1. Process Costing is most suitable for industries where:
Construction contracts are undertaken.
Continuous production of homogeneous products takes place (e.g., Oil Refining, Chemicals).
Service is provided.
Each job is distinct and customized (e.g., Interior Design).
Explanation:
In Process Costing, costs are accumulated for each process/stage because the product moves continuously from one process to another.
2. Job Costing is most appropriate for:
A Printing Press executing specific customer orders.
A Sugar Factory.
A Paper Mill.
A Coal Mine.
Explanation:
Job Costing is used when production is not continuous and each product/job is unique according to customer specifications (e.g., Printing, Repair shops).
3. "Unit Costing" or "Single Output Costing" is suitable for:
Brick Making, Coal Mining, Cement Manufacturing.
Furniture making.
Ship Building.
Car Repair.
Explanation:
Unit costing is used where a single standard product is produced continuously (identical units). Examples: Bricks, Coal, Cement.
4. In Contract Costing, "Retention Money" is:
Advance payment made to the contractor.
A portion of the progress payment withheld by the contractee as security against defective work.
Profit held back by the contractor.
Tax deducted at source.
Explanation:
Retention money ensures the contractor completes the work satisfactorily. It is released after the defect liability period.
5. In Activity Based Costing (ABC), a "Cost Driver" is defined as:
The person responsible for cost control.
The total cost of a product.
The profit margin.
A factor that causes a change in the cost of an activity.
Explanation:
ABC assigns overheads based on activities. A Cost Driver (e.g., number of machine setups, number of inspections) is the factor that influences the volume/cost of that activity, providing more accurate costing than traditional volume-based absorption.
6. The primary difference between Job Costing and Process Costing is:
Job costing accumulates costs by specific order; Process costing accumulates costs by production department/process over a period.
Job costing is for standardized products; Process costing is for customized products.
Job costing is cheaper.
Process costing is only for services.
Explanation:
Job Costing tracks each unique job separately (heterogeneous). Process Costing averages costs over a large number of identical units produced in a continuous flow (homogeneous).
7. In Process Costing, "Equivalent Production" is calculated to:
Convert Work-in-Progress (WIP) into equivalent finished units to assign costs.
Determine the selling price.
Estimate future production.
Calculate abnormal loss only.
Explanation:
Since opening and closing WIP are only partially complete, they cannot be simply added to completed units. They are converted into "Equivalent Units" based on the percentage of completion.
8. "Operating Costing" is also known as:
Job Costing
Multiple Costing
Batch Costing
Service Costing
Explanation:
Operating Costing is the method used to ascertain the cost of providing a service (e.g., Transport, Hospital, Hotel, Power generation).
9. An "Escalation Clause" in a contract is designed to cover the risk of:
Delay in completion.
Accidents at site.
Bad workmanship.
Changes in prices of material and labor during the contract period.
Explanation:
This clause allows the contract price to be increased if input costs rise beyond a certain limit, protecting the contractor from inflation.