:

Sales: Rs. 2,000,000
Variable costs: Rs. 1,200,000
Traceable fixed costs: Rs. 500,000, including Rs. 200,000 that would continue after discontinuation
Allocated common fixed costs: Rs. 300,000, which would remain unchanged

What would be the effect of discontinuing the product?

A. Profit would increase by Rs. 300,000
B. Profit would increase by Rs. 500,000
C. Profit would decrease by Rs. 300,000
D. Profit would decrease by Rs. 500,000

MCQ 15 — Inventory Management

Annual demand is 24,000 units and ordering cost is Rs. 600 per order. The normal price is Rs. 100 per unit, and annual holding cost is 20% of purchase price.

A 2% discount is available for orders of at least 2,000 units.

Which order quantity minimizes total annual cost?

A. 1,200 units; total cost Rs. 2,424,000
B. 1,212 units; total cost Rs. 2,376,000
C. 2,000 units; total cost Rs. 2,378,800
D. 2,400 units; total cost Rs. 2,382,400

Answer Key and Short Explanations

1. B — Rs. 85,000
Cost per unit = Rs. 86. NRV = Rs. 92 − Rs. 4 − Rs. 3 = Rs. 85. Inventory is valued at the lower amount.

2. C — Rs. 114,167
Reciprocal costs are S1 = Rs. 141,667 and S2 = Rs. 108,333. Allocation to P1 is 50% of S1 plus 40% of S2.

3. C — Rs. 32.30
Set-ups Rs. 160,000 + orders Rs. 60,000 + machining Rs. 38,400 = Rs. 258,400 ÷ 8,000 units.

4. B — Rs. 200 higher
Rowan earnings = Rs. 4,200. Halsey earnings = Rs. 4,000.

5. A
Direct wages are charged to WIP, while indirect factory and administration wages are charged to their respective overhead controls.

6. B — Rs. 4.00
Passenger-kilometres = 4 × 50 × 120 × 25 × 80% = 480,000.

7. B — Rs. 22,333
Abnormal loss value is Rs. 25,333, less abnormal-loss scrap proceeds of Rs. 3,000.

8. B — Process further
Incremental revenue = Rs. 150,000; further cost = Rs. 120,000; additional profit = Rs. 30,000.

9. A — Rs. 18,000 higher
Inventory increased by 600 units. Profit difference = 600 × Rs. 30.

10. B — Rs. 3,000 adverse
A: Rs. 6,000 adverse; B: Rs. 3,000 favourable; net variance Rs. 3,000 adverse.

11. B — Rs. 150
Target cost = Rs. 2,700 ÷ 1.35 = Rs. 2,000. Cost gap = Rs. 2,150 − Rs. 2,000.

12. C — 18,000 units of A and 12,000 units of B
Composite contribution = Rs. 180. Break-even bundles = 1,080,000 ÷ 180 = 6,000 bundles.

13. B — Rs. 72,000
Inventory opportunity cost = 1,000 × Rs. 42; additional purchase = 500 × Rs. 60.

14. D — Profit decreases by Rs. 500,000
Contribution lost is Rs. 800,000, while avoidable fixed costs are only Rs. 300,000.

15. C — 2,000 units; Rs. 2,378,800
The purchase-price saving exceeds the additional holding cost at the discount quantity.

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