Marginal Costing MCQs 2024 | MCQ On Absorption and Marginal Costing

Marginal Costing MCQs 
Absorption Costing MCQs
Multiple Choice Questions and Answers (MCQs)
For Class B.Com / BBA / M.Com /MBA / CMA / CS / CA/ UGC NET examination

In this exclusive page, you will get Marginal Costing MCQs and Absorption Costing MCQs for various exams such B.Com, BBA, MCOM, MBA, CMA, CS, ICAI and UGC NET. These MCQ On Absorption and Marginal Costing are also very much helpful for various competitive exams for commerce stream students.

You can also go through various links given below in the article for Chapter wise Management Accounting MCQs.

Introduction to Marginal Cost and Marginal Costing

Marginal Cost: The term Marginal cost means the additional cost incurred for producing an additional unit of output. It is the addition made to total cost when the output is increased by one unit. Marginal cost of nth unit = Total cost of nth unit- total cost of n-1 unit. 

E.g. When 100 units are produced, the total cost is Rs. 5000.When the output is increased by one unit, i.e., 101 units, total cost is Rs.5040. Then marginal cost of 101th unit is Rs. 40[5040-5000]

Marginal Costing: It is the technique of costing in which only marginal costs or variable are charged to output or production. The cost of the output includes only variable costs.

Fixed costs are not charged to output. These are regarded as ‘Period Costs’. These are incurred for a period. Therefore, these fixed costs are directly transferred to Costing Profit and Loss Account.

Introduction to Absorption costing

As the name suggests, absorption costing is the method of costing in which the entire cost of manufacturing a product or providing a service is absorbed in it. 

In contrast to the variable costing (Activity based costing) method, it includes both fixed and variable costs for absorption in addition to the direct costs. 

As all the costs incurred are absorbed, this method is also sometimes referred to as Full absorption costing or Total absorption costing (TAC).

Choose the correct alternatives:

1. Marginal costing is a:

a) Method of costing

b) Technique of costing

c) Formula of costing

d) System of costing

Ans: b) Technique of costing

2. Contribution margin is also known as:

a) Marginal income

b) Marginal cost

c) Gross profit

d) Net income

Ans: a) Marginal income

3. The term contribution refers to:

a) Subscription towards raising capital

b) Draft of an article for publication

c) Difference between selling price and total cost

d) Sales – Variable Cost

Ans: d) Sales – Variable Cost

Join us on Telegram

4. If a factory operates at full capacity, ___________ becomes relevant for make or buy decisions:

a) Fixed cost

b) Variable cost

c) Total Cost

d) Contribution

Ans: a) Fixed cost

5. Which cost is more useful for decision making?

a) Marginal cost

b) Fixed cost

c) Total cost

d) Opportunity cost

Ans: a) Marginal cost

6. Which of the following costing methods charges all the manufacturing costs to the products?

a) Marginal Costing

b) Absorption costing

c) Standard costing

d) Budgeted costing

Ans: b) Absorption costing

7. Marginal costing technique helps the management is deciding:

a) Price of the product

b) Make or buy Decision

c) To accepts fresh orders at low price

d) All of the above

Ans: d) All of the above

8. Which of the following is true at breakeven point?

a) Contribution = Fixed Cost

b) Sales = Total Cost

c) Sales curve cuts total cost line

d) All of the above

Ans: d) All of the above

8. Which technique of costing distinguishes cost into fixed and variable cost?

a) Standard costing

b) Marginal costing

c) Absorption costing

d) Contract costing

Ans: b) Marginal costing

10. In marginal costing technique, fixed costs are sometimes called as:

a) Product cost

b) Period cost

c) Total cost

d) None of the above

Ans: b) Period cost

11. In marginal costing technique, variable costs are sometimes called as:

a) Product cost

b) Period cost

c) Total cost

d) None of the above

Ans: a) Product cost

12. Contribution is the difference between:

a) Sales and Variable cost

b) Fixed cost and variable cost

c) Total cost and fixed cost

d) None of the above

Ans: a) Sales and Variable cost

13. The principles of marginal costing are based on the following equation?

a) Variable cost + Fixed cost + Profit = Sales

b) Contribution – Fixed cost = Profit

c) Total cost + Profit = Sales

d) All of the above

Ans: d) All of the above

14. Total cost + profit = …..?

a) Sales

b) Contribution

c) Breakeven point

d) None of the above

Ans: a) Sales

15. Margin of safety can be improved by:

a) Increasing sales volume

b) Lowering variable cost

c) Lowering fixed cost

d) All of the above

Ans: d) All of the above

16. PV ratio can be improved by:

a) Increasing Sale price

b) Increasing variable cost

c) Lowering fixed cost

d) None of the above

Ans: a) Increasing Sale price

17. For decision marking purpose, which is more suitable to the management?

a) Standard costing

b) Marginal costing

c) Absorption costing

d) Budget

Ans: b) Marginal costing

18. Increase in selling price:

a) Increases P/V ratio

b) Decreases break-even point

c) Increases margin of safety

d) All of the above

Ans: d) All of the above

19. Decrease in selling price:

a) Decreases P/V ratio

b) Increases break-even point

c) Decreases margin of safety

d) All of the above

Ans: d) All of the above

20. An increase in the variable cost leads to:

a) Increases P/V ratio

b) Decreases break-even point

c) Increases margin of safety

d) None of the above

Ans: d) None of the above

21. Decrease in variable cost:

a) Increases P/V ratio

b) Decreases break-even point

c) Increases margin of safety

d) All of the above

Ans: d) All of the above

22. Contribution/sales is equal to

a) P/V ratio

b) Breakeven point

c) Margin of safety

d) None of the above

Ans: a) P/V ratio

23. Contribution / PV ratio is equal to:

a) Breakeven point

b) Margin of safety

c) Sales

d) None of the above

Ans: c) Sales

24. Under marginal costing stock are valued at:

a) Fixed cost

b) Variable cost

c) Total cost

d) None of the above

Ans: b) Variable cost

25. Contribution is the test of:

a) Solvency

b) Profitability

c) Efficiency

d) Liquidity

Ans: b) Profitability

26. Under marginal costing technique the prices are based on:

a) Fixed cost

b) Variable cost

c) Contribution

d) None of the above

Ans: c) Contribution

27. The ratio establishes a relationship between the contribution and the sales value is called:

a) P/V ratio

b) Contribution ratio

c) Marginal income ratio

d) All of the above

Ans: d) All of the above

28. Product cost in marginal costing means:

a) Variable cost

b) Fixed cost

c) Total cost

d) All of the above

Ans: a) Variable cost

29. Under absorption costing managerial decisions are based on:

a) Variable cost

b) Fixed cost

c) Total cost

d) All of the above

Ans: c) Total cost

30. Sales x PV ratio is equal to:

a) Fixed cost

b) Variable cost

c) Contribution

d) Breakeven point

Ans: c) Contribution

31. With respect to variable costs per unit, which of the following statements is true?

a) Variable cost per unit will remain constant.

b) Variable cost per unit varies with change in output.

c) Variable cost per unit depends on sales.

d) Variable cost per unit includes fixed expenses also.

Ans: a) Variable cost per unit will remain constant.

32. Margin of safety x profit volume ratio is equal to:

a) Fixed cost

b) Variable cost

c) Contribution

d) Profit

Ans: d) Profit

33. Profit/PV ratio is equal to:

a) BEP

b) Margin of safety (MOS)

c) Sales

d) Profit

Ans: b) Margin of safety (MOS)

34. The BEP decreases if the fixed cost is:

a) Increased

b) Decreased

c) Remain constant

d) None of the above

Ans: b) Decreased

35. Production cost under marginal costing includes:

a) Fixed cost

b) Variable cost

c) Contribution

d) Profit

Ans: b) Variable cost

36. Which of the following has oldest technique of ascertaining cost?

a) Marginal Costing

b) Absorption Costing

c) Standard Costing

d) None of the above

Ans: b) Absorption Costing

37. Under marginal costing cost is classified on the basis of:

a) Specific Activity

b) Given Time Period

c) Common Activity

d) Both a) & b) above

Ans: d) Both a) & b) above

38. Marginal costing is the most useful technique for the:

a) Management

b) Creditors

c) Shareholders

d) Government

Ans: a) Management

39. In context of variable costing or marginal costing, which of the following is true?

a) Marginal costing establishes relationship between cost, volume & profit which is not possible in absorption costing.

b) Marginal cost is the aggregate of prime cost and variable overheads.

c) Marginal costing technique helps management in taking various managerial decisions.

d) All of the above

Ans: d) All of the above

40. In marginal costing fixed cost are directly transferred to:

a) Contribution

b) Profit and Loss Account

c) Product Cost

d) None of the above

Ans: a) Contribution

41. When cost increases due to change in level of activity such increase is known as:

a) Incremental Cost

b) Decremental Cost

c) Sunk Cost

d) Total Cost

Ans: a) Incremental Cost

42. Which of the following statements are true about absorption & marginal costing?

a) Both focus on product cost only

b) In absorption costing period is important and in marginal costing product is important.

c) In absorption costing product is important and in marginal costing period is important.

d) Both focus on period cost only.

Ans: b) In absorption costing period is important and in marginal costing product is important.

43. Which one of the following is not an assumption of marginal costing?

a) Variable cost per unit remains constant at all levels of output

b) Total fixed cost remains constant at all levels of output

c) All the costs cannot be segregated in to fixed cost and variable cost.

d) There is no opening or closing stock.

Ans: c) All the costs cannot be segregated in to fixed cost and variable cost.

44. If there is opening stock but there is no closing stock, then profit under absorption costing will be:

a) Equal to marginal costing

b) Higher than the marginal costing

c) Lower than the marginal costing

d) None of the above

Ans: c) Lower than the marginal costing

45. If there is closing stock but there is no opening stock, then profit under marginal costing will be:

a) Equal to absorption costing

b) Higher than the absorption costing

c) Lower than the absorption costing

d) None of the above

Ans: c) Lower than the absorption costing

46. Comparing budgeted costs to actual costs helps managers to improve:

a) Coordination

b) Control

c) Implementation

d) Planning

Ans: b) Control

47. If there is no opening or closing stock then profit under absorption and marginal costing will be

a) Equal

b) Different

c) Profit cannot be ascertained

d) None of the above

Ans: d) None of the above

48. Which of the following is a variable cost?

a) Direct Material

b) Direct Labour

c) Direct expenses

d) All of the above

Ans: d) All of the above

49. Which of the following is a fixed cost?

a) Salary

b) Rent

c) Insurance

d) All of the above

Ans: d) All of the above

50. Large angle of incidence indicates:

a) High profit earning capacity of the firm

b) Low profit earning capacity of the firm

c) High fixed cost

d) High variable cost

Ans: a) High profit earning capacity of the firm

51. Which of the following statements are true?

a) Marginal costing is not an independent system of costing.

b) In marginal costing all elements of cost are divided into fixed and variable components.

c) In marginal costing fixed costs are treated as product cost.

d) Marginal costing is not a technique of cost analysis.

Ans: b) In marginal costing all elements of cost are divided into fixed and variable components.

52. Which of the following are the assumptions of marginal costing?

a) All the elements of cost cannot be divided into fixed and variable components.

b) Total fixed cost remains constant at all levels of output.

c) Total variable costs varies in proportion to the volume of output.

d) Per unit selling price remain unchanged at all levels of operating activity.

Ans: a) All the elements of cost cannot be divided into fixed and variable components.

53. The accountant’s concept of marginal cost differs from the economist’s concept of marginal costing in the matter of exclusion of:

a) Fixed Cost

b) Variable Cost

c) Total Cost

d) Depreciation

Ans: a) Fixed Cost

54. Reporting under marginal costing is accomplished by:

a) Matching variable costs against revenue and treating fixed costs as period costs

b) Treating all costs as period costs

c) Including only variable costs in income statement

d) Treating all costs as product costs

Ans: a) Matching variable costs against revenue and treating fixed costs as period costs

55. Variable costing is more appropriate than absorption costing when the decision:

a) Relates to production planning within the capacity limits in the short run.

b) Does not involve analysis of contribution margin

c) Involves reducing fixed costs that are controllable by the upper management

d) Does not involve analysis of profitability based on sales mix

Ans: a) Relates to production planning within the capacity limits in the short run.

Marginal Costing MCQs
Absorption Costing MCQs

Fill in the Blanks:

1. Absorption costing is also known as total costing.

2. Variable costing is also known as Marginal Costing.

3. Marginal cost is simple the change in total cost due to change in the output.

4. Only variable cost is charged to the product in case of marginal costing.

5. Both fixed and variable cost is charged to the product in case of absorption costing.

6. Marginal cost is taken as equals to Prime cost plus variable overheads.

7. Wider the angle of incidence higher will the rate of profit and narrower the angle of incidence lower will the rate of profit.

8. Gross profit is calculated as = Net sales – cost of goods sold.

9. Period costs are also known as fixed cost.

10. Product costs are also known as variable cost.

11. Profit volume ratios are also known as contribution ratio.

12. Marginal costing helps in fixation of price more in period of depression.

13. Profit planning is possible with marginal costing.

14. Contribution is the aggregate of fixed cost and profit.

15. Gross margin is to absorption costing as contribution is to variable costing.

16. Variable cost per unit will remain constant for all level of activity.

17. The Fixed cost per unit will increases with decrease in output.

18. The Fixed cost per unit will decreases with increase in output.

19. Fixed cost total will remain constant for all level of activity.

20. Marginal costing can be used in conjunction with standard costing.

21. Absorption costing fails to establish relationship between cost, volume and profit.

22. Angle of incidence indicates the profit earning capacity of a concern.

23. If P/V ratio is 30%, than variable cost ratio will be 70%.

24. Marginal costing is more suitable for decision making than absorption costing.

25. Contribution margin is the guiding factor of managerial decisions.    

26. Contribution margin minus fixed costs equals to net profit.

27. In differential costing, decisions are taken by comparing the incremental revenue with differential costs.  

28. Margin of safety = Fixed cost/PV ratio.

29. Sales – VC = FC + Profit/-Loss.

30. PV ratio = (Change in profit/Change in sales)*100

31. Margin of safety is the difference between actual sales and break even sales.

32. Break even analysis is fundamentally a dynamic analysis.

33. In the long run, all cost is variable.

34. Value of stock under absorption costing is higher than those under marginal costing.

35. The process of choosing between alternatives is known as decision making.

36. Marginal costing is a technique of cost control.

37. Difference cost analysis is not incorporated in the cost books.

38. At break-even point, sales curve cuts total cost curve.

39. Marginal Cost is computed as Prime cost + All variable overheads.

40. The angle formed by the sales line and total cost line at the break-even point is known as angle of incidence.

41. Marginal cost represents sum of all variable expenses.

42. Under marginal costing product cost is equal to sum of all variable cost.

43. Marginal cost does not include fixed cost.

44. The other name of marginal costing is variable costing.

45. Total cost plus profit is equal to sales.

46. Selling price - marginal cost = Contribution.

47. If the activity level is reduced from 80% to 70%, then the fixed cost will remain constant.

48. Marginal costing technique combines the technique of cost recording and cost reporting.

49. Marginal Costing Per unit = Selling Price – Contribution Per unit.

50. In marginal costing stocks of finished goods and work in-progress are valued at their variable cost only.

51. Under absorption costing profit is ascertained at sales – total cost.

52. One of the primary differences between marginal costing and absorption costing is regarding the treatment of stock.

53. Prime cost is equal to total of Direct material, Direct Labour and Direct expenses.

54. Direct material plus direct labor equals to prime cost.

55. A graphical representation of marginal costing is called Break even chart.

56. the point at which total revenue is equal to total cost is called Breakeven point.

57. the accountant’s concept of marginal cost differs from the economist’s concept of marginal costing in the matter of exclusion of fixed Cost.

Marginal Costing MCQs
Absorption Costing MCQs

State whether the following statements are true or false:

1. Marginal costing is different from Absorption costing and Direct Costing.          True

2. Both fixed and variable cost is charged to the products in absorption costing.    True

3. Oldest technique of ascertaining cost is absorption costing.         True

4. Absorption costing is suitable when there is more than one product.      False, Marginal Costing

5. Cost per unit changes with the change in output in case of absorption costing.  True

6. Variable cost per unit will remain constant in case of Marginal Costing.            True

7. Difference between fixed cost and marginal cost is maintained in case of marginal costing but not in case of absorption costing.                 True

8. For decision making, marginal costing is more useful than absorption costing.  True

9. In marginal costing, problem of under and over absorption of overheads are arises.     False, Absorption costing

10. Marginal costing is also known as variable costing.        True

11. In marginal costing, stocks are valued at variable cost.  True

12. Marginal costing is a method of costing. False, Technique

13. Variable costs are also known as Product cost.               True

14. Fixed costs are also known as period cost.                       True

15. Marginal costing establishes relationship between cost, volume and profit which is not possible in case of absorption costing.                 True

16. Contribution = Sales – Variable cost or Fixed + Profit.                True

17. At BEP, Contribution equals to (=) fixed cost.                  True

18. In marginal costing, profit is the difference between sales and marginal cost.             False

19. In marginal costing, a part of fixed overheads is carried over to the next period.         False

20. Variable cost per unit will remain constant for each level of activity.    True

21. Fixed cost per unit varies with output. It increases with decrease in output and decreases with increase in output. True

22. Margin of safety is the difference between actual sales and budgeted sales.   False

23. Marginal of safety = Sales – BEP. True.

24. BEP is the point of no profits no loss.                   True

25. At BEP, P/V ratio * Sales = Contribution = Fixed Cost.                 True

26. P/V ratio is the ratio of contribution to sales.                  True

27. BEP chart is the graphical representation of cost, volume and profits.              True

28. In P/V Graph, vertical axis represents sales.                    False, Profit or Loss

29. Differential costs helps to choose the best alternative.   True

30. Make or buy decision is made by comparing marginal cost with outsider’s purchase price.    True

31. Break even analysis is fundamentally a static analysis.   False

32. In the long run, all costs are fixed.           False

33. The term contribution refers to excess of sales over variable cost.        True

34. Marginal costing technique helps the management is deciding Price, Make or buy Decision and to accepts fresh orders at low price.       True

35. The term marginal cost can be used as a substitute of variable cost while measuring contribution.  True

36. Marginal costing is also known as variable costing.     True

37. Period costs are also known as variable cost.                                False

38. Product costs are also known as fixed cost.                   False