Prepare for FAA 2026 with these Top Most Important Cost Accounting MCQs, specially prepared by Exam Waves. Practice important questions on cost classification, costing methods, overheads, cost techniques, and other key topics for better exam preparation.

Q1. Which of the following statements correctly describe Cost Accounting?

1. It is a branch of accounting dealing with the collection and classification of costs.
2. It specializes in the ascertainment of the cost of products and services.
3. Cost ascertainment is one of its objectives.
4. Cost control and cost reduction are also among its objectives.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q2. Match List I with List II and select the correct answer:

List I	List II
A. Cost Accounting	1. Application of cost accounting principles
B. Costing	2. Collection and classification of costs
C. Cost Accountancy	3. Technique used to determine cost of a product
D. Cost Centre	4. Organisational sub-unit where separate cost collection is attempted

A) A-2, B-3, C-1, D-4
B) A-3, B-2, C-4, D-1
C) A-2, B-1, C-3, D-4
D) A-4, B-3, C-1, D-2

Answer: A

Q3. Which of the following correctly describes a Cost Sheet and the classification of costs by elements?

1. A Cost Sheet is a statement in which the cost of a product is set out.
2. Material includes raw material.
3. Labour includes training expenses.
4. Factory rent is included under expenses.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q4. When costs are classified according to function, which of the following categories are included?

1. Production Cost
2. Administration
3. Selling
4. Distribution

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q5. Consider the following statements about Fixed, Variable and Semi-variable Costs:

1. Fixed Cost remains unchanged during a given period with changes in the volume of production.
2. Rent, salaries and building insurance are examples of Fixed Cost.
3. Variable Cost changes with the volume of output.
4. Raw material is an example of Variable Cost.
5. Semi-variable Cost is partly fixed and partly variable.

Which of the statements given above are correct?

A) 1, 2 and 3 only
B) 1, 2, 3 and 4 only
C) 2, 3, 4 and 5 only
D) 1, 2, 3, 4 and 5

Answer: D

Q6. Mushtaq is classifying business costs according to variability. Which of the following is correctly matched?

A) Rent – Variable Cost; Raw Material – Fixed Cost; Electricity Bill – Direct Cost
B) Rent – Fixed Cost; Raw Material – Variable Cost; Electricity Bill – Semi-variable Cost
C) Salaries – Variable Cost; Electricity Bill – Fixed Cost; Raw Material – Semi-variable Cost
D) Building Insurance – Variable Cost; Rent – Semi-variable Cost; Raw Material – Fixed Cost

Answer: B

Q7. Which of the following statements correctly distinguish Controllable Cost from Uncontrollable Cost?

1. Controllable Costs can be controlled by a person or manager.
2. Sales and marketing expenses are given as examples of Controllable Costs.
3. Uncontrollable Costs cannot be controlled by any officer or manager.
4. Rent of building and managerial salaries are examples of Uncontrollable Costs.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q8. Match the following costs with their examples:

List I	List II
A. Direct Cost	1. Loss or wastage
B. Indirect Cost	2. Wages, wood and raw material
C. Normal Cost	3. Salary of CEO, power and rent
D. Abnormal Cost	4. Breakdown of machinery

A) A-2, B-3, C-1, D-4
B) A-3, B-2, C-4, D-1
C) A-2, B-4, C-1, D-3
D) A-1, B-3, C-2, D-4

Answer: A

Q9. Which of the following statements correctly describe Direct and Indirect Costs?

1. Direct Costs are directly related to the production of a good or service.
2. Wages, wood and raw material are examples of Direct Costs.
3. Indirect Costs are not directly related to the production of a good or service.
4. Salary of CEO, power and rent are given as examples of Indirect Costs.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q10. Which of the following correctly distinguishes Normal Cost from Abnormal Cost?

A) Normal Cost is not part of production, while Abnormal Cost is normally incurred.

B) Normal Cost is normally incurred at a given level of output, while Abnormal Cost is not part of the normal cost of production.

C) Both Normal and Abnormal Costs are always fixed.

D) Abnormal Cost is always directly related to the volume of output.

Answer: B

Q11. Consider the following statements regarding Historical Cost and Predetermined Cost:

1. Historical Costs are ascertained after they have been incurred.
2. Historical Costs are actual costs.
3. Predetermined Costs are computed in advance of production.
4. Predetermined Costs take into account the previous period’s costs.
5. Standard Costing is given as an example of Predetermined Cost.

A) 1, 2 and 3 only
B) 1, 2, 3 and 4 only
C) 2, 3, 4 and 5 only
D) 1, 2, 3, 4 and 5

Answer: D

Q12. Match List I with List II and select the correct combination:

List I	List II
A. Out-of-Pocket Cost	1. Historical cost incurred in the past
B. Differential Cost	2. Requires payment to outsiders
C. Sunk Cost	3. Change in cost due to change in level of activity
D. Imputed Cost	4. Computed only for decision-making

A) A-2, B-3, C-1, D-4
B) A-3, B-2, C-4, D-1
C) A-2, B-1, C-3, D-4
D) A-4, B-3, C-1, D-2

Answer: A

Q13. Which of the following statements correctly describe Imputed Cost and Opportunity Cost?

1. Imputed Cost is computed only for decision-making.
2. Imputed Costs are non-cash items.
3. Opportunity Cost is the value of sacrifice made or benefit forgone.
4. Opportunity Cost necessarily requires payment to outsiders.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: B

Q14. Seraj is examining Product Cost and Period Cost. Which of the following correctly distinguishes them?

A) Product Cost is based on time, whereas Period Cost is traceable to the product.

B) Product Cost is traceable to the product, whereas Period Cost is incurred on the basis of time.

C) Both are necessarily direct costs.

D) Both are computed only for managerial decision-making.

Answer: B

Q15. Consider the following statements about Implicit and Explicit Costs:

1. Implicit Cost is an indirect, non-monetary opportunity cost.
2. Implicit Cost is not written in accounting books.
3. Implicit Cost is essential for calculating economic profit.
4. Explicit Cost requires cash payment to outsiders.
5. Wages and rent are examples of Explicit Cost.

A) 1, 2 and 3 only
B) 1, 2, 3 and 4 only
C) 2, 3, 4 and 5 only
D) 1, 2, 3, 4 and 5

Answer: D

Q16. Which of the following correctly describes Job Costing?

1. It is used where work is undertaken according to jobs or work orders.
2. Printing press is given as an example.
3. Workshop is given as an example.
4. It is classified as a method of costing.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q17. Match the method of costing with the most appropriate example:

List I	List II
A. Job Costing	1. Ready-made garments
B. Batch Costing	2. Construction of commercial complexes
C. Contract Costing	3. Printing press
D. Process Costing	4. Sugar

A) A-3, B-1, C-2, D-4
B) A-1, B-3, C-4, D-2
C) A-3, B-2, C-1, D-4
D) A-4, B-1, C-2, D-3

Answer: A

Q18. Which of the following statements correctly describe Batch Costing and Contract Costing?

1. Batch Costing is used where similar articles are manufactured in batches.
2. Ready-made garments are given as an example of Batch Costing.
3. Contract Costing is used in the construction industry to ascertain the cost of a contract.
4. Contract Costing is also called Terminal Costing.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D

Q19. Asif wants to identify the correct costing methods for different industries. Which combination is correct?

A) Sugar – Process Costing; Hospital – Service/Operating Costing; Oil Refinery – Process Costing

B) Sugar – Job Costing; Hospital – Batch Costing; Oil Refinery – Multiple Costing

C) Sugar – Contract Costing; Hospital – Process Costing; Oil Refinery – Job Costing

D) Sugar – Multiple Costing; Hospital – Output Costing; Oil Refinery – Contract Costing

Answer: A

Q20. Which of the following statements correctly describe Operating Costing?

1. It is used in the service sector or firms providing services.
2. Hospitals are given as an example.
3. Transport services are given as an example.
4. It is used only where goods are manufactured in batches.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: B

Q21. Match List I with List II:

List I	List II
A. Output Costing	1. Determines cost of each operation
B. Operation Cost	2. Large amount of a single unit is produced
C. Multiple Cost	3. Two or more methods of costing are applied
D. Process Costing	4. Cost ascertained at every stage of process

A) A-2, B-1, C-3, D-4
B) A-1, B-2, C-4, D-3
C) A-2, B-3, C-1, D-4
D) A-4, B-1, C-3, D-2

Answer: A

Q22. Which of the following combinations of industry and costing method is correctly matched?

1. Sugar — Process Costing
2. Printing — Job Costing
3. Hospital — Service/Operating Costing
4. Oil Refinery — Process Costing
5. Coal — Single Unit/Output Costing
6. Toy Making — Batch Costing
7. Bicycle Manufacturing — Multiple Costing

A) 1, 2, 3 and 4 only
B) 1, 2, 3, 4 and 5 only
C) 2, 3, 4, 5, 6 and 7 only
D) 1, 2, 3, 4, 5, 6 and 7

Answer: D

Q23. Which of the following are included under Overheads?

1. Indirect Material
2. Indirect Labour
3. Indirect Expenses
4. Direct Material
5. Direct Labour

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3, 4 and 5 only
D) 1, 2, 3, 4 and 5

Answer: B

Q24. Match the Factory Overhead category with its correct examples:

List I	List II
A. Indirect Material	1. Salary to sweeper and factory manager
B. Indirect Wages	2. Rent, municipal tax and power
C. Indirect Expenses	3. Consumable goods, stationery and cost of thread
D. Factory Overheads	4. All indirect costs incurred in factory for production

A) A-3, B-1, C-2, D-4
B) A-1, B-3, C-4, D-2
C) A-3, B-2, C-1, D-4
D) A-4, B-1, C-2, D-3

Answer: A

Q25. Which of the following items are shown under Office/Administration expenses?

1. Office printing and stationery
2. Postage
3. Heating and lighting
4. Bank charges
5. Audit expenses

A) 1, 2 and 3 only
B) 1, 2, 3 and 4 only
C) 2, 3, 4 and 5 only
D) 1, 2, 3, 4 and 5

Answer: D

Q26. Consider the following classification of items:

1. Oil — Indirect Material
2. Spare Parts — Indirect Material
3. Cost of Packing — Indirect Material
4. Delivery Vans — Indirect Material
5. Salaries of Godown Staff — Indirect Wages
6. Wages of Drivers — Indirect Wages
7. Godown Rent — Indirect Expense
8. Insurance — Indirect Expense

Which of the above are correctly classified?

A) 1, 2, 3 and 4 only
B) 1, 2, 3, 4, 5 and 6 only
C) 3, 4, 5, 6, 7 and 8 only
D) 1, 2, 3, 4, 5, 6, 7 and 8

Answer: D

Q27. Which of the following correctly describes Selling and Distribution Expenses?

1. Selling and Distribution expenses are incurred for marketing and selling a commodity.
2. Postage, cost of samples, advertising, bad debts, rent and market research are listed as Selling Expenses.
3. Distribution Expenses are incurred in relation to the delivery of sales.
4. Distribution Expenses are the same as Direct Material Cost.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: B

Q28. Match the costing technique with its description:

List I	List II
A. Uniform Costing	1. Compares standard cost with actual cost
B. Marginal Costing	2. Different firms adopt a common method of costing
C. Standard Costing	3. Ascertaining marginal costs and effects of changes in costs
D. Historical Costing	4. Ascertainment and recording of actual costs after they have been incurred

A) A-2, B-3, C-1, D-4
B) A-3, B-2, C-4, D-1
C) A-2, B-1, C-3, D-4
D) A-4, B-3, C-1, D-2

Answer: A

Q29. Which of the following statements correctly describe Absorption Costing?

1. It is also known as Full or Orthodox Costing.
2. It takes into account all costs.
3. Both variable and fixed costs are considered.
4. It considers only variable costs and completely ignores fixed costs.

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: B

Q30. Consider the following statements regarding Prime Cost and other cost calculations:

1. Prime Cost consists of Direct Labour, Direct Material and Direct Expenses.
2. Prime Cost + Factory Expenses is also known as Factory Cost.
3. Office Cost or Cost of Product = Factory Cost + Office and Distribution Cost.
4. Total Cost or Cost of Sales = Office Cost + Selling Overheads.

Which of the statements given above are correct?

A) 1 and 2 only
B) 1, 2 and 3 only
C) 2, 3 and 4 only
D) 1, 2, 3 and 4

Answer: D