CA Inter P4 · Chapter 7
Cost Accounting Systems MCQs with Answers
8 multiple-choice questions on Cost Accounting Systems for CA Inter P4 Cost and Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under a non-integrated (cost ledger) accounting system, the account in the cost ledger that records the double entry for items coming from the financial books is the:
- A) Costing Profit and Loss Account
- B) Cost Ledger Control Account (General Ledger Adjustment Account)
- C) Work-in-Progress Control Account
- D) Stores Ledger Control Account
Show answer & explanation
Answer: B) Cost Ledger Control Account (General Ledger Adjustment Account)
In non-integrated accounts the cost ledger is self-balancing through the Cost Ledger Control Account, also called the General Ledger Adjustment Account. Items such as purchases, wages paid and expenses, which originate in financial accounts, are debited to the relevant control accounts and credited to this account.
Question 2
Profit as per cost accounts is ₹4,20,000. The following differences are noted: (i) factory overheads over-absorbed in cost accounts ₹18,000; (ii) dividend received, recorded only in financial accounts ₹12,000; (iii) notional rent of own premises charged only in cost accounts ₹30,000; (iv) depreciation charged in financial accounts exceeds that in cost accounts by ₹25,000. Profit as per financial accounts is:
- A) ₹3,85,000
- B) ₹4,19,000
- C) ₹4,55,000
- D) ₹5,05,000
Show answer & explanation
Answer: C) ₹4,55,000
Start with cost profit ₹4,20,000. Over-absorbed overheads mean cost accounts charged more than actual, so add ₹18,000. Dividend is income only in financial accounts: add ₹12,000. Notional rent reduced cost profit only: add ₹30,000. Extra depreciation reduces financial profit: deduct ₹25,000. Financial profit = 4,20,000 + 18,000 + 12,000 + 30,000 - 25,000 = ₹4,55,000.
Question 3
If closing stock is valued at a higher figure in cost accounts than in financial accounts, then (other things being equal):
- A) Profit as per financial accounts will be higher than profit as per cost accounts
- B) Both profits will be the same because stock is a balance sheet item
- C) Only the opening stock of the next year will be affected, not current profit
- D) Profit as per cost accounts will be higher than profit as per financial accounts
Show answer & explanation
Answer: D) Profit as per cost accounts will be higher than profit as per financial accounts
Closing stock is credited in arriving at profit, so a higher closing stock value gives a higher profit. When cost accounts value closing stock higher, the cost profit exceeds the financial profit by the difference, which is an item in the reconciliation statement.
Question 4
Under an integrated accounting system, the journal entry for direct material issued to production is:
- A) Dr Work-in-Progress Control A/c; Cr Stores Ledger Control A/c
- B) Dr Stores Ledger Control A/c; Cr Work-in-Progress Control A/c
- C) Dr Factory Overhead Control A/c; Cr Stores Ledger Control A/c
- D) Dr Cost of Sales A/c; Cr Stores Ledger Control A/c
Show answer & explanation
Answer: A) Dr Work-in-Progress Control A/c; Cr Stores Ledger Control A/c
Direct material issued moves from stores into production, so Work-in-Progress Control is debited and Stores Ledger Control is credited. Indirect material issued would be debited to Factory Overhead Control instead.
Question 5
The entry to record factory overheads absorbed into production in the cost ledger is:
- A) Dr Factory Overhead Control A/c; Cr Work-in-Progress Control A/c
- B) Dr Finished Goods Control A/c; Cr Factory Overhead Control A/c
- C) Dr Work-in-Progress Control A/c; Cr Factory Overhead Control A/c
- D) Dr Factory Overhead Control A/c; Cr Cost Ledger Control A/c
Show answer & explanation
Answer: C) Dr Work-in-Progress Control A/c; Cr Factory Overhead Control A/c
Overheads actually incurred are debited to Factory Overhead Control. When they are absorbed into production at the predetermined rate, Work-in-Progress Control is debited and Factory Overhead Control credited. Any balance left on the overhead control account represents under- or over-absorption.
Question 6
Which of the following items appears only in the financial accounts and not in the cost accounts?
- A) Interest received on bank deposits
- B) Wages paid to production workers
- C) Power consumed by the factory
- D) Depreciation of factory machinery
Show answer & explanation
Answer: A) Interest received on bank deposits
Purely financial income such as interest received, dividends, and profit on sale of investments is recorded only in financial accounts because it does not relate to production. Wages, power and factory depreciation are costs recorded in both sets of accounts.
Question 7
Profit as per financial accounts is ₹2,85,000. Factory overheads were under-absorbed in cost accounts by ₹14,000, administration overheads were over-recovered in cost accounts by ₹6,000, and preliminary expenses of ₹10,000 were written off only in financial accounts. Profit as per cost accounts is:
- A) ₹2,67,000
- B) ₹3,15,000
- C) ₹3,03,000
- D) ₹2,75,000
Show answer & explanation
Answer: C) ₹3,03,000
Working from financial profit to cost profit: under-absorbed factory overheads mean cost accounts charged less, so cost profit is higher: add ₹14,000. Over-recovered administration overheads mean cost accounts charged more: deduct ₹6,000. Preliminary expenses reduced only financial profit: add ₹10,000. Cost profit = 2,85,000 + 14,000 - 6,000 + 10,000 = ₹3,03,000.
Question 8
A major advantage of an integrated accounting system over a non-integrated system is that:
- A) It does not require any control accounts
- B) Notional costs can be freely included in profit
- C) There is no need to reconcile cost and financial profits
- D) Costs need not be analysed by cost centre
Show answer & explanation
Answer: C) There is no need to reconcile cost and financial profits
In integrated accounts a single set of books serves both costing and financial purposes, so there is only one profit figure and no reconciliation is required. It still uses control accounts and cost analysis; notional costs are normally excluded so that the books remain consistent with financial reporting.