Q.1 Which of the following is a fixed cost?
Direct materials
Factory rent
Direct labor
Sales commission
Explanation - Fixed costs remain constant regardless of production levels, such as factory rent.
Correct answer is: Factory rent
Q.2 Which cost varies directly with the level of production?
Fixed cost
Variable cost
Semi-variable cost
Sunk cost
Explanation - Variable costs change proportionally with the production volume, e.g., raw materials.
Correct answer is: Variable cost
Q.3 Electricity bill that has a fixed monthly charge plus a variable usage charge is an example of:
Fixed cost
Variable cost
Semi-variable cost
Opportunity cost
Explanation - Semi-variable costs have both fixed and variable components, like electricity with a base charge plus usage.
Correct answer is: Semi-variable cost
Q.4 Which of the following is NOT a direct cost?
Direct materials
Direct labor
Factory supervisor salary
Direct expenses
Explanation - Direct costs can be directly traced to a product; supervisor salary is an indirect cost.
Correct answer is: Factory supervisor salary
Q.5 Materials used in production that cannot be traced directly to a product are called:
Direct materials
Indirect materials
Direct labor
Overhead
Explanation - Indirect materials are part of factory overhead and are not directly assignable to a product.
Correct answer is: Indirect materials
Q.6 Which cost remains constant per unit but changes in total with production volume?
Fixed cost
Variable cost
Step cost
Marginal cost
Explanation - Fixed cost per unit decreases as production increases, though total fixed cost remains constant.
Correct answer is: Fixed cost
Q.7 Which of the following is a period cost?
Direct materials
Factory rent
Office salaries
Direct labor
Explanation - Period costs are not tied to production and are expensed in the period incurred, e.g., office salaries.
Correct answer is: Office salaries
Q.8 Which type of cost is relevant for decision making and varies with different alternatives?
Sunk cost
Opportunity cost
Differential cost
Fixed cost
Explanation - Differential (or incremental) costs are those that differ between alternatives and are important for decisions.
Correct answer is: Differential cost
Q.9 The cost of goods sold is primarily composed of:
Selling expenses
Direct materials, direct labor, and factory overhead
Administrative expenses
Distribution costs
Explanation - Cost of goods sold includes all production costs: direct materials, direct labor, and manufacturing overhead.
Correct answer is: Direct materials, direct labor, and factory overhead
Q.10 A cost that has already been incurred and cannot be recovered is called:
Sunk cost
Fixed cost
Variable cost
Opportunity cost
Explanation - Sunk costs are past costs that are irrelevant for future decisions.
Correct answer is: Sunk cost
Q.11 Which of the following costs is considered controllable by a manager in the short term?
Depreciation
Direct labor
Property taxes
Rent
Explanation - Direct labor can usually be controlled by a manager, unlike fixed costs like rent or taxes.
Correct answer is: Direct labor
Q.12 Cost that remains unchanged over a range of activity but increases in steps beyond that range is called:
Step cost
Variable cost
Fixed cost
Mixed cost
Explanation - Step costs remain constant over small activity ranges but jump to a higher level beyond certain points.
Correct answer is: Step cost
Q.13 Which of the following is an example of opportunity cost?
Salary paid to workers
Rent paid for a building
Profit foregone by using a machine for one product instead of another
Electricity bill
Explanation - Opportunity cost is the benefit lost when one alternative is chosen over another.
Correct answer is: Profit foregone by using a machine for one product instead of another
Q.14 Indirect labor costs are classified as:
Direct cost
Overhead
Variable cost
Period cost
Explanation - Indirect labor, such as supervisors' salaries, is part of manufacturing overhead.
Correct answer is: Overhead
Q.15 Which of the following costs change in total but remain constant per unit?
Variable cost
Fixed cost
Mixed cost
Step cost
Explanation - Variable costs change in total with production but the per-unit cost remains constant.
Correct answer is: Variable cost
Q.16 Costs that cannot be easily traced to a product are called:
Direct costs
Indirect costs
Prime costs
Marginal costs
Explanation - Indirect costs (overheads) cannot be directly assigned to a specific product.
Correct answer is: Indirect costs
Q.17 Which type of cost includes both fixed and variable elements?
Variable cost
Fixed cost
Semi-variable cost
Sunk cost
Explanation - Semi-variable costs (or mixed costs) contain a fixed portion and a variable portion.
Correct answer is: Semi-variable cost
Q.18 Direct expenses are usually:
Traceable to a product
Part of overhead
Period costs
Opportunity costs
Explanation - Direct expenses are costs that can be directly traced to a particular product or job.
Correct answer is: Traceable to a product
Q.19 Which cost is relevant for short-term decision making?
Sunk cost
Fixed cost
Relevant cost
Committed cost
Explanation - Relevant costs are future costs that differ between alternatives and are considered in decision-making.
Correct answer is: Relevant cost
Q.20 Which cost remains constant in total over a relevant range?
Fixed cost
Variable cost
Mixed cost
Step cost
Explanation - Total fixed costs remain unchanged over the relevant range of production.
Correct answer is: Fixed cost
Q.21 Which of the following is a controllable fixed cost?
Depreciation on machinery
Advertising expense
Insurance premium
Property taxes
Explanation - Some fixed costs like advertising can be adjusted by management, unlike taxes or depreciation.
Correct answer is: Advertising expense
Q.22 Which of the following is an example of a prime cost?
Direct materials and direct labor
Factory rent
Indirect labor
Administrative salaries
Explanation - Prime costs are the sum of direct materials and direct labor used in production.
Correct answer is: Direct materials and direct labor
Q.23 A cost that can be eliminated in the short term by not performing an activity is:
Uncontrollable cost
Relevant cost
Avoidable cost
Sunk cost
Explanation - Avoidable costs can be avoided if a particular activity or function is discontinued.
Correct answer is: Avoidable cost
Q.24 Which of the following costs is NOT affected by production levels?
Direct materials
Direct labor
Factory rent
Variable overhead
Explanation - Fixed costs like factory rent remain constant regardless of production levels.
Correct answer is: Factory rent
Q.25 Marginal cost is defined as:
Total cost divided by units produced
Cost of producing one additional unit
Total fixed cost
Total variable cost
Explanation - Marginal cost refers to the increase in total cost resulting from producing one more unit.
Correct answer is: Cost of producing one additional unit