CAF-5 · Chapter 4
Labour Costing MCQs with Answers
10 multiple-choice questions on Labour Costing for CAF-5 Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
How is "indirect labour" defined and classified in cost accounting?
- A) Labour that can be readily charged to a specific cost unit and is part of prime cost.
- B) Labour that cannot be readily charged to a specific cost unit and is treated as part of factory overheads.
- C) Administrative staff salaries that are charged directly to the cost of goods sold.
- D) Overtime premium paid to direct workers specifically requested by a customer.
Show answer & explanation
Answer: B) Labour that cannot be readily charged to a specific cost unit and is treated as part of factory overheads.
The study text defines indirect labour as cost that cannot be readily charged to or recognized with any cost unit or specific job. Therefore, it is treated as part of the factory (production) overheads.
Question 2
A worker takes 30 minutes to produce one unit of a product. In an 8-hour shift, the worker produces 20 units. What is the worker's labour efficiency ratio?
- A) 80%
- B) 125%
- C) 120%
- D) 110.5%
Show answer & explanation
Answer: B) 125%
Labour Efficiency = (Standard hours / Actual hours) × 100. Time Allowed (Standard hours) = 30 minutes / 60 minutes × 20 units = 10 hours. Actual hours taken = 8 hours. Efficiency = (10 hours / 8 hours) × 100 = 125%.
Question 3
Which of the following best distinguishes "Labour Productivity" from "Labour Efficiency"?
- A) Productivity focuses on minimizing waste, while efficiency focuses on maximizing sales.
- B) Productivity emphasizes the utilization of labour hours, while efficiency emphasizes the volume of output.
- C) Productivity focuses on the quantity or volume of output produced, while efficiency focuses on the utilization of resources within a given time frame.
- D) There is no difference; the two terms are entirely interchangeable in cost accounting.
Show answer & explanation
Answer: C) Productivity focuses on the quantity or volume of output produced, while efficiency focuses on the utilization of resources within a given time frame.
According to the detailed differentiation in the text, productivity emphasizes the quantity/volume of output produced in relation to labour input, whereas efficiency measures how effectively/efficiently workers utilize time to generate a given quantity.
Question 4
Under a "High day-rate system" of wage incentives, how is the employee rewarded?
- A) The employee receives a fixed percentage of the company's monthly profit.
- B) The target to qualify for a bonus is set in terms of units, but the bonus is awarded as a higher hourly time rate.
- C) The employee is paid strictly on a piece-rate basis with no guaranteed minimum wage.
- D) The employee receives a bonus equivalent to 50% of the time saved on a job.
Show answer & explanation
Answer: B) The target to qualify for a bonus is set in terms of units, but the bonus is awarded as a higher hourly time rate.
Under a high day-rate system, employees get paid at a higher than average hourly rate provided they produce a given amount. The target is set in units, whereas the reward (bonus) is given in terms of an increased time rate.
Question 5
A factory standard assumes a worker will produce 20 units per hour. The standard wage rate is Rs. 30 per hour. During an 8-hour shift, a worker produces 180 units. If the company operates a premium bonus plan where the worker receives 50% of the time saved, what are the total earnings of the worker for that day?
- A) Rs. 240
- B) Rs. 270
- C) Rs. 255
- D) Rs. 300
Show answer & explanation
Answer: C) Rs. 255
Standard units for 8 hours = 8 × 20 = 160 units. Actual units produced = 180 units. Extra units = 180 - 160 = 20 units. Time saved = 20 units / 20 units per hour = 1 hour saved. Basic Pay = 8 hours × Rs. 30 = Rs. 240. Bonus = 50% × 1 hour saved × Rs. 30 = Rs. 15. Total Earnings = 240 + 15 = Rs. 255.
Question 6
Under Variant 2 of the Guaranteed Minimum Wage plan, an employee receives a basic guaranteed wage for standard output, plus:
- A) A variable piece-rate for all units produced during the period.
- B) A variable piece-rate strictly for the extra units produced above the standard output.
- C) An overtime premium for working unsocial hours.
- D) A high day-rate applied to all hours worked in the week.
Show answer & explanation
Answer: B) A variable piece-rate strictly for the extra units produced above the standard output.
Under Variant 2 of the Guaranteed Minimum Wage scheme, the employee gets a guaranteed minimum basic wage for standard output and earns an additional piece-rate amount strictly for the extra units produced above the threshold.
Question 7
According to the Learning Curve theory, what happens when the cumulative output or production doubles?
- A) The total time required to produce the batch is reduced by exactly half.
- B) The cumulative average time per unit is reduced by a constant percentage.
- C) The incremental time required for the next unit increases at a constant percentage.
- D) The variable overhead cost per unit is reduced to zero.
Show answer & explanation
Answer: B) The cumulative average time per unit is reduced by a constant percentage.
The core assumption of the learning curve theory is that every time cumulative output doubles, the cumulative average time per unit falls to a constant percentage of the previous cumulative average time.
Question 8
If the first unit of output requires 100 hours to manufacture and an 80% learning curve effect applies, what is the total time required to produce the first 4 units?
- A) 320 hours
- B) 256 hours
- C) 64 hours
- D) 80 hours
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Answer: B) 256 hours
1 unit = 100 hours cumulative average time. 2 units = 100 × 80% = 80 hours cumulative average time. 4 units (doubling again) = 80 × 80% = 64 hours cumulative average time. Total time for 4 units = 4 units × 64 hours = 256 hours.
Question 9
In the learning curve formula Y=ax^b, what does the variable "x" represent?
- A) The learning curve factor (or index)
- B) The cumulative average time per unit
- C) The time taken for the first unit of output
- D) The cumulative number of units produced
Show answer & explanation
Answer: D) The cumulative number of units produced
In the algebraic formula Y=ax^b , 'Y' is cumulative average time, 'a' is time for the first unit, 'b' is the learning curve index, and 'x' is the cumulative number of units produced.
Question 10
When an entity operates an integrated accounting system, what is the correct journal entry to allocate direct labour costs to the production process?
- A) Debit: Salaries & Wages Control / Credit: Work in Process Control
- B) Debit: Production Overhead Control / Credit: Salaries & Wages Control
- C) Debit: Work in Process Control / Credit: Salaries & Wages Control
- D) Debit: Cash / Credit: Accrued Salaries & Wages
Show answer & explanation
Answer: C) Debit: Work in Process Control / Credit: Salaries & Wages Control
When transferring direct labour costs to production, the cost is charged to Work in Progress. The journal entry is to Debit the Work in Process Control account and Credit the Salaries & Wages Control account.