MARGINAL COSTING Quiz

What is the formula for calculating marginal cost?

• Average Cost / Quantity

• Total Cost / Quantity

• Change in Total Cost / Change in Quantity

• Change in Fixed Cost / Change in Variable Cost

Explain the concept of contribution margin in marginal costing.

• Contribution margin is the difference between sales revenue and variable costs.

• Contribution margin is the total profit earned from a product

• Contribution margin is the same as gross profit

• Contribution margin is the difference between fixed costs and variable costs

What is the difference between marginal costing and absorption costing?

• Marginal costing includes fixed costs only, while absorption costing includes variable costs only.

• Marginal costing includes both variable and fixed costs, while absorption costing only considers variable costs.

• Marginal costing only considers variable costs in the product cost, while absorption costing includes both variable and fixed costs.

• Marginal costing and absorption costing are the same thing.

What are the advantages of using marginal costing for decision making?

• It provides information for long-term decision making

• It is not useful for cost control

• It provides information for short-term decision making

• It does not consider variable costs

Explain the concept of break-even point in marginal costing.

• Break-even point is the level of sales at which total revenue is less than total costs, resulting in a small loss

• Break-even point is the level of sales at which total revenue is irrelevant to total costs

• The break-even point is the level of sales at which total revenue exceeds total costs, resulting in high profit

• The break-even point in marginal costing is the level of sales at which total revenue equals total costs, resulting in zero profit or loss.

What are the limitations of marginal costing?

• The limitations of marginal costing include: not suitable for decision-making in the long term, does not consider fixed costs, may lead to underpricing of products, and may not provide accurate cost information for inventory valuation.

• Suitable for decision-making in the long term

• Provides accurate cost information for inventory valuation

• Considers fixed costs

How does marginal costing help in pricing decisions?

• It provides information on the variable cost of producing one additional unit and helps in determining the selling price.

• It has no impact on pricing decisions

• It only considers fixed costs in pricing decisions

• It is only useful for large companies in pricing decisions

Discuss the relevance of marginal costing in short-term decision making.

• Marginal costing has no impact on profitability

• Marginal costing helps in analyzing the impact of different production levels on profitability.

• Marginal costing is only relevant in long-term decision making

• Marginal costing is not useful for analyzing production levels

What are the key assumptions of marginal costing?

• Inventory levels increasing with the level of activity

• Variable costs remaining constant

• Fixed costs increasing with the level of activity

• Fixed costs remaining constant, variable costs changing in direct proportion to the level of activity, and inventory levels remaining constant.