Deck 17: Marginal Costing and Decision-Making

Question 1

The MoneyTalks company produces and sells 125,000 units a year for £50 each.Variable costs are £40 and annual fixed costs are £600,000.
Calculate the break-even point in units.

A) 60,000 units
B) 6,666 units
C) 40,540 units
D) £112,000 units

Answer 1

A

Question 2

WhoMadeWho Ltd.is planning to reduce the selling price of one of its products from £80 to £60.Fixed costs are £1.1m per annum; variable costs £40 per unit; 70,000 units per annum are made and sold.
How many additional units must be sold to make up for the price reduction?

A) 10,000 units
B) 600,000 units
C) 140,000 units
D) 70,000 units

Answer 2

D

Question 3

Marginal costing is appropriate for the valuation of closing inventory in financial accounting

Answer 3

False

Question 4

The MoneyTalks company produces and sells 125,000 units a year for £50 each.Variable costs are £40 and annual fixed costs are £600,000.
Calculate the break-even point in sales revenue.

A) £266,666
B) £26,666
C) £2,400,000
D) £21,818

Question 5

Which of the following is not an assumption associated with marginal costing and break-even analysis?

A) In marginal costing and break-even analysis it is assumed that cost behaviour is linear
B) In marginal costing and break-even analysis it is assumed that not all costs can be classified as fixed or variable
C) In marginal costing and break-even analysis it is assumed that variable costs per unit remain constant
D) In marginal costing and break-even analysis it is assumed that fixed costs remain constant

Question 6

Spellbound company make a sell 500,000 "wandies" a year for £15 each.Fixed costs are £350,000 a year and variable costs are £12 per unit.
By how much can the existing level of sales fall before the company starts to make a loss?

A) £5,750,000
B) £7,150,000
C) £1,150,000
D) £1,750,000

Question 7

The MoneyTalks company produces and sells 125,000 units a year for £50 each.Variable costs are £40 and annual fixed costs are £600,000.
Calculate the contribution per unit.

A) £90
B) £10
C) £4.80
D) £14.80

Question 8

Which of the statements is correct?

A) In the short term direct labour costs may be more like fixed costs
B) In the long run most fixed costs behave more like variable costs
C) If production is to increase above existing production capacity , then fixed costs will have to increase
D) All of the above statements are correct

Question 9

The MoneyTalks company produces and sells 125,000 units a year for £50 each.Variable costs are £40 and annual fixed costs are £600,000.
Calculate the contribution per unit.

A) £90
B) £10
C) £4.80
D) £14.80

Question 10

The break-even point can be expressed as:

A) Fixed costs/contribution per unit
B) Fixed costs-variable costs/contribution
C) Fixed costs - variable costs
D) Contribution/fixed costs

Question 11

Which of the following statements is false?

A) One of the limitations of marginal costing is that it is difficult to assess profitability when there are limiting factors such as machine capacity
B) Marginal costing can identify the minimum selling price that would not produce a loss
C) Marginal costing focuses on how costs will behave as a result of changes in the volume of production
D) Marginal costing focuses on the contribution each product can make towards fixed costs and towards profit

Question 12

Marginal costing information can only be presented for business as a whole and not for each product

Question 13

In practice,direct material costs per unit might decrease as output increases because of:

A) Economies of bulk buying
B) Employees become more efficient at their job
C) Increased manufacturing capacity
D) All of the above

Question 14

Which of the following equations is correct?

A) Contribution = sales - variable costs
B) Contribution = sales + variable costs
C) Contribution = fixed costs - profit
D) Contribution = sales - profit

Question 15

The break-even point can be expressed as:

A) Sales/fixed costs-contribution
B) Fixed costs/(contribution per unit/sales per unit)
C) Fixed cost/sales
D) Fixed costs-contribution/sales

Question 16

"Contribution" can be defined as sales minus variable costs

Question 17

Before contribution can be calculated,fixed costs and variable costs have to be separated

Question 18

The results of AB/CB company are as follows:
$$\begin{array} { l c c } \text { Sales } & 15,000 \text { units at } £ 45 \text { each } & 675,000 \\\text { Variable costs at } & £ 37.50 \text { each } & 562,500 \\\text { Fixed costs } & & 67,500 \\\text { Profit } & & 45,000\end{array}$$
How many more units do they need to sell to make a profit of £75,000?

A) 90 units
B) 667 units
C) 1467 units
D) 4000 units

Question 19

The KMuir company is planning to sell a new product which they will sell for £55 each.Fixed costs are £35,000 per annum; variable costs are £35 per unit.How much do they need to sell to break-even?

A) 125 units
B) 637 units
C) 1,000 units
D) 1,750 units

Question 20

In measuring the previous relationship between costs,detailed mathematical accuracy is more important than "realistic assumptions"

Question 21

It is known that a factory has some fixed and some variable costs.In one month,the output was 12,000 units and the cost £30,000.The following month,output had increased to 15,000 units and the cost was £36,000.
How much are the fixed and variable elements of production?

A) The fixed costs are £6,000 and the variable costs are £2 per unit
B) The variable costs are £2.50 in month 1 and £2.40 in month 2
C) The fixed costs are £6,000 and the variable costs are £0.50 per unit
D) The variable costs are £0.40 in month 1 and £0.42 in month 2

Question 22

"Contribution" is defined as:

A) The amount of profit a product generates
B) The fixed costs that are incurred regardless of the volume of product made
C) The variable costs of a product
D) Selling Price - Direct Costs

Question 23

During the Summer,Paul sells ice creams from a van in a park at weekends.
His fixed costs for running the van are £200 per weekend.He buys ice cream ingredients from a wholesaler at a cost of 40p per ice cream,and sells them for £2.00 each.
If he wants to make a profit of £280,how many ice creams should he sell over the weekend?

A) 175
B) 300
C) 125
D) 140

Question 24

The "Break Even" point for a manufacturing company is defined as:

A) The point where the company incurs the same amount of fixed and variable expenses
B) The point where gross profit and net profit are the same
C) The volume of sales where a company makes neither a profit nor a loss
D) The volume of sales that generate the same fixed costs as revenue

Question 25

Which of the following is NOT a limitation of marginal Costing?

A) It is not acceptable for valuing inventory
B) It ignores fixed costs which still have to be paid
C) Over long periods of time, fixed costs are not fixed. And variable costs may not be directly variable with production
D) It allows the calculation of contribution