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Marginal Costing and Absorption Costing MCQs
Both the Marginal costing and absorption costing are the two distinct methodologies utilized for valuation of stock where if there should be an occurrence of Marginal costing just factor cost caused by the organization is applied to the stock while in the event of the retention costing both variable expenses and fixed expenses brought about by the organization are applied to the stock.
Marginal Costing & Absorption Costing MCQs: This section contains multiple-choice questions and answers on Marginal Costing & Absorption Costing. It will help the students to prepare well for their exams and to test their skills in Marginal Costing & Absorption Costing.
List of Marginal Costing & Absorption Costing MCQs
1. What is Marginal Costing?
- Method, where the variable costs are considered as the product cost and the fixed costs, are considered as the costs of the period
- The method considers both fixed costs and variable costs as product costs.
- Difference between selling price & variable cost
- Difference between selling price & fixed cost
Answer: A) Method, where the variable costs are considered as the product cost and the fixed costs, are considered as the costs of the period
Explanation:
Marginal costing is a technique where the variable expenses are considered as the item cost, and the proper expenses are considered as the expenses of the period.
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2. What is Absorption Costing?
- Method, where the variable costs are considered as the product cost and the fixed costs, are considered as the costs of the period
- The method considers both fixed costs and variable costs as product costs
- Difference between selling price & variable cost
- Difference between selling price & fixed cost
Answer: B) The method considers both fixed costs and variable costs as product costs
Explanation:
Absorption Costing is a strategy that considers both fixed expenses and variable expenses as item costs. This costing strategy is fundamental, especially for announcing purposes. Revealing reason incorporates both monetary detailing furthermore, charge detailing.
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3. Difference between selling price & variable cost refers to?
- Direct Costing
- Contribution
- Profit
- None of the above
Answer: B) Contribution
Explanation:
Contribution is how much profit stays after all immediate expenses have been deducted from income. This remaining portion is the sum accessible to pay for any decent costs that a business brings about during an announcing period. Any overabundance of commitment over fixed costs rises to the benefit acquired.
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4. What does the management decide with the help of marginal costing?
- Accepting Fresh Orders
- Buy and Manufacture
- Pricing
- All of the above
Answer: D) All of the above
Explanation:
Marginal costing is an entirely significant dynamic strategy. It assists the board with setting costs, analyzing elective creation strategies, setting creation action levels, closing creation lines, and picking which of the scope of expected items to fabricate. Also, the standards of minor costing can be effortlessly applied to clear issues, and even though there are a few challenges and impediments to negligible costing, it is by and by an exceptionally helpful method.
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5. What establishes the relationship between contribution & sales?
- Marginal Costing
- Absorption Costing
- Profit Volume Ratio
- Fixed Cost Ratio
Answer: C) Profit Volume Ratio
Explanation:
The Profit Volume (P/V) Ratio is the estimation of the pace of progress of benefit because of progress in the volume of deals. It is one of the significant proportions for figuring benefit as it demonstrates commitment got with an appreciation of deals. The PV proportion or P/V proportion is shown up by utilizing the following equation.
P/V proportion =contribution x100/deals (*Contribution implies the distinction between deal cost and variable expense).
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6. How is the profit of a company affected?
- Through Sales Volume
- Variable Cost Per Unit
- Selling Prices
- All of the above
Answer: D) All of the above
Explanation:
The number of creation units, creation per unit, direct expenses, esteem per unit, blend of endeavors, and overhead costs all cooperate to decide productivity. The most fundamental calculate influencing benefit any business is the number of creation units.
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7. What is Break-Even Point?
- The point at which total cost and total revenue are equal
- Difference between the intrinsic value of a stock and its market price
- The financial calculation weighs the costs of a new business
- The practice of identifying and reducing business expenses to increase profits
Answer: D) The practice of identifying and reducing business expenses to increase profits
Explanation:
The break-even points to the original investment point in financial aspects, business-and explicitly cost bookkeeping is the place where complete expense and all-out income are equivalent, for example, "indeed". There is no overall deficit or gain, and one has "equaled the initial investment", however opportunity costs have been paid and capital has gotten the danger changed anticipated return.
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8. What is Margin of Safety?
- The point at which total cost and total revenue are equal
- Difference between the intrinsic value of a stock and its market price
- The financial calculation weighs the costs of a new business
- The practice of identifying and reducing business expenses to increase profits
Answer: B) Difference between the intrinsic value of a stock and its market price
Explanation:
The Margin of Safety is a standard of putting resources into which a financial backer possibly buys protections when their market cost is essentially underneath their inborn worth. As such, when the market cost of security is fundamentally underneath your assessment of its characteristic worth, the thing that matters is the edge of wellbeing.
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9. What is Break-Even Analysis?
- The point at which total cost and total revenue are equal
- Difference between the intrinsic value of a stock and its market price
- The financial calculation weighs the costs of a new business
- The practice of identifying and reducing business expenses to increase profits
Answer: C) The financial calculation weighs the costs of a new business
Explanation:
A break-even analysis initial investment examination is a monetary estimation that gauges the expenses of another business, administration, or item against the unit offer cost to decide the place where you will make back the initial investment. At the end of the day, it uncovers the place where you will have offered an adequate number of units to take care of the entirety of your expenses.
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10. What is Cost Control?
- The point at which total cost and total revenue are equal
- Difference between the intrinsic value of a stock and its market price
- The financial calculation weighs the costs of a new business
- The practice of identifying and reducing business expenses to increase profits
Answer: D) The practice of identifying and reducing business expenses to increase profits
Explanation:
Cost control is the act of recognizing and lessening operational expenses to expand benefits, and it begins with the planning system. An entrepreneur contrasts the organization's genuine monetary outcomes and the planned assumptions, and if real expenses are higher than arranged, the executives have the data it needs to make a move.
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11. What are the considerations that Break Even Chart ignores?
- Marketing Aspects
- Government Policies
- Capital
- All of the above
Answer: D) All of the above
Explanation:
The Break-even investigation is just an inventory side (i.e., costs just) examination, as it enlightens you nothing regarding what deals are in reality prone to be for the item at these different costs. It accepts that proper expenses (FC) are consistent.
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12. What are Fixed Expenses?
- That does not fluctuate with changes in production level.
- Costs that change over time.
- Expense contains both a fixed-cost component and a variable cost component.
- Expenses that occur at various times throughout the year.
Answer: A) That does not fluctuate with changes in production level
Explanation:
The term fixed cost alludes to an expense that doesn't change with an expansion or abatement in the quantity of labour and products delivered or sold. Fixed expenses will be costs that must be paid by an organization, free of particular business exercises.
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13. What are Variable Expenses?
- That does not fluctuate with changes in production level.
- Costs that change over time.
- Expense contains both a fixed-cost component and a variable cost component.
- Expenses that occur at various times throughout the year.
Answer: B) Costs that change over time
Explanation:
A variable expense is a corporate cost that adjustments the extent to how much an organization creates or sells. Variable costs increment or reduction relying upon an organization's creation or deals volume-they ascend as creation increments and fall as creation diminishes.
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14. What are Semi–Variable Expenses?
- That does not fluctuate with changes in production level.
- Costs that change over time.
- Expense contains both a fixed-cost component and a variable cost component.
- Expenses that occur at various times throughout the year.
Answer: C) Expense contains both a fixed-cost component and a variable cost component
Explanation:
A semi-variable expense, otherwise called a semi-fixed expense or a blended expense, is an expense made out of a combination of both fixed and variable parts. Costs are fixed for a set degree of creation or utilization and become variable after this creation level is surpassed. If no creation happens, a decent expense is frequently still brought about.
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15. What are Intermittent Expenses?
- That does not fluctuate with changes in production level.
- Costs that change over time.
- Expense contains both a fixed-cost component and a variable cost component.
- Expenses that occur at various times throughout the year.
Answer: D) Expenses that occur at various times throughout the year
Explanation:
Irregular costs. Costs that happen on different occasions over time and will more often than not be in enormous amounts(tuition instalment, vehicle fixes) Discretionary (unimportant) costs. Costs for things we needn't bother with (eating out, gifts, snacks).
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16. What are the expenses that do not vary with the production volume?
- Variable Expenses
- Semi-Variable Expenses
- Fixed Expenses
- Intermittent Expenses
Answer: C) Fixed Expenses
Explanation:
Fixed costs or expenses are those that don't vary with changes underway level or deals volume. They incorporate such costs as lease, protection, contribution and memberships, gear leases, instalments on advances, deterioration, the executives compensations, and promoting.
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17. What is the formula for calculating Margin of Safety?
- PV Ratio / Profit
- Profit / PV Ratio
- Profit / Sales
- Contribution / Fixed Cost
Answer: B) Profit / PV Ratio
Explanation:
The term margin of safety is utilized in bookkeeping and putting resources into alluding to the degree to which business, project, or speculation is protected from misfortunes. This article gives an itemized portrayal of how to ascertain the edge of wellbeing and show up at the edge of security proportion, the edge of security rate, and the edge of wellbeing deals in dollars and units.
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18. How can the margin of safety be improved?
- By an increase in Production
- By Increasing Selling Price
- By reducing the costs
- All of the above
Answer: D) All of the above
Explanation:
Edge of wellbeing is the degree of deals far beyond the make back the initial investment deals. Making back the initial investment deals is having a direct relationship with selling cost and variable expense. On the off chance that variable expense diminishes, equal the initial investment level will improve and this gives more wellbeing to the association as the edge of security will likewise improve.
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19. What refers to when the cost of operating two plants is equal?
- Simple Break-Even Point.
- Cost Break-Even Point
- Contribution Break-Even Point
- Angle of Coincidence
Answer: B) Cost Break-Even Point
Explanation:
The break-even point (BEP) in financial aspects, business-and explicitly cost bookkeeping is the place where absolute expense and complete income are equivalent, for example, "indeed". There is no overall deficit or gain, and one has "earned back the original investment", however opportunity costs have been paid and capital has gotten the danger changed anticipated return.
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20. What is calculated when a company is dealing in several products?
- Break-Even Point
- Break-Even Sales
- Cash Break-Even Point
- Composite Break-Even Point
Answer: D) Composite Break-Even Point
Explanation:
A business undertaking might have diverse assembling foundations each having its creation limit, and fixed expenses yet delivering a similar item. Simultaneously, the worry overall is a unit having various foundations under a similar administration. Henceforth the consolidated fixed expenses must be met by the joined BEP deals.
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