Understanding Marginal Costing Basics

What is the break-even point?

• The point where total costs equal total revenue

• The point where variable costs are zero

• The point where fixed costs are zero

• The point where profit is maximised

Which of the following is a fixed cost?

• Cost of raw materials

• Rent of a factory

• Wages of hourly workers

• Cost of electricity per unit produced

What is a variable cost?

• A cost that does not change with the level of production

• A cost that changes with the level of production

• A cost that is always the same every month

• A cost that is paid once a year

How do you calculate the contribution margin?

• Total revenue minus total costs

• Selling price per unit minus variable cost per unit

• Fixed costs divided by total units sold

• Total costs divided by total revenue

If a toy costs £5 to make and sells for £10, what is the contribution margin per toy?

• £5

• £10

• £15

• £0

Which of the following is an example of a decision made using marginal costing?

• Deciding the colour of a product

• Deciding whether to produce more units

• Deciding the name of a product

• Deciding the location of the company

What happens to the break-even point if fixed costs increase?

• It decreases

• It stays the same

• It increases

• It becomes zero

If the selling price per unit is £20 and the variable cost per unit is £12, what is the contribution margin per unit?

• £8

• £12

• £20

• £32

Which cost remains constant regardless of the number of units produced?

• Variable cost

• Fixed cost

• Total cost

• Marginal cost

If a company wants to lower its break-even point, what should it do?

• Increase fixed costs

• Increase variable costs

• Increase the selling price

• Decrease the selling price