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CMA Intermediate · Cost Accounting · Contract Costing

In contract costing, each contract is treated as a separate cost unit mainly because:

Each contract is a separate cost unit because it is a large, customer-specific work, normally executed at the customer's site on agreed terms, so its costs and profit must be determined individually rather than pooled with other work.

  1. AContracts are always completed within one accounting year
  2. BEach contract is usually undertaken at the customer's site to specific terms and has its own cost and profit determinationCorrect
  3. CContract costs cannot include any indirect expenses
  4. DContract work is always carried out in a factory under continuous production

Explanation

A contract is a large, customer-specific job usually done at the site, so cost and profit are tracked for each contract separately. Contracts often run beyond a year, and indirect costs can be attributed, so the other options are wrong.

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