Absorption and 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 other name of marginal costing is _______
a. Direct costing
b. Variable costing
c. Incremental costing
d. All of the above
4. The term gross margin refers to _______
a. Total profit
b. Contribution
c. Profit before tax
d. Profit before interest and tax
5. 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
6. 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
7. Contribution/sales is equal to _______
a. P/V ratio
b. Net profit ratio
c. BEP
d. EPS
8. 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
9. 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
10. 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
11. 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
12. 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
13. ________ is the excess of sales over the break even sales.
a. Actual sales
b. Total sales
c. Margin of safety
d. Net sales
14. __________ 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
15. 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
16. Margin of safety can be improved by ________
a. Increasing production
b. Increasing selling price
c. Reducing the costs
d. All of the above
17. If a firm is dealing in several products the________ is calculated.
a. Composite BEP
b. BEP
c. Break even sales
d. Cash BEP
18. _________ 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
19. 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
20. A high margin of safety indicates the more actual sales than break even sales.
a. True
b. False
21. The term contribution margin refers to _________
a. Marginal income
b. Marginal cost
c. Gross profit
d. Net income
22. Overvaluation of stock is practiced on absorption costing technique.
a. True
b. False
23. The BEP decreases if the fixed cost ________
a. Increases
b. Decreases
c. Remains constant
d. Inadequate data
24. Marginal costing is the most useful technique for the ______
a. Shareholders
b. Management
c. Auditors
d. Creditors
26. Variable cost per unit will remain constant in case of Marginal Costing. TRUE
27. Difference between fixed cost and marginal cost is maintained in case of marginal costing but not in case of absorption costing. TRUE
28. For decision making, marginal costing is more useful than absorption costing. TRUE
29. In marginal costing, problem of under and over absorption of overheads are arises. FALSE, Absorption costing
30. Marginal costing is also known as variable costing. TRUE
31. In marginal costing, stocks are valued at variable cost. TRUE
32. Marginal costing is a method of costing. Technique FALSE
33. Variable costs are also known as Product cost. TRUE
34. Fixed costs are also known as period cost. TRUE
35. Marginal costing establishes relationship between cost, volume and profit which is not possible in case of absorption costing. TRUE
36. Contribution = Sales – Variable cost or Fixed + Profit. TRUE
37. At BEP, Contribution equals to (=) fixed cost. TRUE
38. In marginal costing, profit is the difference between sales and marginal cost. FALSE
39. In marginal costing, a part of fixed overheads is carried over to the next period. FALSE
40. Variable cost per unit will remain constant for each level of activity. TRUE
41. Fixed cost per unit varies with output. It increases with decrease in output and decreases with increase in output. TRUE
42. Margin of safety is the difference between actual sales and budgeted sales. FALSE
43. Marginal of safety = Sales – BEP. TRUE.
44. BEP is the point of no profits no loss. TRUE
45. At BEP, P/V ratio * Sales = Contribution = Fixed Cost. TRUE
46. P/V ratio is the ratio of contribution to sales. TRUE
47. BEP chart is the graphical representation of cost, volume and profits. TRUE
48. In P/V Graph, vertical axis represents sales. Profit or Loss FALSE
49. Differential costs helps to choose the best alternative. TRUE
50. Make or buy decision is made by comparing marginal cost with outsider’s purchase price. TRUE
51. Break even analysis is fundamentally a static analysis. FALSE
52. In the long run, all costs are fixed. FALSE
53. The term contribution refers to excess of sales over variable cost. TRUE
54. Marginal costing technique helps the management is deciding Price, Make or buy Decision and to accepts fresh orders at low price. TRUE
55. Marginal costing is different from Absorption costing and Direct Costing. TRUE
56. Both fixed and variable cost is charged to the products in absorption costing. TRUE
57. Oldest technique of ascertaining cost is absorption costing. TRUE
58. Absorption costing is suitable when there is more than one product. FALSE
59. Cost per unit changes with the change in output in case of absorption costing. TRUE
60. 1. Absorption costing is also known as Total Costing.