Q.Classify costs according to financial areas.
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Cost can be classified in several ways depending on purpose: by nature/element (material, labour, expenses), by traceability (direct vs indirect, where all indirect costs together are overheads), by function (production, administration, selling, distribution), by behaviour (fixed, variable, semi-variable), by controllability, and by relevance to decisions (relevant, sunk, opportunity, standard). The three elements of cost — material, labour and expenses — each split into a direct part (traceable to a unit) and an indirect part (an overhead). The three direct elements …
Classifying cost according to financial areas (functions) means grouping it by the function of the business that incurs it — mainly manufacturing/production cost, administration cost, and selling & distribution cost. …
By financial area (function), cost is grouped into manufacturing, administration, and selling & distribution cost.
In +2 Class-12 Cost Accounting (CHSE Odisha, aligned with the NCERT/CBSE commerce curriculum), classifying cost according to financial areas means classifying it by function — the major areas of business activity that incur cost:
- Manufacturing / Production cost — cost of making the product (direct material, direct labour, factory overhead).
- Administration (office) cost — cost of general management and administration (office salaries, office rent). …
- CBSE 2024Set ANNUAL1 markMCQQ.(c) Variable cost per unit :(a) Varies with variation in output(b) Increases with fixed cost(c) Remains constant(d) Decreases with decrease in output
›Reveal solutionSolution
Variable cost per unit remains constant — option (c).
Cost behaviour is a standard CHSE +2 Cost Accounting topic. A variable cost (e.g., direct material, direct wages) changes in total in direct proportion to output. But per unit it is fixed: if material costs ₹10 per unit, it is ₹10 whether you make 100 or 1,000 units.
- (a)/(d) describe TOTAL variable cost behaviour, not per-unit.
- (b) is wrong — variable cost is unrelated to fixed cost. …
- CBSE 2024Set ANNUAL1 markMCQQ.(d) Primary packing expenses form a part of :(a) Factory overhead(b) Selling overhead(c) Prime cost(d) Distribution cost
›Reveal solutionSolution
Primary packing expenses form part of prime cost — option (c).
Packing is classified by purpose in the +2 syllabus. PRIMARY packing is the first, essential packing that holds and protects the product and is inseparable from it (the tube of a toothpaste, the bottle of a syrup). Being essential to the product, it is treated as a direct material cost and so is included in PRIME COST (direct material + direct labour + direct expenses).
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- CBSE 2024Set ANNUAL1 markQ.Answer the following questions within one sentence each :(iv) What is Prime Cost ?
›Reveal solutionSolution
Prime cost is the sum of all direct costs: Direct Material + Direct Labour + Direct Expenses.
Prime cost (also called basic or first cost) is the aggregate of the three direct elements of cost that can be identified with and charged directly to a product or job:
- Direct Materials + Direct Labour (direct wages) + Direct/Chargeable Expenses = Prime Cost. …
- CBSE 2024Set ANNUAL1 markQ.Rectify the underlined portions of the following sentences :(ix) Per unit fixed cost remains constant irrespective of changes in production. (underlined : constant)
›Reveal solutionSolution
Correct word: per-unit fixed cost VARIES (decreases with more output), it is not constant.
Total fixed cost (e.g., rent) stays the same over a range of output, but when it is divided among units, the fixed cost PER UNIT changes inversely with output:
- Higher production → fixed cost spread over more units → lower per-unit fixed cost.
- Lower production → spread over fewer units → higher per-unit fixed cost. …
- CBSE 2023Set ANNUAL1 markMCQQ.The pair of elements included in prime cost, is :(a) Direct materials and Factory overhead(b) Direct wages and Office overhead(c) Direct materials and Direct wages(d) Direct wages and Indirect wages
›Reveal solutionSolution
Prime cost = Direct materials + Direct wages (+ Direct expenses) — overheads are excluded.
Prime cost is the aggregate of the direct elements of cost — those that can be conveniently traced to a cost unit:
- Direct materials
- Direct wages (direct labour)
- Direct (chargeable) expenses …
- CBSE 2023Set ANNUAL1 markMCQQ.Cost of raw materials is a :(a) Fixed cost(b) Variable cost(c) Semi-variable cost(d) Semi-fixed cost
›Reveal solutionSolution
Cost of raw materials is a Variable cost.
Costs are classified by behaviour with respect to the level of output:
- Variable cost — total cost changes in direct proportion to output; per-unit cost stays constant. Raw materials consumed go up as more units are made and down as fewer are made → variable. ✓ …
- CBSE 2022Set ANNUAL1 markMCQQ.Depreciation of building is a :(a) Fixed cost(b) Variable cost(c) Semi-variable cost(d) Semi-fixed cost
›Reveal solutionSolution
Depreciation of building (straight-line) is constant in total irrespective of output volume, making it a fixed cost — option (a).
Costs are classified by behaviour in this CHSE Odisha +2 Cost Accounting topic:
- Fixed cost — remains constant in total within a range of activity (rent, building depreciation, manager salary).
- Variable cost — changes in direct proportion to output (direct material, direct wages). …
- CBSE 2022Set ANNUAL1 markMCQQ.General manager's salary is a :(a) Fixed cost(b) Variable Cost(c) Semi-variable cost(d) Semi-fixed cost
›Reveal solutionSolution
A general manager is paid a fixed salary irrespective of how many units are produced, so it is a fixed cost — option (a).
In this +2 Class-12 Cost Accounting topic (CHSE Odisha), classifying by behaviour: …
- CBSE 2022Set ANNUAL1 markMCQQ.An example of variable cost is :(a) Direct material(b) Work manager's salary(c) Insurance of the building(d) Depreciation of building
›Reveal solutionSolution
Direct material is consumed in proportion to the number of units made, so it is a variable cost — option (a).
This CHSE Odisha +2 Cost Accounting question tests variable vs fixed costs:
- (a) Direct material — more units → more material → varies with output. Variable. Correct. …
- CBSE 2022Set ANNUAL1 markMCQQ.An example of fixed cost is :(a) Depreciation of building(b) Direct material(c) Repairs of machinery(d) Direct expenses
›Reveal solutionSolution
Building depreciation does not change with output, so it is the fixed cost among the options — (a).
In this CHSE Odisha +2 Cost Accounting item:
- (a) Depreciation of building — fixed (constant per period). Correct.
- (b) Direct material — variable. …
- CBSE 2022Set ANNUAL1 markMCQQ.Out of the following, one which is a direct cost is :(a) Rent of factory building(b) Carriage inward(c) Salary of watchman(d) Small tools
›Reveal solutionSolution
Carriage inward is added to the cost of the raw material it brings in, so it is traceable to the product — a direct cost (b).
In this CHSE Odisha +2 Cost Accounting question, a direct cost is one that can be identified with and charged to a specific product/job, while indirect costs cannot be so traced:
- (a) Rent of factory building — indirect (overhead). …
- CBSE 2019Set ANNUAL1 markMCQQ.Aggregate of direct material, direct labour and direct expenses is known as(a) Total cost(b) Prime cost(c) Factory cost(d) Cost of production
›Reveal solutionSolution
The aggregate of all direct costs is (b) Prime cost.
Prime cost = Direct material + Direct labour + Direct expenses. It is the first stage of cost build-up. Adding factory overhead gives factory/works cost; adding office overhead gives cost of production; adding selling & distribution …
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