Cost Accountant interview questions and answers

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These questions below will prove to be a blessing for those who are preparing for the cost accountant interviews. Furthermore, I have been part of recruitment and placements for 10 years now. Similarly, I have seen these are the most frequently asked cost accountant interview questions. So, Look at these questions in detail which will surely help you get some ideas about the questions. What to put on a resume

Cost Accountant interview questions and answers

What do you know about the Economic Order Quantity? – Cost accountant interview questions

cost accountant interview questions

Answer:

EOQ is the order size that minimizes the sum of the costs of ordering stock, the cost of holding stock, and shortage costs.

Furthermore, The EOQ is calculated as Root over 2AO/C where A means Annual Consumption, O stands for Ordering Costs, and C stands for carrying costs.

Tell me the types of costing

  1. Job costing
  2. Batch costing
  3. Contract Costing
  4. Process Costing
  5. Operating costing
  6. Standard costing
  7. Marginal costing
  8. Budgeting

How cost accounting differs from financial accounting – cost accountant interview questions

  1. On the basis of users’ information: Financial statements are used by internal management and also outside parties like government, creditors, customers, employees, etc Also for financial accounting detailed cost information is presented to the internal management for proper planning, decision making, and cost control.
  2. On the basis of statutory compliance: Requirements of the statues like companies act, income tax act, etc are met through financial accounting Also in financial accounting generally cost accounting is voluntary, except in the cases where cost accounting records reules mandatorily apply to the enterprise.
  3. Basis of nature and objectivity: Transactions are recorded in a subjective manner. Similarly, Accounting policies may differ from one firm to another firm also in financial accounting expenditure is recorded in an objective manner. Also, Costing principles and techniques are generally uniform to all the forms.
  4. On the basis of focus: The focus of accounting is on recording the transactions also in financial accounting the focus of accounting is to control cost.
  5. On the basis of the nature of costs: Generally, historical costs are used for recording purposes. Moreover, Projected financial statements may also be drawn for budgeting purposes also in financial accounting it considers both historical costs and predetermined that are standard costs. Above all, It also extends to plans and policies to improve future performances.
  6. On the basis of stock valuation: Stocks are valued at cost or NRV which every is less also in financial accounting stocks are generally valued at cost.

Different types of break even charts

Answer: This is the important cost accountant interview questions and answers.

  1. Contribution Break-even chart: Since This chart shows the contribution of the firm at different levels of the activity.
  2. Cash Break-even charts: In this chart, variable costs are assumed to be payable in cash. Besides this, the fixed expenses are dividend into two groups, viz. (a) those expenses which involve cash outflow for instances rent, insurance salaries, etc and (b) those which do not involve cash outflow for instances depreciation.
  3. Control Break-even chart: Both budgeted and actual cost data are depicted in this chart. Also, This chart is useful in comparing the actual performance of the firm with budgeted performance and exercising control.
  4. Analytical Break-even chart: This chart shows the break up of variable expenses into important elements of cost such as direct materials, direct labor, variable overheads, etc. Also, the appropriations of profit such as equity dividends, preference dividends, reserves, etc are depicted in this chart.
  5. Product-wise BEP chart: The Separate BEP charts that are for the different products can be prepared in order to compare the profitability of the products or on the basis of their contribution.
  6. Profit Graph: It is a special type of break-even chart, which shows the profit or loss at different levels of output.

How to find Break even point qty and amount

Answer:

Break even point(Amount) : Fixed cost/ PV Ratio

Break even point(Qty) : Fixed cost/ contribution per unit

where PV ratio means (Contribution / Sales)

Significance of PV ratio:

cost accountant interview questions

Answer:

  1. PV Ratio also known as the Profit Volume ratio is considered as the basic indicator as it indicates the best of the profitability of the business and due course of business.
  2. The higher the PV ratio the better it is for business. Above all, In the case of a firm enjoying steady business conditions over a period of years, the PV ratio will also remain stable and steady.
  3. Moreover, If PV Ratio is improved, it will result in higher profits.

Cost Accountant interview questions and answers

What do you mean by Budget and Budgeting?

Answer: This is the frequently asked question in cost accountant interview questions and answers. The budget is a quantitative expression of a plan for a defined period of time. Moreover, It may include planned – (a) sales volume and revenues, (b) Resource quantities, cost and expenses, and (c) Assets, Liabilities, and cash flows.

Also, Budgeting is a means of coordinating the combined intelligence of an entire organization, into a plan of action. Moreover, based on past performances and governed by the rational judgment of factors that will influence that course of business in the future.

cost accountant interview questions

Do you know what budgeted capacity ratio is?

Answer: Relationship between the budgeted number of working hours and the maximum possible number. of working hours. Therefore, In a budget, the period is known as the budgeted capacity ratio.

The time-based formula for budgeted capacity ratio is budgeted hours/practical plant capacity hours.

The output-based formula for budgeted capacity ratio is budgeted Output/practical plant capacity output.

Cost Accountant interview questions and answers

Do you know what Actual capacity utilization ratio is?

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Answer: It indicates the extent to which facilities were actually utilized during the budget period.

Also, The time-based formula for budgeted capacity ratio is Actual hours/Budgeted hours.

Also, The output-based formula for budgeted capacity ratio is Standard Output/Budgeted output.

One of the Examples of budgeting

INCOMEBUDGETACTUAL INCOME
Salary Income  100.00                 100.00
Any Other Income  100.00                 100.00
Total Income      200.00                          200.00
EXPENSES  
Home Mortgage        10.00                            10.00
Homeowners Insurance        10.00                            10.00
Telephone Expenses        10.00                            10.00
Electricity Expenses        10.00                            10.00
Kitchen        10.00                            10.00
Internet and Communication        10.00                            10.00
Water Expenses        10.00                            10.00
Insurance        10.00                            10.00
Any other Expenses        10.00                            10.00
Total Expenses        90.00                            90.00
Balance      110.00                          110.00

Causes of over or under absorption/recovery of overheads:

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If we talk about the cost accountant interview questions and answers this is the top one.

  1. Estimates of overheads may prove erroneous:  Anticipates regarding the quantum of overhead cost during the budget may not prove right either due to judgemental error or unforeseen developments during the budget period. Higher actual overheads lead to under absorption and vice versa.
  2. The actual output differs from the budgeted output: Higher actual output results in over absorption and vice versa.
  3. The actual output differs from the budgeted output: In case actual direct labour hours or machine hours (whichever has been adopted as the base) worked are more than budgeted, it will lead to over absorption, and vice versa.
  4. Increase in price of direct materials: In case direct material cost has been adopted as the basis for overhead absorption, a significant increase in the price of raw materials may result in over-absorption and vice versa.
  5. Change in wage rate: An unanticipated increase in wage rate, e.g., due to change in minimum wage act etc., may lead to over-absorption if overheads have been absorbed on the basis of direct labour cost.
  6. Change in the ratio of skilled and unskilled workers: A significant change in the ratio of skilled and unskilled workers may result in under or over absorption both when absorption is based on direct labour cost or direct labour hour rate.
  7. Degree of mechanization: In case of an unanticipated change in the degree of mechanization more of manual or more of mechanical work than planned will make absorbed overheads differ from actual overheads.
  8. Inappropriate method of absorption: In case an appropriate method of absorption has not been adopted, e.g., direct labour hour rate has been adopted where the production process is highly mechanized, there will be over or under absorption.
  9. Capacity utilization: In case actual capacity utilization exceeds the budgeted level, there may be over absorption, and vice versa.
  10. Seasonal fluctuation: There is a greater probability of over or under absorption in case of seasonal industries. A longer high season may lead to over absorption and a long low season may cause under absorption.
  11. Cyclical fluctuations: Generally overheads get over absorbed during a boom and under absorbed during the depression.
  12. Work-in-progress: Failure to charge overheads to work-in-progress may result in under absorption of overheads.   
  13. Non-recurring expenses: An unexpected incurrence of non-recurring expenses may give rise to under absorption.
  14. Changes in a work situation: Unexpected changes in a work situation, such as; heavy overtime, the addition of new shifts, change in production technology, organizational restructuring will also result in under or over absorption.
cost accountant interview questions

Explain “Costing”, “Cost accounting” and “Cost accountancy” – cost accountant interview questions

Answer:

Costing: The technique and the process of ascertaining costs. Costing is “the technique and process of ascertaining costs.

“Cost accounting is different from cost in the sense that the former provides only the basis and information for the ascertainment of cost.

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Once the information is made available, the costing can be carried out arithmetically, by means of memorandum statements or by the method of integral accounts.

Costing is the classifying, recording, and appropriate allocation of expenditure for the determination of the costs of products or services; the relation of these costs to sales value; and the ascertainment of profitability.

Cost Accounting: The process for accounting for cost which begins with a recording of income and expenditure on the bases of which they are calculated. Above all, And ends with the preparation of periodical statements and reports for ascertaining and controlling costs.

Cost accounting is the process of accounting for costs.

Cost accounting as the analyzing, recording, standardizing, forecasting, comparing, reporting, and recommending and the rate of a cost accountant as that of ‘a historian, newsagent, and prophet’.

Cost Accountancy: This is defined as the method of the costing that particularly based on the cost accounting principles which is based in the controlling cost and the ascertainment of the profitability in this regard.

Similarly, It includes the presentation of information derived therefrom the purpose of managerial decision-making.

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Furthermore, It also includes the proper presentation and examination of the information that is derived from the purpose of managerial decision making and other decision-making aspects.

Objectives of cost accounting:

  1. Ascertainment of cost: This is the primary objective of cost accounting. For cost ascertainment, different techniques and systems of costing are used in different industries.
  2. Control and reduction of costs: Cost control aims at improving efficiency by controlling and reducing costs.
  3. Guide to business policy: Cost accounting aims at serving the needs of management in conducting the business with the utmost efficiency. Cost and costing data are required to provide the guidelines for the various managerial decisions such as make or buy decision making, and selling the good below cost
  4. Determination and ascertainment of selling price: Cost accounting and the cost accountant provides the cost information that are on the basis of which the selling prices of products or services may be fixed in the particular regard.
  5. Determination of break-even point: Cost accounting provides cost and revenue information on the basis of which no profit no loss level may be determined.

Treatment of spoilage and defectives:

Spoilage: Normal Spoilage is included in cost either by charging the loss to the production order or charging it to production overhead. The cost of abnormal spoilage is charged to costing profit and loss of accountant.

Defectives: Normal Defectives can be recovered:

: Charged to good production.

: Charged to production overhead.

: to department.

If defectives are abnormal and are due to cause beyond the control of the organization then they should be charged to profit and loss accountant.

Cost Accountant interview questions and answers

Meaning of overheads:

  1. Overhead costs are those cost that are required in the operation of the business enterprise. These cannot be detected to a unit in particular unit in output.
  2. Overhead may be defined as the cost of indirect materials, indirect labor, and such other expenses including services as cannot conveniently be charged directly to specific cost units.
  3. C.I.M.A., London, Terminology gives a very simple definition of overhead as “an aggregate of indirect materials, indirect wages, and indirect expenses”.

Allocation of overheads:

Allocation refers to the assignment or allotment of an entire item of cost to a particular cost center or cost unit.

For example, – If a separate power meter has been installed for a department, the entire power cost ascertained from the meter is allocated to that department only.

  • In the same way, the cost of maintaining and repairing plants and machinery located in a particular department is allocated to that department.

Allocated overheads thus satisfy two conditions:

  1. The allocated costs should have been exclusively caused by that department or cost center, e.g., the salary paid to the manager of a particular department, the salary of an engineer working in a particular department, and
  2. The exact amount of cost incurred in a department is known and the whole of that amount is charged to that department.

These overheads can also be called traceable overheads because these are traced to specific departments.

In conclusion, I would like to wish the best of luck for your interview and mind you revise these questions before your interview as well. I Hope, This will help you get through.

Do not forget to leave your valuable comment in the comment section below. We admire and appreciate each and every comment that you share.

Until next blog Ta Da!

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