Deck 14: Marginal Costing and Decision Making

Question 1

Bhihar Fabrications Limited produces the ZB41, which has the following cost structure: Factory production overhead is recovered on the basis of machine hours.Each ZB41 requires an input of 1.5 machine hours.The recovery rate per hour is £11.50.
The selling price of the ZB41 is £52.50 per unit.
What is the contribution per unit of ZB41?

A)£27.00
B)£25.50
C)£8.25
D)£14.00

Answer 1

£25.50

Question 2

Springer and Leghorn Limited manufactures a standard model of trouser press.The selling price of each trouser press is £89.Variable costs of manufacture are £27.75.During its 20X2 financial year the company expects to incur fixed production overheads of £79 500 which will be absorbed per unit of production.The budgeted production volume is 3000 units.The company expects to incur selling and administrative overheads of £58 300. What is the expected break-even point in sales value in 20X2 (working to the nearest whole unit)?

A)£352 885
B)£200 250
C)£137 813
D)£149 342

Answer 2

£200 250

Question 3

Which one of the following statements about cost behaviour is correct?

A)In some types of business there are few, if any, variable costs
B)A semi-variable cost is mostly variable in nature
C)Labour is always a variable cost
D)Fixed costs never vary, whatever the level of output

Answer 3

In some types of business there are few, if any, variable costs

Question 4

Kumar Products Limited manufactures an industrial grade floor polish which it sells in 5kg tubs.Each tub sells for £26.50.Direct materials per tub cost £3.20 and direct labour costs £2.90. Factory production overhead is recovered on the basis of direct labour hours.Each tub of product requires 20 minutes of direct labour input, and the recovery rate per labour hour is £31.74.
What is the contribution per tub of polish?

A)£20.40
B)£9.82
C)£25.64
D)£14.05

Question 5

Snafu Productions Limited incurs the following costs in producing 60 items of product during July 20X6: There was no opening or closing inventory: all 60 units of product were sold in the month, at a selling price of £121 each.
What was the contribution per unit of product in July 20X6?

A)£17.00
B)£77.50
C)£57.50
D)£34.00

Question 6

Peebles and Witcherley Limited manufactures a standard model of steam iron.The selling price of each iron is £35.Variable costs of manufacture are £9.80.During its 20X7 financial year the company expects to incur fixed production costs of £78 000 and fixed selling and administration overheads of £38 000. What is the expected break-even point in sales value in 20X7 (working to nearest whole unit and £)?

A)£115 996
B)£161 105
C)£77 994
D)£108 325

Question 7

Which word completes the following sentence? The graph below represents ____ costs.

A)Marginal
B)Fixed
C)Semi-variable
D)Variable

Question 8

Which word completes the following sentence? The graph below represents ____ costs.

A)Semi-variable
B)Total
C)Variable
D)Fixed

Question 9

Which one of the following descriptions of contribution is correct? Contribution =

A)Revenue - fixed costs
B)Revenue - total costs
C)Revenue - variable costs
D)Revenue - semi-variable costs

Question 10

Which one of the following statements is correct? In economics, a marginal cost is:

A)Total costs divided by total items produced
B)The cost of producing one additional item
C)The amount of profit that can be made by incurring the cost of one additional item
D)Fixed costs divided by target profit

Question 11

Slatter and Higson Limited manufactures a standard model of vacuum cleaner.The selling price of each cleaner is £135.Variable costs of manufacture are £52.50.During its 20X8 financial year the company expects to incur fixed production costs of £80 000 and fixed selling and administration overheads of £32 000. How many vacuum cleaners will the company have to sell in order to break-even (to the nearest whole unit)?

A)970
B)1358
C)2133
D)1524

Question 12

Which word completes the following sentence? The graph below represents ____ costs.

A)Fixed
B)Variable
C)Semi-variable
D)Marginal

Question 13

Which of the following statements about contribution are correct?
A.If contribution is a positive figure it contributes, first, to covering fixed costs, and second, to profit.
B. In order to calculate contribution it is necessary first to split costs into fixed and variable.

A)Both of them
B)A only
C)B only
D)Neither of them

Question 14

Reddy Wendover Limited is obliged under the terms of a contractual arrangement to insure shipments of valuable goods to an overseas customer.The customer orders varying amounts of goods - for example, recent orders have been for 153, 226, 504, and 81 items. The costs of insurance are £300 for 100 items, £600 for any shipment of between 101 and 200 items, £900 for any shipment of 201 to 300 items, and so on.
Which one of the following graphs best represents this cost?

A)
B)
C)
D)

Question 15

Which of the following statements about marginal costing are correct? Marginal costing:
A. Provides a sounder basis for decision-making than absorption costing.
B. Can be used only in businesses that incur variable costs

A)B only
B)A only
C)Both of them
D)Neither of them

Question 16

Ruddick & Co rewards its tele-sales staff in two ways: they are paid a low basic rate of pay, plus a commission of 2% of the value of sales that they make. Which one of the following graphs best represents this cost?

A)
B)
C)
D)

Question 17

Marginal costing is useful for which important management accounting function?

A)Control
B)Planning
C)Budgeting
D)Decision-making

Question 18

Bracewell Animations Limited produces animated advertizing films.The list below shows some of the costs that it incurs:
A.Rental of studio space
B. Depreciation of photographic equipment
C. Salaries of animation experts
Which of the costs can be regarded as variable in nature?

A)All of them
B)None of them
C)A and B only
D)A and C only

Question 19

Smithson Fabrications Limited plans the following budget income and expenditure for the month of November 20X1: What would be the cost of producing one further unit of product?

A)£57.50
B)£71.00
C)£38.50
D)£85.00

Question 20

Fellworth and Bradford Limited plans the following budget income and expenditure for the month of March 20X5: What would be the cost of producing one further unit of product?

A)£8.00
B)£7.00
C)£4.00
D)£2.00

Question 21

Dowthwaite Bentham plc manufactures a standard model of suitcase.Each suitcase sells for £32.50.Variable labour and materials costs of manufacture are £8.73.Fixed costs for the 20X2 financial year are budgeted at £388 500 and the directors have set a target profit figure for the year of £150 000. What is the value of sales that the company must make in the 20X2 financial year in order to reach the target profit (working to the nearest whole unit and £)?

A)£736 288
B)£538 509
C)£531 180
D)£326 105

Question 22

Dellmar Business Systems Limited manufactures paper shredders, each of which sells for £52.00.Variable labour costs of manufacture are £8.50 and variable raw materials costs are £5.60 per shredder.Fixed production overheads for the 20X9 financial year are budgeted at £201 700 and fixed selling and administrative overheads are budgeted at £136 250.The company's directors plan to sell 10 000 units in the 20X9 financial year. What is the margin of safety, expressed as a percentage (to one decimal place)?

A)46.8%
B)12.1%
C)10.8%
D)35.0%

Question 23

A company is proposing to expand its productive capacity by a significant amount.What is the decision rule that should be applied by the directors in deciding whether or not to accept the expansion proposal? Accept the project if:

A)Incremental revenue exceeds incremental fixed costs
B)Incremental fixed costs do not exceed variable costs
C)Incremental fixed costs plus incremental variable costs exceed incremental revenue
D)its incremental revenue exceeds incremental costs

Question 24

Which one of the following statements is correct? In marginal costing, the margin of safety is:

A)the excess of planned or actual sales above the break-even point
B)the difference between planned sales and actual sales
C)fixed costs divided by contribution per unit
D)total contribution less total profit

Question 25

Baseheart Williams Limited produces two products, the Cee and the Dee, which both use the same grade of specialist labour.Only 3600 specialist labour hours are estimated to be available for the 20X8 financial year because of skills shortages in the economy as a whole. The directors must decide on a production plan for 20X8.They estimate that it would be possible to sell 400 units of Cee and 400 units of Dee but the actual amount that can be produced and sold is likely to be limited by the labour shortage.
The following information is available about the products:
What is the optimal production plan for 20X8 (to the nearest whole unit)?

A)400 units of Dee and 200 units of Cee
B)400 units of Cee and 133 units of Dee
C)400 units of Dee and 171 units of Cee
D)400 units of Cee and 114 units of Dee

Question 26

Bulstrode and Parker are in partnership making ornate cocktail cabinets with gold inlays.Each year they are able to produce and sell 25 cabinets with the assistance of several part-time staff who can be employed flexibly.There is a customer waiting list for the cabinets. Each cabinet sells for £12 000, and variable material and labour costs total £6500 per cabinet.The business's fixed costs are £86 000.
The small workshop next to the business's existing premises has now become available.If the partners take it on, production could be increased by 20%, but there would be additional fixed costs of £35 000.
What is the incremental profit or loss that could be earned from the proposed expansion?

A)£44 000 profit
B)£61 800 profit
C)£2000 loss
D)£7500 loss

Question 27

Sloane Blaine Limited manufactures a standard model of pressure cooker.The selling price of each pressure cooker is £35.Variable costs of manufacture are £9.80.During its 20X7 financial year the company expects to incur fixed overheads of £108 000.The sales director expects to sell 5000 pressure cookers during 20X7. What is the margin of safety (in units, to nearest whole unit)?

A)1914
B)4286
C)714
D)3086

Question 28

Arrow Barnett Limited manufactures wheelie bins, each of which sells for £55.50.Variable labour costs of manufacture are £6.50 and variable raw materials costs are £5.25 per bin.Fixed costs for the 20X5 financial year are budgeted at £305 700 and the directors have set a target profit figure for the year of £115 000. How many wheelie bins must the company sell in 20X5 in order to reach the target profit (to the nearest whole unit)?

A)7580
B)5508
C)9616
D)6987

Question 29

Moreton and Hampstead Products Limited manufactures hatstands.Each hatstand retails in the shops for £55.92 but the retailer applies a mark-up of 20% to the price at which the hatstand was purchased from Moreton and Hampstead. Variable costs of production are £13.50 per hatstand.In the 20X4 financial year, the company expects to incur total fixed costs of £168 300.The directors have set a target profit of £83 000.
What is the value of sales that the company must make in the 20X4 financial year in order to reach the target profit (working to the nearest whole unit and £)?

A)£424 545
B)£331 270
C)£111 514
D)£353 787

Question 30

Sometimes constraints are in operation that restrict the amount of productive capacity available to a business, or the potential market for a product, or the availability of particular types of material or labour. In management accounting, such constraints are commonly referred to as:

A)limited supply
B)limiting factors
C)restricting factors
D)shortages