Q.1 What is marginal costing primarily concerned with?
Fixed costs
Variable costs
Total costs
Prime costs
Explanation - Marginal costing focuses on variable costs and treats fixed costs as period costs.
Correct answer is: Variable costs
Q.2 Which cost remains unchanged in total under marginal costing, regardless of output?
Variable cost
Fixed cost
Semi-variable cost
Prime cost
Explanation - Fixed costs remain constant in total within a relevant range of activity, irrespective of output.
Correct answer is: Fixed cost
Q.3 Contribution is defined as:
Sales – Total Cost
Sales – Variable Cost
Sales – Fixed Cost
Profit + Fixed Cost
Explanation - Contribution equals sales revenue minus variable costs; it contributes to covering fixed costs and profit.
Correct answer is: Sales – Variable Cost
Q.4 In marginal costing, profit is calculated as:
Contribution – Fixed Cost
Sales – Fixed Cost
Contribution + Fixed Cost
Variable Cost – Fixed Cost
Explanation - Profit is obtained after deducting fixed costs from the contribution.
Correct answer is: Contribution – Fixed Cost
Q.5 Which statement is TRUE under marginal costing?
Fixed costs are product costs
Variable costs are period costs
Fixed costs are period costs
All costs are product costs
Explanation - Marginal costing treats fixed costs as period costs and charges them against revenue of the period.
Correct answer is: Fixed costs are period costs
Q.6 What is P/V ratio in marginal costing?
Contribution / Sales
Profit / Sales
Fixed Cost / Sales
Variable Cost / Sales
Explanation - The profit-volume ratio (P/V ratio) shows the relationship between contribution and sales.
Correct answer is: Contribution / Sales
Q.7 At break-even point, contribution is equal to:
Sales
Profit
Fixed Costs
Variable Costs
Explanation - At break-even, contribution covers fixed costs and profit is zero.
Correct answer is: Fixed Costs
Q.8 Which of the following will NOT change if sales volume increases?
Variable cost per unit
Total variable cost
Contribution
Total sales
Explanation - Variable cost per unit remains constant; total variable cost changes with volume.
Correct answer is: Variable cost per unit
Q.9 In marginal costing, closing stock is valued at:
Total cost
Prime cost
Variable cost only
Fixed cost only
Explanation - Closing stock in marginal costing is valued at variable cost, excluding fixed costs.
Correct answer is: Variable cost only
Q.10 Which technique helps in short-term decision making?
Absorption costing
Marginal costing
Historical costing
Standard costing
Explanation - Marginal costing aids in decisions like pricing, product mix, and make or buy analysis.
Correct answer is: Marginal costing
Q.11 If sales = ₹200,000, variable costs = ₹120,000, fixed costs = ₹60,000, then profit is:
₹20,000
₹40,000
₹80,000
₹60,000
Explanation - Contribution = 200,000 – 120,000 = 80,000; Profit = 80,000 – 60,000 = 20,000.
Correct answer is: ₹20,000
Q.12 Which method provides a clearer distinction between fixed and variable costs?
Marginal costing
Absorption costing
Historical costing
Process costing
Explanation - Marginal costing requires classification of costs into fixed and variable categories.
Correct answer is: Marginal costing
Q.13 Break-even point is the level where:
Sales = Contribution
Sales = Total Cost
Sales = Variable Cost
Sales = Fixed Cost
Explanation - At break-even, sales revenue exactly equals total cost (fixed + variable).
Correct answer is: Sales = Total Cost
Q.14 If contribution is ₹50,000 and fixed costs are ₹40,000, profit is:
₹10,000
₹40,000
₹90,000
₹50,000
Explanation - Profit = Contribution – Fixed Costs = 50,000 – 40,000 = 10,000.
Correct answer is: ₹10,000
Q.15 Which decision is NOT typically based on marginal costing?
Make or buy decision
Pricing decisions
Determination of tax liability
Product mix decisions
Explanation - Marginal costing is used for managerial decision making, not for tax computation.
Correct answer is: Determination of tax liability
Q.16 In marginal costing, fixed costs are:
Included in product cost
Excluded from product cost
Partially included
Allocated based on units
Explanation - Fixed costs are treated as period costs in marginal costing, not assigned to products.
Correct answer is: Excluded from product cost
Q.17 Which of the following is NOT an advantage of marginal costing?
Simplicity
Better decision making
Helps in control of costs
Accurate inventory valuation
Explanation - Marginal costing undervalues stock since fixed costs are not included in inventory.
Correct answer is: Accurate inventory valuation
Q.18 Which cost changes in total proportionately with changes in activity level?
Fixed cost
Variable cost
Semi-variable cost
Opportunity cost
Explanation - Variable costs vary directly in total with the level of output or activity.
Correct answer is: Variable cost
Q.19 If P/V ratio is 40% and sales are ₹200,000, contribution is:
₹80,000
₹100,000
₹40,000
₹120,000
Explanation - Contribution = Sales × P/V ratio = 200,000 × 40% = 80,000.
Correct answer is: ₹80,000
Q.20 What happens to break-even point if fixed costs increase?
It increases
It decreases
It remains the same
It becomes zero
Explanation - Higher fixed costs require more contribution to cover them, raising the break-even point.
Correct answer is: It increases
Q.21 Which measure indicates margin of safety?
Actual sales – Break-even sales
Contribution – Fixed costs
Profit – Variable costs
Sales – Variable costs
Explanation - Margin of safety shows how much actual sales can fall before reaching break-even.
Correct answer is: Actual sales – Break-even sales
Q.22 If sales = ₹300,000, variable cost = ₹180,000, and fixed cost = ₹90,000, then margin of safety is:
₹30,000
₹60,000
₹120,000
₹150,000
Explanation - Contribution = 120,000; Break-even sales = 90,000 ÷ (120,000/300,000) = 225,000; MOS = 300,000 – 225,000 = 75,000.
Correct answer is: ₹30,000
Q.23 Which technique assumes linear behavior of costs?
Marginal costing
Absorption costing
Activity-based costing
Target costing
Explanation - Marginal costing assumes fixed costs remain fixed and variable costs remain constant per unit.
Correct answer is: Marginal costing
Q.24 The key factor in marginal costing decision-making is:
Contribution per unit
Profit per unit
Fixed cost per unit
Total cost per unit
Explanation - Contribution per unit helps identify the most profitable products under limiting factors.
Correct answer is: Contribution per unit
Q.25 Which of the following is not included in variable cost?
Direct material
Direct labor
Factory rent
Direct expenses
Explanation - Factory rent is a fixed cost; variable cost includes costs that change with output.
Correct answer is: Factory rent