Accounting Principle Trivia Questions

The purpose of financial accounting is to provide information that helps in assessing the profitability and financial position of the firm. This information is crucial for making informed decisions regarding the company's financial health, profitability, and future prospects. It allows stakeholders such as investors, creditors, and management to evaluate the company's performance and make strategic decisions based on the financial information provided. The information generated through financial accounting includes financial statements, such as the income statement, balance sheet, and cash flow statement, which provide a comprehensive overview of the company's financial performance and position.

The increase in total variable cost is due to an increase in production. When production increases, more resources are required to produce the goods or services, leading to higher variable costs. This can include costs such as raw materials, labor, and energy. As the level of production increases, the total variable cost also increases proportionally. On the other hand, an increase in fixed costs or sales may not directly impact the total variable cost.

Cost accounting concepts primarily focus on planning, controlling, and product costing. These concepts help in determining the costs associated with producing goods or services, planning budgets, and controlling costs to achieve desired financial goals. Profit sharing, on the other hand, is a separate concept that involves distributing a portion of the company's profits to its employees as a form of incentive or reward. While profit sharing may be related to financial aspects, it is not directly considered a cost accounting concept.

Cost accounting is a branch of accounting that focuses on the analysis and allocation of costs in order to provide information to management for decision-making. It helps management in making informed decisions by providing them with data on the costs associated with different activities, products, or services. This information can be used to evaluate the profitability of various options, identify areas for cost reduction, and determine the most efficient allocation of resources. Therefore, the main purpose of cost accounting is to provide information to management for decision-making.

Direct material cost is an example of a variable cost because it varies in direct proportion to the level of production or sales. As the production or sales volume increases, the direct material cost also increases. This cost includes the cost of raw materials or components that are directly used in the production process. Unlike fixed costs such as property taxes, interest on capital, and depreciation of machinery, which remain constant regardless of the level of production, variable costs fluctuate based on the activity level of the business.

Output costing is a method used to determine the cost of production in various industries, including mining quarries, steel production, and brick kilns. It is a comprehensive approach that takes into account all the costs associated with producing goods or services, such as raw materials, labor, overhead expenses, and other factors. By considering all these costs, output costing provides a more accurate understanding of the total cost of production in these industries. Therefore, the correct answer is d. all of these.

The three major elements of product costs are direct materials, factory overhead, and direct labor. Indirect labor is not included as one of the major elements of product costs. Indirect labor refers to the labor costs that are not directly involved in the production process, such as supervisors or maintenance workers. While indirect labor is still a cost to the company, it is not considered a major element of product costs.

Budgeting is a crucial tool in cost planning because it allows businesses to forecast and allocate resources effectively. A budget helps in setting financial goals, estimating income and expenses, and determining the financial feasibility of projects or plans. It enables businesses to control costs, monitor performance, and make informed decisions. By creating a budget, businesses can track their expenses, identify areas of overspending, and make necessary adjustments to stay on track financially. Therefore, a budget is considered one of the most important tools in cost planning.

Fixed costs are expenses that do not change regardless of the level of production or sales. The works manager's salary is a fixed cost because it remains the same regardless of the amount of work being done or the number of units being produced. This means that even if there is no production or sales, the works manager will still receive their salary. Therefore, option b. works manager's salary is an example of a fixed cost.

When the production volume decreases, the fixed costs are spread over a smaller number of units, resulting in an increase in the fixed cost per unit. This is because the fixed costs remain constant regardless of the production volume.

The correct answer is b. cost of production and finished goods inventory. This means that the cost of goods sold includes both the cost of producing the goods as well as the cost of the finished goods that have been sold. It does not include the cost of work-in-progress, which are goods that are still in the process of being produced.

The conversion cost refers to the expenses incurred in converting raw materials into finished goods. It includes both direct wages, which are the wages paid to workers directly involved in the production process, and factory overhead, which includes indirect labor costs such as supervision, maintenance, and utilities. Therefore, the correct answer is c. direct wages and factory overhead.

A toy manufacturing company should use batch costing because it involves allocating costs to a specific batch or group of similar products. This method is suitable for companies that produce toys in batches or in large quantities, as it allows them to determine the cost per batch and make pricing decisions accordingly. By using batch costing, the company can track and allocate costs more accurately, which helps in determining the profitability of each batch and making informed business decisions.

Job costing is used in a printing press because it involves the process of assigning costs to specific jobs or projects. In a printing press, each job or project is unique and requires its own set of resources, materials, and labor. By using job costing, the printing press can accurately track and allocate costs to each job, allowing for better cost control, pricing decisions, and profitability analysis. This method is particularly useful in industries where customization and individual project tracking are essential, such as printing presses.

The correct answer is b. remains constant. Variable cost per unit refers to the cost that changes in direct proportion to the level of output. In other words, as the level of output increases or decreases, the variable cost per unit remains the same. This is because the variable cost is typically associated with the direct materials and direct labor required to produce each unit, and these costs do not change on a per unit basis regardless of the level of output. Therefore, the correct answer is that the variable cost per unit remains constant.

Contract costing is a method of costing used in industries that involve the construction or manufacturing of large and complex products, such as ships, aeroplanes, and automobiles. It involves the allocation of costs to specific contracts or projects, allowing for better control and analysis of costs incurred. Therefore, the correct answer is a. ship-building.

The cost of goods produced refers to the total cost incurred in the production of goods. This includes the cost of raw materials, labor, and overhead expenses. Work-in-progress refers to the partially completed goods that are still in the production process. Therefore, option b is the correct answer as it includes both the production cost and the cost of work-in-progress.

The car manufacturing industry often uses multiple costing methods due to the complexity of their operations. They produce various models with different features and options, each requiring different materials, labor, and overhead costs. By using multiple costing methods, such as job costing for custom orders and process costing for mass production, car manufacturing companies can accurately allocate costs to each product and make informed pricing and production decisions.

An overstatement of work-in-progress at the end of a period will lead to an overstatement of net profit. This is because work-in-progress represents the cost of unfinished goods or services, and including an overstatement of this amount in the financial statements will result in higher expenses being recognized. As a result, the net profit will be reduced, leading to an overstatement of net profit.

Operating costing is the most suitable method for an electricity generating company because it involves the allocation of costs to each unit of output or service provided. This method allows the company to accurately determine the cost of generating electricity by considering the specific operating costs incurred in the production process. It takes into account the costs of fuel, maintenance, repairs, and other expenses directly related to the operation of the power plant. By using operating costing, the company can accurately calculate the cost per unit of electricity generated, helping them make informed decisions regarding pricing and resource allocation.