CAF-5 · Chapter 6
Job and Service Costing MCQs with Answers
10 multiple-choice questions on Job and Service Costing for CAF-5 Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following situations is the most appropriate for applying "Job Costing"?
- A) A company producing identical units of sugar continuously through a standardized chemical process.
- B) A business entity carrying out separate tasks or contracts to meet specific customer orders and requirements.
- C) A company producing joint products and by-products from a single raw material input.
- D) A factory mass-producing thousands of identical plastic bottles for inventory.
Show answer & explanation
Answer: B) A business entity carrying out separate tasks or contracts to meet specific customer orders and requirements.
According to the text, job costing is a basic cost accounting method applicable where work consists of separate contracts, jobs, or batches, and where each job is carried out to the customer's specific instructions or requirements.
Question 2
How should the cost of "rectification work" (correcting sub-standard work) be treated in a job costing system if the occurrence is frequent and considered a normal part of the manufacturing process?
- A) It should be charged directly to the specific job as a direct expense.
- B) It should be charged entirely to the administrative overheads.
- C) It should be treated as a general production overhead.
- D) It should be deducted from the sales revenue of the specific job.
Show answer & explanation
Answer: C) It should be treated as a general production overhead.
The text states that rectification work is treated as a production overhead if it is regarded as a normal part of the work and is of a recurring nature. It is only charged as a direct cost if it is infrequent and directly attributable to a specific job.
Question 3
What is the primary purpose of a "Job Order Cost Sheet" (or Job Cost Card)?
- A) To act as a purchase requisition for buying raw materials for the factory.
- B) To record the daily attendance and standard wage rate of all factory workers.
- C) To record all manufacturing costs (direct and indirect) and absorbed non-manufacturing costs for a specific job.
- D) To strictly record only the prime costs associated with a customer's order.
Show answer & explanation
Answer: C) To record all manufacturing costs (direct and indirect) and absorbed non-manufacturing costs for a specific job.
A job order cost sheet or card is a form prepared for a job that records all manufacturing costs (both direct and indirect) and also non-manufacturing costs absorbed to that specific job.
Question 4
In a job costing system, what is the correct double entry to record the issuance of direct materials from the store to a specific job (e.g., Job 123)?
- A) Debit: Materials Control / Credit: Work in Process - Job 123
- B) Debit: Production Overhead Control / Credit: Materials Control
- C) Debit: Cost of Sales / Credit: Materials Control
- D) Debit: Work in Process - Job 123 / Credit: Materials Control
Show answer & explanation
Answer: D) Debit: Work in Process - Job 123 / Credit: Materials Control
When direct materials are issued to a specific job, their cost becomes part of the active production for that job. Therefore, the WIP account for the specific job is debited, and the Materials Control account is credited.
Question 5
If materials are issued from the store to be used as general maintenance supplies on the factory floor (indirect materials) rather than for a specific job, what is the correct journal entry?
- A) Debit: Production Overhead Control / Credit: Materials Control
- B) Debit: Work in Process - Job 123 / Credit: Materials Control
- C) Debit: Materials Control / Credit: Accounts Payable
- D) Debit: Administrative Overheads / Credit: Materials Control
Show answer & explanation
Answer: A) Debit: Production Overhead Control / Credit: Materials Control
Indirect materials cannot be traced to a specific job. Therefore, when they are issued, they are debited to the Production Overhead Control account instead of the WIP account.
Question 6
When production overheads are absorbed into the cost of a specific job based on a predetermined rate, which account is credited?
- A) Finished Goods Control Account
- B) Work in Process Control Account
- C) Production Overhead Control Account
- D) General Ledger Adjustment Account
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Answer: C) Production Overhead Control Account
To absorb overheads into a job, the entry transfers the cost out of the overhead pool and into production. The correct entry is Debit: Work in process (Job XYZ) and Credit: Production overhead control.
Question 7
A specific job (Job 453) incurs direct materials of Rs. 10,000, direct labour of Rs. 6,000, and direct expenses of Rs. 4,000. Production overheads are charged at 150% of direct labour cost. What is the total production cost of the job?
- A) Rs. 20,000
- B) Rs. 29,000
- C) Rs. 26,000
- D) Rs. 35,000
Show answer & explanation
Answer: B) Rs. 29,000
Prime Cost = Direct Materials (10,000) + Direct Labour (6,000) + Direct Expenses (4,000) = Rs. 20,000. Absorbed Overheads = 150% of Direct Labour (6,000) = Rs. 9,000. Total Production Cost = Prime Cost (20,000) + Absorbed Overheads (9,000) = Rs. 29,000.
Question 8
When a job is completed and the goods are transferred to the finished goods warehouse awaiting the customer's disposition, what is the correct journal entry?
- A) Debit: Cost of Sales / Credit: Work in Process
- B) Debit: Accounts Receivable / Credit: Sales
- C) Debit: Finished Goods / Credit: Work in Process
- D) Debit: Work in Process / Credit: Finished Goods
Show answer & explanation
Answer: C) Debit: Finished Goods / Credit: Work in Process
When a job is completed and sent to the finished goods store before delivery, the cost is transferred out of the production account into inventory. The entry is to Debit: Finished Goods and Credit: Work in process.
Question 9
Which of the following is a specific defining characteristic of "Service Costing" compared to traditional product costing?
- A) The cost of direct materials consumed is usually the largest component of total cost.
- B) The output is tangible and can be easily stored for future sale.
- C) The output is often intangible, and services are characterized by simultaneity, perishability, and heterogeneity.
- D) Service costing strictly relies on standard costing variances for billing customers.
Show answer & explanation
Answer: C) The output is often intangible, and services are characterized by simultaneity, perishability, and heterogeneity.
The study text explicitly notes that service organizations do not make or sell tangible goods, and specific characteristics of services include intangibility, simultaneity, perishability, and heterogeneity. Furthermore, direct materials are usually a relatively small component of the cost.
Question 10
A hotel operates 80 standard twin-bedded rooms and is fully occupied for 350 days a year. The total running costs for the year are Rs. 3,360,000. Which of the following would be the most appropriate and useful composite cost unit for this service business?
- A) Cost per guest
- B) Cost per meal served
- C) Cost per room/day
- D) Cost per square foot of hotel space
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Answer: C) Cost per room/day
In service costing, finding a logical unit cost is challenging. For a hotel, the text provides the example that the most useful composite measure of the cost of providing the service is the "cost per room/day".