Strategic Cost Management MCQ

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Find below MCQ on Strategic Cost Management

1. Which of the following is not a term normally used in value analysis?
(A) Resale value
(B) Use value
(C) Esteem value
(D) Cost value

2.Which of the following is not suitable for a JIT production system?
(A) Batch production
(B) Jobbing production
(C) Process production
(D) Service production

3.Which of the following is NOT a method of transfer pricing?
(A) Cost plus transfer price
(B) Internal price transfer price
(C) Market-based transfer price
(D) Two part transfer price

4.When is market skimming pricing appropriate?
(A) If demand is very elastic
(B) If the product is new and different
(C) If there is little chance of achieving economies of scale
(D) If demand is inelastic
(E) If there is little competition and high barriers to entry

5 – Which of the following is a recognised method of arriving at the selling price for the products of a business?
(A) Life cycle pricing (B) Price skimming (C) Penetration pricing (D) Target costing
(A) (A) and (B) only
(B) (A), (B) and (C) only
(C) (B) and (C) only
(D) (A), (C) and (D) only
(E) (A), (B), (C) and (D)

6 – A company has estimated the selling prices and variable costs of one of its products as follows:
Selling Price Per Unit Variable Cost Per Unit

Probability Probability
Table 1

The company will be able to supply 1,000 units of its product each week irrespective of the selling price. Selling price and variable cost per unit are independent of each other. The probability that the weekly contribution will exceed ₹20,000 is % (round to the nearest whole %)
(A) 40%
(B) 42%
(C) 45%
(D) 55%

7 – An organisation is considering the costs to be incurred in respect of a special order opportunity. The order would require 1,250 kgs of material D. This is a material that is readily available and regularly used by the organisation on its normal products. There are 265 kgs of material D in stock which cost ₹795 last week. The current market price is ₹3.24 per kg. Material D is normally used to make product X. Each unit of X requires 3 kgs of material D, and if material D is casted at ₹3 per kg, each unit of X yields a contribution of ₹15. The relevant cost of material D to be included in the costing of the special order is nearest to:
(A) ₹3,990
(B) ₹4,050
(C) ₹10,000
(D) ₹10,300

8 – P operates an activity based costing (ABC) system to attribute its overhead costs to cost objects.
In its budget for the year ending 31August 2017, the company expected to place a total of 2,895 purchase orders at a total cost of ₹1,10,010. This activity and its related costs were budgeted to occur at a constant rate throughout the budget year, which is divided into 13 four-week periods. During the four-week period ended 30 June 2016, a total of 210 purchase orders were placed at a cost of ₹7,650.
The over-recovery of these costs for the four-week period was:
(A) ₹330
(B) ₹350
(C) ₹370
(D) ₹390

9 – Company B uses a throughput accounting system. The details of product X per unit are as follows:

Selling Price 50
Material Cost 16
Conversion Costs 20
Time on bottle neck resource 8 minutes
The return per hour for product X is:
(A) ₹105
(B) ₹225
(C) ₹255
(D) ₹375

10 – Stock Control data for Material P are:
Annual usage: 3600 units; Cost per unit: ₹100; Cost of placing an order: ₹40; Stockholding Cost: 20% of the overall stock volume; Lead time: One month
The EOQ based on the above data is:
(A) 210 units
(B) 175 units
(C) 90 units
(D) 120 units

11 – Which of the following would take place if a company is able to reduce its variable cost?
Contribution Margin Break-Even Point
(A) Increase Increase
(B) Decrease Decrease
(C) Increase Decrease
(D) Decrease Increase

12 – The following details relate to Product P-1 of a manufacturing company
Level of Activity (units) 1000 2000
Cost per unit (₹) Direct Materials
Direct Labour 3600 7200
Production Overheads 3240 12960
Selling Overheads 2916 23328
The total fixed cost and variable cost per unit are:
Total Fixed Cost (₹) Variable Cost per Unit (₹)
(A) 2,000 7.00
(B) 2,000 8.50
(C) 3,000 7.00
(D) 3,000 8.50

13 – A company makes a single product which it sells at ₹10 per unit. Fixed costs are ₹48,000 per month and the product has a contribution to sales ratio of 40%. In a period when actual sales were ₹1,40,000, the company’s margin of safety in units was:
(A) 2000
(B) 3000
(C) 3500
(D) 4000

14 – The following tasks are associated with ABC system:
I. Allocation of costs to products
II. Identification of cost pools
III. Identification of cost drivers
IV. Calculation of pool rates
The proper order of the preceding tasks is:
(A) III, II, IV, I
(B) I, II, III, IV
(C) III, IV, II, I
(D) IV, III, II, I

15 – A company has the capacity of production of 80000 units and presently it sells 20000 units at ₹100 each. The demand is sensitive to selling price and it has been observed that every reduction of ₹10 in selling price the demand is doubled. What should be the target cost at full capacity it profit margin on sales is taken at 25%?
(A) ₹58 lakhs
(B) ₹52 lakhs
(C) ₹48 lakhs
(D) ₹50 lakhs

16 – The information relating to the direct material cost of a company is as follows: Standard price per unit ₹7.20
Actual quantity purchased in units 1600
Standard quantity allowed for actual production in units 1450 Material price variance on purchase (Favourable) ₹480 What is the actual purchase price per unit?
(A) ₹7.50
(B) ₹6.40
(C) ₹6.50
(D) ₹6.90

17 – Backflush costing is most likely to be used when:
(A) Management desires sequential tracking of costs
(B) A Just-in-Time inventory philosophy has been adopted
(C) The company carries significant amount of inventory
(D) Actual production costs are debited to work-in-progress

18 – The preparation and use of standard cost, their comparison with actual costs and the measurement and analysis of variances to originating causes is defined as:
(A) Marginal Costing
(B) Standard Costing
(C) Throughput Costing
(D) Kaizen Costing

19 – The following are cost data for two alternative ways of processing the clerical work for legal cases brought before the district court:
Semi-Automatic Fully Automatic
Monthly Fixed Costs (₹)
Occupancy 15,000 15,000
Maintenance Contract 5,000 10,000
Equipment Lease 25,000 1,00,000
Unit Variable Cost (per Report) (₹)
Supplies 80 20
Labour 60 20
The cost indifference point will be:
(A) 800 cases
(B) 850 cases
(C) 750 cases
(D) 700 cases

20 – The following figures are extracted from the books of a company: Budgeted O/H ₹10,000 (Fixed ₹6,000, Variable ₹4,000)
Budgeted Hours 2000
Actual O/H ₹10,400 (Fixed ₹6,100, Variable ₹4,300) Actual Hours 2100
Variable O/H cost variance and Fixed O/H cost variance will be:
(A) 100 (A) and 200 (A)
(B) 100 (F) and 200 (F)
(C) 100 (A) and 200 (F)
(D) 200 (A) and 100 (F)

21 – A company produces a product which is sold at a price of ₹80. Its Variable cost is ₹32. The company’s Fixed cost is ₹11,52,000 p.a. The company operates at a margin of safety of 40%. The total sales of the company is:
(A) 4,000 units
(B) 40,000 units
(C) 30,000 units
(D) 20,000 units

22 – The P/V ratio of a firm dealing in Electrical equipment is 50% and the margin of safety is 40%. BEP of the firm at a sales volume of ₹50,00,000 will be
(A) ₹25,00,000
(B) ₹35,00,000
(C) ₹30,00,000
(D) ₹36,00,000

23 – ABC Limited has current PBIT of ₹19.20 lakhs on total assets of ₹96 lakhs. The company has decided to increase assets by ₹24 lakhs, which is expected to increase the operating profit before depreciation by ₹8.40 lakhs. There will be a net increase in depreciation by ₹4.80 lakhs. This will result in ROI
(A) to increase by 1%
(B) to decrease by 1%
(C) to decrease by 1.5%
(D) to remain the same

24 – For a Learning Curve percentage of 72%, the time to be taken to complete the 4th unit of a 12-unit job involved in the assembly line, if the initial unit requires 80 hours, will be
(A) 43.50 hrs
(B) 41.47 hrs
(C) 46.71 hrs
(D) 40.95 hrs

25 – Marketing department of an organisation estimates that 40,000 of new mixers could be sold annually at a price of ₹60 each. To design, develop and produce these new mixers an investment of ₹40,00,000 would be required. The company desires a 15% return on investment (ROI). Given these data, the target cost to manufacture, sell, distribute and service one mixer will be
(A) ₹37.50
(B) ₹40.00
(C) ₹45.00
(D) ₹48.60

26 – you wait until the manufacture of a product has been completed and then record all of the related issuances of inventory from stock that were required to create the product, it is called
(A) Forensic Accounting
(B) Back-flush Accounting
(C) Tax Accounting
(D) Lean Accounting

27 – Match the following:
(A) Dr. Deming believes (1) Common Causes
(B) Ishikawa Development (2) To prevent defect
(C) Type of variation is due to (3) Cause & Effect diagram
(D) Crosby’s Objective of quality (4) Histogram
The correct order is (A) A-3, B-2, C-1, D-4
(B) A-2, B-3, C-4, D-1
(C) A-2, B-3, C-1, D-4
(D) A-4, B-3, C-1, D-2

28 – A company uses traditional standard costing system. The inspection and set-up costs are actually ₹1,760 against a budget of ₹2,000. ABC system is being implemented and accordingly the number of batches is identified as the cost driver for inspection and set up. The budgeted production is 10,000 units in batches of 1,000 units whereas actually 9,000 units were produced in 11 batches. The cost per batch under ABC system will be
(A) ₹160
(B) ₹200
(C) ₹180
(D) ₹220

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