SEBI GRADE A 2020

• Which of the following is not true about cost accounting-

1. Exact cost can be estimated
2. Items  of cost of production may give different costs  for the same product
3. Correct cost can be calculated only by studying for a long period making the information old or historical
4. No cost is true in all circumstances and all purposes

Answer -  a) Exact cost can be estimated

Cost accounting has many methods and due to different circumstances and perceptions exact cost cannot be determined which would be accepted totally.

• Among the following which is not an objective of Cost Accounting?

(a)Cost Ascertainment

 (b) Determination of Selling Price

(c) Cost Control and Cost reduction

 (d) Providing information to Shareholders in decision making

          Answer-  (d) Providing information to Shareholders in decision making

Objectives of costing

1. cost ascertainment
2. cost control
3. cost presentation

• Prime cost includes-

1. Direct labour , direct material & direct other expenses
2. Direct labour , indirect material & indirect expenses
3. Indirect material , labour & other expenses
4. None of the above

 Answer -a) Direct labour , direct material & direct other expenses

Prime cost includes-

Direct labour

direct material &

direct other expenses

• Pre- production cost is treated as

1. Capital expenditure
2. Revenue expenditure
3. Deferred Revenue expenditure
4. None of the above

Answer -c) Deferred Revenue expenditure

When a new factory is started or when a new product is introduced, certain expenses are incurred. There are trial runs. Such costs are termed as pre-production costs and treated as deferred revenue expenditure. They are charged to the cost of future production.

Cost Centre

Cost centre means, “a production or service location, function, activity or item of equipment whose costs may be attributed to cost units”. Cost centre is the smallest organisational sub-unit for which separate cost collection is attempted

A cost centre is ‘location, person, or item of equipment (or group of these) for which costs may be ascertained and used for the purpose of control’. Thus a cost centre refers to a section of business to which costs can be charged. It may consist of either or a combination of the following :

 Location :

Factory, Department, Office, Warehouse, Stores, Sales Depot, etc. Person : Salesman, a machine operator, customer, etc.

Equipment :

 Machine, Car, Truck, etc. Types of Cost Centres : Cost centres may be divided into the following four types :

 1) Process Cost Centre (Based on sequence of operations)

 2) Production Cost centre (for regular production in a factory)

 3) Operation Cost Centre (where various operations are involved in the production process)

 4) Service Cost Centre (for activities supporting the main production) Thus identification or selection of cost centres depends on the nature and types of industry. The identification of cost centres helps us in :

 i) ascertaining the centre-wise costs,

 ii) comparing the centre-wise costs periodically,

 iii) finding out the major trends of variance, and

 iv) applying the techniques of control to check undue, undesirable or unexpected movements in cost. A cost centre segregates operations, democrats activities, and distributes expenses. This also helps in fixing responsibilities for every cost centre.

Cost centres may be classified as follows :               

   Productive, Unproductive and Mixed Cost Centres:

Productive cost centres are those which are actually engaged in making the products - the raw materials are handled here and converted into saleable products. In such centres both direct and indirect costs are incurred, machine shops, welding shops, and assembly shops are examples of production cost centres in an engineering factory. Service or unproductive cost centres do not make the products but are essential aids to the productive centres. Examples of such service centres are those of administration, repairs and maintenance, stores and drawing office departments. Mixed cost centres are those which are engaged some on productive and other lines on service works. For instance, a tool shop serves as a productive cost centre when it manufactures dies and jigs for specific order, but serves as servicing cost centre when it does repairs for the factory.

         Personal and Impersonal Cost Centre:

         A personal cost centre consists of a person or a group of persons. An impersonal cost centre is one which consists of a department, plant or item of equipment (or group of             these).

       Operation and Process Cost Centre:

       In case a cost centre consists of those machines and/or persons which carry out the same operation is termed as operation cost centre. If a cost centre consists of a              continuous sequence of operations it is called process cost centre.

The determination of a suitable cost centre is very important for ascertainment and control of cost. The manager in charge of a cost centre is held responsible for control of cost of his cost centre.

Cost Unit

The Chartered Institute of Management Accountants, London, defines a unit of cost as “a unit of product or service in relation to which costs are ascertained”. A cost unit is a devise for the purpose of breaking up or separating costs into smaller sub-divisions.

Industry/Product    Cost unit

 Automobile        Number  

Brick works         1000 bricks 

 Cement                Tonne  

Transport             Tonne Kilometre            

 Passenger           Kilometre   

Chemicals            Litre, gallon, kilogramme, tonne

  Steel                    Tonne 

 Sugar                    Tonne