Q1.

(a). The most likely to be a fixed cost for the manufacturing of a car will be Factory Rent while
costs related to Tyres, Contract Labour Wages and Electricity Costs will be a variable cost.
Answer: True
Variable cost is a function of activity level or quantity produced. More quantity produced will
require more raw material(Tyres), will incur more labours leading to more wages and more
electricity cost. Whereas fixed cost will remain constant whatever be the volume upto a limited
range.

(b). If a company is offering an ‘add-on’ gift free along with the main product which a customer
does not need, then the company is destroying the value for the customer.
Answer: True
Value is a function of future benefits. If it is of no need to customer then it adds to no value in
the eyes of buyer. In order to maintain the value of the product for the customer the add on gift
should be something which can bring some kind of benefit to the customer.
(c). Rent paid on a rented property taken by a firm is an example of variable cost as it changes
every year as per the terms and conditions of the contract.
Answer: False
If the rent changes every year, then it is a example of Step cost or semi fixed cost, where the
rent changes after every 1 year (certain fixed period).

Q3. Please check excel

1. CSR = Change in profit/ Change in sales (assuming prices, fixed cost and variable cost
remains constant throughout the year) = 60%
2. Contribution can be calculated as CSR%*Sales, which can be used to determine Fixed
cost as: Fixed Cost = Contribution – Profit,
3. BEP = FC/CSR = 33333.3 there is no change in BEP throughout the year because CSR
is constant.
4. Percentage Margin of safety to total sales of second half = Actual sales – BEP sales =
66666.67