Practice Test

Q1) In the following price, cost and revenue functions, which have been established by a company for one of its products.
Q represents the number of units produced and sold per week:
Price (Rs. per unit) = 40 – 0.03Q
Marginal revenue (Rs. per unit) = 40 – 0.06Q Total cost per week (Rs.) = 3,500 + 10Q

What price should be set in order to maximize weekly profits? Show Answer

Q2) In the following price, cost and revenue functions, which have been established by a company for one of its products.
Q represents the number of units produced and sold per week:
Price (Rs. per unit) = 40 – 0.03Q
Marginal revenue (Rs. per unit) = 40 – 0.06Q Total cost per week (Rs.) = 3,500 + 10Q

What would be the profit per week if the selling price of the product was set at Rs. 31 per unit? Show Answer

Q3) When making a decision between manufacturing a component or outsourcing its production, the information required is:
(i) the internal variable manufacturing cost per component
(ii) the monthly volume of components required
(iii) the internal fixed overhead absorption rate per component
(iv) the monthly specific fixed cost total for the component
(v) the purchase price of the component from the external supplier
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Q4) JB has been trading for the last six months as a fast food retailer. His average gross profit margin for that period was 33%, on sales of Rs. 1,20,000. His total expenses were Rs. 25,800. He is considering employing an extra member of staff as he anticipates an increase in business. The cost of the new employee will be Rs. 18,000 per annum. To stimulate sales, JB will also reduce his gross profit margin to 30%.
What percentage increase in sales is needed for JB to earn the same net profit in the next six months as he earned in the first six months?
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Q5) A company manufactures and sells a single product. The variable cost of the product is
Rs. 2.50 per unit and all production each month is sold at a price of Rs. 3.70 per unit. A potential new customer has offered to buy 6,000 units per month at a price of Rs. 2.95 per unit. The company has sufficient spare capacity to produce this quantity. If the new business is accepted, sales to existing customers are expected to fall by two units for every 15 units sold to the new customer.
What would be the overall increase in monthly profit which would result from accepting the new business ?
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Q6) A company would sell 40,000 units of a product if the unit selling price was set at Rs. 10 and these would generate a total contribution of Rs. 1,60,000. If the unit selling price was reduced to Rs. 9.50 then sales of 44,000 units would result.
Setting unit selling prices of Rs. 10.50 and Rs. 11 would result in sales of 36,000 and 31,000 units respectively.
Which selling price would generate the highest total contribution? Show Answer

Q7) Ideal product mix is decided in terms of Show Answer

Q8) In make or buy decision Show Answer

Q9) The decision maker should consider, in case of limiting, factor to maximize the profit Show Answer

Q10) Measurable value of an alternative use of resources is Show Answer

Q11) A cost incurred in the past and hence irrelevant for current decision making is Show Answer

Q12) A cost that cannot be changed by any decision made now is Show Answer

Q13) A shut down point is the point at which Show Answer

Q14) In make or buy decision Show Answer

Q15) In a decision situation which one is the cost not likely to contain a variable cost component. Show Answer

Q16) In a situation when the decision is to be taken about acceptance or rejection of special orders where there is a sufficient idle capacity which one is not relevant for decision making. Show Answer

Q17) A company manufactures two products X & Y. The contribution per unit is Rs. 40 and Rs. 30 respectively. Product X requires 10 hrs. per unit and product Y requires 6 hrs. per unit. If time is the limiting factor the most profitable product will be Show Answer

Q18) A company manufactures two products X & Y. The contribution per unit is Rs. 40 and Rs. 30 respectively. Product X requires 10 hrs. per unit and product Y requires 6 hrs. per unit. If material requirement is the limiting factor and product X requires 16 kg per unit and product Y requires 15 kg per unit. The product most profitable is Show Answer

Q19) A company manufactures two products X & Y. The contribution per unit is Rs. 40 and Rs. 30 respectively. Product X requires 10 hrs. per unit and product Y requires 6 hrs. per unit. If there is no constraint the most profitable product will be Show Answer

Q20) Ideal product nix is decided in terms of sales. Show Answer

Q21) In make or buy decision only marginal cost is relevant. Show Answer

Q22) Cost incurred in the past is future cost. Show Answer

Q23) At shutdown point operating loss is equal to loss due to shutdown. Show Answer

Q24) In Make or Buy decision marginal cost and purchase price should be considered. Show Answer

Q25) Decision to accept or reject export order depends on fixed cost only. Show Answer

Q26) The minimum price in case of marginal costing is equal to marginal cost. Show Answer

Q27) The most profitable sales mix is the one which gives maximum contribution. Show Answer

Q28) In case of limiting factor, contribution should be calculated in terms of limiting factor. Show Answer

Q29) In Absorption Costing, the prices are fixed so as to cover the total costs which include Fixed Costs as well as Variable Costs. Show Answer

Q30) In Marginal Costing the price can be fixed on the basis of only Variable Costs. Show Answer

Q31) If the product is sold at marginal cost, the loss will be equal to the variable expenses. Show Answer

Q32) If the selling price is below the total cost but above the marginal cost the contribution will lead to an over-recovery of fixed expense. Show Answer

Q33) The effect of a price reduction is always to improve the P/V ratio. Show Answer

Q34) The effect of a price reduction is always to lower the break-even point. Show Answer

Q35) The effect of a price reduction is always to shorten the margin of safety. Show Answer

Q36) If the selling price and variable cost decline by the same amount, the contribution per unit will decrease. Show Answer

Q37) If the selling price and variable cost decline by the same amount, the break-even point in terms of units will increase. Show Answer

Q38) If the selling price and the variable cost decline by the same amount, the margin of safety in terms of units will remain unaffected. Show Answer