CIMA BA2 · Chapter 5
Job, batch and process costing MCQs with Answers
10 multiple-choice questions on Job, batch and process costing for CIMA BA2 Fundamentals of Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
For which of the following businesses would JOB costing be most appropriate?
- A) A refinery producing petrol continuously
- B) A brewery producing beer in large tanks
- C) A firm that designs and fits made-to-measure kitchens for individual householders
- D) A cement manufacturer
Show answer & explanation
Answer: C) A firm that designs and fits made-to-measure kitchens for individual householders
Job costing is used where work is carried out to individual customer specifications and each order is separately identifiable. A made-to-measure kitchen is a unique job. Refining, brewing and cement production involve continuous output of identical units, so process costing is suitable.
Question 2
A job requires direct materials of $2,300 and 40 direct labour hours paid at $18 per hour. Production overheads are absorbed at $25 per direct labour hour. Administration overheads are added at 15% of total production cost. The company prices jobs to give a profit of 25% of the SELLING PRICE. What is the price of the job?
- A) $6,164.00
- B) $5,778.75
- C) $5,360.00
- D) $5,628.00
Show answer & explanation
Answer: A) $6,164.00
Production cost = $2,300 + (40 x $18 = $720) + (40 x $25 = $1,000) = $4,020. Administration = 15% x $4,020 = $603, so total cost = $4,623. A 25% margin on selling price means cost is 75% of price: price = $4,623 / 0.75 = $6,164.
Question 3
A batch of 500 identical souvenir mugs incurred the following costs: materials $3,400, direct labour $1,250, machine set-up $350 and production overheads $1,500. What is the cost per mug?
- A) $13.00
- B) $12.30
- C) $9.30
- D) $6.80
Show answer & explanation
Answer: A) $13.00
Total batch cost = $3,400 + $1,250 + $350 + $1,500 = $6,500. Cost per unit = $6,500 / 500 = $13.00. The set-up cost is a cost of the batch and must be included before dividing by the number of units.
Question 4
A process was charged with 10,000 kg of material costing $46,000 and conversion costs of $18,000. Normal loss is 8% of input and can be sold as scrap for $2 per kg. Actual output was 9,100 kg. What is the cost per kg of expected output, to the nearest cent?
- A) $6.96
- B) $6.86
- C) $6.78
- D) $6.40
Show answer & explanation
Answer: C) $6.78
Expected output = 10,000 x 92% = 9,200 kg. Normal loss = 800 kg with scrap value 800 x $2 = $1,600. Cost per kg = ($46,000 + $18,000 - $1,600) / 9,200 = $62,400 / 9,200 = $6.7826, which is $6.78 to the nearest cent. Actual output is not used in calculating the rate; the 100 kg shortfall is an abnormal loss valued at this rate.
Question 5
Input to a process was 5,000 litres at a total cost of $27,000. Normal loss is 10% of input and is sold as scrap for $1.50 per litre. Actual output transferred to finished goods was 4,620 litres. What is the value of the output transferred to finished goods?
- A) $24,948
- B) $27,720
- C) $26,250
- D) $26,950
Show answer & explanation
Answer: D) $26,950
Expected output = 5,000 x 90% = 4,500 litres. Cost per litre of expected output = ($27,000 - 500 x $1.50) / 4,500 = $26,250 / 4,500 = $5.8333. Actual output of 4,620 litres exceeds expected output, giving an abnormal gain of 120 litres. Good output is valued at 4,620 x $5.8333 = $26,950.
Question 6
Input to a process was 5,000 litres at a total cost of $27,000. Normal loss is 10% of input and is sold as scrap for $1.50 per litre. Actual output transferred to finished goods was 4,620 litres. What is the NET effect of the abnormal gain on the profit for the period?
- A) $520 increase
- B) $700 increase
- C) $180 decrease
- D) $880 increase
Show answer & explanation
Answer: A) $520 increase
Expected output = 5,000 x 90% = 4,500 litres, so there is an abnormal gain of 4,620 - 4,500 = 120 litres. Cost per litre of expected output = ($27,000 - 500 x $1.50) / 4,500 = $26,250 / 4,500 = $5.8333. The abnormal gain is valued at 120 x $5.8333 = $700 (credited to the abnormal gain account). However, because 120 litres less were actually lost, scrap income falls by 120 x $1.50 = $180. Net effect on profit = $700 - $180 = $520 increase.
Question 7
A process has no opening work in progress. During the period 9,000 units were started, of which 7,400 were completed. The 1,600 units in closing work in progress were complete as to materials and 35% complete as to conversion costs. How many equivalent units of CONVERSION costs were produced?
- A) 7,960
- B) 9,000
- C) 7,400
- D) 8,440
Show answer & explanation
Answer: A) 7,960
Completed units are 100% complete for conversion: 7,400 equivalent units. Closing WIP = 1,600 x 35% = 560 equivalent units. Total = 7,400 + 560 = 7,960 equivalent units.
Question 8
A process has no opening work in progress. During the period 9,000 units were started, of which 7,400 were completed. The 1,600 units in closing work in progress were 100% complete as to materials and 35% complete as to conversion costs. Material costs were $72,000 and conversion costs were $55,720. What is the value of the closing work in progress?
- A) $24,000
- B) $16,720
- C) $8,400
- D) $12,800
Show answer & explanation
Answer: B) $16,720
Equivalent units: materials = 7,400 + 1,600 = 9,000; conversion = 7,400 + (1,600 x 35%) = 7,400 + 560 = 7,960. Materials: $72,000 / 9,000 = $8.00 per unit. Conversion: $55,720 / 7,960 = $7.00 per unit. Closing WIP = (1,600 x $8.00) + (560 x $7.00) = $12,800 + $3,920 = $16,720.
Question 9
Which of the following features distinguishes PROCESS costing from job costing?
- A) Each order is costed separately according to customer specification
- B) Production overheads are never included in product costs
- C) Costs are averaged over large numbers of identical units produced in a continuous flow
- D) It can only be used by service organisations
Show answer & explanation
Answer: C) Costs are averaged over large numbers of identical units produced in a continuous flow
Process costing applies where output consists of a continuous flow of homogeneous units, so costs are accumulated by process and averaged over the units produced. Separately identifiable customer orders are a feature of job costing.
Question 10
In a process account, how are normal losses and abnormal losses valued?
- A) Normal loss at its scrap value (if any); abnormal loss at the same cost per unit as good output
- B) Both at the full cost per unit of good output
- C) Normal loss at full cost per unit; abnormal loss at its scrap value
- D) Both at zero, as losses are not recorded in the process account
Show answer & explanation
Answer: A) Normal loss at its scrap value (if any); abnormal loss at the same cost per unit as good output
Normal loss is expected and its cost is absorbed by good output, so it is credited to the process account only at its scrap value. Abnormal loss is unexpected and is valued at the full cost per unit of expected output, so that it does not distort the cost of good units and is highlighted for management attention.