Cost and management accounting: marginal costing, break-even, standard costing, budgetary control, process costing, ABC, decision-making, life cycle costing, target costing, Kaizen, JIT - Question Bank

1. Which of the following is a controllable variance at the operational level?
A) Sales volume variance
B) Material price variance
C) Fixed overhead volume variance
D) Labor efficiency variance
2. If a company's sales increase from Rs. 500,000 to Rs. 750,000 and its profit increases from Rs. 50,000 to Rs. 100,000, what is its contribution margin ratio?
A) 20%
B) 40%
C) 50%
D) 60%
3. Which concept is fundamental to marginal costing?
A) Absorption of all manufacturing costs
B) Separation of costs into fixed and variable components
C) Allocation of overheads based on machine hours
D) Calculation of total cost per unit
4. JIT production aims to eliminate:
A) Quality control checks
B) Waste and inefficiencies
C) Employee involvement
D) Sales forecasting
5. Which of the following is a key characteristic of target costing?
A) Cost-plus pricing
B) Focus on efficiency in production
C) Customer-driven target cost
D) Minimizing research and development
6. Costs incurred in adding new features to a product after its initial launch are considered part of:
A) R&D costs
B) Marketing costs
C) Life cycle costs
D) Manufacturing costs
7. The primary purpose of a master budget is to:
A) Control individual departmental spending
B) Provide a comprehensive financial plan for the entire organization
C) Analyze variances after the period
D) Set standards for future production
8. Which variance is calculated as (Actual Rate - Standard Rate) x Actual Hours?
A) Labor efficiency variance
B) Labor rate variance
C) Material usage variance
D) Overhead variable spending variance
9. The break-even point is the level of sales where:
A) Profit is maximized
B) Total revenue equals total costs
C) Fixed costs are covered
D) Variable costs are covered
10. Under absorption costing, fixed manufacturing overheads are treated as:
A) Period costs
B) Product costs
C) Direct costs
D) Variable costs
11. Which of the following is a prerequisite for successful JIT implementation?
A) High levels of work-in-progress inventory
B) Long production runs
C) Reliable suppliers and stable production processes
D) Frequent machine setups
12. Continuous improvement in Kaizen costing is achieved through:
A) Employee suggestions and empowerment
B) Large capital investments
C) Centralized decision-making
D) Ignoring minor inefficiencies
13. Target costing is a 'market-driven' costing approach because:
A) Costs are set first, then the price
B) The price is determined by the market, and costs are engineered to meet it
C) It focuses on maximizing variable costs
D) It ignores customer perception of value
14. Which of the following is NOT a stage in the product life cycle?
A) Introduction
B) Growth
C) Maturity
D) Stagnation
15. Opportunity cost is relevant in which type of decision-making?
A) Routine operational decisions
B) Decisions involving alternative courses of action
C) Short-term production planning
D) Calculating overhead absorption rates
16. Which of the following is a potential benefit of implementing ABC?
A) Increased complexity in cost allocation
B) More accurate product costing
C) Higher overhead costs
D) Reduced need for management analysis
17. In process costing, the cost of abnormal spoilage is typically:
A) Charged to the next process
B) Charged to the cost of good units produced
C) Charged to the profit and loss account
D) Allocated among all units produced
18. Zero-based budgeting (ZBB) requires:
A) Extrapolation of past budgets
B) Justification of all expenses from scratch
C) Focus on incremental changes only
D) Allocation of resources based on historical trends
19. Which variance indicates a difference between the actual labor hours worked and the standard labor hours allowed for the actual output?
A) Labor rate variance
B) Labor efficiency variance
C) Overhead spending variance
D) Material yield variance
20. If the contribution margin ratio is 40% and fixed costs are Rs. 100,000, what is the break-even sales revenue?
A) Rs. 40,000
B) Rs. 150,000
C) Rs. 250,000
D) Rs. 400,000
21. In marginal costing, fixed costs are treated as:
A) Product costs
B) Period costs
C) Variable costs
D) Controllable costs
22. A key benefit of JIT inventory management is:
A) Increased warehousing costs
B) Reduced work-in-progress inventory
C) Higher risk of stockouts
D) Longer production lead times
23. The philosophy behind 'Kaizen' in costing is:
A) Big, radical changes
B) Constant, incremental improvements
C) Focus on the end result only
D) Acceptance of current cost levels
24. Target costing is a cost management technique that focuses on:
A) Reducing costs after a product is launched
B) Achieving a required profit margin by designing costs into a product
C) Increasing the selling price to cover costs
D) Minimizing fixed costs regardless of market demand
25. The total cost of ownership (TCO) concept is closely related to:
A) Marginal costing
B) Life cycle costing
C) Standard costing
D) Break-even analysis
26. Which of the following is NOT a typical use of cost-volume-profit (CVP) analysis?
A) Setting prices
B) Determining optimal product mix
C) Calculating depreciation using straight-line method
D) Evaluating the impact of cost changes
27. ABC costing is considered superior to traditional costing when:
A) Overhead costs are a small proportion of total costs
B) Products are few and similar
C) Overhead costs are significant and products differ widely
D) Production is highly automated
28. Which costing method is used when goods pass through several distinct stages of production?
A) Job costing
B) Process costing
C) Batch costing
D) Operating costing
29. A flexible budget is:
A) A budget for a single activity level
B) A budget that adjusts for changes in volume or activity level
C) A budget that is revised monthly
D) A budget based on zero base
30. Which of the following is a material variance?
A) Labor efficiency variance
B) Overhead volume variance
C) Material price variance
D) Sales margin variance
31. The break-even point in units can be calculated as:
A) Total Fixed Costs / Contribution Margin per Unit
B) Total Sales Revenue / Contribution Margin Ratio
C) Total Variable Costs / Contribution Margin per Unit
D) Total Fixed Costs / Selling Price per Unit
32. In marginal costing, the profit is calculated as:
A) Sales Revenue - Fixed Costs
B) Sales Revenue - Variable Costs
C) Contribution - Fixed Costs
D) Sales Revenue - Total Costs
33. Just-In-Time (JIT) is a production strategy aimed at:
A) Maximizing inventory levels
B) Producing goods only when needed
C) Increasing lead times
D) Producing in large batches to achieve economies of scale
34. Kaizen costing emphasizes:
A) Radical changes in production processes
B) Continuous small improvements in cost reduction
C) Setting high initial cost targets
D) Significant investment in new technology
35. Target costing focuses on determining the cost of a product after establishing:
A) The desired selling price
B) The actual production cost
C) The standard cost
D) The break-even sales volume
36. Life cycle costing considers costs incurred:
A) During the production phase only
B) During the marketing phase only
C) Over the entire life cycle of a product, from design to disposal
D) Only during the manufacturing process
37. Make or buy decisions are an example of:
A) Short-term planning
B) Long-term investment appraisal
C) Special decision-making
D) Standard costing implementation
38. Which of the following is a 'cost driver' in ABC?
A) Machine hours
B) Number of setups
C) Number of purchase orders
D) All of the above
39. In process costing, equivalent units are used to:
A) Allocate costs to finished goods only
B) Calculate the cost per unit for partially completed units
C) Determine the break-even point for each process
D) Measure the efficiency of direct labor
40. Which type of budget is prepared for a single period, typically one year, and is not revised during the period?
A) Rolling budget
B) Flexible budget
C) Fixed budget
D) Zero-based budget
41. A favorable variance in standard costing occurs when:
A) Actual cost is higher than standard cost
B) Actual cost is lower than standard cost
C) Actual output is lower than standard output
D) Actual output is higher than standard output
42. The 'margin of safety' in break-even analysis indicates:
A) The difference between fixed costs and variable costs
B) The amount by which sales can fall before a loss is incurred
C) The total profit earned at the break-even point
D) The ratio of variable costs to fixed costs
43. Management accounting uses cost information primarily for:
A) External financial reporting
B) Internal decision-making and planning
C) Taxation purposes
D) Compliance with regulatory bodies
44. Which costing technique is most suitable for situations involving a wide variety of products with different production processes and overheads?
A) Process costing
B) Job costing
C) Activity-Based Costing (ABC)
D) Standard costing
45. Activity-Based Costing (ABC) allocates overhead costs based on:
A) Direct labor hours
B) Machine hours
C) Cost drivers
D) Sales volume
46. In process costing, costs are accumulated by:
A) Job order
B) Department or process
C) Product line
D) Sales territory
47. Which of the following is a key element of budgetary control?
A) Setting historical costs as targets
B) Comparing actual performance with the budget and taking corrective action
C) Ignoring deviations from the budget
D) Focusing solely on sales revenue
48. The difference between standard cost and actual cost is known as:
A) Contribution
B) Variance
C) Break-even point
D) Margin of safety
49. What is the primary objective of break-even analysis?
A) To maximize profit
B) To determine the sales volume needed to cover all costs
C) To reduce fixed costs
D) To increase variable costs
50. In marginal costing, which costs are considered for product costing?
A) All costs, both fixed and variable
B) Only variable costs
C) Only direct costs
D) Only fixed costs
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