Marginal Costing

Multiple Choice Questions

1. The term contribution refers to…

a. The difference between selling price and fixed cost
b. The difference between selling price and variable cost
c. Profit
d. None of these

2. Marginal costing technique helps the management in deciding…

a. Pricing
b. To accept fresh orders at low price
c. To make or buy
d. All of the above

3. The accountant’s concept of marginal cost differs from the Economist’s concept of marginal
cost in the matter of exclusion of…
a. Variable cost
b. Semi‐variable cost
c. Fixed cost
d. None of these

4. Direct material cost + direct labor cost + other variable costs is equal to…
a. Contribution
b. Total cost
c. Marginal cost
d. Sales
5. The other name of marginal costing is…
a. Direct costing
b. Variable costing
c. Incremental costing
d. All of the above
6. The term gross margin refers to…
a. Total profit
b. Contribution
c. Profit before tax
d. Profit before interest and tax

7. Sales Rs. 100000, variable cost Rs. 60000 and net profit ratio is 10% on sales, find out fixed
cost.
a. 40000
b. 60000
c. 50000
d. The data inadequate

8. Sales Rs. 100000, variable cost Rs. 50000 and net profit ratio is 10% on sales, find out fixed
cost.
a. 50000
b. 40000
c. 20000
d. The data inadequate

9. Profit volume ratio establishes the relationship between…

a. Contribution and profit
b. Fixed cost and contribution
c. Profit and sales
d. Contribution and sales value

10. Contribution/sales is equal to…

a. P/V ratio
b. Net profit ratio
c. BEP
d. EPS

11. The P/V ratio can be increased by…

a. Reducing the variable cost
b. Increasing the selling price
c. Both
d. None

12. The factor which limits the volume of output of different products of an understanding at a
particular point of time is known as…
a. Key factor
b. BEP
 c. Contribution
d. None

13. The profit of an undertaking is affected by…

a. Selling price of the products
b. Volume of sales
c. Variable cost per unit and total fixed cost
d. All of the above

14. The profit at which total revenue is equal to total cost is called…
a. BEP
b. Margin of safety
c. Break even analysis
d. None

15. The break even chart helps the management in…

a. Forecasting costs and profits
b. Cost control
c. Long term planning and growth
d. All of the above

16. Break even chart presents only cost volume profits. It ignores other considerations such as…
a. Capital
b. Marketing aspects
c. Government policy
d. All of the above

17. Expenses that do not vary with the volume of production are known as…
a. Fixed expenses
b. Variable expenses
c. Semi‐variable expenses
d. None

18. ________ is the excess of sales over the break even sales.
a. Actual sales
b. Total sales
c. Margin of safety
d. Net sales

19. __________ indicates the extent of which the sales can be reduced without resulting in loss.
a. BEP
b. Key factor
 c. Contribution
d. Margin of safety

20. The formula for Margin of Safety is one of the following…

a. PV ratio/profit
b. Profit/P/v ratio
c. Profit/sales
d. Contribution/fixed cost

21. Margin of safety can be improved by…

a. Increasing production
b. Increasing selling price
c. Reducing the costs
d. All of the above

22. If a firm is dealing in several products the________ is calculated.

a. Composite BEP
b. BEP
c. Break even sales
d. Cash BEP

23. _________ refers to a situation where the costs of operating two alternative plants are equal.
a. Simple BEP
b. Cost BEP
c. Contribution BEP
d. None

24. The angle formed by the sales line and total cost line at the break even point is known as…
a. Profit variable
b. Margin of safety
c. Angle of incidence
d. None

25. A high margin of safety indicates the more actual sales than break even sales.
a. True
b. False

26. The term contribution margin refers to…

a. Marginal income
b. Marginal cost
c. Gross profit
d. Net income
27. The term period cost refers to…
a. Variable cost
b. Fixed cost marginal cost
c. Prime cost
d. None

28. Overvaluation of stock is practiced on absorption costing technique.

a. True
b. False

29. The BEP decreases if the fixed cost…

a. Increases
b. Decreases
c. Remains constant
d. Inadequate data

30. Marginal costing is the most useful technique for the…

a. Shareholders
b. Management
c. Auditors
d. Creditors

31. Sales of two consecutive months of a company are Rs. 3,80,000 and Rs. 4,20,000. The
company’s net profits for these months amounted to Rs. 24,000 and Rs. 40,000 respectively.
There is no change in P/V ratio or fixed costs. The P/V ratio of the company is—

a. 33.33%
b. 40%
c. 25%
d. None of these

32. A key factor, which at a particular time or over a period, will not limit the activities of the
organization.
a. True
b. False

33. Fixed Cost vary with volume rather than time.

a. True
b. False

34. In break-even analysis it is assumed that variable costs fluctuate inversely with time.
a. True
 b. False

35. Contribution earned after reaching Break Even Point is __________ of the firm.

36. Profit-volume graph shows the relationship between __________ and __________ .

37. The scarce factor of production is known as

a. Linking factor;
b. Key factor;
c. Production factor

38. Variable costs go on changing with the __________ level.

39. A company has fixed cots of Rs. 6,00,000 per annum. It manufactures a single product which
it sells for Rs. 200 per unit. Its contribution to sales ratio is 40%. Its break-even in units is —
a. 7,500 units
b. 8,000 units
c. 3,000 units
d. 1,500 units

40. Marginal costing is useful for long term planning.

a. True
b. False

41. Opportunity cost is the value of benefit sacrified in favour of an alternative course of
action.
a. True
b. False

42. __________ cost is the difference in total cost that result from two alternative courses of
action.

43. In two consecutive periods, sales and profit were Rs. 1,60,000 and Rs. 8,000 respectively in
the first period and Rs. 1,80,000 and Rs. 14,000 respectively during the second period. If
there is not change in fixed cost between the two periods, then what would be profit if sales
are Rs. 2,00,000?
a. Rs. 16,000
b. Rs. 18,000
c. Rs. 20,000
d. Rs. 22,000