Cost classification and cost behaviour

Topic 24: Cost Classification and Cost Behaviour — 50 Hard MCQs

1. Which cost is most likely to be a direct cost for a furniture manufacturer?

A factory rent
B wood used in tables
C depreciation of factory machinery
D supervisor salary

2. Which cost is most likely to be an indirect production cost?

A direct labour assembling units
B raw material used in finished goods
C factory electricity
D sales commission

3. Which item is a direct expense?

A royalty paid per unit produced
B factory manager’s salary
C office rent
D advertising cost

4. A business manufactures shoes. Which item is a production overhead?

A leather used in shoes
B wages of workers cutting leather
C depreciation of sewing machines
D sales staff commission

5. Which cost is included in prime cost?

A direct materials only
B direct materials, direct labour and direct expenses
C direct materials and production overhead only
D production overhead and administration overhead only

6. A manufacturer has the following costs.

Item	$
direct materials	48 000
direct labour	32 000
direct expenses	6000
factory rent	14 000
factory depreciation	9000

What is prime cost?

A $80 000
B $86 000
C $100 000
D $109 000

7. Using the information in Question 6, what is total production cost?

A $86 000
B $95 000
C $100 000
D $109 000

8. A business has direct labour of $42 000 and production overheads of $28 000.

What is conversion cost?

A $28 000
B $42 000
C $70 000
D cannot be calculated without direct materials

9. Which cost is excluded from production cost?

A indirect factory wages
B factory insurance
C carriage inwards on raw materials
D office salaries

10. Which cost is most likely to be classified as a selling and distribution cost?

A carriage outwards
B carriage inwards on raw materials
C factory power
D direct labour

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A business produces 8000 units. Variable cost per unit is $7 and total fixed costs are $36 000.

What is total cost?

A $56 000
B $76 000
C $92 000
D $288 000

12. A business produces 12 000 units. Total fixed cost is $60 000 and variable cost per unit is $4.50.

What is total cost per unit?

A $4.50
B $5.00
C $9.50
D $64.50

13. A business produces 5000 units at a total cost of $80 000. Variable cost is $9 per unit.

What is total fixed cost?

A $35 000
B $45 000
C $71 000
D $125 000

14. A business produces 20 000 units. Total cost is $180 000. Fixed cost is $70 000.

What is variable cost per unit?

A $3.50
B $5.50
C $9.00
D $12.50

15. A business has total fixed costs of $120 000. Output rises from 15 000 units to 20 000 units.

What happens to fixed cost per unit?

A increases from $6 to $8
B decreases from $8 to $6
C remains at $8
D remains at $120 000 per unit

16. A business has variable cost per unit of $11. Output rises from 7000 units to 9500 units.

What happens to total variable cost?

A increases from $77 000 to $104 500
B decreases from $104 500 to $77 000
C remains at $77 000
D remains at $11

17. Which statement about fixed cost is correct within the relevant range?

A total fixed cost changes directly with output
B fixed cost per unit falls as output rises
C fixed cost per unit remains unchanged as output rises
D total fixed cost is zero when output is zero only

18. Which statement about variable cost is correct?

A total variable cost remains constant as output changes
B variable cost per unit usually remains constant
C variable cost per unit always falls as output rises
D total variable cost is treated as a period cost only

19. Which cost is most likely to be semi-variable?

A raw materials used per unit
B factory rent fixed for the year
C telephone bill with line rental plus call charges
D depreciation using straight-line method

20. Which cost is most likely to be stepped fixed?

A direct materials
B supervisor salary when one supervisor is needed for every 1000 units
C sales commission per unit sold
D packaging per unit

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. A business has the following total costs.

Output	Total cost
6000 units	$74 000
10 000 units	$98 000

Using the high-low method, what is the variable cost per unit?

A $4
B $6
C $7.40
D $9.80

22. Using the information in Question 21, what is fixed cost?

A $14 000
B $24 000
C $38 000
D $60 000

23. Using the information in Question 21, what is estimated total cost at 8500 units?

A $79 000
B $85 000
C $89 000
D $91 000

24. A business has the following total costs.

Output	Total cost
5000 units	$68 000
9000 units	$92 000

Using the high-low method, what is fixed cost?

A $30 000
B $36 000
C $38 000
D $44 000

25. Using the information in Question 24, what is estimated total cost at 7000 units?

A $74 000
B $80 000
C $84 000
D $86 000

26. Total cost at 4000 units is $54 000. Total cost at 7000 units is $72 000.

What is the cost equation?

A total cost = $30 000 + $6 per unit
B total cost = $54 000 + $6 per unit
C total cost = $30 000 + $18 per unit
D total cost = $72 000 + $6 per unit

27. Total cost at 3000 units is $45 000. Variable cost per unit is $8.

What is total cost at 5200 units?

A $41 600
B $62 600
C $65 600
D $86 600

28. A semi-variable cost has fixed element $18 000 and variable element $2.40 per unit.

What is total cost at 15 000 units?

A $36 000
B $54 000
C $72 000
D $81 000

29. A machine has maintenance cost of $22 000 at 8000 machine hours and $31 000 at 12 500 machine hours.

Using high-low, what is variable cost per machine hour?

A $1.80
B $2.00
C $2.48
D $3.88

30. Using the information in Question 29, what is the fixed cost?

A $6000
B $9000
C $12 000
D $16 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A business has the following costs for 4000 units.

Cost	$
direct materials	24 000
direct labour	18 000
variable production overhead	10 000
fixed production overhead	28 000
selling expenses	12 000

What is variable production cost per unit?

A $8.50
B $10.50
C $13.00
D $23.00

32. Using the information in Question 31, what is total production cost?

A $52 000
B $64 000
C $80 000
D $92 000

33. A manufacturer produces 6000 units. Direct material is $5 per unit. Direct labour is $3 per unit. Variable production overhead is $2 per unit. Fixed production overhead is $36 000.

What is total production cost per unit?

A $10
B $12
C $16
D $46

34. If output increases from 6000 units to 9000 units in Question 33, with fixed production overhead unchanged, what is the new production cost per unit?

A $10
B $14
C $16
D $18

35. Which cost is both direct and variable?

A factory rent
B direct materials
C factory manager salary
D straight-line depreciation of factory machinery

36. Which cost is fixed but may still be a direct cost?

A supervisor salary for a specific production department
B raw material per unit
C sales commission per unit
D packaging per unit

37. Which cost is indirect and variable?

A machine oil used according to machine hours
B factory rent
C ordinary share dividend
D office manager salary

38. Which cost is indirect and fixed?

A direct labour paid per unit
B raw materials
C factory security salary
D sales commission

39. Which cost is a period cost rather than a product cost for a manufacturer?

A direct materials
B factory overhead
C office administration salary
D direct labour

40. Which cost is treated as product cost in inventory valuation?

A factory depreciation
B selling commission
C office rent
D finance cost

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A business produces 10 000 units. Direct material cost is $60 000. Direct labour cost is $45 000. Production overhead absorbed is $35 000. Administration overhead is $20 000.

What is inventory production cost per unit?

A $10.50
B $14.00
C $16.00
D $18.00

42. A business produces 8000 units and sells 6500 units. Production cost per unit is $12. Selling cost per unit sold is $3. Fixed administration cost is $18 000.

What is the value of closing inventory?

A $18 000
B $19 500
C $36 000
D $96 000

43. Which cost would not be included in closing inventory of finished goods?

A direct material
B direct labour
C factory overhead
D selling and distribution overhead

44. A business has the following information.

Item	$
direct materials	30 000
direct labour	24 000
direct expenses	6000
production overhead	18 000

What is conversion cost?

A $42 000
B $48 000
C $54 000
D $78 000

45. Using the information in Question 44, what is total manufacturing cost?

A $54 000
B $60 000
C $72 000
D $78 000

46. A business manufactures 5000 units. Prime cost is $85 000. Production overhead is $25 000. Non-production overhead is $30 000.

What is production cost per unit?

A $17
B $22
C $28
D $34

47. A business has total cost of $150 000 at 10 000 units. Fixed cost is $50 000.

What is total cost at 14 000 units?

A $140 000
B $150 000
C $190 000
D $210 000

48. A business has total cost per unit of $18 at 6000 units. Fixed cost is $30 000.

What is total cost per unit at 10 000 units?

A $13
B $15
C $18
D $23

49. A stepped fixed cost is $12 000 for every supervisor. One supervisor can manage up to 3000 units. Output is 8500 units.

What is total supervisor cost?

A $12 000
B $24 000
C $36 000
D $48 000

50. Which statement best describes cost behaviour?

A how costs are recorded in the statement of financial position
B how costs change when activity level changes
C how costs are divided between assets and liabilities
D how costs are transferred to capital accounts

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. B — wood used in tables

• Direct cost can be traced clearly to a specific product.

• Wood is directly used in making tables.

• Factory rent, machinery depreciation and supervisor salary are indirect production overheads.

2. C — factory electricity

• Factory electricity supports production but cannot easily be traced to one unit.

• It is an indirect production cost.

• Direct labour and raw materials are direct costs.

• Sales commission is selling cost.

3. A — royalty paid per unit produced

• A direct expense is directly linked to production of a specific product.

• Royalty paid per unit is traceable to each unit made.

4. C — depreciation of sewing machines

• Sewing machines are used in production.

• Their depreciation is a factory/production overhead.

• Leather and cutting wages are direct costs.

• Sales commission is selling expense.

5. B — direct materials, direct labour and direct expenses

• Prime cost = direct materials + direct labour + direct expenses.

• Production overhead is added later to find total production cost.

6. B — $86 000

• Prime cost = direct materials + direct labour + direct expenses

• = 48 000 + 32 000 + 6000

• = $86 000

7. D — $109 000

• Total production cost = prime cost + production overheads

• Prime cost = $86 000

• Production overheads = factory rent 14 000 + factory depreciation 9000 = $23 000

• Total production cost = 86 000 + 23 000

• = $109 000

8. C — $70 000

• Conversion cost = direct labour + production overheads

• = 42 000 + 28 000

• = $70 000

9. D — office salaries

• Office salaries are administration overheads.

• They are not part of production cost.

• Factory wages, factory insurance and carriage inwards on raw materials relate to production.

10. A — carriage outwards

• Carriage outwards is the cost of delivering goods to customers.

• It is a selling and distribution cost.

• Carriage inwards on raw materials is part of production/purchase cost.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. C — $92 000

• Total variable cost = 8000 × 7 = $56 000

• Fixed costs = $36 000

• Total cost = 56 000 + 36 000

• = $92 000

12. C — $9.50

• Total variable cost = 12 000 × 4.50 = $54 000

• Total cost = 54 000 + 60 000 = $114 000

• Cost per unit = 114 000 / 12 000

• = $9.50

13. A — $35 000

• Total cost = $80 000

• Variable cost = 5000 × 9 = $45 000

• Fixed cost = 80 000 – 45 000

• = $35 000

14. B — $5.50

• Total cost = $180 000

• Fixed cost = $70 000

• Total variable cost = 180 000 – 70 000 = $110 000

• Variable cost per unit = 110 000 / 20 000

• = $5.50

15. B — decreases from $8 to $6

• Fixed cost per unit at 15 000 units = 120 000 / 15 000 = $8

• Fixed cost per unit at 20 000 units = 120 000 / 20 000 = $6

• Total fixed cost stays the same, but fixed cost per unit falls.

16. A — increases from $77 000 to $104 500

• At 7000 units: 7000 × 11 = $77 000

• At 9500 units: 9500 × 11 = $104 500

• Total variable cost rises with output.

17. B — fixed cost per unit falls as output rises

• Total fixed cost stays constant within the relevant range.

• When output increases, the same fixed cost is spread over more units.

• Fixed cost per unit falls.

18. B — variable cost per unit usually remains constant

• Variable cost per unit normally stays constant.

• Total variable cost changes directly with output.

19. C — telephone bill with line rental plus call charges

• Semi-variable cost has:

  • fixed element: line rental

  • variable element: call charges

• So telephone bill is the classic example.

20. B — supervisor salary when one supervisor is needed for every 1000 units

• Stepped fixed cost stays fixed for a range of activity.

• It jumps when another supervisor is needed.

• That jump is the “step”.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. B — $6

• Change in cost = 98 000 – 74 000 = $24 000

• Change in output = 10 000 – 6000 = 4000 units

• Variable cost per unit = 24 000 / 4000

• = $6

22. C — $38 000

• At 10 000 units:

  • variable cost = 10 000 × 6 = $60 000

• Fixed cost = total cost – variable cost

• = 98 000 – 60 000

• = $38 000

23. C — $89 000

• Cost equation = fixed cost + variable cost

• = 38 000 + 6x

• At 8500 units:

• 38 000 + 8500 × 6 = 38 000 + 51 000

• = $89 000

24. C — $38 000

• Change in cost = 92 000 – 68 000 = $24 000

• Change in output = 9000 – 5000 = 4000 units

• Variable cost per unit = 24 000 / 4000 = $6

• Fixed cost = 68 000 – 5000 × 6

• = 68 000 – 30 000

• = $38 000

25. B — $80 000

• Fixed cost = $38 000

• Variable cost per unit = $6

• Total cost at 7000 units = 38 000 + 7000 × 6

• = 38 000 + 42 000

• = $80 000

26. A — total cost = $30 000 + $6 per unit

• Change in cost = 72 000 – 54 000 = $18 000

• Change in output = 7000 – 4000 = 3000 units

• Variable cost per unit = 18 000 / 3000 = $6

• Fixed cost = 54 000 – 4000 × 6

• = 54 000 – 24 000

• = $30 000

27. B — $62 600

• Total cost at 3000 units = $45 000

• Variable cost = 3000 × 8 = $24 000

• Fixed cost = 45 000 – 24 000 = $21 000

• Total cost at 5200 units = 21 000 + 5200 × 8

• = 21 000 + 41 600

• = $62 600

28. B — $54 000

• Fixed element = $18 000

• Variable element = 15 000 × 2.40 = $36 000

• Total cost = 18 000 + 36 000

• = $54 000

29. B — $2.00

• Change in cost = 31 000 – 22 000 = $9000

• Change in machine hours = 12 500 – 8000 = 4500 hours

• Variable cost per hour = 9000 / 4500

• = $2.00

30. A — $6000

• At 8000 machine hours:

  • variable cost = 8000 × 2 = $16 000

• Fixed cost = 22 000 – 16 000

• = $6000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. C — $13.00

• Variable production costs = direct materials + direct labour + variable production overhead

• = 24 000 + 18 000 + 10 000

• = $52 000

• Variable production cost per unit = 52 000 / 4000

• = $13.00

32. C — $80 000

• Total production cost = direct materials + direct labour + variable production overhead + fixed production overhead

• = 24 000 + 18 000 + 10 000 + 28 000

• = $80 000

• Selling expenses are non-production costs.

33. C — $16

• Variable production cost per unit = 5 + 3 + 2 = $10

• Fixed production overhead per unit = 36 000 / 6000 = $6

• Total production cost per unit = 10 + 6

• = $16

34. B — $14

• Variable production cost per unit remains $10.

• Fixed overhead per unit = 36 000 / 9000 = $4

• New production cost per unit = 10 + 4

• = $14

35. B — direct materials

• Direct materials are traceable to each product.

• They also usually vary with output.

• So they are both direct and variable.

36. A — supervisor salary for a specific production department

• A supervisor’s salary may be fixed.

• If it relates clearly to one department or cost centre, it may be direct to that department.

• Sneaky one: direct does not always mean variable.

37. A — machine oil used according to machine hours

• Machine oil is not usually traced to individual units, so it is indirect.

• It varies with machine usage, so it is variable.

38. C — factory security salary

• Factory security salary supports production generally.

• It is indirect and usually fixed.

39. C — office administration salary

• Period costs are charged to the period, not included in inventory valuation.

• Office administration salary is non-production cost.

• Direct materials, factory overhead and direct labour are product costs.

40. A — factory depreciation

• Factory depreciation is a production overhead.

• Production overheads are included in product cost/inventory valuation.

• Selling commission, office rent and finance cost are not included in inventory.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. B — $14.00

• Inventory production cost = direct materials + direct labour + production overhead

• = 60 000 + 45 000 + 35 000

• = $140 000

• Cost per unit = 140 000 / 10 000

• = $14.00

42. A — $18 000

• Units produced = 8000

• Units sold = 6500

• Closing inventory units = 1500

• Inventory is valued at production cost only.

• Closing inventory = 1500 × 12

• = $18 000

43. D — selling and distribution overhead

• Finished goods inventory includes production costs:

  • direct material

  • direct labour

  • factory overhead

• Selling and distribution overhead is not included.

44. B — $48 000

• Conversion cost = direct labour + direct expenses + production overhead

• = 24 000 + 6000 + 18 000

• = $48 000

45. D — $78 000

• Total manufacturing cost = direct materials + direct labour + direct expenses + production overhead

• = 30 000 + 24 000 + 6000 + 18 000

• = $78 000

46. B — $22

• Production cost = prime cost + production overhead

• = 85 000 + 25 000 = $110 000

• Production cost per unit = 110 000 / 5000

• = $22

47. C — $190 000

• At 10 000 units:

  • total cost = $150 000

  • fixed cost = $50 000

  • variable cost = $100 000

  • variable cost per unit = 100 000 / 10 000 = $10

• At 14 000 units:

  • total cost = 50 000 + 14 000 × 10

  • = $190 000

48. No correct option — correct answer is $16 per unit

• Total cost at 6000 units = 6000 × 18 = $108 000

• Fixed cost = $30 000

• Variable cost = 108 000 – 30 000 = $78 000

• Variable cost per unit = 78 000 / 6000 = $13

• Total cost at 10 000 units = 30 000 + 10 000 × 13 = $160 000

• Cost per unit = 160 000 / 10 000

• = $16 per unit

• The option set needs correction.

49. C — $36 000

• One supervisor manages up to 3000 units.

• Output = 8500 units

• Supervisors needed = 3

• Supervisor cost = 3 × 12 000

• = $36 000

50. B — how costs change when activity level changes

• Cost behaviour describes how costs respond to changes in output/activity.

• Fixed, variable, semi-variable and stepped fixed costs are all cost behaviour classifications.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.