Q.1 What is the primary objective of unit costing?
To determine the total sales of a company
To ascertain the cost per unit of a product
To calculate the total profit of a business
To prepare the balance sheet
Explanation - Unit costing is a method used to determine the cost of producing a single unit of product, which helps in pricing and cost control.
Correct answer is: To ascertain the cost per unit of a product
Q.2 Which of the following industries most commonly uses unit costing?
Construction
Textile manufacturing
Shipbuilding
Service industry
Explanation - Unit costing is ideal for industries producing homogeneous products like textiles, chemicals, and consumer goods where the cost per unit is easily measurable.
Correct answer is: Textile manufacturing
Q.3 In unit costing, which of the following costs is not normally included?
Direct materials
Direct labor
Factory overheads
Selling and distribution expenses
Explanation - Unit costing includes only production-related costs. Selling and distribution costs are considered period costs and not part of the unit cost.
Correct answer is: Selling and distribution expenses
Q.4 Which statement about unit cost is correct?
Unit cost = Total fixed costs ÷ Number of units
Unit cost = Total variable costs ÷ Number of units
Unit cost = Total production cost ÷ Number of units produced
Unit cost = Selling price per unit ÷ Number of units
Explanation - The unit cost is calculated by dividing the total production cost (including materials, labor, and overheads) by the number of units produced.
Correct answer is: Unit cost = Total production cost ÷ Number of units produced
Q.5 Which of the following is a limitation of unit costing?
It provides accurate cost per unit
It cannot be used for services
It helps in cost control
It is suitable for homogeneous products
Explanation - Unit costing is not suitable for service industries or industries producing heterogeneous products because output is not uniform.
Correct answer is: It cannot be used for services
Q.6 Prime cost in unit costing includes:
Direct materials, direct labor, and direct expenses
Direct materials and overheads only
Direct labor and selling expenses only
Overheads and administration costs
Explanation - Prime cost consists of all direct costs involved in manufacturing a product, i.e., materials, labor, and direct expenses.
Correct answer is: Direct materials, direct labor, and direct expenses
Q.7 If total production cost is $50,000 for 5,000 units, what is the unit cost?
$5
$10
$50
$100
Explanation - Unit cost = Total production cost ÷ Number of units = 50,000 ÷ 5,000 = $10 per unit.
Correct answer is: $10
Q.8 Which of the following costs is considered an overhead in unit costing?
Direct labor wages
Cost of raw materials
Factory rent
Cost of packaging materials
Explanation - Factory rent is an indirect production cost, and therefore it is considered a part of manufacturing overhead.
Correct answer is: Factory rent
Q.9 Unit costing is also known as:
Job costing
Process costing
Output costing
Contract costing
Explanation - Unit costing is often called output costing because it measures the cost of individual outputs or units.
Correct answer is: Output costing
Q.10 The difference between selling price and unit cost is known as:
Prime cost
Profit per unit
Overhead cost
Total cost
Explanation - Profit per unit is the difference between the selling price of a unit and its unit cost.
Correct answer is: Profit per unit
Q.11 Which cost is excluded from unit cost calculation under historical costing?
Direct materials
Direct labor
Selling and administrative overheads
Factory overheads
Explanation - Unit costing focuses on production costs only; selling and administrative costs are treated separately.
Correct answer is: Selling and administrative overheads
Q.12 If direct material cost per unit is $6, direct labor per unit is $4, and overheads per unit are $5, what is the total unit cost?
$11
$15
$10
$9
Explanation - Unit cost = Direct material + Direct labor + Overheads = 6 + 4 + 5 = $15 per unit.
Correct answer is: $15
Q.13 Which of the following is not a feature of unit costing?
Applicable to homogeneous products
Helps in cost control
Calculates cost per unit
Applicable for one-off customized jobs
Explanation - Unit costing is not suitable for one-off jobs or customized orders; job costing is more appropriate in such cases.
Correct answer is: Applicable for one-off customized jobs
Q.14 Overhead allocation in unit costing is usually done on the basis of:
Direct materials cost
Direct labor hours
Selling price
Number of units produced
Explanation - In unit costing, overheads are generally apportioned based on production output, i.e., number of units produced.
Correct answer is: Number of units produced
Q.15 Which method helps in determining the cost per unit for continuous production processes?
Job costing
Process costing
Contract costing
Unit costing
Explanation - Process costing is suitable for continuous production processes, whereas unit costing is for distinct units of production.
Correct answer is: Process costing
Q.16 The main purpose of unit cost calculation is:
To control costs
To prepare financial statements
To calculate depreciation
To determine market share
Explanation - Unit costing helps management in cost control, pricing decisions, and efficient resource utilization.
Correct answer is: To control costs
Q.17 If total production cost rises but production quantity also rises proportionally, the unit cost will:
Increase
Decrease
Remain the same
Cannot be determined
Explanation - If both total cost and quantity increase proportionally, the unit cost remains unchanged.
Correct answer is: Remain the same
Q.18 Which of the following is a direct expense in unit costing?
Factory supervisor salary
Power for factory machinery
Special dyes used in a batch of garments
Factory rent
Explanation - Direct expenses are specifically attributable to a product, such as special dyes used in a particular batch.
Correct answer is: Special dyes used in a batch of garments
Q.19 Unit costing is most suitable when:
Products are heterogeneous
Products are standardized and identical
Production is one-off
Services are provided
Explanation - Unit costing works best for standardized products where the cost of each unit can be easily measured.
Correct answer is: Products are standardized and identical
Q.20 Which of the following best defines 'output costing'?
Costing for individual contracts
Costing per unit of production
Costing of processes
Costing for service industries only
Explanation - Output costing is another term for unit costing, where costs are determined per unit of production.
Correct answer is: Costing per unit of production
Q.21 If 1,000 units are produced with total production costs of $25,000 and 100 units are defective and scrapped, what is the revised unit cost for good units?
$25
$27.78
$22.50
$20
Explanation - Cost for good units = Total cost ÷ Good units = 25,000 ÷ 900 ≈ 27.78 per unit.
Correct answer is: $27.78
Q.22 Which of the following statements about unit costing is true?
It cannot be used for mass production
It is suitable for customized products
It helps in determining unit cost and controlling expenses
It ignores production overheads
Explanation - Unit costing is used to ascertain per unit cost and monitor production efficiency and expenses.
Correct answer is: It helps in determining unit cost and controlling expenses
Q.23 Which of the following is included in production overheads for unit costing?
Direct materials
Direct wages
Factory utilities
Commission to sales staff
Explanation - Factory utilities are indirect costs related to production and are included as overheads in unit costing.
Correct answer is: Factory utilities
Q.24 Unit cost helps in pricing decisions because:
It ignores overheads
It shows the profit margin per unit
It shows the cost of producing one unit
It only considers direct material costs
Explanation - Knowing the unit cost allows management to set selling prices that cover costs and achieve desired profit.
Correct answer is: It shows the cost of producing one unit
Q.25 Which of the following best describes 'controllable costs' in unit costing?
Costs that cannot be influenced
Costs that can be influenced by management decisions
Fixed overheads only
Salaries of top management only
Explanation - Controllable costs are those that can be regulated or influenced by managerial decisions during production.
Correct answer is: Costs that can be influenced by management decisions