MCQs on Marginal Costing

Marginal costing is an economic term. The marginal costing is the amount of change in the total cost of production arising from the manufacturing of one additional unit. The marginal cost is calculated to determine how an industry or organisation can optimise and efficiency in product manufacturing and other operations. Economies of scale are used in marginal cost to optimise a company’s production. An organisation’s profits could be maximum by keeping the marginal cost equal to the marginal revenue. Let us take a look at MCQs for the same.

1) The marginal cost of change in the total cost when the quantity of product is —?

1. a) increased by one unit
2. b) decreased by one unit
3. c) increased by any given number of units
4. d) decreased by any given number of units.

Ans: a) increased by one unit. 

Explanation: Marginal cost measures the rate of change in the total cost if the output increases. For the output to increase, the product must increase and to ease the calculations, the unit of product to increase will be one.

2) Which of the terms given below will help an organisation in decision-making?

1. a) Total cost
2. b) Fixed cost
3. c) Opportunity cost
4. d) Marginal cost

Answer: d) Marginal cost

Explanation:

The marginal cost helps the company to optimise its production and other operations. Hence, the marginal cost is an important factor in decision-making.

3) What is another name for fixed cost in the marginal costing?

1. a) Period cost
2. b) total cost
3. c) product cost
4. d) All of the above

Answer: a) Period cost

Explanation: 

The fixed cost is the cost which is incurred during a specific period, no matter how much activity is taking place. Hence, fixed cost is also known as period cost.

4)What is another name for variable cost in marginal costing?

1. a) Period cost
2. b) total cost
3. c) product cost
4. d) All of the above

Answer: a) Product cost

Explanation: 

The variable cost is all the causes incurred by a business directly or indirectly due to production. Hence, variable cost is also called product cost.

5) What is the meaning of the term contribution?

1. a) The subscription for raising capital
2. b) The sum of fixed cost and variable cost
3. c) Extra selling price over variable cost for each unit
4. d) None of the above

Answer: c) Extra selling price over variable cost for each unit

Explanation:

The contribution is the total difference between the sales and the marginal cost of those sales. Hence, it can also be defined as an extra selling price over variable costs for each unit.

6) The point of profit at which the total cost will be equal to total revenue is called:

1. a) Break-even point
2. b) Margin of safety
3. c) The profit lines
4. d) None of the above

Ans: a) Break-even point.

Explanation:

The break-even point is when neither profit is gained, nor loss is incurred. Hence, the total cost will be equal to the total revenue generated. Hence the answers to the above question will be a break-even point.

7) The variable cost is made of:

1. a) The salary of all employees
2. b) The electricity bills
3. c) Cost of all the raw materials
4. d) All of the above

Ans: All of the above

Explanation: 

The variable cost is also called the product cost since it consists of all the costs incurred during the production. The raw materials, employees, and electricity bill as all incurred during the manufacturing process; hence, the answer will be all of the above.

8) The marginal cost will be equal to:

1. a) All the sales profit minus all the production cost
2. b) The sum of the fixed cost and the variable cost
3. c) prime cost plus all variables overhead
4. d) Prime cost minus all the variables overhead

Ans: a) Prime cost plus all the variables overhead.

Explanation: The marginal cost states how an additional product affects the total cost. Hence, he added all the premium costs and all the variables overhead.

9) Another term for marginal costing is:

1. a) the production costing
2. b) direct costing
3. c) variable costing
4. d) Both b and c

Explanation: d) Both a and b. The marginal costing involves the direct costing as well as the variable costing.

10) The kind of cost which will not differ due to the volume of the production is called:

1. a) Variable cost
2. b) fixed cost
3. c) Marginal cost
4. d) None of above

Ans: b) Fixed cost

Explanation: The fixed cost is the cost which is incurred during a specific period, no matter how much activity is taking place. Hence, the fixed cost will not depend upon the production volume.

11) For the marginal cost, the stock will be calculated under the following types of costs?

1. a) Variable cost
2. b) fixed cost
3. c) total cost
4. d) None of the above

Ans: c) Variable cost

Explanation: 

This directly depends upon the changes in production due to changes in sales commission, raw materials, shipping cost and the stocks.

Hence, the correct answer is option A, variable cost.

12) The marginal costing technique is useful in making the following decisions for the management?

1. a) The decision to make or buy
2. b) to determine the price of the product
3. c) To accept fresh orders at a low price
4. d) All of the above

Ans: d) All of the above

Explanation: 

The marginal cost will give a fair idea to management whether it’s more profitable to manufacture a component or buy from outside. Hence option a is correct. The company will buy the component if available at a lower price outside. Hence option c is correct. The general costing gives a rough idea of the profit; hence option B is correct. Hence, the final option will be option d, all of the above.

13) The profit-to-volume ratio in marginal costing can be improved due to the following factors?

1. a) If the fixed cost is decreased
2. b) If the variable cost is increased
3. c) If the selling price is increased
4. d) If the fixed cost is increased

Ans: c) If the selling price is increased

Explanation: The increasing selling price will lead to more profits. The number of units stays the same. Hence the volume will stay the same. Since the profit increases and volumes are the same, the profit to volume ratio in marginal costing automatically increases as the rate of profit concerning volume changes.

14) Another method to decrease the profit to volume ratio without increasing the selling price is decreasing which of the following costs?

1. a) Variable cost
2. b) Fixed cost
3. c) Neither of a and b
4. d) Both a and b

Ans: a) Variable cost

Explanation:

The variable cost is that type of cost which depends upon the production, and the fixed cost does not depend upon activities like production. Hence, if we reduce the variable cost, the profit-to-volume ratio can be improved.

15) How does the fixed cost affect the break-even point?

1. a) If there is an increase in the fixed cost, there is a decrease in the break-even point
2. b) If there is a decrease in the fixed cost, there is an increase in the break-even point
3. c) The fixed cost will not be a fake the break-even point
4. d) If the fixed cost is constant, then the break-even point will decrease

Ans: a) If there is a decrease in the fixed cost, the break-even point increases.

Explanation: The break-even point is when there is no profit or loss. Suppose the company has a low fixed cost. In that case, it will automatically have broken even after the sale of initial products, given that the variable cost will not be more than sales revenue. Hence, if the fixed cost increases, the break-even point will also increase, and the decrease will follow the same pattern.

16) The P/V ratio will be equal to:

1. a) The profits by sales ratio
2. b) The profits by the contribution ratio
3. c) The profits by the sale ratio
4. d) The contribution by the sales ratio

Ans: d) The contribution by the sales ratio

Explanation: 

The P/V ratio is the numerical value of the rate of change that occurred in prophet due to the change in sales volume. It can be seen as the contribution earned concerning the sale.

17) What is BEP in marginal costing?

1. a) Bank Entry Pass
2. b) Break entity point
3. c) Break-even point
4. d) Break entity profit

Ans: c) Break-even point

Explanation:

BEP in the original costing refers to a point where the contribution line causes the fixed cost line. At this point, no profit is gained, or no loss is incurred.

18) An increase in the variable cost will lead to one of the following?

1. a) The margin safety will be improved
2. b) There will be a decrease in the break-even point
3. c) The profit-to-volume ratio will be improved
4. d) All of the above

Ans: d) All of the above

Explanation:

The variable cost depends upon the production, the break-even point, margin of safety, and the profit to volume ratio depend upon that as well. Hence they will be affected.

19) The marginal costing is calculated for which of the following?

1. a) manufacturing of one additional unit
2. b) manufacturing of one less unit
3. c) manufacturing of many additional units
4. d) manufacturing of many fewer units

Ans: a) Manufacturing of one additional unit

Explanation: By definition.