Identify the costing method primarily used for internal decision-making, such as pricing and budgeting:

Question 1

Identify the costing method primarily used for internal decision-making, such as pricing and budgeting:
a) Marginal costing
b) Absorption costing
c) Standard costing
d) Job costing

Answer 1

a) Marginal costing

Question 2

2 Marginal costing is a cost accounting technique that focuses on the costs that vary with ______.
a) Production volume
b) Fixed overheads
c) Administrative expenses
d) Depreciation

Answer 2

Production volume

Question 3

The difference between the sales revenue and the variable costs is known as ______.
a) Contribution margin
b) Gross profit
c) Net profit
d) Operating profit

Answer 3

a) Contribution margin

Question 4

State the primary benefit of marginal costing from the following options:
a) It simplifies the calculation of break-even point.
b) It provides detailed information about fixed costs.
c) It ignores variable costs.
d) It allocates fixed costs to products.

Answer 4

a) It simplifies the calculation of break-even point.

Question 5

5 The key concept of marginal costing is that it distinguishes between ______ and ______.
a) Variable and fixed
b) Operating and non-operating
c) Direct and indirect
d) Production and non-production

Answer 5

a) Variable and fixed

Question 6

6 Determine which of the following costs is classified as a variable cost in marginal costing.
a) Direct materials
b) Salaries of permanent staff
c) Rent for factory premises
d) Depreciation on machinery

Answer 6

a) Direct materials

Question 7

7 The formula for calculating the contribution margin ratio is:
a) (Selling price - Variable cost) / Selling price
b) (Fixed cost - Variable cost) / Sales revenue
c) (Selling price - Fixed cost) / Sales revenue
d) (Sales revenue - Variable cost) / Fixed cost

Answer 7

a) (Selling price - Variable cost) / Selling price

Question 8

8 In marginal costing, the term “marginal cost” refers to the cost of producing ______.
a) One additional unit
b) The first unit
c) The average unit
d) The total production

Answer 8

a) One additional unit

Question 9

9 Under marginal costing, the profit or loss is calculated as:
a) Contribution margin - Fixed costs
b) Gross profit - Variable costs
c) Sales revenue - Total costs
d) Net income - Fixed costs

Answer 9

a) Contribution margin - Fixed costs

Question 10

Specify which of the following is not a decision-making tool offered by marginal costing.
a) Absorption of overhead costs
b) Make or buy decisions
c) Profitability analysis
d) Pricing decisions

Answer 10

a) Absorption of overhead costs

Question 11

11 In marginal costing, what happens to the profit if sales volume increases, assuming fixed costs remain constant?
a) Profit increases
b) Profit decreases
c) Profit remains the same
d) Profit becomes zero

Answer 11

a) Profit increases

Question 12

12 When using marginal costing, changes in production levels affect ______ but not ______.
a) Variable costs; Fixed costs
b) Fixed costs; Variable costs
c) Contribution margin; Net profit
d) Gross profit; Operating expenses

Answer 12

a) Variable costs; Fixed costs

Question 13

13 Marginal costing helps in determining the ______ by comparing the contribution margin to fixed costs.
a) Break-even point
b) Gross profit
c) Net income
d) Operating expenses

Answer 13

a) Break-even point

Question 14

14 If the selling price of a product is ₹500 and the variable cost per unit is ₹300, what is the contribution margin per unit?
a) ₹200
b) ₹100
c) ₹300
d) ₹400

Answer 14

a) ₹200

Question 15

15 A company has fixed costs of ₹45,000 and a contribution margin per unit of ₹150. How many units need to be sold to break even?
a) 300 units
b) 200 units
c) 267 units
d) 350 units

Answer 15

a) 300 units

Question 16

16 A company’s fixed costs are ₹25,000, and the contribution margin is ₹15,000. What is the net profit or loss?
a) ₹10,000 Loss
b) ₹15,000 Profit
c) ₹10,000 Profit
d) ₹25,000 Loss

Answer 16

a) ₹10,000 Loss

Question 17

17 If a company sells a product for ₹1,200 and the variable cost is ₹800, what is the contribution margin ratio?
a) 33.33%
b) 25%
c) 66.67%
d) 50%

Answer 17

a) 33.33%

Question 18

A product has a selling price of ₹600, variable cost of ₹350, and fixed costs of ₹70,000. How many units need to be sold to achieve a profit of ₹30,000?
a) 400 units
b) 100 units
c) 200 units
d) 300 units

Answer 18

a) 400 units

Question 19

The total variable costs for a company are ₹45,000 and the contribution margin is ₹55,000. What is the total sales revenue?
a) ₹100,000
b) ₹80,000
c) ₹90,000
d) ₹110,000

Answer 19

a) ₹100,000

Question 20

20 If the selling price per unit is ₹500, the variable cost per unit is ₹300, and fixed costs are ₹100,000, what is the contribution margin ratio?
a) 40%
b) 20%
c) 30%
d) 50%

Answer 20

a) 40%

Question 21

21 A limiting factor in production is:
a) A resource that restricts the level of output
b) A resource that is always available
c) An external factor affecting sales
d) A fixed cost

Answer 21

a) 40%

Question 22

21 A limiting factor in production is:
a) A resource that restricts the level of output
b) A resource that is always available
c) An external factor affecting sales
d) A fixed cost

Answer 22

a) A resource that restricts the level of output

Question 23

22 If labor hours are the limiting factor, the priority should be to produce the product with:
a) The highest contribution per labor hour
b) The highest selling price
c) The highest variable cost
d) The highest total contribution

Answer 23

a) The highest contribution per labor hour

Question 24

Suggest the appropriate action for a company facing a limiting factor.
a) Allocate resources to products with the highest contribution per unit of the limiting factor
b) Ignore the limiting factor and maximize production
c) Allocate resources to products with the highest total contribution
d) Allocate resources equally among all products

Answer 24

a) Allocate resources to products with the highest contribution per unit of the limiting factor

Question 25

24 In the context of limiting factors, ‘key factor analysis’ is used to:
a) Maximize profit by optimizing resource allocation
b) Determine the selling price
c) Minimize variable costs
d) Determine fixed costs

Answer 25

a) Maximize profit by optimizing resource allocation

Question 26

25 If machine hours are the limiting factor, which product should be prioritized?
a) The one with the highest contribution margin per machine hour
b) The one with the highest contribution margin
c) The one with the lowest variable cost
d) The one with the highest fixed cost

Answer 26

a) The one with the highest contribution margin per machine hour

Question 27

26 Select the option that is not commonly regarded as a limiting factor in production.
a) Selling price
b) Machine hours
c) Labor hours
d) Raw materials

Answer 27

a) Selling price

Question 28

The term ‘key factor analysis’ is used to:
a) Determine the most profitable use of a limiting factor
b) Set financial budgets
c) Evaluate employee performance
d) Analyze market trends

Answer 28

a) Determine the most profitable use of a limiting factor

Question 29

A factory has 500 machine hours and needs to choose between two products. Each product needs 2 hours per unit. If the factory produces only Product X with a selling price of ₹120, variable cost of ₹80, and fixed costs of ₹20,000, what is the maximum number of units it can produce?
a) 250 units
b) 200 units
c) 300 units
d) 400 units

Answer 29

a) 250 units

Question 30

29 In marginal costing, if a company receives an offer to sell its product at a lower price than the regular selling price, what should be considered before accepting the offer?
a) Contribution margin per unit
b) Total fixed costs
c) Total cost per unit
d) Market price of the product

Answer 30

a) Contribution margin per unit

Question 31

30 A company is considering reducing the selling price to increase market share. According to marginal costing, which of the following is true if the reduced price still covers the variable costs?
a) The company’s contribution margin will decrease
b) The company’s profit will definitely increase
c) The company’s fixed costs will decrease
d) The company’s fixed costs will be covered by the reduced price

Answer 31

a) The company’s contribution margin will decrease

Question 32

31 A company’s normal selling price is ₹200 per unit with a variable cost of ₹120 and fixed costs of ₹50,000. If the company is considering a special order for 1,000 units at ₹150 per unit, what will be the impact on profit if the special order is accepted?
a) Increase by ₹30,000
b) Decrease by ₹30,000
c) Increase by ₹20,000
d) No change

Answer 32

a) Increase by ₹30,000

Question 33

32 If a company faces price competition and wants to decide on a new selling price using marginal costing, what should be the primary consideration?
a) Setting a price that covers the variable cost and contributes to fixed costs
b) Covering the full cost of production
c) Matching the competitor’s price
d) Increasing the fixed costs to justify a higher price

Answer 33

a) Setting a price that covers the variable cost and contributes to fixed costs

Question 34

33 A company’s variable cost per unit is ₹40, and it is considering accepting a special order at ₹50 per unit. The fixed costs are already covered. What should the company do?
a) Accept the order, as it will increase profit
b) Reject the order, as it does not cover fixed costs
c) Accept the order, as it will decrease profit
d) Reject the order, as it will not cover variable costs

Answer 34

a) Accept the order, as it will increase profit

Question 35

34 If the variable cost per unit is ₹25 and the fixed costs are ₹10,000, what should be the minimum price per unit to cover variable costs and contribute towards fixed costs if the company wants to produce 500 units?
a) ₹45
b) ₹30
c) ₹35
d) ₹40

Answer 35

a) ₹45

Question 36

35 In a make-or-buy decision, if the cost to make a product internally is ₹150 per unit and the cost to buy it from an external supplier is ₹130 per unit, and there are no additional fixed costs associated with buying, what should the company do?
a) Buy the product from the supplier
b) Make the product internally
c) Make or buy based on the quality
d) Make or buy based on the fixed costs

Answer 36

a) Buy the product from the supplier

Question 37

36 If a company has excess capacity and the variable cost to produce an item is ₹80 per unit, but the fixed costs will not be affected by the decision, and the supplier offers the item at ₹85 per unit, what should the company do?
a) Make the item
b) Buy the item
c) Buy or make based on total cost
d) Buy or make based on quality

Answer 37

a) Make the item

Question 38

37 In a make-or-buy decision, which of the following is considered an opportunity cost?
a) Potential profit from using the facilities for an alternative purpose
b) Cost of materials
c) Salary of production workers
d) Depreciation of equipment

Answer 38

Potential profit from using the facilities for an alternative purpose

Question 39

38 A company manufactures a component with a variable cost of ₹15 per unit and a fixed cost of ₹10,000. If an external supplier offers the same component for ₹18 per unit, what should the company consider in its make-or-buy decision?
a) Both variable and fixed costs
b) Only the variable cost
c) Only the fixed cost
d) Sunk costs

Answer 39

a) Both variable and fixed costs

Question 40

39 In a make-or-buy decision, which of the following costs is relevant?
a) Variable costs
b) Sunk costs
c) Fixed costs already incurred
d) Historical costs

Answer 40

a) Variable costs

Question 41

40 A company incurs a variable cost of ₹10 per unit to make a product and the total fixed costs are ₹30,000. If a supplier offers the product at ₹14 per unit and the company needs 10,000 units, what should the company do?
a) Make the product
b) Buy the product
c) It doesn’t matter whether the company makes or buys
d) Decrease production level

Answer 41

a) Make the product

Question 42

41 The break-even point is the level of sales at which _____
a) Total revenue equals total costs (fixed and variable)
b) Total revenue equals total variable costs
c) Total revenue equals total fixed costs
d) Total revenue equals total profit

Answer 42

Total revenue equals total costs (fixed and variable)

Question 43

42 To obtain the break-even point in rupees sales value, total fixed costs are divided by ______
a) Profit/volume ratio
b) Variable cost per unit
c) Contribution margin per unit
d) Fixed cost per unit

Answer 43

Profit/volume ratio

Question 44

43 A company’s fixed costs are ₹40,000, and it sells a product for ₹25 with a variable cost of ₹15 per unit. What is the break-even sales revenue?
a) ₹100,000
b) ₹125,000
c) ₹150,000
d) ₹175,000

Answer 44

a) ₹100,000

Question 45

44 If the fixed costs are ₹30,000, the variable cost per unit is ₹5, and the selling price per unit is ₹10, how many units must be sold to achieve a profit of ₹10,000?
a) 8,000 units
b) 6,000 units
c) 7,000 units
d) 10,000 units

Answer 45

a) 8,000 units

Question 45

45 Assuming that all other factors remain constant, what will happen to the break-even point if the selling price per unit increases?
a) It will decrease
b) It will increase
c) It will remain the same
d) It will fluctuate

Answer 45

a) It will decrease

Question 46

46 A company’s fixed costs are ₹10,000, the contribution margin per unit is ₹5, and the break-even point in units is 2,000. What is the selling price per unit if the variable cost per unit is ₹15?
a) ₹20
b) ₹25
c) ₹30
d) ₹35

Answer 46

a) ₹20

Question 47

47 If a company’s break-even point is 10,000 units and it currently sells 22,000 units, what is the margin of safety in units?
a) 12,000 units
b) 2,500 units
c) 5,000 units
d) 10,000 units

Answer 47

a) 12,000 units

Question 48

48 If a company’s actual sales are ₹800,000 and its margin of safety is ₹200,000, what is the break-even point in sales revenue?
a) ₹600,000
b) ₹400,000
c) ₹500,000
d) ₹700,000

Answer 48

a) ₹600,000

Question 49

49 The margin of safety represents the difference between _____ and ______.
a) Actual sales and break-even sales
b) Actual sales and total costs
c) Total revenue and total variable costs
d) Total revenue and total fixed costs

Answer 49

a) Actual sales and break-even sales

Question 50

50 A company produces two products, A and B. The contribution margin per unit for Product A is ₹50, and for Product B, it is ₹40. If the company has limited machine hours available, which product should it prioritize?
a) It depends on the machine hours required per unit
b) Product A
c) Product B
d) Both products equally

Answer 50

It depends on the machine hours required per unit

Question 51

51 If total cost of 100 units is Rs 5000 and those of 101 units is Rs 5030 then increase of Rs 30 in total cost is
a) Marginal cost
b) Prime cost
c) All variable overheads
d) None of the above

Answer 51

Marginal cost

Question 52

52 In marginal costing, which of the following costs is treated as a period cost?
a) Variable production cost
b) Fixed production cost
c) Direct labor cost
d) Direct material cost

Answer 52

) Fixed production cost

Question 53

53 The contribution margin is calculated by subtracting which of the following from sales?
a) Fixed costs
b) Variable costs
c) Total costs
d) Profit

Answer 53

Variable costs

Question 54

54 Which of the following is the main focus of marginal costing?
a) Allocation of fixed costs
b) Determination of break-even point
c) Valuation of inventory at total cost
d) Apportionment of overheads

Answer 54

Determination of break-even point

Question 55

55 In marginal costing, what happens to the fixed cost per unit as production increases?
a) It remains constant
b) It decreases
c) It increases
d) It fluctuates

Answer 55

) It decreases

Question 56

56 The profit-volume (P/V) ratio is calculated as:
a) (Sales - Fixed Costs) / Sales
b) Contribution / Sales
c) Sales / Contribution
d) Fixed Costs / Contribution

Answer 56

Contribution / Sales

Question 57

57 Which of the following decisions is most likely to be based on marginal costing?
a) Pricing new products
b) Calculating tax liabilities
c) Preparing financial statements
d) Setting budgetary control limits

Answer 57

Pricing new products

Question 58

58 What is the primary advantage of marginal costing in decision-making?
a) It simplifies cost control
b) It considers fixed costs as sunk costs
c) It focuses on profit maximization through contribution analysis
d) It uses absorption costing methods

Answer 58

It focuses on profit maximization through contribution analysis

Question 59

59 What is a limiting factor in marginal costing?
a) The factor that restricts the level of output
b) The maximum level of production that can be achieved
c) The total fixed costs that a company incurs
d) The minimum selling price of a product

Answer 59

) The factor that restricts the level of output

Question 60

60 Which of the following best describes the optimal production strategy under a limiting factor?
a) Maximize the production of all products equally
b) Minimize the use of all resources
c) Maximize the use of the limiting factor to generate the highest total contribution
d) Allocate resources based on historical production levels

Answer 60

Maximize the use of the limiting factor to generate the highest total contribution