Cost & Management Accounting MCQ & Objective Questions
Cost & Management Accounting is a crucial subject for students preparing for various school and competitive exams in India. Mastering this topic not only enhances your understanding of financial principles but also significantly boosts your exam scores. Practicing MCQs and objective questions helps in reinforcing key concepts and identifying important questions that frequently appear in exams.
What You Will Practise Here
Fundamentals of Cost Accounting
Costing Methods: Job Costing, Process Costing, and Activity-Based Costing
Budgeting and Variance Analysis
Break-even Analysis and Cost-Volume-Profit Relationships
Standard Costing and Performance Measurement
Financial Statements Analysis
Key Formulas and Definitions in Cost & Management Accounting
Exam Relevance
Cost & Management Accounting is an integral part of the curriculum for CBSE, State Boards, and various competitive exams such as NEET and JEE. Questions often focus on practical applications, theoretical concepts, and problem-solving skills. Common question patterns include multiple-choice questions that test your understanding of key principles and calculations related to costs and management strategies.
Common Mistakes Students Make
Confusing different costing methods and their applications.
Misunderstanding the concepts of fixed and variable costs.
Overlooking the importance of accurate budgeting and variance analysis.
Neglecting to memorize essential formulas and definitions.
Failing to practice enough objective questions to build confidence.
FAQs
Question: What are the key topics I should focus on for Cost & Management Accounting exams?Answer: Focus on costing methods, budgeting, variance analysis, and key formulas to excel in your exams.
Question: How can I improve my performance in Cost & Management Accounting MCQs?Answer: Regular practice of MCQs and understanding the underlying concepts will significantly improve your performance.
Start solving practice MCQs today to test your understanding of Cost & Management Accounting and enhance your exam preparation. Remember, consistent practice is the key to success!
Q. What is the formula for calculating the direct materials price variance?
A.
(Actual Price - Standard Price) x Actual Quantity
B.
(Standard Price - Actual Price) x Standard Quantity
C.
(Actual Quantity - Standard Quantity) x Standard Price
D.
(Standard Quantity - Actual Quantity) x Actual Price
Show solution
Solution
The direct materials price variance is calculated using the formula: (Actual Price - Standard Price) x Actual Quantity.
Correct Answer:
A
— (Actual Price - Standard Price) x Actual Quantity
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Q. What is the formula for calculating the margin of safety?
A.
Actual Sales - Break-even Sales
B.
Break-even Sales - Actual Sales
C.
Total Sales - Variable Costs
D.
Fixed Costs / Contribution Margin
Show solution
Solution
Margin of safety is calculated as Actual Sales minus Break-even Sales.
Correct Answer:
A
— Actual Sales - Break-even Sales
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Q. What is the formula for calculating the variance in a flexible budget?
A.
Actual Costs - Flexible Budget Costs
B.
Flexible Budget Costs - Actual Costs
C.
Budgeted Costs - Actual Costs
D.
Actual Revenue - Budgeted Revenue
Show solution
Solution
Variance in a flexible budget is calculated as Actual Costs - Flexible Budget Costs.
Correct Answer:
A
— Actual Costs - Flexible Budget Costs
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Q. What is the main advantage of using activity-based costing (ABC)?
A.
Simplicity in calculations
B.
More accurate product costing
C.
Lower administrative costs
D.
Easier to implement
Show solution
Solution
ABC provides more accurate product costing by assigning costs based on actual activities.
Correct Answer:
B
— More accurate product costing
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Q. What is the main difference between direct and indirect costs?
A.
Direct costs are variable, indirect costs are fixed
B.
Direct costs can be traced to a specific cost object, indirect costs cannot
C.
Direct costs are always higher than indirect costs
D.
There is no difference
Show solution
Solution
Direct costs can be traced directly to a specific cost object, while indirect costs cannot.
Correct Answer:
B
— Direct costs can be traced to a specific cost object, indirect costs cannot
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Q. What is the main focus of flexible budgeting?
A.
To compare actual costs with fixed costs
B.
To adjust budgets based on actual activity levels
C.
To eliminate all variances
D.
To set sales targets
Show solution
Solution
Flexible budgeting adjusts the budget based on the actual level of activity, allowing for better comparison of actual costs.
Correct Answer:
B
— To adjust budgets based on actual activity levels
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Q. What is the main focus of marginal costing?
A.
Total costs
B.
Variable costs
C.
Fixed costs
D.
Sunk costs
Show solution
Solution
Marginal costing focuses on variable costs, which are costs that change with the level of production.
Correct Answer:
B
— Variable costs
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Q. What is the main focus of variance analysis?
A.
To compare actual costs to budgeted costs
B.
To determine the break-even point
C.
To classify costs into fixed and variable
D.
To allocate overhead costs
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Solution
Variance analysis primarily focuses on comparing actual costs to budgeted costs to identify discrepancies.
Correct Answer:
A
— To compare actual costs to budgeted costs
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Q. What is the margin of safety if the break-even sales are $100,000 and actual sales are $150,000?
A.
$50,000
B.
$100,000
C.
$150,000
D.
$200,000
Show solution
Solution
Margin of safety = Actual Sales - Break-even Sales = $150,000 - $100,000 = $50,000.
Correct Answer:
A
— $50,000
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Q. What is the margin of safety if the break-even sales are $200,000 and the actual sales are $300,000?
A.
$100,000
B.
$50,000
C.
$200,000
D.
$300,000
Show solution
Solution
Margin of Safety = Actual Sales - Break-even Sales = $300,000 - $200,000 = $100,000.
Correct Answer:
A
— $100,000
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Q. What is the marginal cost of producing one additional unit if the total cost of producing 100 units is $1,000 and the total cost of producing 101 units is $1,020?
A.
$20
B.
$10
C.
$30
D.
$15
Show solution
Solution
The marginal cost is the change in total cost divided by the change in quantity. Here, it is ($1,020 - $1,000) / (101 - 100) = $20.
Correct Answer:
A
— $20
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Q. What is the primary benefit of using activity-based costing (ABC)?
A.
It simplifies the costing process
B.
It provides more accurate product costing
C.
It reduces the number of cost pools
D.
It eliminates the need for variance analysis
Show solution
Solution
Activity-based costing (ABC) provides more accurate product costing by assigning costs based on actual activities.
Correct Answer:
B
— It provides more accurate product costing
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Q. What is the primary difference between direct and indirect costs?
A.
Direct costs can be traced to a specific cost object, while indirect costs cannot
B.
Indirect costs are always variable, while direct costs are fixed
C.
Direct costs are always fixed, while indirect costs are variable
D.
There is no difference; they are interchangeable terms
Show solution
Solution
The primary difference is that direct costs can be traced directly to a specific cost object, while indirect costs cannot.
Correct Answer:
A
— Direct costs can be traced to a specific cost object, while indirect costs cannot
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Q. What is the primary difference between fixed and variable budgets?
A.
Fixed budgets change with activity levels, variable budgets do not
B.
Variable budgets change with activity levels, fixed budgets do not
C.
Both budgets are the same
D.
Fixed budgets are more accurate than variable budgets
Show solution
Solution
Variable budgets change with activity levels, while fixed budgets remain constant regardless of activity levels.
Correct Answer:
B
— Variable budgets change with activity levels, fixed budgets do not
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Q. What is the primary focus of activity-based costing (ABC)?
A.
Allocating costs based on volume
B.
Identifying activities that drive costs
C.
Reducing fixed costs
D.
Simplifying cost allocation
Show solution
Solution
Activity-based costing focuses on identifying activities that drive costs and allocating costs based on those activities.
Correct Answer:
B
— Identifying activities that drive costs
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Q. What is the primary focus of cost control in budgeting?
A.
Maximizing revenue
B.
Minimizing expenses
C.
Increasing market share
D.
Enhancing customer satisfaction
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Solution
Cost control primarily focuses on minimizing expenses to ensure that the organization operates within its budget.
Correct Answer:
B
— Minimizing expenses
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Q. What is the primary focus of cost control?
A.
Maximizing revenue
B.
Minimizing costs
C.
Increasing market share
D.
Enhancing product quality
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Solution
Cost control primarily focuses on minimizing costs while maintaining the quality of products and services.
Correct Answer:
B
— Minimizing costs
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Q. What is the primary focus of cost-volume-profit (CVP) analysis?
A.
To analyze the impact of fixed costs on profit
B.
To determine the relationship between costs, volume, and profit
C.
To calculate the total cost of production
D.
To assess the efficiency of production processes
Show solution
Solution
CVP analysis focuses on understanding the relationship between costs, volume, and profit.
Correct Answer:
B
— To determine the relationship between costs, volume, and profit
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Q. What is the primary focus of marginal costing?
A.
Total cost of production
B.
Variable costs only
C.
Fixed costs only
D.
Absorption of overheads
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Solution
Marginal costing focuses on variable costs and their impact on decision-making.
Correct Answer:
B
— Variable costs only
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Q. What is the primary focus of variance analysis?
A.
To determine the profitability of products
B.
To identify the reasons for deviations from the budget
C.
To set future budgets
D.
To calculate the break-even point
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Solution
The primary focus of variance analysis is to identify the reasons for deviations from the budget, helping management make informed decisions.
Correct Answer:
B
— To identify the reasons for deviations from the budget
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Q. What is the primary objective of cost control?
A.
Maximizing revenue
B.
Minimizing costs
C.
Ensuring product quality
D.
Increasing market share
Show solution
Solution
Cost control aims to minimize costs while maintaining the desired level of output.
Correct Answer:
B
— Minimizing costs
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Q. What is the primary purpose of a flexible budget?
A.
To compare actual costs to standard costs
B.
To adjust budgeted costs based on actual activity levels
C.
To set fixed costs for the period
D.
To eliminate variances in financial statements
Show solution
Solution
A flexible budget adjusts budgeted costs based on actual activity levels, allowing for a more accurate comparison of performance.
Correct Answer:
B
— To adjust budgeted costs based on actual activity levels
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Q. What is the primary purpose of budgeting in an organization?
A.
To increase sales revenue
B.
To control costs and allocate resources
C.
To improve employee morale
D.
To enhance customer satisfaction
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Solution
Budgeting helps organizations plan their financial resources effectively, control costs, and allocate resources efficiently.
Correct Answer:
B
— To control costs and allocate resources
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Q. What is the primary purpose of budgeting in management accounting?
A.
To increase sales revenue
B.
To control costs and allocate resources
C.
To determine product pricing
D.
To assess employee performance
Show solution
Solution
Budgeting helps in controlling costs and allocating resources effectively, ensuring that the organization operates within its financial means.
Correct Answer:
B
— To control costs and allocate resources
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Q. What is the primary purpose of cost classification in management accounting?
A.
To determine the selling price of products
B.
To facilitate cost control and decision making
C.
To prepare financial statements
D.
To calculate tax liabilities
Show solution
Solution
Cost classification helps in organizing costs into categories that aid in cost control and decision making.
Correct Answer:
B
— To facilitate cost control and decision making
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Q. What is the primary purpose of cost classification?
A.
To increase sales
B.
To determine pricing
C.
To facilitate cost control and decision making
D.
To reduce production time
Show solution
Solution
Cost classification helps in understanding costs for better control and decision-making.
Correct Answer:
C
— To facilitate cost control and decision making
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Q. What is the primary purpose of cost control?
A.
To increase sales
B.
To reduce fixed costs
C.
To ensure that actual costs do not exceed budgeted costs
D.
To maximize profit
Show solution
Solution
The primary purpose of cost control is to ensure that actual costs do not exceed budgeted costs.
Correct Answer:
C
— To ensure that actual costs do not exceed budgeted costs
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Q. What is the primary purpose of variance analysis?
A.
To calculate profit
B.
To compare budgeted and actual performance
C.
To determine fixed costs
D.
To set sales prices
Show solution
Solution
Variance analysis is primarily used to compare budgeted performance against actual performance to identify discrepancies.
Correct Answer:
B
— To compare budgeted and actual performance
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Q. What is the term for costs that are incurred regardless of the level of production?
A.
Variable Costs
B.
Fixed Costs
C.
Sunk Costs
D.
Opportunity Costs
Show solution
Solution
Fixed costs are incurred regardless of production levels.
Correct Answer:
B
— Fixed Costs
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Q. What is the term for costs that are incurred to support the production process but cannot be directly traced to specific products?
A.
Direct Costs
B.
Indirect Costs
C.
Variable Costs
D.
Fixed Costs
Show solution
Solution
Indirect costs are incurred to support production but cannot be traced directly to specific products.
Correct Answer:
B
— Indirect Costs
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