Marginal Costing 1 Mcqs

1. The diagram shows a break-even chart.

0 number of units

What is indicated by the line XY?

A total costs
B total fixed costs
C total sales
D total variable costs

2 Which costing method is used to calculate a break-even point?

A absorption
B batch
C marginal
D unit

3. A company is forecasting its profits at two levels of activity.

sales units 5000 8000

$ $
total fixed and variable costs 20 000 26 000
profit 15 000 30 000
sales revenue 35 000 56 000

Fixed costs and selling prices are unchanged within the above activity range.

What is the forecast profit if sales were 7000 units?

A $21 000 B $25 000 C $26 000 D $26 250

4 A business manufactures three products which all use the same material. The following information
is avaiable.

X Y Z
$000 $000 $000

selling price 160 190 240

direct material 56 68 90
direct labour 35 32 50
variable overhead 28 34 45
contribution 41 56 55

Direct material is in short supply.

In which order should the products be manufactured to maximise profits?

A X→Y→Z

B Y→X→Z

C Y→Z→X

D Z→Y→X

5. A business plans to replace its computer systems. Its existing hardware was bought seven years
ago and its software five years ago.

What type of cost is the existing system?

A fixed
B stepped
C sunk
D variable
6. The break-even chart for a product is shown.

sales
revenue

total costs
break-even
costs and
point
revenues
$000
X

Y
sales volume

What does XY represent?

A fixed costs
B gross profit
C profit for the period
D variable costs
7 A manufacturing company produces 10 000 units and sells 8000 units in a year.

The selling price per unit is $30.

Total costs incurred during that year were as follows.

direct materials 50 000

direct labour 80 000
prime cost 130 000
factory overhead 50 000
production cost 180 000
administration cost 65 000
total costs 245 000

The company uses absorption costing.

What is the value of closing inventory?

A $26 000 B $36 000 C $49 000 D $60 000

8. The following information is available.

$ $

sales 250 000

variable production costs 150 000
fixed production costs 30 000 180 000
gross profit 70 000
fixed administrative costs 50 000
profit for the year 20 000

What is the break-even point?

A $100 000 B $170 000 C $200 000 D $230 000

9. Why might a business use marginal costing?

1 to calculate break-even units

2 to decide on the most profitable use of limited resources
3 to decide whether to make a product or buy it

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

10. A business provided the following information for the past two months.

number of total overheads

month
labour hours $

February 64 000 918 000

March 76 000 1 062 000

What was the monthly fixed overhead cost?

A $144 000 B $150 000 C $768 000 D $912 000

11 A company uses marginal costing.

Which costs are included in its inventory valuation?

A variable manufacturing cost, fixed manufacturing overhead and variable selling expenses
B variable manufacturing cost and fixed manufacturing overhead only
C variable manufacturing cost and variable selling expenses only
D variable manufacturing cost only

12 The break-even sales of a company are 1000 units when the variable costs are $30 000 and fixed
costs are $20 000.

What is the profit if 70 units above the break-even point are sold?

A $700 B $1400 C $2100 D $3500

13 How is margin of safety calculated?

A actual sales minus break-even sales

B actual sales minus budgeted sales
C actual sales minus cost of sales
D budgeted sales minus cost of sales

14 A company incurs total costs of $2200 for producing 100 units and $4600 for 300 units. The
selling price per unit is $20.

What is the total profit or loss at a production level of 200 units?

A $400 loss
B $600 profit
C $933 profit
D $1600 profit
15. A company provides the following information in respect of its carriage costs.

total cost
units carried
$

2 000 6 000
5 000 13 500

When more than 5000 units are carried the cost will increase the fixed charge by a further $2000.

What will be the cost to carry 6000 units?

A $15 500 B $16 200 C $18 000 D $20 000

16. A business has the following information available.

selling price per unit $35

direct labour per unit $9
direct material per unit $6
budgeted sales 8000 units
margin of safety 2000 units

What is the value of fixed costs?

A $40 000 B $120 000 C $160 000 D $200 000

17 A company manufactures and sells 10 000 units. Details of the revenues and costs are as follows.

total
$

sales revenue 200 000

variable costs 80 000
fixed costs 90 000
profit 30 000

What is the break-even point in units?

A 2500 B 4500 C 7500 D 10 000

18 The data in the table relates to a business.

sales 6000
variable costs 4500
fixed costs 900
profit for the year 600

What is the contribution to sales ratio?

A 10% B 25% C 33.33% D 75%

19. The following information is available for a business.

budgeted sales per month 500 units

selling price per unit $30
variable cost per unit $24
budgeted monthly fixed costs $600

The business plans to rent a machine which will increase monthly fixed costs to $2400 and
reduce variable costs to $18 per unit.

What will be the effect on the margin of safety of the business?

A increase by 100 units

B increase by 150 units
C reduce by 100 units
D reduce by 150 units

20. The following information concerning a product is available.

$ per unit

selling price 10.00

variable labour costs 3.50
production material costs 2.50
break-even point 2500 units

What is the total fixed cost?

A $10 000 B $15 000 C $16 250 D $18 750

21 The data shows the budget of a small manufacturing company.

sales in units 6 000 12 000

$ $
direct materials 18 000 36 000
direct labour 6 000 12 000
production overheads 33 000 45 000
administrative overheads 27 000 27 000

The units are sold for $16 each.

What is the break-even point in units?

A 2700 B 3000 C 4000 D 4800

22 A company’s limiting factor is production materials. It manufactures three different products.

Which product should it manufacture first in order to maximise profits?

A the product making the highest contribution per kilo of materials

B the product making the highest number of unit sales
C the product making the most contribution per unit
D the product using the least materials per unit

23 The following information has been provided for the year.

sales 400 000

variable costs 240 000
total contribution 160 000
fixed administrative expenses 90 000
fixed selling expenses 50 000
profit for the year 20 000

The company plans to increase the selling price by 10%.

By how much will profit for the year increase?

A 10% B 55% C 80% D 200%