CA Inter P4 · Chapter 9
Process and Operation Costing MCQs with Answers
11 multiple-choice questions on Process and Operation Costing for CA Inter P4 Cost and Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
In Process I, 10,000 kg of material was introduced at ₹24 per kg and conversion costs were ₹1,32,000. Normal loss is 8% of input and has a scrap value of ₹5 per kg. Actual output was 9,000 kg. The value of abnormal loss is:
- A) ₹7,440
- B) ₹1,000
- C) ₹7,000
- D) ₹8,000
Show answer & explanation
Answer: D) ₹8,000
Total cost = ₹2,40,000 + ₹1,32,000 = ₹3,72,000. Normal loss = 8% x 10,000 = 800 kg, scrap value ₹4,000. Normal output = 9,200 kg. Cost per kg = (₹3,72,000 - ₹4,000) / 9,200 = ₹40. Abnormal loss = 9,200 - 9,000 = 200 kg, valued at 200 x ₹40 = ₹8,000.
Question 2
A process was charged with 6,000 units at a total cost of ₹3,07,200. Normal loss is 10% of input, saleable as scrap at ₹8 per unit. Actual output transferred was 5,500 units. The value of abnormal gain is:
- A) ₹5,120
- B) ₹4,800
- C) ₹800
- D) ₹5,600
Show answer & explanation
Answer: D) ₹5,600
Normal loss = 10% x 6,000 = 600 units with scrap value ₹4,800. Normal output = 5,400 units. Cost per unit = (₹3,07,200 - ₹4,800) / 5,400 = ₹56. Actual output 5,500 exceeds normal output by 100 units, so abnormal gain = 100 x ₹56 = ₹5,600.
Question 3
Continuing the same process (abnormal gain of 100 units valued at ₹56 per unit; scrap value of normal loss ₹8 per unit), the net amount credited to the Costing Profit and Loss Account from the Abnormal Gain Account is:
- A) ₹5,600
- B) ₹4,800
- C) ₹6,400
- D) ₹800
Show answer & explanation
Answer: B) ₹4,800
The Abnormal Gain Account is credited with ₹5,600 transferred from the process. Because 100 fewer units were lost than expected, scrap sales are lower by 100 x ₹8 = ₹800, which is debited to the Abnormal Gain Account. The net gain transferred to the Costing Profit and Loss Account = ₹5,600 - ₹800 = ₹4,800.
Question 4
Opening work-in-progress was 2,000 units, 60% complete as to conversion. During the period 18,000 units were introduced and 16,000 units were completed and transferred. Closing work-in-progress was 4,000 units, 50% complete as to conversion. There were no losses. Equivalent units for conversion cost under the FIFO method are:
- A) 18,000 units
- B) 17,200 units
- C) 16,800 units
- D) 16,000 units
Show answer & explanation
Answer: C) 16,800 units
Under FIFO only work done in the current period is counted. Completing opening WIP: 2,000 x 40% = 800. Started and completed: 16,000 - 2,000 = 14,000. Closing WIP: 4,000 x 50% = 2,000. Equivalent units = 800 + 14,000 + 2,000 = 16,800.
Question 5
Using the same data (opening WIP 2,000 units 60% converted, 16,000 units completed, closing WIP 4,000 units 50% converted), equivalent units for conversion cost under the weighted average method are:
- A) 18,000 units
- B) 16,800 units
- C) 20,000 units
- D) 17,200 units
Show answer & explanation
Answer: A) 18,000 units
Under the weighted average method, opening WIP is merged with current work, so all completed units count in full. Equivalent units = units completed 16,000 + closing WIP 4,000 x 50% = 16,000 + 2,000 = 18,000.
Question 6
Under the FIFO method, equivalent units for conversion in the current period are 16,800 and conversion costs incurred in the current period are ₹5,04,000. The cost per equivalent unit for conversion is:
- A) ₹30.00
- B) ₹28.00
- C) ₹31.50
- D) ₹25.20
Show answer & explanation
Answer: A) ₹30.00
Under FIFO, the current period cost is divided by the current period equivalent units: ₹5,04,000 / 16,800 = ₹30 per equivalent unit. The cost of opening WIP brought forward is kept separate and is not included in this rate.
Question 7
The main purpose of transferring output from one process to the next at a price that includes profit (inter-process profit) is to:
- A) Increase the total profit of the business
- B) Show whether each process can supply output at a price competitive with the market
- C) Eliminate the need for valuing closing stock
- D) Avoid normal and abnormal loss calculations
Show answer & explanation
Answer: B) Show whether each process can supply output at a price competitive with the market
Transfer at market-based prices lets management judge whether each process is efficient compared with buying from outside, and makes each process a profit centre. It does not change total profit; unrealised profit included in closing stocks must be eliminated through a stock reserve.
Question 8
Operation costing is best described as:
- A) A method of costing used only for service undertakings
- B) A refinement of process costing in which the cost of each operation is ascertained separately
- C) A technique of apportioning joint costs to joint products
- D) A form of contract costing applied to large projects
Show answer & explanation
Answer: B) A refinement of process costing in which the cost of each operation is ascertained separately
Operation costing ascertains the cost of each operation within a process, which is useful where products pass through a series of distinct operations (for example in engineering or toy manufacture). It is a more detailed form of process costing.
Question 9
In process costing, units of abnormal loss are valued at:
- A) Their scrap value only
- B) Zero, as they produce no output
- C) The cost of raw material only
- D) The same cost per unit as good output, computed after adjusting for normal loss
Show answer & explanation
Answer: D) The same cost per unit as good output, computed after adjusting for normal loss
Abnormal loss is avoidable, so it is charged with the full cost per unit that good units bear (cost net of normal loss scrap divided by normal output). This prevents abnormal inefficiency from inflating the cost of good output. The value is then credited to the process and transferred to the Abnormal Loss Account.
Question 10
The cost of normal process loss is borne by:
- A) The Costing Profit and Loss Account
- B) The good units produced
- C) The Abnormal Loss Account
- D) Selling and distribution overheads
Show answer & explanation
Answer: B) The good units produced
Normal loss is an unavoidable feature of the process, so no cost is assigned to it (apart from crediting its scrap value). The cost is spread over the good output, increasing the cost per good unit.
Question 11
Opening WIP of 1,000 units (100% material, 50% conversion) had costs of material ₹30,000 and conversion ₹15,000. During the month 9,000 units were introduced; current costs were material ₹2,70,000 and conversion ₹3,25,400. 8,000 units were completed and 2,000 units remained in closing WIP (100% material, 60% conversion). Using the weighted average method, the value of closing WIP is:
- A) ₹1,04,882.76
- B) ₹1,04,400.00
- C) ₹1,34,000.00
- D) ₹97,000.00
Show answer & explanation
Answer: B) ₹1,04,400.00
Material: equivalent units = 8,000 + 2,000 = 10,000; cost = ₹30,000 + ₹2,70,000 = ₹3,00,000; rate = ₹30. Conversion: equivalent units = 8,000 + 2,000 x 60% = 9,200; cost = ₹15,000 + ₹3,25,400 = ₹3,40,400; rate = ₹37. Closing WIP = 2,000 x ₹30 + 1,200 x ₹37 = ₹60,000 + ₹44,400 = ₹1,04,400.