## Thursday, September 17, 2020 ## Marginal Costing and Absorption Costing Multiple Choice Questions and Answers (MCQs) ### State whether the following statements are true or false:

1. Marginal costing is different from Absorption costing and Direct Costing.          True

2. Both fixed and variable cost is charged to the products in absorption costing.    True

3. Oldest technique of ascertaining cost is absorption costing.         True

4. Absorption costing is suitable when there is more than one product.      False, Marginal Costing

5. Cost per unit changes with the change in output in case of absorption costing.  True

6. Variable cost per unit will remain constant in case of Marginal Costing.            True

7. Difference between fixed cost and marginal cost is maintained in case of marginal costing but not in case of absorption costing.                 True

8. For decision making, marginal costing is more useful than absorption costing.  True

9. In marginal costing, problem of under and over absorption of overheads are arises.     False, Absorption costing

10. Marginal costing is also known as variable costing.        True

11. In marginal costing, stocks are valued at variable cost.  True

12. Marginal costing is a method of costing. False, Technique

13. Variable costs are also known as Product cost.               True

14. Fixed costs are also known as period cost.                       True

15. Marginal costing establishes relationship between cost, volume and profit which is not possible in case of absorption costing.                 True

16. Contribution = Sales – Variable cost or Fixed + Profit.                True

17. At BEP, Contribution equals to (=) fixed cost.                  True

18. In marginal costing, profit is the difference between sales and marginal cost.             False

19. In marginal costing, a part of fixed overheads is carried over to the next period.         False

20. Variable cost per unit will remain constant for each level of activity.    True

21. Fixed cost per unit varies with output. It increases with decrease in output and decreases with increase in output. True

22. Margin of safety is the difference between actual sales and budgeted sales.   False

23. Marginal of safety = Sales – BEP. True.

24. BEP is the point of no profits no loss.                   True

25. At BEP, P/V ratio * Sales = Contribution = Fixed Cost.                 True

26. P/V ratio is the ratio of contribution to sales.                  True

27. BEP chart is the graphical representation of cost, volume and profits.              True

28. In P/V Graph, vertical axis represents sales.                    False, Profit or Loss

29. Differential costs helps to choose the best alternative.   True

30. Make or buy decision is made by comparing marginal cost with outsider’s purchase price.    True

31. Break even analysis is fundamentally a static analysis.   False

32. In the long run, all costs are fixed.           False

33. The term contribution refers to excess of sales over variable cost.        True

34. Marginal costing technique helps the management is deciding Price, Make or buy Decision and to accepts fresh orders at low price.       True

## Fill in the Blanks:

1. Absorption costing is also known as total costing.

2. Marginal costing is also known as Variable Costing.

3. Marginal cost is simple the change in total cost due to change in the output.

4. Only variable cost is charged to the product in case of marginal costing.

5. Both fixed and variable cost is charged to the product in case of absorption costing.

6. Marginal cost is taken as equals to Prime cost plus variable overheads.

7. Wider the angle of incidence higher will the rate of profit and narrower the angle of incidence lower will the rate of profit.

8. Profit volume ratios are also known as contribution ratio.

9. Marginal costing helps in fixation of price more in period of depression.

10. Profit planning is possible with marginal costing.

11. Contribution is the aggregate of fixed cost and profit.

12. Variable cost per unit will remain constant for all level of activity.

13. Fixed cost total will remain constant for all level of activity.

14. Marginal costing can be used in conjunction with standard costing.

15. Absorption costing fails to establish relationship between cost, volume and profit.

16. Angle of incidence indicates the profit earning capacity of a concern.

17. If P/V ratio is 30%, than variable cost ratio will be 70%.

18. Marginal costing is more suitable for decision making than absorption costing.

19. Contribution margin is the guiding factor of managerial decisions.

20. In differential costing, decisions are taken by comparing the incremental revenue with differential costs.

21. Margin of safety = Fixed cost/PV ratio.

22. Sales – VC = FC + Profit/-Loss.

23. PV ratio = (Change in profit/Change in sales)*100

24. Break even analysis is fundamentally a dynamic analysis.

25. In the long run, all cost is variable.

26. Value of stock under absorption costing is higher than those under marginal costing.

27. The process of choosing between alternatives is known as decision making.

28. Marginal costing is a technique of cost control.

29. Difference cost analysis is not incorporated in the cost books.

30. At break-even point, sales curve cuts total cost curve.

33. Marginal Cost is computed as Prime cost + All variable overheads.

34. The angle formed by the sales line and total cost line at the break-even point is known as angle of incidence.

## Choose the correct alternatives:

1. Marginal costing is a:

a) Method of costing

b) Technique of costing

2. Contribution is known as:

a) Marginal income

b) Marginal cost

c) Gross profit

d) Net income

3. Margin of safety may be improved by:

a) Increasing sales volume

b) Lowering variable cost

c) Lowering fixed cost

d) All of the above

4. PV ratio may be improved by:

a) Increasing Sale price

b) Lowering variable cost

c) Lowering fixed cost

5. For decision marking purpose, which is more suitable to the management?

a) Standard costing

b) Marginal costing

c) Absorption costing

6. Increase in selling price:

a) Increases P/V ratio

b) Decreases break-even point

c) Increases margin of safety

d) All of the above

7. Increase in variable cost

a) Increases P/V ratio

b) Decreases break-even point

c) Increases margin of safety

d) None of the above

8. Decrease in variable cost:

a) Increases P/V ratio

b) Decreases break-even point

c) Increases margin of safety

d) All of the above

9. The term contribution means:

a) Subscription towards raising capital

b) Draft of an article for publication

c) Difference between selling price and total cost

d) Sales – Variable Cost

10. If a factory operates at full capacity, ___________ becomes relevant for make or buy decisions:

a) Fixed cost

b) Variable cost

c) Total Cost

11. Marginal costing technique helps the management is deciding:

a) Price of the product

c) To accepts fresh orders at low price

d) All of the above

12. Which of the following is true at breakeven point:

a) Contribution = Fixed Cost

b) Sales = Total Cost

c) Sales curve cuts total cost line

d) All of the above