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Costing terms and concepts

Unit: Management accounting

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Practice CPA Management accounting Costing terms and concepts questions with detailed answers and explanations.

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April 2025

 1 Questions
Question 1a
​​Understanding cost behaviour patterns is important in making management accounting and cost control decisions. 

In relation to the above statement, explain THREE types of costs which can be classified according to cost behaviour.


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December 2024

 2 Questions
Question 1a
​ ​​Define the following types of costs as used in decision making: 

(i) Controllable costs. 

(ii) Discretionary costs


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Question 3a
​​Explain the following terminologies as used in business decision making: 

(i) Opportunity cost.

(ii) Opportunity savings.


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August 2024

 3 Questions
Question 1a
​​With reference to cost classification, distinguish between the following types of costs: 

(i) “Semi-variable costs” and “semi-fixed costs”.

(ii) “Prime costs” and “marginal costs”


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Question 1b
​Cost Database Management System (DBMS) is a computer based software system that is used in management accounting to manage costs. 

Required: 
Highlight FOUR benefits of implementing a cost database management system for inventory.​


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Question 5a
​ ​​The table below shows the type of cost classification base and an example of type of cost. By giving one example in each, fill in the missing letters W, X, Y and Z.

Cost classification
Example of cost
Example:
Functional classification
Production cost, Administrative cost
(i)
On basis of time
W
(ii)
X
Variable cost, fixed cost
(iii) 
By nature of elements
Y
(iv)
Z
Opportunity cost, sunk cost 
  


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April 2024

 1 Questions
Question 1a
​​Cost classification is essential for easier cost ascertainment and cost control. With reference to the above statement, explain the following bases of cost classification citing one example in each case: 

(i) By time. 

(ii) By behaviour. 

(iii) By function. 

(iv) By nature.


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December 2023

 1 Questions
Question 5a
​​Major policy decisions in business are based on cost factor and it is important to distinguish between controllable and non-controllable costs in decision making. However, the classification of cost as controllable and non-controllable depends on the point of reference. 

Required:
(i) With reference to the above statement, explain TWO possible uses of cost information to the management. 

(ii) By distinguishing between “controllable costs” and “non-controllable costs”, discuss how the classification of cost as controllable and non-controllable depends on a point of reference.


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August 2023

 2 Questions
Question 1b
​ ​​Distinguish between a “cost centre” and a “profit centre” as used in responsibility accounting.


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Question 5a
​​The analysis of total cost into its behavioural elements is essential for effective cost and management accounting. 

With reference to the above statement, enumerate FOUR cost behaviour patterns.


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April 2023

 1 Questions
Question 1a
​​Explain THREE benefits of maintaining a cost database.


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Pilot December 2021

 1 Questions
Question 1a
​ ​​Distinguish between a cost centre and a cost unit.


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December 2021

 1 Questions
Question 5d
​​Explain the following terms: 

(i) Relevant cost. 

(ii) Sunk cost.


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May 2021

 1 Questions
Question 1a
​​Explain the following terms as used in management accounting

(i) Opportunity cost.

(ii) Notional cost

(iii) Discretionary cost

(iv) Incremental cost.


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November 2020

 1 Questions
Question 5a
​​In the context of costs classification, explain three types of costs based on behaviour.


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November 2019

 2 Questions
Question 2a
​​ Explain three types of standards as used in standard costing.


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Question 3a
​​Explain the meaning of the following terms as used in cost estimation: 

(i) Cost allocation. 

(ii) Cost centre. 

(iii) Cost driver. 

(iv) Cost pool.


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May 2019

 1 Questions
Question 4a
​​Highlight four purposes of costs classification in an organisation.


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May 2018

 2 Questions
Question 2a
​​Classification of cost based on function involves classifying costs on the basis of the purpose for which costs are incurred

With reference to the above statement, explain three types of costs classified by function.


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Question 1c
​ ​​Louise Njambi has taken a lease on a stall from the county government at a down payment of Sh.50,000. The annual rental payment amounts to Sh.50,000. If the lease is cancelled, the initial payment of Sh.50,000 is forfeited. Louise plans to use the stall in selling women's clothes and the estimated operation costs for the next 12 months are as follows:

Sh.
Sh.
Sales
1,150,000
Value added tax (VAT)
(150,000)
Net sales
1,000,000
Cost of goods sold
500,000
Wages and casual labour
120,000
Rent including the down payment
100,000
Rates, heating, lighting and insurance
130,000
General expenses
20,000
(870,000)
Net profit 
130,000

Additional information: 
1. No provision has been made for Louise Njambi's salary but it is estimated that half of her time will be devoted to the business. 

2. She has an option of subletting the stall to a friend at a monthly rent of Sh.5,500 if she does not use the stall herself. 

Required: 
(i) Explain using relevant examples from the situation depicted above; sunk costs and opportunity costs. 

(ii) Using a cost analysis statement, advise Louise Njambi on whether to use the stall herself or sublet it.


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November 2017

 1 Questions
Question 4a
​​In the context of management accounting, distinguish between "discrete costs" and "imputed costs".


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May 2017

 1 Questions
Question 5a
​​Examine four purposes of cost classification.


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November 2015

 1 Questions
Question 3a
​​Explain three purposes of cost classification by behaviour.


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Pilot September 2015

 2 Questions
Question 3b
​​Distinguish between "cost centre", "profit centre" and "investment centre".


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Question 3a
​​Explain four ways in which a company could achieve cost reduction.


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