# Marginal Costing As A Tool For Decision-Making - Part 1 - MCQs

## Marginal Costing As A Tool For Decision-Making - Part 1 - MCQs

1. In make or buy decision, marginal costs as well as additional fixed costs are the factors to be considered.

a) True
b) False

2. If the marginal cost is _________ buying price, additional requirement of the component should be met by making rather than buying.

a) Equal to
b) More than
c) Less than
d) None of the above.

ANSWER: c) Less than

3. A component is being made with the help of a machine. 10,000 units are made at a cost of Rs 10 per unit (of which Rs 9 are variable). The same component can be bought from the market at Rs 9.50 per unit. However, the owner intends to rent the machine for Rs 6,000 following which he will buy components from market. If he does so, what will be the impact?

a) Savings of Rs 1,000
b) Loss of Rs 1,000
c) No change
d) None of the above

ANSWER: a) Savings of Rs 1,000

4. A company is producing product T on a machine. The selling price of T is Rs 100, marginal cost is Rs 60 and machine takes 20 hours to produce T. The company uses a component H which can be made on same machine in 3 hours for a marginal cost of Rs 5. Component can also be bought from the market for Rs 10. What will be the final result if the company decides to by component H from market? (Machine is fully utilized)

a) Savings of Rs 1
b) Loss of Rs 5
c) Loss of Rs 1
d) Savings of Rs 5

ANSWER: a) Savings of Rs 1

5. If the management decides to manufacture a product it in own factory, the focus should be on

a) Cost factors
b) All Non-cost factors
c) Both a and b
d) None of the above

ANSWER: a) Cost factors

6. If there are large fluctuations in demand, the component should be

a) Purchased from outside
b) Made in factory
c) Should be made in factory in peak season
d) Should be made in factory in off season

ANSWER: a) Purchased from outside

7. A box manufacturer discovers that while it costs Rs 6.25 per unit to make a component T the same is available in the market at Rs 5.75 each. There is reliability of regular supply. The breakdown of costs is materials is Rs 2.75 per unit, Labor is Rs 1.75 per unit, Other variable expenses is Rs 0.50 and depreciation and other fixed costs is Rs 1.25. Will you make or buy?

a) Buy the product
b) Make the product
c) Either of a or b
d) None of the above

ANSWER: b) Make the product

8. In marginal costing profitability of each product is measured on the basis of its

a) Cost
b) Profit
c) Contribution
d) None of the above

9. While making key factor decision, if raw material is key factor then such product should be preferred which offer:

a) Highest contribution per hour
b) Highest contribution per unit
c) Highest contribution per unit of material
d) None of the above

ANSWER: c) Highest contribution per unit of material

10. Change in product mix decision should be merely based on contribution.

a) True
b) False