Marginal Costing 2 Mcqs

1. Which statements about marginal costing are correct?

1 It only uses fixed and variable costs in calculations.

2 It only uses variable costs in calculations.
3 It should only be used for long-term planning decisions.
4 It should only be used for short-term planning decisions.

A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

2. A business has the following budget for April.

sales revenue 1 000 000

contribution 550 000
fixed production costs 275 000
fixed selling costs 55 000

What is the break-even sales revenue for April?

A $450 000 B $500 000 C $600 000 D $670 000

3. A company has fixed costs during a quarter of $300 000. It sells its single product for $25 per unit
and has a contribution to sales ratio of 40%.

How many units of product does it need to sell to make a profit of $100 000?

A 10 000 B 16 000 C 30 000 D 40 000

4. The following information is available about two products.

product 1 product 2
per unit per unit

material X 2 kilos 4 kilos

material Y 3 kilos 1 kilo
direct labour 3 hours 6 hours

Production is planned to be 100 units of each product.

700 kilos of material X and 400 kilos of material Y are available. A total of 800 direct labour hours
can be worked.

What is / are the limiting factor(s)?

A direct labour
B material X
C material Y
D all three inputs
5. The following information is forecast for next period.

units

opening inventory 54 275

closing inventory 60 120
$

profit using marginal costing 300 600

profit using absorption costing 390 780

What is the overhead absorption rate per unit?

A $5.00 B $6.50 C $7.20 D $15.43

6. A business has total fixed costs of $240 000. Products have a unit selling price of $25 and a unit
variable cost of $15.

How many units need to be sold to break even?

A 6000 B 9600 C 16 000 D 24 000

7. The diagram illustrates the cost behaviour of a typical telephone invoice.

total cost
$

0 level of activity

Which term best describes the behaviour of this cost?

A fixed
B semi-variable
C stepped
D variable

8. Which statements about the limitations of marginal costing are correct?

1 Finance costs are not included in the manufacturing overheads.

2 Variable cost per unit changes at different levels of activity.
3 Some costs may be semi-variable costs.

A 1 and 2 B 1 only C 2 and 3 D 3 only

9. A product has a variable cost of $31.32 per unit. Total fixed costs are $93 600.

When production is 13 000 units the margin of safety is 5000 units.

What is the selling price per unit?

A $36.52 B $38.52 C $43.02 D $50.04

10. How is margin of safety calculated?

A actual total contribution – break-even contribution

B actual total contribution – budgeted total contribution
C budgeted total sales units – actual total sales units
D budgeted total sales units – break-even sales units

11. A business has fixed costs for a month of $150 000. It sells its single product for $20 per unit and
has a contribution to sales ratio of 75%. It wishes to make a profit of $300 000 for the month.

How many units does the business need to sell?

A 10 000 B 20 000 C 22 500 D 30 000

12. The following information is available for a product.

The budgeted selling price per unit is $250. Break-

even quantity is 800 units.

Contribution to sales ratio is 60%.

What are the values for both fixed and variable costs?

total fixed costs variable costs

$ per unit
$

A 80 000 100
B 80 000 150
C 120 000 100
D 120 000 150

13. A company has the following record of the costs of water consumed in its factory.

water cost
period units produced
$

1 222 000 166 600

2 173 000 151 900

Water costs are treated as a semi-variable cost.

What would the cost of water be at an output of 185 000 units?

A $138 833 B $149 171 C $155 500 D $162 436

14 The unit cost of a product is as follows.

direct materials 30
direct labour 25
variable manufacturing overhead 20
fixed manufacturing overhead 18
sales commission (1.5% of sales) 4
administrative staff salaries 15
112

What is the total variable cost per unit of the product?

A $75 B $79 C $94 D $97

15. The diagram shows a break-even

chart.
sales revenue
100
90 total costs

80
70

$000 60
50
40
30
20
10
0 1000 2000 3000 4000 5000
0
number of units sold
What is the margin of safety?

A $10 000 B $15 000 C $40 000 D $60 000

16. The following information applies to a business.

output sales profits

(units) $ $

375 750 000 100 000

500 1 000 000 250 000

What is the contribution to sales ratio?

A 25% B 50% C 60% D 83%

17. What does the diagram show about costs?

sales revenue profit

revenue
and costs
$000

fixed costs

1 2 3 4 5
years
A Fixed costs are increasing.
B Total costs as a percentage of sales are decreasing.
C Variable costs per unit are decreasing.
D Variable costs per unit are increasing.

18. A business makes and sells three products: X, Y and Z. There will be a maximum of 3000 hours
of labour time available in January.

The following information for the three products is available:

X Y Z

contribution per unit $50 $60 $70

maximum demand per month (units) 1000 500 800
labour time per unit 1 hour 1.5 hours 2 hours

What will be the optimal sales mix of products in January?

X Y Z

A 825 500 800

B 1000 325 800
C 1000 500 625
D 1000 500 800

19. Which statements are not correct when using a break-even chart?

1 Fixed and variable costs are shown as separate lines.

2 Fixed costs are shown as a straight horizontal line.
3 They are quick and easy to prepare by people with no accounting knowledge.

A 1 only B 1 and 2 C 2 and 3 D 3 only

20 A manufacturer has the following overheads for two different levels of production.

total overheads production

$ units

400 000 40 000

432 000 60 000

What is the total fixed overhead cost?

A $32 000 B $96 000 C $336 000 D $432 000

21. A business makes and sells four products.

Which product should be produced first when labour hours are not sufficient to produce all four
products?

selling price variable costs labour hours

$ $ $

A 10 15 1
B 35 10 5
C 50 30 2
D 75 57 3

22 Why is cost–volume–profit analysis used by management?

1 for planning purposes

2 to calculate over or under absorbed overheads
3 to determine actual profit

A 1 and 2 B 1 only C 2 and 3 D 3 only

23. A business has a margin of safety of $10 000.

What does this mean?

A It will break even if profit is reduced by $10 000.

B It will break even if sales revenue is reduced by $10 000.
C It will make a loss if sales revenue is reduced by $10 000.
D It will make a profit of $10 000.