# MGT 402 Cost & Management Accounting - 1

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MGT 402 Cost & Management Accounting - 1

• 1.

### Direct Material + Direct Labor + other direct cost =

• A.

Prime Cost

• B.

• C.

Conversion Cost

• D.

None

A. Prime Cost
Explanation
The given equation of Direct Material + Direct Labor + other direct cost represents the calculation of Prime Cost. Prime Cost is the total cost of direct materials, direct labor, and other direct costs that are directly involved in the production of a product. It does not include any indirect costs or overhead expenses. Therefore, the correct answer is Prime Cost.

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• 2.

### If     Direct Material    =   12,000 Direct Labor       =   8000      other Direct Cost = 2000  then what will be the Prime Cost?

• A.

12000

• B.

14000

• C.

20000

• D.

22000

D. 22000
Explanation
The prime cost is the sum of direct material, direct labor, and other direct costs. In this case, the direct material is 12,000, direct labor is 8,000, and other direct costs are 2,000. Adding these three amounts together gives a prime cost of 22,000.

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• 3.

### Direct Labour + Other Direct Cost + FOH  =

• A.

Prime Cost

• B.

• C.

Conversion Cost

• D.

None

C. Conversion Cost
Explanation
The given equation, Direct Labour + Other Direct Cost + FOH = Prime Cost, represents the calculation of the prime cost in a manufacturing process. Prime cost refers to the direct costs involved in the production of goods, including direct labor and other direct costs such as raw materials. Factory Overhead (FOH) is not included in the prime cost calculation, as it represents indirect costs such as utilities, rent, and depreciation. Therefore, the correct answer is Conversion Cost, which includes both direct labor and factory overhead costs.

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• 4.

### Accounting is a language of ________________.

• A.

Accountants

• B.

Mathematics

• C.

Mathematics

• D.

NONE

C. Mathematics
Explanation
Accounting is often referred to as the "language of business" because it involves the use of numbers, calculations, and financial statements to communicate and analyze the financial performance of a company. Just as language is used to convey thoughts and ideas, accounting uses mathematical concepts and principles to convey financial information and make informed business decisions. Therefore, the correct answer is Mathematics.

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• 5.

### Accounting has ____________ branches

• A.

1

• B.

2

• C.

3

• D.

4

C. 3
Explanation
Accounting has three branches: financial accounting, management accounting, and auditing. Financial accounting involves recording, summarizing, and reporting financial transactions of a business. Management accounting focuses on providing information to internal users for decision-making and planning. Auditing involves examining and verifying the financial records and statements of a company to ensure accuracy and compliance with regulations. These three branches are essential in providing accurate and reliable financial information for businesses.

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• 6.

### Cost is classified in _____________ categories.

• A.

1

• B.

2

• C.

3

• D.

4

B. 2
Explanation
Cost is classified into two categories.

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• 7.

### Cost that can be traced in full to the product or services is called

• A.

Direct Cost

• B.

Indirect Cost

A. Direct Cost
Explanation
Direct costs are expenses that can be directly attributed to a specific product or service. These costs can be easily traced and allocated to a particular cost object. They include items such as direct materials, direct labor, and other costs directly associated with production. Unlike indirect costs, which cannot be easily allocated to a specific cost object, direct costs are directly linked to the production process and can be easily identified and measured. Therefore, the correct answer is Direct Cost.

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• 8.

### Financial Accounting is a branch of management accounting.

• A.

TRUE

• B.

FALSE

A. TRUE
Explanation
Financial Accounting is a branch of management accounting because it involves the recording, summarizing, and reporting of financial transactions and information to external stakeholders such as investors, creditors, and regulators. Management accounting, on the other hand, focuses on providing internal stakeholders such as managers and executives with financial information and analysis to aid in decision-making and planning. Both branches of accounting are essential in managing and understanding an organization's financial performance, but financial accounting specifically deals with the preparation of financial statements and compliance with accounting standards and regulations.

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• 9.

### Accounting is always a language of business

• A.

TRUE

• B.

FALSE

B. FALSE
Explanation
The statement "accounting is always a language of business" is false. While accounting is commonly used in business to record and analyze financial transactions, it is not exclusive to the business field. Accounting principles and techniques can also be applied in other areas such as nonprofit organizations, government agencies, and personal finance management. Therefore, accounting can be seen as a language that is used in various contexts beyond just business.

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• 10.

### Cost Accounting is an art of Recording , Classifying, summarizing, Reporting, Interpreting of the Financial Information.

• A.

TRUE

• B.

FALSE

B. FALSE
Explanation
The given statement is incorrect. Cost Accounting is not an art of recording, classifying, summarizing, reporting, and interpreting financial information. Instead, it is a branch of accounting that focuses on the calculation and analysis of costs in order to enhance decision-making, budgeting, and cost control within an organization. Cost Accounting primarily deals with the allocation of costs to products or services, determining the cost of production, and providing insights into cost reduction strategies.

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• 11.

### Cost is expenditure incurred.

• A.

TRUE

• B.

FALSE

A. TRUE
Explanation
The statement "Cost is expenditure incurred" is true. Cost refers to the amount of money or resources that are required to produce or obtain something. Expenditure, on the other hand, refers to the act of spending money or resources. Therefore, cost can be seen as the result of expenditure, as it represents the amount of money or resources that have been spent or incurred.

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• 12.

### Management Accounting deals with Ascertainment, Measurement, Accumulation, Budgeting & Evaluating cost structure of the entity.

• A.

True

• B.

FALSE

B. FALSE
Explanation
Its done by Cost Accounting

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• 13.

### Cost Accounting deals with decisions relating to the generation & effective utilization of the financial resources of an entity.

• A.

TRUE

• B.

FALSE

B. FALSE
Explanation
Its done by Management Accounting

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• 14.

### A firm Uses its own capital or Uses its owner's time and/or financial resources both are examples of ____________

• A.

Implicit Cost

• B.

Explicit Cost

A. Implicit Cost
Explanation
A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash
These are intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company rather than working on expansion

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• 15.

### _________________ is the cost that is subject to actual payment or will be paid for in future.

• A.

Implicit Cost

• B.

Explicit Cost

B. Explicit Cost
Explanation
A business expense that is easily identified and accounted for. Explicit costs represent clear, obvious cash outflows from a business that reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a business's bottom-line value
Good examples of explicit costs would be items such as wage expense, rent or lease costs, and the cost of materials that go into the production of goods. With these expenses, it is easy to see the source of the cash outflow and the business activities to which the expense is attributed

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• 16.

### Wage, Rent & Materials are examples of ____________.

• A.

Implicit Cost

• B.

Explicit Cost

B. Explicit Cost
Explanation
A business expense that is easily identified and accounted for. Explicit costs represent clear, obvious cash outflows from a business that reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a business's bottom-line value
Good examples of explicit costs would be items such as wage expense, rent or lease costs, and the cost of materials that go into the production of goods. With these expenses, it is easy to see the source of the cash outflow and the business activities to which the expense is attributed

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• 17.

### An investor invests in stock exchange he foregoes the opportunity to invest further in his hotel. The profit which the investor will be getting from the hotel is _________________.

• A.

Opportunity cost

• B.

Period Cost

• C.

Product Cost

• D.

Historical Cost

A. Opportunity cost
Explanation
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%)

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• 18.

### ____________ is verifiable through invoices/agreements.

• A.

Opportunity Cost

• B.

Product Cost

• C.

Period Cost

• D.

Historical Cost

D. Historical Cost
• 19.

### _________________ is a Predetermine cost of the units.

• A.

Standard cost

• B.

Implicit Cost

• C.

Product Cost

• D.

None

A. Standard cost
Explanation
The budgeted or planned cost of material, labour, or overheads expected to be paid during a given accounting period.

standard cost- The normal or specified cost used as the basis for measurement against an actual. Standard costs for manufactured items include labor, material and overhead, and vendor acquisition, freight, duty fees and other categories for purchased items

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• 20.

### Indirect cost is also known as overhead cost.

• A.

True

• B.

False

A. True
Explanation
An indirect cost or overhead cost is a cost that is incurred in the course of producing product or
rendering service, but which cannot be traced in the product or service in full.
Expenditure incurred on labor, material or other services which cannot be economically identified
with a specific cost product or service (cost unit).
Examples include:
Wages of supervisor, cleaning material, workshop insurance

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• Current Version
• Mar 18, 2023
Quiz Edited by
ProProfs Editorial Team
• Sep 30, 2009
Quiz Created by
Zubair

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