IFMR – PGP Batch 18 – MANAGEMENT ACCOUNTING QUIZ 3

A. Choose the correct answer (1.25 marks each )

1. Which of the following can improve Margin of Safety?
a. Lowering the fixed cost
b. Lowering the Variable cost so as to improve marginal contribution
c. Increasing the volume of sales if capacity is available
d. Both b & c above
e. All – a, b & c above

2. Contribution per unit does not depend on

a. Selling price
b. Direct material cost
c. Fixed cost
d. Direct labour
e. Direct expenses

3. Breakeven point is the that level of activity where

a. Total revenue equals total cost
b. Total revenue equals fixed cost
c. Total revenue equals variable cost
d. Total revenue equals product cost
e. Both c & d above
4. Given the sales volume, which of the following would lead to an increase in contribution
margin?
a. VC per unit remains the same
b. VC per unit decreases
c. Fixed cost decreases
d. VC/unit increases
e. Fixed cost increases
5. Which of the following cost is not relevant to decision making?
a. Out of pocket cost
b. Differential cost
c. Avoidable cost
d. Historical cost
e. Opportunity cost
6. Sahara Ltd received an offer for a project which requires the Material ‘M’. It is not used on
regular basis. However material M, purchased one year ago is in stock and can be utilized for
this project. If material is not used in this project, it will have to be disposed off.

Which of the following items is relevant with regard to the material M to decide the acceptance
of the project?
 a. Replacement cost
b. Realizable value
c. Cost price
d. Profit which can be earned by disposing M
e. Replacement cost minus realizable value

B. The following information is provided for FY 2016. Compute the fixed cost(marks 5)

P/V Ratio 30%

Margin of safety 40%
Sales Rs 1200000
Solution
Contribution = 30% of Rs 12 lacs = Rs 360000
MOS = Profit/PV Ratio
40% of sales = Profit/30%
Profit = 480000*30% = Rs 144000
Fixed cost = Contribution-profit
i.e. 360000-144000 = Rs 216000

C. Z Ltd. Has furnished the following information as regards its product (Marks 2.5)

Sales price per unit Rs 225

Variable cost per unit Rs 135
Fixed costs Rs 465000

If the target profit is Rs 165000 sales should be 7000 units (volume) &Rs 1575000 (value)
Note: Students may be given marks if they have mentioned either volume or value

D. The details pertaining to a product for the month of September 2017 was (Marks 5)

Fixed costs Rs 270000

Net Profit Rs 157040
Total sales Rs 628000
Find Margin of safety for the product

Cn = FC +Profit =Rs 427040

PV Ratio = 427040/628000 = 68%

MOS = Profit/PV Ratio = 230941. Alternatively students can find BE Sales and reduce the same
from Actual sales to get above answer