UNIT-5
MARGINAL COSTING
Review Questions
A. OBJECTIVE TYPE AND MULTIPLE CHOICE QUESTIONS
1. Fill in the blanks using suitable words:
( i ) Contribution is the difference between sales and ........ … ... cost.
( ii ) P/V ratio is also called as ............. ratio.
( iii ) P/V ratio can be increased by ............. the selling price.
( iv ) P/V ratio can be increased by reducing the ............ cost.
( v ) At break even point there is neither any ............. nor any loss.
( vi ) The excess of total sales over sales at break - even - point is called.
(vii) A small angle of incidence indicates a ......... rate of profit.
[Ans. (i) Variable; (ii) Contribution; (iii) Increasing: (iv) Variable; (v) Profit; (vi) Margin of Safety (vii) Low.]
2. State whether the following statements are True or False:
(i) Contribution is the difference between the sales and the total cost of sales.
(ii) At break-even point the company earns only a marginal profit .
(iii) Contribution is also known as Gross Margin.
(iv) P/N ratio can be improved by increasing the selling price.
( v ) P/V ratio can be improved by reducing the fixed costs. Fixed Expenses P/V Ratio
(vi) Margin of safety = 
(vii) Margin of safety can be improved by reducing the fixed cost .
(viii) Break-even analysis is fundamentally a static analysis.
[Ans. (i) False; (ii) False; (iii) True; (iv) True; (v) False; (vi) False; (vii) True; (viii) False]
3. Multiple Choice Questions
(i) The formula for margin of safety is:
(a) Present Sales-BEP Sales (b) Profit/PV Ratio
(c) ( a ) & (b) (d) Profit/Sales
(iii) If a firm is dealing in several products the .........is calculated.
(a) BEP (b)Break-even Sales
(c) Case BEP (d) Composite BEP
(iii)
(a) N/P Ratio (b) P/V Ratio
(c) BEP (d) EPS
(iv) ........indicates the extent to Which the Sales Can be reduced without resulting in loss.
(a)BEP (b)Margin of Safety
(c)Key Factor (d)Contribution
[Ans. (i) (c); (ii) (d); (iii) (d); (iv) (a)]
B. Short Answer Type Questions
1. Define manginal cost.
Answer:
2. What is contribution?
Answer:
3. What is P/V ratio?
Answer:4. Give marginal cost equation.
Answer:5. What is Break-Even Point?
Answer:6. Define angle of incidence.
Answer:7. What is cash break-even point?
Answer:8. What is meant by P/V ratio?
Answer:9. What do you understand by cost-volume-profit analysis?
Answer:10. Give any three objectives or uses of CVP analysis.
Answer:11. What are the main assumptions of CVP analysis?
Answer:12. Write a brief note on cost-volume-profit analysis.
Answer:13. What are the limitations of break-even charts?
Answer:14. How is margin of safety calculated?
Answer:15. Give any four limitations of CVP analysis.
Answer:16. What is operating leverage?
Answer:17. What do you mean by cost indifference point?
Answer:C. ESSAY TYPE QUESTIONS
1. What do you mean by cost-volume-profit analysis? Discuss its objectives and assumptions.
Answer:2. What do you understand by contribution? How does it help management in solving various problems?
Answer:3. What is Profit Volume Ratio? Describe its importance.
Answer:4. What is meant by break-even analysis? Discuss the assumptions and the limitations of this technique.
Answer:5. Explain the term 'break-even point'. How is it determined and what is its use?
Answer:6. What is a break-even chart? What is a profit graph? State the purposes of constructing such charts.
Answer:7. "Break-even chart must be applied with an intelligent discrimination , with an adequate graph of assumptions, underlying the technique and of the limitations surrounding its practical applications . "Elucidate the statement giving illustrations.
Answer:8. Discuss the importance of following terms in relation to cost- volume-profit analysis: (a) Break-even point (b) P/V ratio (c) Angle of incidence (d) Margin of safety.
Answer:9. " The technique of marginal costing and CVP analysis can be a valuable aid to management". Discuss.
Answer:10. Explain the advantages and limitations of marginal costing and cost-volume profit analysis.
Answer:11. What do you understand by the term "Cost-Volume-profit" relationship? Why is this Relationship important in business management?
Answer:12. Marginal costing is essentially a technique of cost analysis and cost presentation". Discuss the statement with reference to the application , merits and limitations of marginal costing.
Answer:
13. "The effect of a price reduction is always to reduce the P/V ratio, to raise break even point , and to shorten the margin of safety." Explain and illustrate by numerical examples.
Answer:14. What is profit-volume ratio? Explain the importance of profit- volume ratio and how do you calculate it.
Answer:
Type-Bharat Kalita
