COST ACCOUNTING

Complete Notes + MCQ & Statement-Based Practice Questions

Prepared for JKSSB Finance Accounts Assistant (FAA) Exam

Note: A verified, verbatim archive of JKSSB FAA's past exam papers could not be confirmed from available sources at the time of writing. The MCQs and statement-based questions in this document are original practice questions built to match the JKSSB FAA syllabus, question style, and difficulty level (as described in coaching/exam-guide sources), not exact reproductions of official past papers. Use them for concept practice and revision alongside official JKSSB previous-year papers where available.

Part A: Cost Accounting — Core Notes

1. Meaning, Objectives & Scope of Cost Accounting

Cost Accounting is the process of accounting for costs, from the point at which expenditure is incurred to the establishment of its ultimate relationship with cost centres and cost units. It classifies, records, and appropriately allocates expenditure for determining the cost of products or services, and for the presentation of suitably arranged data for control and guidance of management.

Objectives: ascertainment of cost, control of cost, guidance for pricing, determination of profit, providing basis for managerial decisions.
Cost Centre: a location, person, or item of equipment for which costs may be ascertained (e.g., a department, machine, or process).
Cost Unit: a unit of product, service, or time in relation to which cost may be ascertained (e.g., per tonne, per kilometre, per unit).

2. Cost Accounting vs Financial Accounting vs Management Accounting

Financial Accounting: records historical transactions for external reporting (P&L, Balance Sheet); statutory and periodic.
Cost Accounting: focuses on cost ascertainment and control at a granular level (product/process/department); primarily internal use.
Management Accounting: uses both financial and cost data for planning, decision-making, and control; broader than cost accounting.

3. Classification of Costs

By Nature/Element: Material, Labour, Expenses.
By Function: Production cost, Administration cost, Selling cost, Distribution cost.
By Behaviour: Fixed cost, Variable cost, Semi-variable (mixed) cost.
By Traceability: Direct cost (traceable to a cost unit) and Indirect cost (Overheads).
By Controllability: Controllable and Uncontrollable costs.
By Normality: Normal cost and Abnormal cost.
By Relevance to Decision-Making: Sunk cost, Opportunity cost, Marginal cost, Differential cost, Replacement cost, Imputed cost, Out-of-pocket cost.

4. Elements of Cost & Cost Sheet

Total Cost = Direct Material + Direct Labour + Direct Expenses + Overheads.

Prime Cost = Direct Material + Direct Labour + Direct Expenses.
Works/Factory Cost = Prime Cost + Factory Overheads (± adjustment for stock of WIP).
Cost of Production = Factory Cost + Office & Administration Overheads.
Total Cost / Cost of Sales = Cost of Production + Selling & Distribution Overheads.
Sales = Total Cost + Profit.

A Cost Sheet is a statement that presents the various components of total cost of a product, and shows total cost as well as cost per unit, arranged period-wise (comparative) or in a single-period columnar format.

5. Methods of Costing

Job Costing: cost ascertained for each job/work order separately (e.g., printing press, repair workshop).
Batch Costing: a variant of job costing where a batch of identical units is treated as one job.
Contract Costing: used for long-term contracts (e.g., construction, shipbuilding); each contract is a cost unit.
Process Costing: costs accumulated for each process in industries with continuous production (e.g., chemicals, textiles, sugar).
Operating Costing: used for service industries (transport, hospitals, hotels, power) — cost per unit of service.
Unit/Output Costing: used where a single product is produced continuously (e.g., cement, bricks).
Multiple Costing: combination of two or more methods, used where a product has several components (e.g., automobiles, TVs).

6. Techniques of Costing

Historical (Actual) Costing: costs ascertained after they are incurred.
Standard Costing: pre-determined costs are compared with actual costs; variances are analysed.
Marginal Costing: only variable costs are charged to products; fixed costs treated as period costs. Basis of Cost-Volume-Profit (CVP) analysis.
Absorption (Full) Costing: both fixed and variable costs are absorbed into product cost.
Uniform Costing: common costing principles used by several undertakings for inter-firm comparison.

7. Material Cost Control

Economic Order Quantity (EOQ): the order size that minimises total of ordering cost and carrying cost. EOQ = √(2AO/C), where A = Annual demand, O = Ordering cost per order, C = Carrying cost per unit p.a.
ABC Analysis: inventory classified as 'A' (high value, low quantity), 'B' (moderate), 'C' (low value, high quantity) for selective control.
Re-order Level = Maximum consumption × Maximum re-order period.
Minimum Stock Level = Re-order Level − (Normal consumption × Normal re-order period).
Maximum Stock Level = Re-order Level + Re-order Quantity − (Minimum consumption × Minimum re-order period).
Danger Level = Average consumption × Lead time for emergency purchase.
Methods of pricing material issues: FIFO (First-In-First-Out), LIFO (Last-In-First-Out), Weighted Average, Simple Average, Base Stock.

8. Labour Cost & Remuneration

Time Rate System: wages paid on the basis of time worked, irrespective of output.
Piece Rate System: wages paid on the basis of units produced, irrespective of time taken.
Incentive Schemes: Halsey Plan (bonus = 50% of time saved × time rate) and Rowan Plan (bonus = (time saved/time allowed) × time taken × time rate) reward efficiency while guaranteeing time wages.
Labour Turnover: rate of change in the composition of the labour force; measured by Separation Method, Replacement Method, or Flux Method.
Idle Time: time for which wages are paid but no output is obtained (normal vs abnormal idle time).

9. Overheads: Classification, Allocation, Apportionment & Absorption

Overheads = Indirect Material + Indirect Labour + Indirect Expenses.
Classification: Factory/Works, Office & Administration, Selling, Distribution overheads; also Fixed, Variable, Semi-variable.
Allocation: charging a whole item of cost directly to a cost centre where it is identifiable.
Apportionment: distributing common overhead items among several cost centres on an equitable basis (e.g., floor area, machine hours, number of employees).
Absorption: charging overheads of a cost centre to cost units through an absorption rate (e.g., Machine Hour Rate, Labour Hour Rate, Percentage of Direct Wages/Material/Prime Cost).
Under/Over-absorption arises when absorbed overheads differ from actual overheads incurred.

10. Marginal Costing & Break-Even Analysis

Marginal Cost: the change in total cost due to production of one additional unit; broadly equals variable cost per unit.
Contribution = Sales − Variable Cost. Contribution covers fixed cost first, balance is profit.
P/V Ratio (Profit-Volume Ratio) = Contribution / Sales × 100.
Break-Even Point (in units) = Fixed Cost / Contribution per unit.
Break-Even Point (in value) = Fixed Cost / P/V Ratio.
Margin of Safety = Actual Sales − Break-Even Sales.

11. Standard Costing & Variance Analysis

Standard Cost: a pre-determined cost computed in advance based on specific standards under efficient operating conditions.
Material Cost Variance = Standard Cost of Actual Output − Actual Cost; splits into Material Price Variance and Material Usage Variance.
Labour Cost Variance similarly splits into Labour Rate Variance and Labour Efficiency Variance.
Favourable variance: actual cost lower than standard; Adverse variance: actual cost higher than standard.

12. Budget & Budgetary Control

Budget: a quantitative statement for a defined period, prepared prior to that period, of a policy to be pursued.
Budgetary Control: establishing budgets and continuously comparing actual results with budgeted figures to achieve objectives and provide a basis for revision.
Flexible Budget: designed to change with the level of activity; useful for cost control at varying volumes.
Zero-Base Budgeting (ZBB): every item of expenditure must be justified afresh for each new budget period, starting from a 'zero base'.
Master Budget: a summary budget consolidating all functional budgets (sales, production, cash, etc.).

Part B: Multiple Choice Questions (Practice Set)

Note: These are original practice MCQs modeled on JKSSB FAA's typical cost accounting question pattern — not verbatim reproductions of an official past paper.

Q1. Cost Accounting is primarily concerned with:

(A) External financial reporting

(B) Ascertainment and control of cost

(D) Statutory audit

Answer: B

Q2. A location, person, or item of equipment for which cost is ascertained is called a:

(A) Cost unit

(B) Cost centre

(D) Cost pool

Answer: B

Q3. Which of the following is a direct expense?

(A) Factory rent

(B) Hire charges of special machinery for a specific job

(D) Depreciation of factory building

Answer: B

Q4. Prime Cost consists of:

(A) Direct Material + Direct Labour only

(B) Direct Material + Direct Labour + Direct Expenses

(D) Direct Labour + Overheads

Answer: B

Q5. Which costing method is used in a construction company building a bridge?

(A) Process Costing

(B) Operating Costing

(D) Unit Costing

Answer: C

Q6. Costing used for continuous production of a single product like cement or sugar is called:

(A) Job Costing

(B) Process Costing

(D) Multiple Costing

Answer: B

Q7. Under which costing method are only variable costs charged to the product?

(A) Absorption Costing

(B) Standard Costing

(D) Historical Costing

Answer: C

Q8. EOQ stands for:

(A) Estimated Order Quantum

(B) Economic Order Quantity

(D) Extra Ordering Quota

Answer: B

Q9. In ABC analysis of inventory, 'A' category items are characterised by:

(A) Low value, high quantity

(B) High value, low quantity

(D) Zero value items

Answer: B

Q10. Re-order Level is calculated as:

(A) Minimum consumption × Minimum re-order period

(B) Maximum consumption × Maximum re-order period

(D) Normal consumption × Normal re-order period

Answer: B

Q11. Which method of pricing issues assumes that materials received first are issued first?

(A) LIFO

(B) FIFO

(D) Base Stock

Answer: B

Q12. Under the Halsey Premium Plan, the bonus is:

(A) 100% of time saved

(B) 50% of time saved, valued at time rate

(D) Based on units produced only

Answer: B

Q13. Idle time that arises due to normal causes like tea breaks or machine setting is called:

(A) Abnormal idle time

(B) Normal idle time

(D) Avoidable idle time

Answer: B

Q14. Distributing a common overhead cost among several cost centres on an equitable basis is called:

(A) Allocation

(B) Absorption

(D) Classification

Answer: C

Q15. Machine Hour Rate is a method of:

(A) Material valuation

(B) Overhead absorption

(D) Budget preparation

Answer: B

Q16. Contribution in marginal costing is defined as:

(A) Sales minus Fixed Cost

(B) Sales minus Variable Cost

(D) Fixed Cost minus Variable Cost

Answer: B

Q17. P/V Ratio is calculated as:

(A) Fixed Cost / Sales

(B) Contribution / Sales

(D) Sales / Contribution

Answer: B

Q18. At the Break-Even Point:

(A) Profit is maximum

(B) Contribution equals Fixed Cost

(D) Contribution is zero

Answer: B

Q19. Margin of Safety is:

(A) Fixed Cost minus Contribution

(B) Actual Sales minus Break-Even Sales

(D) Contribution minus Profit

Answer: B

Q20. A pre-determined cost computed in advance under specified conditions is called:

(A) Historical cost

(B) Marginal cost

(D) Sunk cost

Answer: C

Q21. A favourable material cost variance arises when:

(A) Actual cost exceeds standard cost

(B) Standard cost exceeds actual cost

(D) None of the above

Answer: B

Q22. Zero-Base Budgeting requires that:

(A) Only new expenditure be justified

(B) Every item of expenditure be justified afresh each period

(D) Only capital expenditure be reviewed

Answer: B

Q23. A budget that changes according to the level of activity is called a:

(A) Master budget

(B) Fixed budget

(D) Cash budget

Answer: C

Q24. Cost that has already been incurred and cannot be recovered is called:

(A) Opportunity cost

(B) Sunk cost

(D) Replacement cost

Answer: B

Q25. The cost of the best alternative foregone is called:

(A) Sunk cost

(B) Imputed cost

(D) Differential cost

Answer: C

Q26. Under-absorption of overheads occurs when:

(A) Absorbed overheads exceed actual overheads

(B) Actual overheads exceed absorbed overheads

(D) There are no overheads

Answer: B

Q27. Labour turnover measured by (Number of employees replaced / Average number of employees) × 100 is the:

(A) Separation Method

(B) Replacement Method

(D) Accession Method

Answer: B

Q28. Semi-variable costs are those which:

(A) Remain constant at all levels of output

(B) Vary in direct proportion to output

(D) Are always zero at zero output

Answer: C

Q29. Which of the following is an example of a fixed cost?

(A) Direct material

(B) Piece-rate wages

(D) Power cost per unit

Answer: C

Q30. Batch Costing is most suitable for:

(A) Construction of a dam

(B) Manufacture of readymade garments in lots

(D) Transport services

Answer: B

Q31. Operating Costing is applied in:

(A) Steel manufacturing

(B) Transport and hospitals

(D) Shipbuilding

Answer: B

Q32. Cost of Production is equal to:

(A) Prime Cost + Factory Overheads

(B) Factory Cost + Office & Administration Overheads

(D) Prime Cost + Selling Overheads

Answer: B

Q33. Total Cost (Cost of Sales) is equal to:

(A) Cost of Production + Selling & Distribution Overheads

(B) Prime Cost + Overheads

(D) Sales minus Profit only, excluding overheads

Answer: A

Q34. A cost sheet primarily helps in:

(A) Statutory tax filing

(B) Ascertaining total cost and cost per unit

(D) Recording share capital

Answer: B

Q35. Uniform Costing is adopted mainly for the purpose of:

(A) Individual firm's tax planning

(B) Inter-firm comparison

(D) Wage negotiation only

Answer: B

Q36. Which of these is NOT an element of cost?

(A) Material

(B) Labour

(D) Capital

Answer: D

Q37. Danger Level of stock is used to indicate:

(A) Level for placing a normal order

(B) Level requiring emergency purchase action

(D) Level of obsolete stock

Answer: B

Q38. Under the Rowan Plan, bonus is calculated as a proportion of:

(A) Time saved to time allowed, applied to time taken

(B) Total wages earned

(D) Time allowed only

Answer: A

Q39. Cost accounting differs from financial accounting mainly because it:

(A) Is meant for external stakeholders only

(B) Focuses on detailed cost ascertainment and control for internal use

(D) Ignores overheads entirely

Answer: B

Q40. Which technique compares actual performance against pre-set standards and analyses differences?

(A) Marginal Costing

(B) Standard Costing

(D) Historical Costing

Answer: B

Part C: Statement-Based Questions (Which of the following is/are correct?)

Note: Original statement-based/assertion-style practice questions in the JKSSB FAA pattern, testing conceptual clarity on cost accounting topics.

Q1. Consider the following statements regarding Cost Accounting:

I. Cost accounting is concerned only with the preparation of the profit and loss account.

II. Cost accounting helps management in cost control and decision-making.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: B

Q2. Consider the following statements regarding Prime Cost:

I. Prime Cost includes direct material, direct labour, and direct expenses.

II. Prime Cost includes factory overheads.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: A

Q3. Consider the following statements regarding Marginal Costing:

I. In marginal costing, fixed costs are treated as period costs, not product costs.

II. Contribution is calculated as Sales minus Fixed Cost.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: A

Q4. Consider the following statements regarding EOQ:

I. EOQ minimises the total of ordering cost and carrying cost.

II. EOQ increases as the ordering cost per order decreases, other things being equal.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Q5. Consider the following statements regarding methods of costing:

I. Process costing is suitable for industries with continuous production of homogeneous products.

II. Job costing treats each job or work order as a separate cost unit.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Q6. Consider the following statements regarding Overheads:

I. Allocation refers to charging a whole item of cost directly to one cost centre.

II. Apportionment refers to distributing common costs among several cost centres on an equitable basis.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Q7. Consider the following statements regarding Break-Even Analysis:

I. At the break-even point, total contribution equals total fixed cost.

II. Margin of Safety is the excess of break-even sales over actual sales.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: A

Q8. Consider the following statements regarding Standard Costing:

I. A favourable variance occurs when actual cost is lower than standard cost.

II. Standard costing eliminates the need for budgetary control.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: A

Q9. Consider the following statements regarding Labour Incentive Schemes:

I. Under the Halsey Plan, the worker is guaranteed time wages even if actual time exceeds time allowed.

II. Under the Rowan Plan, bonus paid can never exceed the wages for time saved under Halsey Plan for the same time saved percentage below 50%.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Q10. Consider the following statements regarding classification of cost:

I. Sunk costs are relevant for future decision-making.

II. Opportunity cost is the value of the next best alternative foregone.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: B

Q11. Consider the following statements regarding stock levels:

I. Minimum Stock Level = Re-order Level − (Normal consumption × Normal re-order period).

II. Maximum Stock Level = Re-order Level + Re-order Quantity − (Minimum consumption × Minimum re-order period).

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Q12. Consider the following statements regarding Budgetary Control:

I. A flexible budget is prepared for a single level of activity only.

II. Zero-Base Budgeting requires justification of every expenditure item afresh each period.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: B

Q13. Consider the following statements regarding Cost Sheet:

I. A cost sheet shows only the total cost and never the cost per unit.

II. Cost of Production is arrived at by adding Office & Administration Overheads to Factory Cost.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: B

Q14. Consider the following statements regarding Absorption Costing vs Marginal Costing:

I. Absorption costing charges both fixed and variable overheads to products.

II. Marginal costing is the basis for Cost-Volume-Profit (CVP) analysis.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Q15. Consider the following statements regarding Material Pricing Methods:

I. Under LIFO, materials received last are issued first.

II. Under FIFO, closing stock is valued at the most recent purchase prices.

(A) Only I

(B) Only II

(D) Neither I nor II

Answer: C

Quick Answer Key Summary

Part B — MCQs (1–40)

1-B 2-B 3-B 4-B 5-C 6-B 7-C 8-B 9-B 10-B 11-B 12-B 13-B 14-C 15-B 16-B 17-B 18-B 19-B 20-C 21-B 22-B 23-C 24-B 25-C 26-B 27-B 28-C 29-C 30-B 31-B 32-B 33-A 34-B 35-B 36-D 37-B 38-A 39-B 40-B