MGT 402 Cost & Management Accounting - 1

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  • 1/20 Questions

    Cost that can be traced in full to the product or services is called

    • Direct Cost
    • Indirect Cost
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About This Quiz

This MGT 402 quiz assesses knowledge in Cost & Management Accounting, focusing on key concepts like prime cost, conversion cost, and basic accounting principles. It's designed to enhance understanding of cost classifications and calculations, vital for accounting professionals.

Accounting Quizzes & Trivia

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  • 2. 

    Indirect cost is also known as overhead cost.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Indirect Cost/Overhead Cost
    An indirect cost or overhead cost is a cost that is incurred in the course of producing product or
    rendering service, but which cannot be traced in the product or service in full.
    Expenditure incurred on labor, material or other services which cannot be economically identified
    with a specific cost product or service (cost unit).
    Examples include:
    Wages of supervisor, cleaning material, workshop insurance

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  • 3. 

    Cost is expenditure incurred.

    • TRUE

    • FALSE

    Correct Answer
    A. TRUE
    Explanation
    The statement "Cost is expenditure incurred" is true. Cost refers to the amount of money or resources that are required to produce or obtain something. Expenditure, on the other hand, refers to the act of spending money or resources. Therefore, cost can be seen as the result of expenditure, as it represents the amount of money or resources that have been spent or incurred.

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  • 4. 

    An investor invests in stock exchange he foregoes the opportunity to invest further in his hotel. The profit which the investor will be getting from the hotel is _________________.

    • Opportunity cost

    • Period Cost

    • Product Cost

    • Historical Cost

    Correct Answer
    A. Opportunity cost
    Explanation
    1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

    2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%)

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  • 5. 

    A firm Uses its own capital or Uses its owner's time and/or financial resources both are examples of ____________

    • Implicit Cost

    • Explicit Cost

    Correct Answer
    A. Implicit Cost
    Explanation
    A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash
    These are intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company rather than working on expansion

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  • 6. 

    If     Direct Material    =   12,000 Direct Labor       =   8000      other Direct Cost = 2000  then what will be the Prime Cost?

    • 12000

    • 14000

    • 20000

    • 22000

    Correct Answer
    A. 22000
    Explanation
    The prime cost is the sum of direct material, direct labor, and other direct costs. In this case, the direct material is 12,000, direct labor is 8,000, and other direct costs are 2,000. Adding these three amounts together gives a prime cost of 22,000.

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  • 7. 

    Direct Material + Direct Labor + other direct cost =

    • Prime Cost

    • Factory OverHead (FOH)

    • Conversion Cost

    • None

    Correct Answer
    A. Prime Cost
    Explanation
    The given equation of Direct Material + Direct Labor + other direct cost represents the calculation of Prime Cost. Prime Cost is the total cost of direct materials, direct labor, and other direct costs that are directly involved in the production of a product. It does not include any indirect costs or overhead expenses. Therefore, the correct answer is Prime Cost.

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  • 8. 

    _________________ is the cost that is subject to actual payment or will be paid for in future.

    • Implicit Cost

    • Explicit Cost

    Correct Answer
    A. Explicit Cost
    Explanation
    A business expense that is easily identified and accounted for. Explicit costs represent clear, obvious cash outflows from a business that reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a business's bottom-line value
    Good examples of explicit costs would be items such as wage expense, rent or lease costs, and the cost of materials that go into the production of goods. With these expenses, it is easy to see the source of the cash outflow and the business activities to which the expense is attributed

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  • 9. 

    _________________ is a Predetermine cost of the units.

    • Standard cost

    • Implicit Cost

    • Product Cost

    • None

    Correct Answer
    A. Standard cost
    Explanation
    The budgeted or planned cost of material, labour, or overheads expected to be paid during a given accounting period.

    standard cost- The normal or specified cost used as the basis for measurement against an actual. Standard costs for manufactured items include labor, material and overhead, and vendor acquisition, freight, duty fees and other categories for purchased items

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  • 10. 

    Cost is classified in _____________ categories.

    • 1

    • 2

    • 3

    • 4

    Correct Answer
    A. 2
    Explanation
    Cost is classified into two categories.

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  • 11. 

    Wage, Rent & Materials are examples of ____________.

    • Implicit Cost

    • Explicit Cost

    Correct Answer
    A. Explicit Cost
    Explanation
    A business expense that is easily identified and accounted for. Explicit costs represent clear, obvious cash outflows from a business that reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a business's bottom-line value
    Good examples of explicit costs would be items such as wage expense, rent or lease costs, and the cost of materials that go into the production of goods. With these expenses, it is easy to see the source of the cash outflow and the business activities to which the expense is attributed

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  • 12. 

    Direct Labour + Other Direct Cost + FOH  = 

    • Prime Cost

    • Factory OverHead (FOH)

    • Conversion Cost

    • None

    Correct Answer
    A. Conversion Cost
    Explanation
    The given equation, Direct Labour + Other Direct Cost + FOH = Prime Cost, represents the calculation of the prime cost in a manufacturing process. Prime cost refers to the direct costs involved in the production of goods, including direct labor and other direct costs such as raw materials. Factory Overhead (FOH) is not included in the prime cost calculation, as it represents indirect costs such as utilities, rent, and depreciation. Therefore, the correct answer is Conversion Cost, which includes both direct labor and factory overhead costs.

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  • 13. 

    Financial Accounting is a branch of management accounting.

    • TRUE

    • FALSE

    Correct Answer
    A. TRUE
    Explanation
    Financial Accounting is a branch of management accounting because it involves the recording, summarizing, and reporting of financial transactions and information to external stakeholders such as investors, creditors, and regulators. Management accounting, on the other hand, focuses on providing internal stakeholders such as managers and executives with financial information and analysis to aid in decision-making and planning. Both branches of accounting are essential in managing and understanding an organization's financial performance, but financial accounting specifically deals with the preparation of financial statements and compliance with accounting standards and regulations.

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  • 14. 

    Cost Accounting is an art of Recording , Classifying, summarizing, Reporting, Interpreting of the Financial Information.

    • TRUE

    • FALSE

    Correct Answer
    A. FALSE
    Explanation
    The given statement is incorrect. Cost Accounting is not an art of recording, classifying, summarizing, reporting, and interpreting financial information. Instead, it is a branch of accounting that focuses on the calculation and analysis of costs in order to enhance decision-making, budgeting, and cost control within an organization. Cost Accounting primarily deals with the allocation of costs to products or services, determining the cost of production, and providing insights into cost reduction strategies.

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  • 15. 

    Accounting has ____________ branches

    • 1

    • 2

    • 3

    • 4

    Correct Answer
    A. 3
    Explanation
    Accounting has three branches: financial accounting, management accounting, and auditing. Financial accounting involves recording, summarizing, and reporting financial transactions of a business. Management accounting focuses on providing information to internal users for decision-making and planning. Auditing involves examining and verifying the financial records and statements of a company to ensure accuracy and compliance with regulations. These three branches are essential in providing accurate and reliable financial information for businesses.

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  • 16. 

    ____________ is verifiable through invoices/agreements.

    • Opportunity Cost

    • Product Cost

    • Period Cost

    • Historical Cost

    Correct Answer
    A. Historical Cost
  • 17. 

    Cost Accounting deals with decisions relating to the generation & effective utilization of the financial resources of an entity. 

    • TRUE

    • FALSE

    Correct Answer
    A. FALSE
    Explanation
    Its done by Management Accounting

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  • 18. 

    Accounting is always a language of business

    • TRUE

    • FALSE

    Correct Answer
    A. FALSE
    Explanation
    The statement "accounting is always a language of business" is false. While accounting is commonly used in business to record and analyze financial transactions, it is not exclusive to the business field. Accounting principles and techniques can also be applied in other areas such as nonprofit organizations, government agencies, and personal finance management. Therefore, accounting can be seen as a language that is used in various contexts beyond just business.

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  • 19. 

    Management Accounting deals with Ascertainment, Measurement, Accumulation, Budgeting & Evaluating cost structure of the entity.

    • True

    • FALSE

    Correct Answer
    A. FALSE
    Explanation
    Its done by Cost Accounting

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  • 20. 

    Accounting is a language of ________________.

    • Accountants

    • Mathematics

    • Mathematics

    • NONE

    Correct Answer
    A. Mathematics
    Explanation
    Accounting is often referred to as the "language of business" because it involves the use of numbers, calculations, and financial statements to communicate and analyze the financial performance of a company. Just as language is used to convey thoughts and ideas, accounting uses mathematical concepts and principles to convey financial information and make informed business decisions. Therefore, the correct answer is Mathematics.

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  • Current Version
  • Mar 18, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 30, 2009
    Quiz Created by
    Zubair
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