1.

A budget is a plan of action expressed in…

A. financial terms

B. non‐financial terms

C. both

D. subjective matter

Discussion

C. both

2. Budget is prepared for a…

A. indefinite period

B. definite period

C. period of one year

D. six months

Discussion

B. definite period

3. A budget is tool which helps the management in planning and control of…

A. all business activities

B. production activities

C. purchase activities

D. sales activities

Discussion

A. all business activities

4. Budgetary control system acts as a friend, philosopher and guide to the…

A. management

B. share holders

C. creditors

D. employees

Discussion
A. management

5. Budgetary control system defines the objectives and policies of the…

A. production department

B. finance department

C. marketing department

D. all

Discussion

D. all

6. Budgetary control facilitates easy introduction of the…

A. marginal costing

B. ratio analysis

C. standard costing

D. subjective matter

Discussion

C. standard costing

7. Budgetary control helps the management in…

A. obtaining bank credit

B. issue of shares

C. getting grants from government

D. all of these

Discussion

A. obtaining bank credit

8. Budgetary control system helps the management to eliminate…

A. undercapitalization

B. overcapitalization

C. both

D. subjective matter
Discussion

C. both

9. Budgetary control provides a basis for…

A. bonus shares

B. rights shares

C. remuneration plans

D. none

Discussion

C. remuneration plans

10. Budgetary control helps to introduce a suitable incentive and remuneration based
on…

A. changes in government policies

B. inflationary conditions

C. both

D. none

Discussion

B. inflationary conditions

11. The success of budgetary control system depends upon the willing cooperation of…

A. shareholders

B. management

C. creditors

D. all the functional areas of management

Discussion

D. all the functional areas of management

12. Recording of actual performance is….

A. an advantage of budgetary control

B. a step in budgetary control

C. a limitation of budgetary control

D. none

Discussion

B. a step in budgetary control

13. Revision of budgets is…

A. unnecessary

B. can’t determine

C. necessary

D. inadequate data

Discussion

C. necessary

14. Frequent revision of budgets will…

A. affects its reliability

B. increase the accuracy

C. both

D. subjective matter

Discussion

A. affects its reliability

15. Usually the production budget is stated in terms of…

A. money

B. quantity

C. both

D. none

Discussion

C. both

16. Budget period is the…

A. period of budget committee

B. period of budget centres

C. period for which a budget is prepared

D. period of budget officer

Discussion

C. period for which a budget is prepared

17. Budget period depends upon…

A. the type of budget

B. the nature of business

C. the length of trade cycles

D. all of these

Discussion

D. all of these

18. A key factor is one which restricts…

A. the volume of production

B. the volume of sales

C. the volume of purchase

D. all of the above

Discussion

A. the volume of production

19. Plant utilization budget and Manufacturing overhead budgets are types of

A. production budget

B. sales budget

C. cost budget

D. none of the above

Discussion

A. production budget

20. R&D budget and Capital expenditure budget are examples of

A. short-term budget
B. current budget

C. long-term budget

D. none of the above

Discussion

C. long-term budget

21. The scare factors is also known as

A. key factor

B. abnormal factor

C. linking factor

D. none of the above

Discussion

A. key factor

22. A budgeting process which demands each manager to justify his entire budget in
detail from beginning is

A. functional budget

B. master budget

C. zero base budgeting

D. none of the above

Discussion

C. zero base budgeting

23. Budgetary control system facilitates centralized control with…

A. decentralized activity

B. centralized activity

C. both

D. none

Discussion

C. both
Question 15.
June 2015: Crown Ltd. has forecast its sales for the next three months as follows:
April: 12,000 units, May: 15,000 units, June: 17,000 units.
Opening stock as of 1st April is expected to be 3,500 units.
The closing stock should be equal to 20% of the coming month’s sales needs. The number of units
required to be produced in May is-
(A) 14,600 units
(B) 11,500 units
(C) 15,400 units
(D) 13,600 units
Hint:

Answer:
(C) 15,400 units

Question 16.
Dec 2015: The basic difference between a static budget and a flexible budget is
(A) A static budget is based on one specific level of production and a flexible budget can be prepared
for any production level within a relevant range
(B) A static budget is for an entire production, but a flexible budget is applicable only to a single
department
(C) Flexible budget allows management latitude in meeting goals, whereas a static budget is based
on a fixed standard
(D) A flexible budget considers only variable costs, but a static budget considers all costs
Answer:
(A) A static budget is based on one specific level of production and a flexible budget can be prepared
for any production level within a relevant range

Question 17.
Dec 2015: Match the following:

List-I List-II

P. Performance budgeting 1. Fixed budget

Q. Zero base budgeting 2. Production oriented

R. Summary of all functional budgets 3. Jimmy Carter

S. Remain unchanged irrespective of the level of activity

4. Master budget
actually attained

Select the correct answer from the options given below

Answer:
(D)

Question 18.
Dec 2015: X Ltd. has forecast its sales for the next three months as follows:
May: 12,000 units
June: 20,000 units
July: 25,000 units
Opening stock as of 1st April is expected to be 5,000 units. The closing stock should equal 20% of the
coming month’s sales needs. How many units should be produced in June
(A) 20,000 Units
(B) 11,000 Units
(C) 21,000 Units
(D) 25,000 Units
Hint:

Answer:
(C) 21,000 Units

Question 19.
June 2016: QPR Ltd. has prepared the budget for the production of one lakh units of the only
commodity manufactured by them for a costing period as follows:

Cost elements ₹ in lakh

Raw material 252

Direct labour 75

Direct expenses 10

Works overheads (60% fixed) 225

Administrative overheads (80% fixed) 40

Selling overheads (50% fixed) 20

If the actual production during the period was 60,000 units, the revised budget cost per unit will be
(A) ₹ 740
(B) ₹ 800
(C) ₹ 700
(D) ₹ 840
Hint:

Answer:
(A) ₹ 740
Question 20.
June 2016: A budget in which a responsibility centre manager must justify each planned activity and
its budgeted total cost is called
(A) Traditional budget
(B) Zero-based budget
(C) Master budget
(D) Functional budget
Answer:
(B) Zero-based budget

Question 21.
June 2016: To produce one unit of ‘A’, two ingredients, Le., 2 kg of X and 3 kg of Y are required:

What will be the quantity of consumption of ingredients X and Y, if 20,000 units of A are sold
(A) 46,000 kg & 69,000 kg respectively
(B) 49,000 kg & 72,000 kg respectively
(C) 40,000kg & 60,000 kg respectively
(D) 43,000 kg & 63,000 kg respectively
Hint:
Units produced for Product A:
Opening Stock + Units Produced – Closing Stock = Unit Sold
5,000 + x – 8,000 = 20,000 x = Units Produced = 23,000
Consumption of Input X = 23,000 × 2 = 46,000
Consumption of Input Y = 23,000 × 3 = 69,000
Answer:
(A) 46,000 kg & 69,000 kg respectively

Question 22.
June 2016: Which one of the following would not form part of the master budget
(A) Cash budget
(B) Statement of profit and loss
(C) Statement of financial position
(D) None of the above
Answer:
(D) None of the above

Question 23.
June 2016: Which one of the following is not an advantage of budgetary control?
(A) Maximization of profit through effective planning
(B) Planned approach for expenditure
(C) Create necessary conditions for setting-up of standard costs
(D) Based on quantitative data and represent only an impersonal appraisal of the conduct of the
business activity
Answer:
(B) Planned approach for expenditure

Question 24.
June 2016: Kriti Ltd. has provided the following information for the quarter of January to March:

20% of the sales are on a cash basis and balance on a credit basis. The amount to be collected from
debtors in the month of February and March will be
(A) Zero and ₹ 8,000 respectively
(B) ₹ 8,000 & ₹ 16,000 respectively
(C) ₹ 8,000 & ₹ 24,000 respectively
(D) ₹ 16,000 & ₹ 36,000 respectively
Hint:

Amount collected from debtors = Opening Balance + Credit Sales – Closing Balance
Feb = 16,000 + 32,000 – 40,000 = 8,000
Mar = 40,000 + 48,000 – 64,000 = 24,000
Answer:
(C) ₹ 8,000 & ₹ 24,000 respectively

Question 25.
June 2016: For a department, the standard overheads rate is ₹ 2.50 per hour and the overheads
allowances are as follows:

Activity level (hours) Budget overheads allowance (₹)

3,000 10,000

7,000 18,000
11,000 26,000

Calculate the normal capacity level on the basis of which the standard overheads rate has been
worked out
(A) 8,000 Hours
(B) 7,000. Hours
(C) 6,000 Hours
(D) 9,000 Hours
Hint:
Variable cost per hour = Change in cost Change in hours =8,0004,000 = 2

Overhead rate = Total cost Hours

2.5 = Total cost x
2.5x = Total cost
2.5x = Fixed cost + Variable cost
2.5x = 4,000 + (x × 2)
2.5x = 4,000 + 2x
0.5x = 4,000
x = 8,000
Answer:
(A) 8,000 Hours

Question 26.
Dec 2016: The budget which usually takes the form of budgeted profit and loss account and balance
sheet is known as
(A) Cash budget
(B) Master budget
(C) Flexible budget
(D) Sales budget
Answer:
(B) Master budget

Question 27.
Dec 2016: While preparing the cash budget, which of the following items would not be included
(A) Interest paid to debenture holders
(B) Salaries and wages
(C) Bonus shares issued
(D) Income-tax paid
Answer:
(C) Bonus shares issued
Question 28.
Dec 2016: Budgeted standard hours of a factory are 15,000. The capacity utilization ratio for May
2016 is 85% and the efficiency ratio for the month is 120%. The standard hours for actual production
in the month will be
(A) 12,750
(B) 18,000
(C) 15,300
(D) 18,000
Hint:

Answer:
(C) 15,300

Question 29.
June 2017: A plant produces a product in the quantity of 10,000 units at a cost of ₹ 3 per unit. If
20,000 units are produced, the cost per unit will be ₹ 2.50. The selling price per unit is ₹ 4. The
variable cost per unit will be:
(A) ₹ 2
(B) ₹ 3
(C) ₹ 4
(D) ₹ 1
Answer:
(A) ₹ 2

Question 30.
June 2017: When demand forecasting is difficult, the budget which is prepared:
(A) Sales Budget
(B) Production Budget
(C) Financial Budget
(D) Flexible Budget
Answer:
(D) Flexible Budget
Question 31.
June 2017: The budget which usually takes the form of profit and loss account and balance sheet is
known as:
(A) Cash budget
(B) Master budget
(C) Flexible budget
(D) Labour budget
Answer:
(B) Master budget

Question 32.
June 2017: A fixed budget is one which:
(A) is a plan for capital expenditure in monetary terms
(B) is designed to remain unchanged irrespective of the volume of output or turnover attained
(C) deals with income and expenditure applicable to a particular function
(D) deals with none of these
Answer:
(B) is designed to remain unchanged irrespective of the volume of output or turnover attained

Question 33.
June 2017: One of the most significant tools in cost planning is:
(A) Direct material
(B) Budget
(C) Marginal costing
(D) Direct labour
Answer:
(B) Budget

Question 34.
June 2017: When the standard output is 10 units per hour and actual output is 14 units per hour, the
efficiency level will be:
(A) 60%
(B) 120%
(C) 140%
(D) None of the above
Answer:
(C) 140%

Question 35.
Dec 2017: A short term budget, broken down into a quarterly or monthly period and reviewed and
modified in the light of changing conditions is:
(A) Current Budget
(B) Flexible Budget
(C) Rolling Budget
(D) Zero Base Budget
Answer:
(B) Flexible Budget

Question 36.
Dec 2017: While preparing a flexible budget indirect wages was considered as semi-variable
expenses. At 50% level of production, it was estimated as 1,50,000. If it has a tendency to increase
by 10% between 60% to 75% capacity and further will increase by another 5% when production
crosses 75%, the amount of indirect wages at 9096 levels of production is:
(A) ₹ 1,65,000
(B) ₹ 1,72,500
(C) ₹ 1,73,250
(D) None of the above
Hint:
1,50,000 × 110% = 1,65,000
1.65.0 × 105% = 1,73,250
Answer:
(C) ₹ 1,73,250

Question 37.
Dec 2017: The units to be sold for different months are as follows:
Jan Feb Mar April May June 1,200 1,300 1,600 2,000 2,400 3,000
There will be no WIP at the end of any month. Finished units equal to half the sales for the next
month will be in stock at the end of each month. The required production in units for April will be:
(A) 2,800
(B) 2,200
(C) 2,400
(D) 3,200
Hint:
Unit sold + Closing stock – Opening stock = Unit produced
2.0 + 1,200 – 1,000 = 2,200.
Answer:
(B) 2,200

Question 38.
Dec 2017: In budgeting, there was a shift from financial classification to objective classification in
respect of functions, activities etc.
(A) Programme
(B) Performance
(C) Zero base
(D) None of the above
Answer:
(B) Performance

Question 39.
June 2018 & June 2019: The budget which remains unchanged regardless of the actual level of the
activity is known as:
(A) Fixed Budget
(B) Functional budget
(C) Flexible budget
(D) Cash budget
Answer:
(A) Fixed Budget

Question 40.
June 2018:____ is prepared for the estimation of plant capacity to meet the budgeted production
during the budgeted period.
(A) Plant utilization budget
(B) Production budget
(C) Manufacturing overhead budget
(D) Labour budget
Answer:
(A) Plant utilization budget

Question 41.
June 2018: A flexible budget is:
(A) A budget that is designed to furnish budgeted costs at different activity levels
(B) A budget that will be changed at the end of the month in order to reflect the actual costs of a
department
(C) A budget that comprises variable costs only
(D) A budget that is designed for a specific planned output level
Answer:
(A) A budget that is designed to furnish budgeted costs at different activity levels

Question 42.
June 2018: ABC Ltd. has forecast its sales for the next three months as follows:
May : 12,000 units June : 20,000 units July : 25,000 units
As per the company policy, the closing stock should be equal to 20% of the coming month’s sales
forecast. How many units should be produced in June?
(A) 20,000 Units
(B) 11,000 Units
(C) 21,000 Units
(D) 25,000 Units
Hint:

Answer:
(C) 21,000 Units
Question 43.
Dec 2018:_____is a budget that, by recognizing different cost behaviour patterns, is designed to
change in relation to the volume of output.
(A) Production Budget
(B) Performance Budget
(C) Zero Base Budget
(D) Flexible Budget
Answer:
(D) Flexible Budget

Question 44.
Dec 2018:_____is an operating and financial plan of a business enterprise.
(A) Forecast
(B) Budget
(C) Estimate
(D) Standard
Answer:
(B) Budget

Question 45.
Dec 2018: ____ is based on the premise that every rupee of expenditure requires justification.
(A) Zero Base Budgeting
(B) Programme Budgeting
(C) Performance Budgeting
(D) Appraisal Budgeting
Answer:
(A) Zero Base Budgeting

Question 46.
Dec 2018: Under the Balance Sheet Method of preparing a cash budget, budget is prepared on the
basis of :
(A) Current year balance sheet
(B) Previous year balance sheet
(C) Forecasted balance sheet
(D) Consolidated balance sheet
Answer:
(C) Forecasted balance sheet

Question 47.
June 2019: The following information extracted from the records of P. Ltd. Sales for October,
November and December 2018 is ₹ 90,000, ₹ 1,10,000 and ₹ 80,000 respectively. 40% of its sales are
expected to be for cash. Of its credit sales, 70% are expected to pay in the month after-sales and
take a 2% discount on it. Balance is expected to pay in second-month after-sales and 3% of it is
expected to bad debts.
What are the sales receipts to be shown in the cash budget for the month of December?
(A) ₹ 92,990
(B) ₹ 1,23,174
(C) ₹ 95,609
(D) ₹ 1,25,793
Note: MCQ is wrongly drafted; for further clarification please see the hints.
Hint:

None of the options contains a figure of 91,856 and hence MCQ is wrong.
Answer:

Question 48.
June 2019: Which of the following is not a step for successful implementation of the budgetary
control system?
(A) Budget manual
(B) Budget controller
(C) Budget period
(D) Budget standard
Answer:
(D) Budget standard

Question 49.
June 2019:
Assertion (A):
The purpose of performance budgeting is to focus on work to be done and services to be rendered.
Reason (R):
The main purpose of performance budgeting is not to the inter-relate the physical and financial
aspect of every programme, project or activity.
Select the correct answer from the options given below.
(A) Both A and R are true and R is the correct explanation of A.
(B) Both A and R are true but R is not the correct explanation of A.
(C) A is true but R is false
(D) A is false but R is true
Answer:
(C) A is true but R is false
Question 1.
Dec 2014: The budgeting system designed to change in relation to the level of activity actually
attained is known as
(A) Fixed budgeting
(B) Flexible budgeting
(C) Performance budgeting
(D) Functional budgeting
Answer:
(B) Flexible budgeting

Question 2.
Dec 2014: From the following, which one is a functional budget
(A) Master budget
(B) Fixed budget
(C) Sales budget
(D) Current budget
Answer:
(C) Sales budget

Question 3.
Dec 2014: The following information is available:
Wages for January: ₹ 20,000
Wages for February: ₹ 22,000
Delay in payment of wages: 1 /2 month
The amount of wages paid during the month of February is
(A) ₹ 11,000
(B) ₹ 22,000
(C) ₹ 20,000
(D) ₹ 21,000
Hint:

Answer:
(D) ₹ 21,000

Question 4.
Dec 2014: In an organization, cash sales are 25% and credit sales are 75%. Sales for October, 2013 is
₹ 12,00,000, November, 2013 ₹ 14,00,000, December, 2013 ₹ 16,00,000, January, 2014 ₹ 6,00,000
and February, 2014 ₹ 8,00,000. 60% of credit sales are collected in the next month after-sales, 30%
in the second month and 10% in the third month. No bad debts are anticipated. The cash collected in
the month of February 2014 from debtors is
(A) ₹ 15,00,000
(B) ₹ 9,80,000
(C) ₹ 7,35,000
(D) ₹ 80,000
Hint:

Answer:
(C) ₹ 7,35,000

Question 5.
Dec 2014: ABC Ltd. produces and sells a single product. The sales budget to the calendar year 2015
for each quarter is as under:
No. of units to be sold:
Quarter-I: 12,000
Quarter-II: 15,000
Quarter-III: 16,500
Quarter-TV: 18,000
The year 2015 is expected to open with an inventory of 4,000 units of finished product and close
with an inventory of 6,500 units. Production is customarily scheduled to provide for two-thirds of the
current quarter’s demand plus
one-third of the following quarter’s demand. Production for Quarter-IV would be
(A) 13,500 units
(B) 15,500 units
(C) 17,000 units
(D) 18,500 units
Hint:
Answer:
(D) 18,500 units

Question 6.
Dec 2014: Under which of the following method of budgeting, all activities are re-evaluated each
time a budget is set
(A) Materials budget
(B) Zero base budgeting
(C) Sales budget
(D) Overheads budget
Answer:
(B) Zero base budgeting

Question 7.
June 2015: In Rise Ltd., cash sales is 25% and credit sales 75%. Sales for November, 2014 is ₹
15,00,000, December, 2014 ₹ 14,00,000, January, 2015 ₹ 16,00,000, February, 2015 ₹ 10,00,000 arid
March, 2015 ₹ 9,00,000. 60% of the credit sales are collected in the next month after sales, 30% in
the second month and 10% in the third month. No bad debts are anticipated. The cash collected – in
the month of March, 2015 from debtors is
(A) ₹ 14,60,000
(B) ₹ 14,20,000
(C) ₹ 12,20,000
(D) ₹ 9,15,000
Hint:
Answer:
(D) ₹ 9,15,000

Question 8.
June 2015: A factor that limits the activities of an undertaking and which is taken into account while
preparing a budget is known as
(A) Budget manual
(B) Budget controller
(C) a Budget key factor
(D) Budget centre
Answer:
(C) a Budget key factor

Question 9.
June 2015: A document that sets out the responsibility of the persons engaged in the routine of and
the procedures, forms and records required for budgetary control is called
(A) Budget centre
(B) Budget report
(C) Budget controller
(D) Budget manual
Answer:
(D) Budget manual

Question 10.
June 2015: A budget that gives a summary of all the functional budgets and budgeted statement of
profit and loss is called
(A) Flexible budget
(B) Master budget
(C) Performance budget
(D) Zero base budget
Answer:
(B) Master budget
Question 11.
June 2015: A company estimates its quarter wise sales (in units) for the next year as under:

The opening stock of finished goods is

10,0 units and the company expects to maintain the closing stock of finished goods at 16,250 units at
the end of the year. The production pattern in each quarter is based on 80% of the sales of the
current quarter and 20% of the sales of the next quarter. The production for quarter IV will be
(A) 36,000 units
(B) 42,000 units
(C) 48,250 units
(D) 38,250 units
Hint:

Answer:
(C) 48,250 units

Question 12.
June 2015: Budget which remains unchanged regardless of the actual level of activity is known as –
(A) Fixed budget
(B) Functional budget
(C) Flexible budget
(D) Cash budget
Answer:
(A) Fixed budget

Question 13.
June 2015: Estimated wages for January is ₹ 4,000 and for February ₹ 4,400. If the delay in payment
of wages is 1 /2 month, the number of wages to be considered in the cash budget for the month of
February will be –
(A) ₹ 4,000
(B) ₹ 4,400
(C) ₹ 4,600
(D) ₹ 4,200
Hint:

Answer:
(D) ₹ 4,200

Question 14.
June 2015: Which of the following formulas is used to calculate efficiency ratio –

Answer:
(B)
1. Fixed expenses decrease per unit with the increases in production and increases per unit with
the decrease in production.

a) True
b) False

View Answer / Hide Answer

ANSWER: a) True

2. Marginal costs is taken as equal to

a) Prime Cost plus all variable overheads

b) Prime Cost minus all variable overheads
c) Variable overheads
d) None of the above

View Answer / Hide Answer

ANSWER: a) Prime Cost plus all variable overheads

3. 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

View Answer / Hide Answer

ANSWER: a) Marginal cost

4. Marginal cost is computed as

a) Prime cost + All Variable overheads
b) Direct material + Direct labor + Direct Expenses + All variable overheads
c) Total costs – All fixed overheads
d) All of the above

View Answer / Hide Answer

ANSWER: a) Prime cost + All Variable overheads

5. Marginal costing is also known as

a) Direct costing
b) Variable costing
c) Both a and b
d) None of the above

View Answer / Hide Answer

ANSWER: c) Both a and b

6. Which of the following statements are true?

A) Marginal costing is not an independent system of costing.

B) In marginal costing all elements of cost are divided into fixed and variable components.

C) In marginal costing fixed costs are treated as product cost.

D) Marginal costing is not a technique of cost analysis.

a) A and B
b) B and C
c) A and D
d) B and D

View Answer / Hide Answer

ANSWER: a) A and B

7. While computation of profit in marginal costing

a) Total marginal cost is deducted from total sales revenues

b) Total marginal cost is added to total sales revenues
c) Fixed cost is added to contribution
d) None of the above

View Answer / Hide Answer

ANSWER: a) Total marginal cost is deducted from total sales revenues

8. Which of the following are the assumptions of marginal costing?

A) All the elements of cost can be divided into fixed and variable components.

B) Total fixed cost remains constant at all levels of output.

C) Total variable costs varies in proportion to the volume of output.

D) Per unit selling price remain unchanged at all levels of operating activity.

a) A and B
b) B and C
c) A and D
d) A, B C and D

View Answer / Hide Answer

ANSWER: d) A, B C and D
Question 1.
Dec 2014: Which of the following formula cannot be used for calculating the P/V ratio
(A) (Sales value minus variable cost) / Sales value
(B) (Fixed cost plus profit)/Sales value
(C) Change in profits/Change in sales
(D) Profit/Sales value
Answer:
(D) Profit/Sales value

Question 2.
Dec 2014: For a given product, the sales of a company @ ₹ 200 per unit is ₹ 20,00,000. Variable cost
is ₹ 12,00,000 and fixed cost is ₹ 6,00,000. The capacity of the factory is 15,000 units. Capacity
utilization at break-even point level
(A) 40%
(B) 50%
(C) 60%
(D) 100%
Hint:
Sales – Variable Cost = Contribution
20,00,0000 – 12,00,000 = 8,00,000

Answer:
(B) 50%

Question 3.
Dec 2014: The costing method in which fixed factory overheads are added to inventory is known as
(A) Direct costing
(B) Marginal costing
(C) Absorption costing
(D) Activity-based costing
Answer:
(C) Absorption costing
Question 4.
Dec2014: For a given product, the selling price per unit is 15, the variable cost per and units sold
during the period are 35,000. The margin of safety is
(A) ₹ 25,000
(B) ₹ 75,000
(C) ₹ 15,000
(D) ₹ 5,000
Hint:

Answer:
(B) ₹ 75,000

Question 5.
Dec 2014: When the volume is 3,000 units, the average cost is ₹ 4 per unit. When the volume is
4,000 units, the average cost is ₹ 3.50 per unit. The break-even point is 5,000 units.
What is the P/V ratio of the firm
(A) 35%
(B) 37.5%
(C) 40%
(D) 32.5%
Hint:
Total cost at 3,000 units = 3,000 × 4 12,000
Total cost at 4,000 units = 4,000 × 3.5 = 14,000
Variable cost per unit = Change in cost Change in units =2,0001,000 = 2 per unit

At the break-even point profit is NILL.

P/V ratio = Contribution Sales × 100 = 6,00016,000 × 100 = 37.5%
Answer:
(B) 37.5%

Question 6.
Dec 2014: Which of the following formula cannot be used for calculating the contribution
(A) Fixed cost plus profit
(B) Fixed cost minus loss
(C) Sales minus variable cost
(D) Fixed cost plus loss
Answer:
(D) Fixed cost plus loss

Question 7.
Dec 2014: A product is sold at a price of ₹ 120 per unit and its variable cost is ₹ 80 per unit. The fixed
expenses of the business are ₹ 8,000 per year. Break-even point is
(A) ₹ 24,000
(B) ₹ 120,000
(C) ₹ 116,000
(D) ₹ 28,000
Hint:
Contribution per unit = 120 – 80 = 40
P/V Ratio = Contribution Sales × 100 = 40120 × 100 = 33.3333%
BEP (in value) = Fixed Cost P/V Ratio =8,00033.3333% = 24,000
Answer:
(A) ₹ 24,000

Question 8.
Dec 2014: The following information relates to a product:
Direct materials: 10 kg @ ₹ 0.50 per kg.
Direct labour: 1 hour 30 minutes @ ₹ 4 per hour
Variable overheads: 1 hour 30 minutes @ ₹ 1 per hour
Fixed overheads @ ₹ 2 per hour (based on a budgeted production volume of 90,0 direct labour
hours for the year)
Selling price per unit: ₹ 17 The break-even point is
(A) ₹ 40,000 units
(B) ₹ 40,000
(C) ₹ 20,000 units
(D) ₹ 7,200 units
Hint:
Total variable cost per unit = (10 × 0.50) + (1.5 × 4) + (1.5 × 1) = 12.5
Total fixed cost = 90,000 × 2 = 1,80,000

Sales 17

Less: Variable cost (12.5)

Contribution 4.5

P/V Ratio = Contribution Sales × 100 = 4.517 × 100 = 26.4706%

P/V Ratio = Fixed Cost Contribution p.u. =1,80,0004.5 = 40,000
Answer:
(A) ₹ 40,000 units

Question 9.
Dec 2014: A company sells its product at ₹ 15 per unit. In a period, if it produces and sells 8,000
units, it incurs a loss of ₹ 5 per unit. If the volume is raised to 20,000 units, it earns a profit of ₹ 4 per
unit. The break-even point of the company in rupee terms will be
(A) ₹ 1,60,000
(B) ₹ 2,00,000
(C) ₹ 1,80,000
(D) ₹ 2,20,000
Hint:

P/V Ratio = Change in Profit Change in Sales × 100 = 1,00,0004,00,000 × 100 = 25%
Answer:
(C) ₹ 1,80,000

Question 10.
Dec 2014: A company that has a margin of safety of ₹ 4,00,000 makes a profit of ₹ 1,00,000. If its
fixed cost is ₹ 5,00,000, then break-even sales are:
(A) ₹ 20 lakh
(B) ₹ 25 lakh
(C) ₹ 12.5 lakh
(D) ₹ 15 lakh
Answer:
(A) ₹ 20 lakh

Question 11.
Dec 2014: Which of the following costs tire treated as product cost under variable costing:
(A) Only direct costs
(B) Only variable production costs
(C) Only material and labour costs
(D) All variable and fixed manufacturing costs
Answer:
(B) Only variable production costs

Question 12.
Dec 2014: What is the margin of safety, if profit is equal to 140,000 and P/V ratio is 25%
(A) ₹ 1,60,000
(B) ₹ 1,00,000
(C) ₹ 16,000
(D) ₹ 10,000
Hint:
MOS (in value) = Profit P/V ratio =40,00025% = 1,60,000
Answer:
(A) ₹ 1,60,000

Question 13.
June 2015: The costing method in which fixed factory overheads are added to inventory is
(A) Activity-based costing
(B) Marginal costing
(C) Direct costing
(D) Absorption costing
Answer:
(D) Absorption costing

Question 14.
June 2015: A company has an annual fixed cost of ₹ 1,68,000. In the year 2013-2014, sales amounted
to ₹ 6,00,000 as compared to ₹ 4,50,000in the preceding year 2012-2013. The profit in the year
2013-2014 was ₹ 42,000 more than that in the year 2012-2013. The break-even sales of the
company are
(A) 6,00,000
(B) 6,20,000
(C) 5,60,000
(D) 4,08,000
Hint:
Let the profit of last year be ‘x’.
So the profit of current year will be ‘x + 42,000’

Answer:
(A) 6,00,000

Question 15.
June 2015: Sunny Ltd. makes product-A which sells at ₹ 80 per unit.
Total fixed costs are ₹ 28,000 and marginal cost ₹ 42 per unit. The sales level (in units) that will
provide a profit of ₹ 10,000 is
(A) 1,200 Units
(B) 1,500 Units
(C) 1,250 Units
(D) 1,000 Units
Hint:
Let the sales unit be x.

Sales 80x

Less: Variable cost (42x)

Contribution 38x

Net Profit + Fixed Cost = Contribution

28,000 + 10,000 = 38,000
Hence, 38x = 38,000
x = No. of units = 1,000
Answer:
(D) 1,000 Units

Question 16.
June 2015: When the sales increase from ₹ 45,000 to ₹ 60,000, the profit increases by ₹ 5,000. P/V
Ratio would be
(A) 20%
(B) 30%
(C) 33.33%
(D) 66.67%
Hint:
P/V Ratio = Change in profit Change in sales × 100 = 5,00015,000 × 100 = 33.33%
Change in sales 15,000
Answer:
(C) 33.33%

Question 17.
June 2015: The margin of safety can be calculated using the formula
(A) Total sales – Break-even sales
(B) Fixed cost 4- P/V ratio
(C) P/V ratio 4- Profit
(D) Fixed cost 4- Contribution
Answer:
(A) Total sales – Break-even sales

Question 18.
June2015:A product is sold at ₹ 150 per unit and its variable cost is ₹ 70 per unit. The fixed expenses
of the business are ₹ 8,000 per year. The Break-even point (in units) is
(A) 200 units
(B) 50 units
(C) 115 units
(D) 100 units
Hint:
Sale Price – Variable Cost Contribution
150 – 70 = 80
BEP (in units) = Fixed Cost Contribution p.u. =8,00080 = 100 units
Answer:
(D) 100 units

Question 19.
June 2015: Profit-Volume ratio can be improved by
(A) Increasing selling price per unit
(B) Reducing the direct and variable costs
(C) Switching the production to products showing the higher profit-volume ratio
(D) All of the above
Answer:
(D) All of the above

Question 20.
June 2015: The selling price of a product is 1550 per unit, variable cost ₹ 50 per unit and fixed cost ₹
10,000. The number of units required to be sold to earn a profit of ₹ 10,000 will be –
(A) 400
(B) 40
(C) 36
(D) 220
Hint:
Sale Price – Variable Cost = Contribution 50 – 20 = 30
Contribution per kg= 302 = 15 per kg
Answer:
(B) 40

Question 21.
June 2015: Make or buy decisions are made by comparing cost with the outside purchase price.
(A) Fixed
(B) Variable
(C) Sunk
(D) Joint
Answer:
(B) Variable

Question 22.
June 2015: The selling price of a product-X is ₹ 50 per unit, variable cost ₹ 20 per unit and 2 kg of raw
material are needed to produce a unit of product-X. The contribution per kg of raw material will be –
(A) ₹ 30
(B) ₹ 15
(C) ₹ 60
(D) ₹ 50
Hint:
Answer:
(B) ₹ 15

Question 23.
Dec 2015: Following data is given for Gopal Ltd:

Overall P/V ratio of the company will be:

(A) 42.5%
(B) 37.5%
(C) 42.8%
(D) 46.7%
Hint:
Answer:
(B) 37.5%

Question 24.
Dec 2015: Z Ltd. recorded sales of ₹ 60 lakh in 2014 as compared to ₹ 45 lakh in 2013. Profit for 2014
was ₹ 5 lakh higher than that in 2013. If the annual fixed costs amount to ₹ 12 lakh, the profit on
projected sales of ₹ 90 lakh will be
(A) ₹ 15 lakh
(B) ₹ 14 lakh
(C) ₹ 12 lakh
(D) ₹ 18 lakh
Hint:
Profit in 2014 is higher by ₹ 5 lakhs than the profit of 2013. That mean change in profit is ₹ 5 lakhs.
60 – 45 = 15 (change in sales)
P/V Ratio = Change in profit Change in sales x 100
= 515 x 100
= 33.3333%
Variable cost ratio = 100% – 33.3333% = 66.6667%

Answer:
(D) ₹ 18 lakh

Question 25.
Dec 2015: Statement-I:
The contribution concept is based on the theory that the fixed expenses of a business are not a joint
cost.
Statement-II:
Fixed expenses can be equitably apportioned to different segments of the business.
Choose the correct option
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement-I is correct, but statement-II is incorrect
(D) Statement-I is incorrect, but statement-II is correct.
Hint:
Contribution or the contributory margin is the difference between sales value and the marginal cost
[Contribution (C) = Sales (S) – Variable Cost], It is obtained by subtracting marginal cost from sales
revenue of a given activity. It can also be defined as the excess of sales revenue over the variable
cost. The contribution concept is based on the theory that the profit and fixed expenses of a
business is a ‘joint cost’ that cannot be equitably apportioned to different segments of the business.
In view of this difficulty, the contribution serves as a measure of the efficiency of operations of
various segments of the business.
Answer:
(B) Both statements are incorrect

Question 26.
Dec 2015: The following information is given about Zac Ltd. dealing in musical instruments:
P/V ratio 50% Margin of safety 40%
If the sales volume is ₹ 50,00,000 the net profit will be
(A) ₹ 15,00,000
(B) ₹ 10,00,000
(C) ₹ 20,00,000
(D) ₹ 5,00,000
Hint:
If actual sales assumed at 100% then BEP must be at 60% as the Margin of safety is 40%.
BEP Sales = 50,00,000 × 60% = 30,00,000
Contribution at BEP = 30,00,000 × 50% = 15,00,000
At BEP Contribution = Fixed cost hence Fixed Cost is also ₹ 15,00,000

Answer:
(B) ₹ 10,00,000

Question 27.
Dec 2015: Assertion (A):
In management accounting, firm decisions on pricing policy can be taken.
Reason (R):
As the marginal cost per unit is constant from period to period within a short span of time.
Select the correct answer from the option given below
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true, but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(A) Both A and R are true and R is the correct explanation of A

Question 28.
Dec 2015: Manoj Ltd. manufactures three products P, Q and R. The unit selling price of these
products are ₹ 100, ₹ 160 and ₹ 75 respectively. The corresponding unit variable costs are ₹ 50, ₹ 80
and ₹ 30. The proportions (quantity-wise) in which these products are manufactured and sold are
20%, 30% and 50% respectively. Total fixed costs are ₹ 14,80,000. Overall breakeven quantity is
(A) 26,195 Units
(B) 27,195 Units
(C) 27,165 Units
(D) 28,165 Units
Hint:

Total equivalent contribution = 10 + 24 + 22.5 = 56.5

Composite BEP = 14,80,00056.5 = 26,194.69 say 26,195 units
Answer:
(A) 26,195 Units

Question 29.
Dec 2015: Profits in a company can be increased by:
(1) Decreasing the selling price per unit
(2) Increasing the selling price per unit
(3) Decreasing the volume of sales
(4) Increasing the volume of sales
(5) Decreasing the fixed or variable expenses
(6) Increasing the fixed or variable expenses
(7) Giving more weightage for products having a higher P/V ratio
(8) Giving less weightage for products having a higher P/V ratio
Select the correct answer from the options given below
(A) (1), (3), (5) and (7)
(B) (2), (4), (6) and (8)
(C) (2), (4), (5) and (7)
(D) (1), (3), (6) and (8)
Answer:
(C) (2), (4), (5) and (7)

Question 30.
Dec 2015: Assertion (A):
The business earns a surplus of sale revenue over variable costs, which is called a contribution.
Reason (R):
Once fixed costs are fully recovered such excess contribution is termed as profit.
Select the correct answer from the options given below
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true, but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(B) Both A and R are true, but R is not the correct explanation of A

Question 31.
Dec 2015: A manufacturer produces 2,00,000 units of a product at a cost of ₹ 3.25 per unit. Later on,
he produces 2,75,000 units at a cost of ₹ 3.20 per unit, when its fixed overheads have increased by
10%. The marginal cost per unit and originally fixed overheads will be:
(A) ₹ 2 and ₹ 45,000 respectively
(B) ₹ 4 and ₹ 47,000 respectively
(C) ₹ 3 and ₹ 50,000 respectively
(D) ₹ 5 and ₹ 45,000 respectively
Hint:
Total cost at 2,00,000 units = 2,00,000 × 3.25 = 6,50,000
Total cost at 2,75,000 units = 2,75,000 × 3.20 = 8,80,000
Check the given option and apply the variable cost and fixed cost as given in option and verify
whether it fits the cost structure as given problem. Select the option.
Data are given in Option (C) fits the cost structure as a given problem.

Alternatively,
Answer:
(C) ₹ 3 and ₹ 50,000 respectively

Question 32.
Dec 2015: The following data is obtained from the records of Mayur Ltd:

Break-even-point in rupees is
(A) ₹ 45,000
(B) ₹ 52,000
(C) ₹ 55,000
(D) ₹ 55,500
Hint:
P/V Ratio = Change in profit Change in sales × 100 = 4,00010,000 × 100 = 40%

BEP (in value) = Fixed Cost P/V Ratio =22,00040% = 55,000

Answer:
(C) ₹ 55,000

Question 33.
Dec 2015:
Assertion (A):
The profit volume ratio is considered to be the best indicator of the profitability of the business.
Reason (R):
If the profit volume ratio is improved, it will result in better profits.
Select the correct answer from the options given below
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true, but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(A) Both A and R are true and R is the correct explanation of A

Question 34.
Dec 2015:Which of the following are advantages of marginal costing :
(1) Pricing decision
(2) True profit
(3) Difficulty to classify
(4) Ignores time value
(5) Break-even analysis
(6) Contribution is not final
(7) Control over expenditure
Select the correct answer from the options given below
(A) (1), (2). (5) and (7)
(B) (1), (3), (5) and (7)
(C) (3), (4), (6) and (7)
(D) (1), (2), (6) and (7)
Answer:
(A) (1), (2). (5) and (7)

Question 35.
Dec 2015: If sales revenue at 60% capacity is ₹ 4,50,000, sales revenue at 70% capacity on a fall in
selling price by 5% would be
(A) ₹ 4,98,750
(B) ₹ 7,50,000
(C) ₹ 5,25,000
(D) ₹ 7,12,000
Hint:

Answer:
(A) ₹ 4,98,750

Question 36.
Dec 2015: Match the following:

List-I List-II

P. Classification of costs 1. Contribution to fixed and variable costs

Q. Difference between sales and variable

2. P/V ratio
costs

R. Both fixed and variable costs are charged to product costing 3. Marginal

S. Relative profitability 4. Absorption

Select the correct answer from the following options

Answer:
(C)

Question 37.
Dec 2015:
Statement-I:
The margin of safety represents the difference between sales at the break-even point and total
sales.
Statement-II:
The margin of safety can be expressed as a percentage of total sales or in value or in terms of
quantity.
Select the correct answer from the options given below
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement-I is correct, but Statement-II is incorrect
(D) Statement-I is incorrect, but Statement-II is correct.
Answer:
(A) Both statements are correct

Question 38.
Dec 2015: Match the following:

List-I List-II

P. Excess of actual sales over break-even sale volume 1. Contribution

Q. Sum of fixed cost and profit 2. Cost-volume-profit analysis

R. Break-even analysis 3. No profit, no loss

S. Break-even point 4. Margin of safety

Select the correct answer from the options given below

Answer:
(A)

Question 39.
Dec 2015: Match the following:

List-I List-II

P. Absorption costing 1. Is a logical extension of marginal costing

Q. Fixed expenses 2. Relationship of change in cost and change in profit

R. Marginal costing 3. Contribution = _____ + Profit

S. Break-even analysis 4. Uses classification of costs according to their functions

Select the correct answer from the options given below

Answer:
(D)

Question 40.
Dec 2015: A company sells its product at ₹ 15 per unit. In a period, it produces and sells 8,000 units
and incurs a loss of ₹ 5 per unit. If the sales volume were to be raised to 20,000 units, it could earn a
profit of ₹ 4 per unit. The Break-even point (in units) will be
(A) 24,000 Units
(B) 12,000 Units
(C) 16,000 Units
(D) 30,000 Units
Hint:
Sales = 8,000 × 15 = 1,20,000; Loss = 8,000 × 5 = 40,000
Sales = 20,000 × 15 = 3,00,000; Profit = 20,000 × 4 = 80,000
P/V Ratio = Change in profit Change in sales × 100 = −40,000−80,0001,80,000 × 100 = 66.67%

Contribution per unit = 80,0008,000 = 10

BEP (in units) = Fixed Cost Contribution per unit =1,20,00010 = 12,000
Answer:
(B) 12,000 Units

Question 41.
Dec 2015:
Statement-1:
At the time of replacement of plant, according to marginal cost technique, the proposal which yields
the lowest contribution is to be selected.
Statement-II:
According to the total cost technique, the proposal which involves the highest costs is to be selected.
Select the correct answer from the following
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement-I is correct, but Statement-II is incorrect
(D) Statement-I is incorrect, but Statement-II is correct
Answer:
(B) Both statements are incorrect

Question 42.
Dec 2015: Choose the correct statements from the following:
(1) Marginal costing and absorption costing are the same
(2) For decision making, absorption costing is more suitable than marginal costing
(3) Cost-volume-profit relationship also denotes break-even point
(4) Marginal costing is based on the distinction between fixed and variable costs.
Correct option is
(A) (1) and (2)
(B) (2) and (3)
(C) (3) and (4)
(D) (2) and (4)
Answer:
(C) (3) and (4)

Question 43.
Dec 2015: The sales and profit during the two periods were as follows:
Sales required to earn a profit of ₹ 5,00,000 is
(A) ₹ 30 lakh
(B) ₹ 40 lakh
(C) ₹ 35 lakh
(D) ₹ 28 lakh
Hint:
P/V Ratio = Change in profit Change in sales × 100 = 2,00,00010,00,000 × 100 = 20%

Sales = 7,00,00020% = 35,00,000

Answer:
(C) ₹ 35 lakh

Question 44.
Dec 2015: Match the following:

List-I List-II

P. Marginal cost 1. ____= Contribution ÷ Sales

Q. P/V ratio 2. Contribution = Selling price – ____

R. Profit 3. ____ = Sales × (1 – P/V ratio)

S. Variable cost 4. Margin of safety = ____ ÷ P/V Ratio

Select the correct answer from the options given below

Answer:
(B)

Question 45.
Dec 2015: Cost-volume-profit (CVP) analysis is based on several assumptions. Which one of the
following is not relevant for such an analysis
(A) Inventory quantity changes in the year
(B) Sales mix of the products is constant
(C) Material price and labour rates do not change
(D) Behaviour of both sales and variable cost is linear throughout the year
Answer:
(A) Inventory quantity changes in the year

Question 46.
Dec 2015: The fixed expenses are ₹ 4,000 and the break-even point is ₹ 10,000. The new break-even
point, if the selling price is reduced by 20% is
(A) ₹ 14,000
(B) ₹ 15,000
(C) ₹ 16,000
(D) ₹ 17,000
Hint:
Assume that the selling price per unit is ₹ 10

New selling price per unit after reduction of 20% = 10 – 2 = 8

Answer:
(C) ₹ 16,000

Question 47.
June 2016: There are two similar plants under the same management. The management desires to
merge these two plants. The following particulars are available:
The capacity of the merged plant to be operated for the purpose of break-even will be
(A) 45.14%
(B) 48.12%
(C) 50.76%
(D) 46.15%
Hint:

P/V Ratio (Merged plant) = Contribution Sales × 100 = 2601,000 × 100 = 26%
BEP(in value) (Merged plant) = Fixed cost P/V ratio =12026% = 461.54 Lakhs
Capacity of merged plant at BEP = 461.541,000 × 100 = 46.15%
Answer:
(D) 46.15%

Question 48.
June 2016: Which of the following statements is/are false?
(i) Product can be sold below marginal cost in certain special circumstances
(ii) Cost per unit of the key factor is the basis of ranking products on profitability
(iii) When there are no inventories, profit figures under marginal and absorption costing are
identical.
Select the correct answer from the options given below
(A) (ii) only
(B) (i) and (ii)
(C) (i) and (iii)
(D) (ii) and (iii)
Answer:
(A) (ii) only

Question 49.
June 2016: Following data are given:
Direct labour hours available are 72,000 hours.
What should be the number of units of A and B to be produced to maximize the profit of the
company?
(A) A-10,000 units, B-5,500 units
(B) B-10,000 units, A-5,500 units
(C) B-10,000 units, A-6,400 units
(D) 10,000 units of each A and B
Hint:

Total hours for producing 10,000 units of Product B = 10,000 × 4 = 40,000

Hours available for producing Product A = 72,000 – 40,000 = 32,000
Possible production of Product A = 32,0005 = 6,400
50. BEP = 100% – 4096 = 6096
BEP sales = 8,00040 × 60 = 12,000
Contribution at BEP = 12,000 – 6,000 = 6,000
At BEP, Contribution = Fixed Cost

Answer:
(C) B-10,000 units, A-6,400 units

Question 50.
June 2016: The margin of safety is ₹ 8,000 which represents 40% of sales. The P/V ratio is 50%. Fixed
cost will be
(A) ₹ 6,000
(B) ₹ 5,500
(C) ₹ 6,500
(D) ₹ 7,000
Answer:
(A) ₹ 6,000

Question 51.
June 2016: Cost-Volume-Profit analysis is based on several assumptions. Which one of the following
is not one of these assumptions
(A) Sales mix of the products is constant
(B) The behaviour of both sales and variable cost is linear throughout the relevant range
(C) Variable cost per unit will remain constant
(D) Productivity and operational efficiency will change according to output
Answer:
(D) Productivity and operational efficiency will change according to output

Question 52.
June 2016: Under marginal costing, unit product cost would most likely be increased by
(A) A decrease in the number of units produced
(B) An increase in the number of units produced
(C) An increase in the commission paid to the salesman for each unit sold
(D) A decrease in the commission paid to the salesman for each unit sold
Answer:
(A) A decrease in the number of units produced

Question 53.
June 2016: A company producing three products, viz., X, Y and Z has a sales mix in the ratio of 2:1:3.
The profit volume ratio of the products X, Y and Z are 15%, 30% and 20% respectively. The total fixed
cost of the company is ₹ 3,50,000. The break-even point of the company will be
(A) ₹ 16,15,390
(B) ₹ 17,50,000
(C) ₹ 23,33,333
(D) ₹ 11,66,667
Hint:
Sales mix is 2:1:3 means 33.33%:16.67%:50%

Total Equivalent P/v ratio = 596 + 596 + 10% = 20%

Composite BEP = 3,50,00020%= 17,50,000
Answer:
(B) ₹ 17,50,000
Question 54.
Dec 2016: From the following particulars, calculate the selling price per unit, if the break-even point
is brought down to 10,000 units :
Selling price per unit: ₹ 20
Variable cost per unit: ₹ 16
Fixed expenses: ₹ 60,000
Choose the correct option
(A) ₹ 25
(B) ₹ 20
(C) ₹ 22
(D) ₹ 32
Hint:

At BEP: Contribution = Fixed cost, hence Contribution = 60,000

Contribution p. u. = 60,00010,000 = 6 p. u.
Contribution p. u. + Variable cost p. u. = Selling price p. u.
6 + 16 = 22
Answer:
(C) ₹ 22

Question 55.
June 2016: Aman Ltd. sells its products at ₹ 16 per unit. In a period, if it produces and sells 20,000
units, it incurs a loss of ₹ 2 per unit. If the volume is doubled, it earns a profit of ₹ 2.20 per unit. The
amount of fixed cost and breakeven point (in units) will be
(A) ₹ 1,68,000 and 26,250 units
(B) ₹ 8,000 and 53,333 units
(C) ₹ 1,60,000 and 25,000 units
(D) ₹ 1,70,000 and 42,500 units
Answer:
(A) ₹ 1,68,000 and 26,250 units

Question 56.
June 2016:
Profit : ₹ 50,000
Contribution : ₹ 70,000
Sales : ₹ 7,00,000
The amount of margin of safety will be
(A) ₹ 4,00,000
(B) ₹ 5,00,000
(C) ₹ 2,50,000
(D) ₹ 1,45,000
Hint:

Answer:
(B) ₹ 5,00,000

Question 57.
June 2016: The ratio of variable cost to sales is 75%. The break-even point occurs at 64% of the
capacity sales when fixed cost is ₹ 1,20,000. The 100% capacity sales will be
(A) ₹ 4,80,000
(B) ₹ 12,50,000
(C) ₹ 7,50,000
(D) None of the above
Hint:

Sales at 100% = 4,80,00064 × 100 = 7,50,000

Answer:
(C) ₹ 7,50,000

Question 58.
Dec 2016: Raj Ltd. furnishes the following information:
Production: 10,000 units
Sales: 5,000 units
Selling price: ₹ 12 per unit
Variable cost: 6 per unit
Fixed costs: ₹ 40,000 p.a.
Profit/loss under marginal costing method will be
(A) ₹ 10,000 (Profit)
(B) ₹ 10,000 (Loss)
(C) ₹ 20,000 (Profit)
(D) ₹ 20,000 (Loss)
Hint:

Sales 60,000

(-) Variable cost (30,000)

Contribution 30,000

(-) Fixed cost (40,000)

Loss (10,000)

Answer:
(B) ₹ 10,000 (Loss)

Question 59.
Dec 2016: A radio manufacturer finds that while it costs 16.25 per unit to make a component, the
same is available in the market at ₹ 5.75 each. Continuous supply is also fully assured. The break-up
of costs per unit is as follows:
Materials: ₹ 2.75
Labour: ₹ 1.75
Other variable expenses: ₹ 0.50
Depreciation & other fixed costs: ₹ 1.25
The best option for the manufacturer will be
(A) To make
(B) To buy
(C) To sell
(D) None of the above
Hint:
In ‘make or buy decisions, it is profitable to buy from outside only when the supplier’s price is below
the firm’s own variable cost.
Buying cost = 5.75
Making variable cost = 2.75 + 1.75 + 0.50 = 5
A radio manufacturer is advised to make the component.
Answer:
(A) To make

Question 60.
Dec 2016: Following data is obtained from the cost records of Moon Ltd.:
P/V ratio will be
(A) 40%
(B) 46%
(C) 52%
(D) 50%
Hint:
P/V Ratio = Change in profit Change in sales × 100 = 30,000−20,0001,20,000−1,00,000 × 100
= 10,00020,000 × 100 = 50%
Answer:
(D) 50%

Question 61.
Dec 2016: In a purely competitive market, 10,000 pocket transistors can be manufactured and sold
and certain
profit is generated. It is estimated that 2.0 pocket transistors need to be manufactured and sold in a
monopoly market to earn the same profit. Profit under both conditions is targeted at ₹ 2,00,000. The
variable cost per transistor is ₹ 100 and total fixed costs are ₹ 37,000. Unit selling price per transistor
under monopoly condition will be
(A) ₹ 218.50
(B) ₹ 234.50
(C) ₹ 267.25
(D) ₹ 274.35
Hint:

Units Monopoly market 2,000

Sales 4,37,000

(-) Variable cost (2,00,000)

Contribution 2,37,000

(-) Fixed cost (37,000)

Profit 2,00,000
Unit selling price = 4,37,0002,000 = 218.50
Answer:
(A) ₹ 218.50

Question 62.
Dec 2016: Following information is related to Product-A:
In 2015, the variable cost was 7200per unit and fixed cost ₹ 40 per unit. Production was 1,20,000
units. It is expected that production in 2016 will increase to 1.60.0 units. The variable cost will
increase by 25% and fixed cost by 10% in 2016. The amount of fixed cost in 2016 will be
(A) ₹ 52,80,000
(B) ₹ 70,40,000
(C) ₹ 64,00,000
(D) ₹ 48,00,000
Hint:
1,20,000 × 40 × 110%= 52,80,000
Answer:
(A) ₹ 52,80,000

Question 63.
Dec 2016: Following information is given for a product of a manufacturing company:
Material ₹ 18 per unit; other variable costs ₹ 22 per unit; and fixed expenses ₹ 18 per unit. The
selling price is ₹ 75 per unit. The company is presently producing 80.0 units at 80% capacity. The
company received an offer for 20,000 units from a foreign customer. The minimum price to be
accepted from a foreign customer, if the company wants to earn 20% on foreign sales will be
(A) ₹ 50
(B) ₹ 58
(C) ₹ 72.50
(D) ₹ 69.60
Hint:

x – 8,00,000 = 0.2.x
0.8x = 8,00,000
x = 10,00,000
Price per unit = 10,00,000/20,000 = 50
Answer:
(A) ₹ 50
Question 64.
Dec 2016: Margin of safety in a company can be improved by:
(1) Reducing the fixed cost and variable cost
(2) Increasing sales volume and price of sales
(3) Increasing stock of material in the expectation of price rise
(4) Expanding business to fulfil the demand of the market
(5) Changing the product mix to increase contribution.
Select the correct answer from the options given below
(A) (1), (2) and (3)
(B) (1), (2) and (5)
(C) (1), (3) and (4)
(D) (2), (3) and (5)
Answer:
(B) (1), (2) and (5)

Question 65.
Dec 2016:
Statement -1
When there are no inventories, the profit figure under marginal costing and absorption costing is
identical.
Statement – II
Inventories are valued at cost of production in absorption and marginal costing systems.
Select the correct answer from the options given below
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement-I is incorrect, but Statement-!! is correct
(D) Statement-I is correct, but Statement-II is incorrect
Answer:
(D) Statement-I is correct, but Statement-II is incorrect

Question 66.
Dec 2016: The P/V ratio of Akhil & Co. is 50% and margin of safety is 40%. The company sold 500
units for ₹ 5,00,000. The break-even point sales will be
(A) ₹ 2,50,000
(B) ₹ 3,00,000
(C) ₹ 3,50,000
(D) ₹ 4,00,000
Hint:
Margin of safety = Actual sales – Break even sales
4096 = 100% – Break even sales
Break even sales = 60%
5,00,000 × 60% = 3,00,000
Answer:
(B) ₹ 3,00,000
Question 67.
June 2017: Ramya Ltd. furnishes the following information:
Production 10,000 units,
Sales 10,000 units,
Selling price ₹ 12 per unit,
Variable cost ₹ 6 per unit,
Fixed costs ₹ 40,000 per annum (normal capacity of 10,000 units)
Profit/Loss under marginal costing method will be:
(A) ₹ 10,000
(B) ₹ 30,000
(C) ₹ 20,000
(D) ₹ 25,000
Hint:

Answer:
(C) ₹ 20,000

Question 68.
June 2017: A manufacturer produces 2,00,000 units of a product at a cost of ₹ 3.25 per unit. Later
on, he produces 2,75,000 units at a cost of ₹ 3.20 per unit, when its fixed overheads have increased
by 10%. The originally fixed overheads will be:
(A) ₹ 50,000
(B) ₹ 55,000
(C) ₹ 30,000
(D) ₹ 40,000
Hint:
A simple way to solve this MCQ is to apply the figures of the given option in the following ways:
Let’s take the figure of Option (A) ₹ 50,000 as fixed overhead.

Since the variable overhead per unit remains the same, Option (A) is correct.
Answer:
(A) ₹ 50,000
Question 69.
June 2017: Mr Mahesh has a sum of ₹ 3,00,000 which invested in a business. He wishes for a 15%
return on his fund. It is revealed from the present cost data analysis that the variable cost of
operation is 60% of sales and fixed costs are ₹ 1,50,000 p.a. On the basis of this information, you are
required to find out the sales volume to earn a 15% return.
(A) ₹ 4.875 Lakhs
(B) ₹ 4.675 Lakhs
(C) ₹ 4.775 Lakhs
(D) ₹ 5.875 Lakhs
Hint:
Required return = 3,00,000 × 1596 = 45,000

Answer:
(A) ₹ 4.875 Lakhs

Question 70.
June 2017: A radio manufacturer finds that it costs ₹ 6.25 per unit to make component M-140 and
the same is available in the market at ₹ 5.75 each. Continuous supply is also fully assured. The break-
down cost per unit as follows: Materials ₹ 2.75, Labour ₹ 1.75 other variable expenses ₹ 0.50,
Depreciation and other fixed cost ₹ 1.25. What would be your decision, if the supplier offered the
component at ₹ 4.85 per unit?
(A) Make
(B) Buy
(C) Sell
(D) None of the above
Hint:
The present MCQ is based on “make or buy”.
Variable cost of making = 2.75 + 1.75 + 0.50 = 5.00

Answer:
(B) Buy

Question 71.
June 2017: In a purely competitive market, 10,000 pocket transistors can be manufactured and sold
and certain profit is generated. It is estimated that 2,0 pocket transistors need to be manufactured
and sold in a monopoly market to earn the same profit. Profit under both conditions is targeted at ₹
2,00,000. The variable cost per transistor is ₹ 100 and the total fixed costs are ₹ 37,000. You are
required to find out the unit selling price per transistor under competitive condition.
(A) ₹ 125.70
(B) ₹ 123.70
(C) ₹ 128.70
(D) ₹ 228.70
Hint:

Answer:
(B) ₹ 123.70

Question 72.
June 2017: A firm has given the following data:
Fixed expenses at 50% ₹ 15,000, Fixed expenses when factory is close down ₹ 10,000, Additional
expenses in closing down ₹ 1,000, Production at 50% capacity 5,000 units, contribution per unit ₹ 1.
Advise whether to run the factory or close it down:
(A) Close
(B) Run
(C) Continue
(D) None of the above
Hint:

Since the loss is greater when the factory is closed, it advised running the factory.
Answer:
(B) Run

Question 73.
June 2017: From the following data, the P/V ratio will be:

(A) 50%
(B) 10%
(C) 20%
(D) 40%
Hint:
P/V ratio = Change in profit Change in sales × 100 = 10,00,000−5,00,00075,00,000−50,00,000 × 100
= 5,00,00025,00,000 × 100 = 20%
Answer:
(C) 20%

Question 74.
June 2017: You are requested to report to the top management of Eastern India Engineering
Company the point of sales in terms of rupee to break-even. For the purpose, you obtain that:
Fixed overheads remain constant at ₹ 12,000
Variable costs will rise zero to ₹ 12,000 Selling price is ₹ 600 per ton
The tonnage produced and sold is 30 tons.
(A) ₹ 36,000
(B) ₹ 32,000
(C) ₹ 30,000
(D) ₹ 38,000
Hint:

Answer:
(A) ₹ 36,000

Question 75.
June 2017: In a period sales amount to ₹ 2,00,000, net profit ₹ 20,000 and Fixed overheads are ₹
30,000. If sales ₹ 3,00,000 profit will be:
(A) ₹ 48,000
(B) ₹ 50,000
(C) ₹ 40,000
(D) ₹ 45,000
Hint:
Answer:
(D) ₹ 45,000

Question 76.
June 2017: Reliance Furniture House places before you the following trading results:

Fixed cost will be:

(A) ₹ 15,000
(B) ₹ 10,000
(C) ₹ 30,000
(D) ₹ 60,000
Hint:
P/V ratio = Change in profit Change in sales × 100 = 30,000−20,0001,20,000−1,00,000 × 100
= 10,00020,000 × 100 = 50%

Answer:
(C) ₹ 30,000

Question 77.
June 2017: A factory engaged in manufacturing plastic buckets is working at 40% capacity and
produces 10,0 buckets per annum. The present cost-break-up for one bucket is as under:

Materials ₹ 10
Labour ₹3

Overheads ₹ 5 (60% fixed)

The selling price per bucket ₹ 20. If the factory operates 90% of capacity the profit will be:
(A) ₹ 75,000
(B) ₹ 80,000
(C) ₹ 82,500
(D) ₹ 92,500
Hint:

Answer:
(C) ₹ 82,500

Question 78.
June 2017: A company has fixed costs of ₹ 90,000 with sales of ₹ 3,00,000 and profit of ₹ 60,000.
Margin of safety will be:
(A) ₹ 1,00,000
(B) ₹ 1,20,000
(C) ₹ 1,50,000
(D) ₹ 1,30,000
Hint:

MOS (in value) = Profit P/V ratio =60,00050% = 1,20,000

Answer:
(B) ₹ 1,20,000
Question 79.
June 2017: A company sells its product at ₹ 15 per unit. In a period if it produces and sells 8,000
units, it incurs a loss of ₹ 5 per unit. If the volume is raised to 20,000 units, it earns a profit of ₹ 4 per
unit. Break-even point in units will be:
(A) 13,000 units
(B) 12,000 units
(C) 14,000 units
(D) 10,000 units
Hint:

P/V ratio = Change in profit Change in sales × 100 = 80,000−(−40,000)3,00,000−1,20,000 × 100

= 1,20,0001,80,000 × 100 = 66.6667%
BEP (in units) = Fixed cost Contribution p. u. =1,20,00010 = 12,000 units
Answer:
(B) 12,000 units

Question 80.
June 2017: The cost accountant of M Ltd. has ascertained the selling price of a product is ₹ 20 per
unit. The variable cost is ₹ 15 per unit and the break-even point is 21,600 units. Management has
decided to treat 12,000 units of B.E.P. because the production department cannot produce more
than this at the moment. The selling price for 12,000 units B.E.P. will be:
(A) ₹ 20 per unit
(B) ₹ 24 per unit
(C) ₹ 26 per unit
(D) ₹ 28 per unit
Hint:
Answer:
(B) ₹ 24 per unit

Question 81.
June 2017: Yadhav Co. has an annual fixed cost of ₹ 1,20,000. In 2015 sales amounted to ₹ 6,00,000
as compared to ₹ 4,50,000 in 2014 and prophet in 2015 was ₹ 50,000 higher than in 2014. If there is
no need to expand the company’s capacity. The prophet or loss in 2016 on a forecasted sales of ₹
9,00,000 will be:
(A) ₹ 1,80,000
(B) ₹ 1,90,000
(C) ₹ 1,70,000
(D) ₹ 1,85,000
Hint:

P/V ratio = Change in profit Change in sales × 100 = 50,0001,50,000 × 100 = 33.3333%
Answer:
(A) ₹ 1,80,000

Question 82.
June 2017: A company manufactures and sells three types of product namely A, B and C. Total sales
per month is ₹ 80,000 in which the share of these three products are 50%, 30% and 20%
respectively. The variable cost of these products is 60%, 50% and 40% respectively. The combined
P/V Ratio will be:
(A) 49%
(B) 48%
(C) 47%
(D) 50%
Hint:
Combined P/V ratio = (40 × 50%) + (50 × 30%) + (60 × 20%) = 47%

Variable cost per unit = Change in cost Change in units =20,00010,000 = 2

Answer:
(C) 47%

Question 83.
June 2017: A plant is operating at 60% capacity. The fixed costs are ₹ 30,000, the variable costs are ₹
1,00,000 and the sales amount to ₹ 1,50,000. The percentage of capacity at which the plant should
operate to earn a prophet of ₹ 40,000 will be:
(A) 80%
(B) 84%
(C) 90%
(D) 94%
Hint:

601,50,000 × 2,10,000 = 84%

Answer:
(B) 84%

Question 84.
June 2017: When the margin of safety is 20% and the P/V ratio is 60%, the prophet will be:
(A) 30%
(B) 33.3333%
(C) 12%
(D) None of the above
Hint:
Margin of safety = Profit P/V ratio
20% = x60%
x = Profit = 20 × 60% = 12%
Answer:
(C) 12%

Question 85.
June 2017: If the total cost of producing 20,000 units of a product is ₹ 90,000 and if 25,000 units will
be produced, then the total cost will be ₹ 1,05,000 and the selling price is ₹ 8 per unit. The break-
even point will be:
(A) 10,000 units
(B) 8,000 units
(C) 6,000 units
(D) 5,000 units
Hint:
Profit at 20,000 units = 1,60,000 – 90,000 = 70,000
Profit at 25,000 units = 2,00,000 – 1,05,000 = 95,000
P/V ratio = Change in profit Change in sales × 100 = 25,00040,000 × 100 = 62.5%

BEP (in units) = Fixed Cost Contribution p.u. =30,0005 = 6,000

Answer:
(C) 6,000 units

Question 86.
June 2017: P/V ratio 25%, Sales ₹ 1,20,000 and Fixed costs ₹ 17,500, Profit will be:
(A) ₹ 12,500
(B) ₹ 30,000
(C) ₹ 17,500
(D) ₹ 20,000
Hint:

Answer:
(A) ₹ 12,500
Question 87.
June 2017: Under marginal costing system, product costs are:
(A) Equal to fixed cost plus variable costs
(B) Equal to only marginal costs
(C) Equal to semi-variable costs
(D) None of the above
Answer:
(B) Equal to only marginal costs

Question 88.
June 2017: Prime cost plus variable overheads gives:
(A) Cost of sales
(B) Marginal costs
(C) Works cost
(D) Cost of production
Answer:
(B) Marginal costs

Question 89.
Which of the following is not true?
(A) P/V Ratio = Profit Margin of Safety × 100
(B) Break-even Point = Fixed Cost P/V ratio
(C) Break-even Point = Fixed Cost P/V ratio × 100
(D) P/V Ratio = Undefined control sequence \operatorname × 100
Answer:
(C) Break-even Point = Fixed Cost P/V ratio × 100

Question 90.
June 2017:
Assertion (A):
In management accounting firm decisions on pricing policy can be taken.
Reason (R):
As the marginal cost per unit is constant from period to period within a short span of time.
Codes:
(A) A is true, but R is false
(B) A is false, but R is true
(C) Both A & R are true and R is the correct explanation of A
(D) Both A & R are true but R is not the correct explanation of A
Answer:
(C) Both A & R are true and R is the correct explanation of A

Question 91.
June 2017:
Assertion (A):
ProRt volume ratio is considered to be the best indicator of the profitability of the business.
Reason (R):
If the profit volume ratio improved, it will result in better profits.
Codes:
(A) A is false, but R is true
(B) A is true, but R is false
(C) Both A & R are true but R is not the correct explanation of A
(D) Both A & R are true and R is the correct explanation of A
Answer:
(C) Both A & R are true but R is not the correct explanation of A

Question 92.
June 2017:
Statement I:
The margin of safety represents the difference between the sales at the breakeven point and the
total sales.
Statement II:
Margin safety can be expressed as a percentage of total sales or in value or in terms of quantity.
Codes:
(A) Statement I is correct but statement II is incorrect
(B) Statement I is incorrect but statement II is correct
(C) Both statements are correct
(D) Both statements are incorrect
Answer:
(C) Both statements are correct

Question 93.
June 2017: Match the following:

List I List II

(a) Classification of costs into a fixed and variable cost (1) Contribution

(b) Difference between sales and variable cost (2) P/V ratio

(c) Both fixed and variable cost are charged to the product (3) Marginal Costing

(d) Relative profitability (4) Absorption

Codes:

Answer:
(B)

Question 94.
June 2017: Consider the following statements:
(1) Marginal costing and absorption costing are the same.
(2) For decision-making, absorption costing is more suitable than marginal costing.
(3) Cost-volume-profit relationship also denotes the break-even point.
(4) Marginal costing is based on the distribution between fixed and variable costs.
Which of the statements given above are correct?
(A) 4 and 2
(B) 2 and 3
(C) 3 and 4
(D) 1 and 2
Answer:
(C) 3 and 4

Question 95.
June 2017: Which of the following are the advantages of marginal costing?
(1) Pricing decision
(2) True profit
(3) Difficulty to classify
(4) Ignores time value
(5) Break-even analysis
(6) Contribution is not final
(7) Control over expenditure Codes:
(A) 1,3, 5 and 7
(B) 1,2, 5 and 7
(C) 3, 4, 6 and 7
(D) 1, 2, 6 and 7
Answer:
(B) 1,2, 5 and 7

Question 96.
Dec 2017: Marginal Costing in America is called as:
(A) Differential costing
(B) Out-of-pocket costing
(C) Direct costing
(D) Variable costing
Answer:
(C) Direct costing

Question 97.
Dec 2017:
Statement-I:
Break-even analysis has gradually become a popular service tool for modern financial management.
Statement-II:
No concrete limitations have been raised anywhere against the utility of break-even analysis.
Select the correct answer from the option given below:
(A) Both statements are correct
(B) Both statements are wrong
(C) Statement I is correct but statement II is not correct
(D) Statement I is not correct but statement II is correct
Answer:
(C) Statement I is correct but statement II is not correct

Question 98.
Dec 2017: When fixed costs are ₹ 90,000, the ratio of variable cost to sales is 75% and the break-
even point occurs at 60% of the capacity sales, the capacity sales are:
(A) ₹ 4,50,000
(B) ₹ 5,60,000
(C) ₹ 6,00,000
(D) ₹ 7,50,000
Hint:

Answer:
(C) ₹ 6,00,000

Question 99.
Dec 2017: The P/V ratio of a company is 40%. If the company reduces its selling price by 20%, the
required percentage of increase in sales value to maintain the same profit is:
(A) 20%
(B) 40%
(C) 60%
(D) 75%
Hint:
The following data is assumed:
Selling price per unit = 20; No. of units = 500; Fixed cost = 1,000.

If the company reduces its selling price by 20% the required percentage of increase in sales value to
maintain the same profit is as shown below:

Percentage increase in sales value = 16,000−10,00010,000 × 100 = 60%

Answer:
(C) 60%

Question 100.
Dec 2017: Mr. R’s sales and profit in 2015 were respectively ₹ 1,20,000 and ₹ 8,000. His sales &
profit in 2016 were ₹ 1,40,000 & ₹ 13,000 respectively. In this case his margin of Safety in 2016 was:
(A) ₹ 32,000
(B) ₹ 52,000
(C) ₹ 88,000
(D) ₹ 1,36,000
Hint:
P/V ratio = Change in profit Change in sales × 100 = 13,000−8,0001,40,000⋅1,20,000 × 100 = 40%
MOS (in value) = Profit P/V ratio =13,00025% = 52,000
Answer:
(B) ₹ 52,000

Question 101.
Dec 2017: Z Ltd. has a margin of safety of 4,000 units and break-even sales at 1,000 units. If its
margin of safety sales is ₹ 2,00,000, total sales shall be:
(A) ₹ 8,00,000
(B) ₹ 6,00,000
(C) ₹ 4,00,000
(D) ₹ 2,50,000
Hint:
2,00,0004,000 × 5,000 = 2,50,000
Answer:
(D) ₹ 2,50,000

Question 102.
Dec 2017: R.V. Ltd., made a sale for ₹ 4,50,000 in the first half and for ₹ 5,00,000 in the second half
of 2016. In this year the total cost for the first and the second half of the year were respectively ₹
4,00,000 and ₹ 4,30,000. If there is no change in selling price and variable cost and that the fixed
expenses are incurred equally, the break-even sales for the whole year is:
(A) ₹ 6,50,000
(B) ₹ 6,00,000
(C) ₹ 5,00,000
(D) ₹ 4,50,000
Hint:
P/V ratio = Change in profit Change in sales × 100 = 20,00050,000 × 100 = 40%
BEP = Fixed Cost P/V Ratio =2,60,00040% × 100 = 6,50,000
Answer:
(A) ₹ 6,50,000

Question 103.
Dec 2017: Following are the particulars relating to products P and Q:

Which product is more profitable when?

(a) Material is the key factor.
(b) Labour hour is the key factor.
(c) Sales potential in units is the key factors.
(d) Sales potential in rupees is the key factors.
Codes:

Hint:
(a) Material is a key factor: Product Q is better as contribution per kg is high.
(b) Labour hour is a key factor: Product P is better as contribution per labour hour is high.
(c) Sales potential in units is the key factor: Product Q is better as contribution per unit is high.
(d) Sales potential in rupee is the key factor: Product Q is better as contribution per rupee is high.
Answer:
(B)

Question 104.
June 2018: If the P/V ratio of a product is 25% and the selling price is ₹ 25 per unit, the marginal cost
of the product would be:
(A) ₹ 18.75
(B) ₹ 16
(C) ₹ 15
(D) ₹ 20
Hint:
The P/V ratio is 25%. This means the variable cost ratio is 75%.
Variable cost per unit = 25 × 75% = 18.75
Answer:
(A) ₹ 18.75

Question 105.
June 2018: Contribution is the difference between:
(A) Selling price and Fixed cost
(B) Selling price and Total cost
(C) Selling price and Variable cost of sales
(D) Selling price and Profit
Answer:
(C) Selling price and Variable cost of sales

Question 106.
June 2018: Which of the statement is not true in respect of cost-volume-profit analysis?
(A) In order to forecast profit accurately, it is essential to know the relationship between profits and
costs on the one hand and volume on the other.
(B) Cost-volume analysis is not suitable for setting up flexible budgets which indicate costs at various
levels of activity.
(C) Cost-volume-profit analysis is of assistance in performance evaluation for the purpose of control.
(D) Analysis of cost-volume-profit relationship may assist in formulating price policies to suit
particular circumstances by projecting the effect which different price structures have on costs and
profits.
Answer:
(C) Cost-volume-profit analysis is of assistance in performance evaluation for the purpose of control.

Question 107.
June 2018: Total cost of a product: ₹ 10,000; Profit: 25% on Selling Price; Profit is:
(A) ₹ 2,500
(B) ₹ 3,000
(C) ₹ 3,333
(D) ₹ 2,000
Hint:
Profit is 25% on selling price which means it is 33.33% on cost.
10,000 × 33.33% = 3,333
Answer:
(C) ₹ 3,333

Question 108.
June 2018: A manufacturing company provides you with the following information for the coming
month:

Budgeted sales revenue ₹ 7,50,000

Budgeted contribution ₹ 3,00,000

Budgeted profit ₹ 75,000

What will be the budgeted break-even sales volume?

(A) ₹ 9,37,500
(B) ₹ 5,25,000
(C) ₹ 5,62,500
(D) ₹ 6,75,000
Hint:
P/V ratio = 3,00,0007,50,000 × 100 = 40%
Fixed cost = 3,00,000 + 75,000 = 3,75,000
BEP (in value) = Fixed Cost P/V ratio =3,75,00040% = 9,37,500
Answer:
(A) ₹ 9,37,500

Question 109.
June 2018: A company, which has a margin of safety of ₹ 2,00,000 makes a profit of ₹ 40,000. If the
fixed cost is ₹ 2,50,000, break-even sales of the company would be:
(A) ₹ 15,00,000
(B) ₹ 12,50,000
(C) ₹ 10,00,000
(D) ₹ 20,00,000\
Hint:
MOS (in value) = Profit P/V ratio
2,00,000 = 40,000x
x = P/V ratio = 20%
Answer:

(B) ₹ 12,50,000

Question 110.
June 2018: The P/V ratio of a company is 50% and the margin of safety is 40%. If present sales are ₹
30,00,000 then Break-Even Point will be:
(A) ₹ 9,00,000
(B) ₹ 18,00,000
(C) ₹ 5,00,000
(D) None of the above
Hint:
The margin of safety is 40%; this means BEP will occur at 60%.
30,00,000 × 60% = 18,00,000
Answer:
(B) ₹ 18,00,000

Question 111.
June 2018: When the sales increase from ₹ 40,000 to ₹ 60,000 and profit increases by ₹ 5,000, the
P/V ratio is:
(A) 20%
(B) 30%
(C) 25%
(D) 40%
Hint:
P/V ratio = Change in profit Change in sales × 100 = 5,00020,000 × 100 = 25%
Answer:
(C) 25%
Question 112.
June 2018:
Assertion (A):
Marginal costing furnishes a better and more logical basis for fixation of sales prices as well as
tendering for contracts.
Reason (R):
Marginal cost provides management with information regarding the behaviour of costs and the
incidence of such cost on the profitability of an undertaking.
Select the correct answer from the options given below:
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true but R is not the correct explanation of A
(C) A is true but R is false
(D) A is false but R is true
Answer:
(A) Both A and R are true and R is the correct explanation of A

Question 113.
June 2018: Actual overheads for the year ending 31st March 2017 were ₹ 21,000, whereas the
overhead absorbed shows an over absorption of ₹ 1,000 for the same period. If the direct labour
cost is ₹ 1,00,000, then the overhead absorption rate based on direct wages would be:
(A) 20%
(B) 21%
(C) 22%
(D) 25%
Hint:
Overhead Absorbed = 21,000 + 1,000 = 22,000
Overhead Absorption Rate = Overhead Absorbed Direct Wages × 100 = 22,0001,00,000 × 100 =
22%
Answer:
(C) 22%

Question 114.
June 2018: If the sales of a product are ₹ 94,080 and the profit margin cost 12%, the amount of
profit will be:
(A) ₹ 7,800
(B) ₹ 11,290
(C) ₹ 8,580
(D) ₹ 10,080
Hint:
94,080 × 12/112 = 10,080
Answer:
(D) ₹ 10,080

Question 115.
June 2018: ABC Ltd. shows break-even sales of ₹ 40,500 and budgeted sales of ₹ 50,000. Compute
the margin of safety ratio?
(A) 19%
(B) 81%
(C) 1.81%
(D) Require more data to calculate
Hint:
[(50,000 – 40,500)/50,000] × 100 = 19%
Answer:
(A) 19%

Question 116.
Dec 2018: P/V Ratio 4096; Sales
₹ 65,00,000 and BEP ₹ 47,50,000. Proht will be:
(A) ₹ 26,00,000
(B) ₹ 19,00,000
(C) ₹ 45,00,000
(D) ₹ 7,00,000
Hint:

Answer:
(D) ₹ 7,00,000

Question 117.
Dec 2018: If the standard output for 8 hours is 200 units and the actual output in 10 hours is 350
units, the efficiency level will be:
(A) 175%
(B) 140%
(C) 57.14%
(D) 71.42%
Hint:
For 8 hrs – 200 units
For 10 hrs – ?
(10 × 200)/8 = 250 units
Efficiency % = Actual output Standard output × 100 = 350250 × 100 = 140%
Answer:
(B) 140%

Question 118.
Dec 2018: From the following data, the P/V Ratio will be:
(A) 12%
(B) 25%
(C) 20%
(D) 33.33%
Note: ThisMCQ is not properly drafted; for further clarification please see the hints.
Hint:
None of the title given options is correct; see title calculation below:

P/V ratio = Change in profit Change in sales × 100 = 10,00,00020,00,000 × 100 = 50%
Answer:

Question 119.
Dec 2018: Given, Sales ₹ 80 Lakh; Net Profit ₹ 8 Lakh and Fixed Cost ₹ 12 Lakh. On the basis of the
data, if sales is ₹ 120 Lakh, then the profit will be:
(A) ₹ 18 Lakh
(B) ₹ 12 Lakh
(C) ₹ 10 Lakh
(D) ₹ 6 Lakh
Hint:

Answer:
(A) ₹ 18 Lakh

Question 120.
Dec 2018: A factory engaged in manufacturing LED Lamps is working at 6096 capacity and produces
1,20,000 LED Lamps per annum. The present cost-break-up and selling price for one LED Lamp is as
under:
 ₹

Direct Material 10

Direct Labour 16

Overheads (60% fixed) 20

Selling Price 60

If the factory operates its 90% capacity, then profit will be:
(A) ₹ 16,80,000
(B) ₹ 32,40,000
(C) ₹ 25,20,000
(D) ₹ 67,20,000
Hint:

Answer:
(B) ₹ 32,40,000

Question 121.
Dec 2018: The production cost of 1,0 units of an article is as follows:

Costs ₹

Direct Material 4,00,000

Direct Wages 3,00,000

Fixed & Variable Overheads 2,00,000

The company produced 5,000 units and sold at ₹ 1,000 per unit and earned a profit of ₹ 10,00,000.
The amount of variable overhead per unit is:
(A) ₹ 200
(B) ₹ 75
(C) ₹ 100
(D) ₹ 120
Hint:

Variable overheads per unit = Change in overheads Change in units =3,00,0004,000 = 75

Answer:
(B) ₹ 75

Question 122.
Dec 2018: P/V Ratio for the firm is 60%, Total fixed costs are ₹ 10,40,000 and variable cost per unit is
₹ 720. If the sales are 20,000 units, then the selling price per unit will be:
(A) ₹ 1,200
(B) ₹ 772
(C) ₹ 1,930
(D) ₹ 1,800
Answer:
(D) ₹ 1,800

Question 123.
Dec 2018: If the P/V Ratio is 30%, Margin of Safety is 40% and BEP is ₹ 48 Lakh, then the profit will
be:
(A) ₹ 9.60 Lakh
(B) ₹ 14.40 Lakh
(C) ₹ 5.76 Lakh
(D) ₹ 24 Lakh
Note: This MCQ is not properly drafted; for further clarification please see the hints.
Hint:
The margin of safety is 40% which means BEP occurs at 40%
Net profit is 21,60,000 hut none of the option given contains this figure.
Answer:

Question 124.
Dec 2018: Fixed costs ₹ 45 Lakh, Variable costs ₹ 120 Lakh and Profit ₹ 35 Lakh, then P/V Ratio is:
(A) 29.17%
(B) 37.5%
(C) 66.67%
(D) 40%
Hint:

Answer:
(D) 40%

Question 125.
Dec 2018: Which of the following techniques of costing is also known as out-of-pocket costing?
(A) Standard Costing
(B) Historical Costing
(C) Marginal Costing
(D) Uniform Costing
Answer:
(C) Marginal Costing

Question 126.
Dec 2018: Sales increased from ₹ 750 Lakh to ₹ 875 Lakh. If P/V Ratio is 30%, then the increase in the
contribution will be:
(A) ₹ 262 Lakh
(B) ₹ 225 Lakh
(C) ₹ 37.50 Lakh
(D) ₹ 125 Lakh
Answer:
(C) ₹ 37.50 Lakh

Question 127.
June 2019: The following information is given:
Selling price ₹ 20 per unit, Variable cost ₹ 15 per unit and Fixed cost ₹ 48,000. What will be BEP sales
(in ₹ ) and Profit if actual sales are 40% more than BEP sales?
(A) ₹ 1,92,000 and 20,800
(B) ₹ 1,80,000 and ₹ 18,000
(C) ₹ 96,000 and ₹ 9,600
(D) ₹ 1,92,000 and ₹ 19,200
Hint:
Contribution = 20 – 15 = 5
P/V ratio = Contribution Sales × 100 = 520 × 100 = 25%
BEP (in value) = Fixed cost P/V ratio =48,00025% = 1,92,000
Answer:
(D) ₹ 1,92,000 and ₹ 19,200

Question 128.
June 2019:
Statement I:
When a factory operates at full capacity, Fixed cost also becomes relevant for make or buy decision.
Statement II:
The margin of safety is the difference between actual sales and standard sales.
Select the correct answer from the options given below:
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement I is incorrect, but Statement II is correct
(D) Statement I is correct, but Statement II is incorrect
Answer:
(D) Statement I is correct, but Statement II is incorrect

Question 129.
June 2019: The total cost and profit during two periods are as follows:

The profit volume ratio will be:

(A) 15%
(B) 25%
(C) 20%
(D) 33.33%
Hint:
Sales of Period I = 4,50,000 + 50,000 = 5,00,000
Sales of Period 2 = 6,50,000 + 1,00,000 = 7,50,000
P/V ratio = Change in profit Change in sales × 100 = 50,0002,50,000 × 100 = 20%
Answer:
(C) 20%

Question 130.
June 2019: If profit, fixed cost and margin of safety are ₹ 19,20,000; ₹ 25,60,000 and ₹ 64,00,000
respectively, then break-even point will be:
(A) ₹ 44,80,000
(B) ₹ 85,33,333
(C) ₹ 38,40,000
(D) ₹ 48,00,000
Hint:

Answer:
(B) ₹ 85,33,333

Question 131.
June 2019: Selling price per unit ₹ 20, Trade discount 5% of selling price, cash discount 2% on sales,
Material cost ₹ 3, Labour cost ₹ 4, Fixed overheads ₹ 22,000 and variable overheads 80% of labour
cost. what would be the net profit if sales are 10% above the BEP?
(A) ₹ 2,000
(B) ₹ 2,500
(C) ₹ 2,200
(D) ₹ 1,850
Hint:
Trade discount = 20 × 5% = 1
Variable cost = 3 + 4 + 3.2 = 10.2
A cash discount is not considered in cost accounts.

Answer:
(C) ₹ 2,200
Question 132.
June 2019: A firm manufactures 15,0 units per annum, each taking 1.5 direct labour hours. The
direct labour rate is ₹ 8 per hour and pays rise of 15% is awarded halfway through the year.
What is the total annual direct labour budget amount?
(A) ₹ 1,20,000
(B) ₹ 1,93,500
(C) ₹ 1,80,000
(D) ₹ 2,07,000
Answer:
(B) ₹ 1,93,500

Question 133.
June 2019: A factory is presently working at 50% capacity and producing 4,0 units. The cost data are
as follows: Material and labour cost per unit ₹ 15, Factory overheads (40% variable) ₹ 30,000. What
will be the cost of the work for 60% capacity?
(A) ₹ 1,04,400
(B) ₹ 1,12,400
(C) ₹ 1,18,600
(D) ₹ 1,22,200
Hint:

Answer:
(A) ₹ 1,04,400

Question 134.
June 2019: Based on cost accounting information, which is the tool of Management Accounting for
decision-making?
(A) Marginal Costing
(B) Standard Costing
(C) Differential Costing
(D) All of the above
Answer:
(D) All of the above

Question 135.
June 2019: The effect of sale price reduction always reduces the P/V ratio to raise and shorten the
(A) BEP and Margin of Safety
(B) Fixed Cost and BEP
(C) Margin of Safety and BEP
(D) Profit and BEP
Answer:
(A) BEP and Margin of Safety

Question 136.
June 2019: ABC Ltd. had a marginal costing profit of ₹ 1,25,500 in April 2018. The opening stock was
1,800 units and the closing stock was 1,260 units. The company is considering changing to an
absorption costing system. The fixed overhead absorption rate is ₹ 6 per unit. Profit under
absorption costing will be:
(A) ₹ 1,28,740
(B) ₹ 1,22,260
(C) ₹ 1,14,700
(D) ₹ 1,33,060
Hint:
The difference in profit change in inventory’ level × fixed overhead per unit
Difference in profit = (1,800 – 1.260) × ₹ 6 = ₹ 3,240
The inventory level decreased during the period therefore the absorption costing profit is less than
the marginal costing profit.
Profit as per absorption costing profit = 125,500 – 3,240 = 1,22,260.
Answer:
(B) ₹ 1,22,260

Question 137.
June 2019: The following information is given:

Sales to earn a profit of ₹ 16,000 will be:

(A) ₹ 40,000
(B) ₹ 60,000
(C) ₹ 50,000
(D) ₹ 75,000
Hint:
P/V ratio = Change in profit Change in sales × 100 = 4,000−8,00020,000−30,000 × 100 = 40%

Sales to earn a profit of ₹ 16,000:

Required sales = Contribution P/V ratio =20,00040% = 50,000
Answer:
(C) ₹ 50,000

Question 138.
June 2019: P/V Ratio is 25% and margin of safety is ₹ 6,00,000, the amount of profit is:
(A) ₹ 2,00,000
(B) ₹ 1,60,000
(C) ₹ 1,50,000
(D) ₹ 1,20,000
Hint:
MOS (in value) = Profit P/V ratio =x25% = 6,00,000
Profit = 1,50,000
Answer:
(C) ₹ 1,50,000