MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO COST AND COSTING; ELEMENTS OF COST – FIXED EXPENSES, VARIABLE EXPENSES, BREAK-EVEN POINT
What are fixed expenses?
A) Expenses that vary with production levels
B) Expenses that remain constant regardless of production levels
C) Expenses that occur irregularly
D) Expenses that are not related to business operations
Answer: B) Expenses that remain constant regardless of production levels
Variable expenses in a manufacturing unit include:
A) Rent for the factory building
B) Raw material costs
C) Annual insurance premium
D) Salaries of permanent employees
Answer: B) Raw material costs
The break-even point is the level of sales at which:
A) Total revenue equals total expenses
B) Total revenue exceeds total expenses
C) Total revenue is less than total expenses
D) Total revenue is irrelevant to total expenses
Answer: A) Total revenue equals total expenses
Which of the following is NOT a component of the break-even analysis?
A) Fixed costs
B) Variable costs per unit
C) Total revenue
D) Total profit
Answer: D) Total profit
If a company’s total fixed costs are Rs.10,000, and its variable cost per unit is Rs.5, and each unit sells for Rs.10, what is its break-even point in units?
A) 500 units
B) 1,000 units
C) 2,000 units
D) 5,000 units
Answer: B) 1,000 units
Which of the following is an example of a fixed expense for a software company?
A) Cost of software licenses
B) Electricity bill for the office
C) Salaries of developers
D) Marketing expenses
Answer: B) Electricity bill for the office
Variable expenses for a restaurant would typically include:
A) Monthly rent for the premises
B) Salary of the head chef
C) Cost of ingredients for dishes
D) Annual property taxes
Answer: C) Cost of ingredients for dishes
The break-even analysis helps businesses to:
A) Maximize profits
B) Minimize expenses
C) Determine the minimum level of sales needed to cover costs
D) Forecast future demand
Answer: C) Determine the minimum level of sales needed to cover costs
Which of the following statements about the break-even point is true?
A) It indicates the level of sales where profit is maximized
B) It is always expressed in terms of monetary value
C) It varies depending on the business’s fixed costs and selling price per unit
D) It remains constant over time
Answer: C) It varies depending on the business’s fixed costs and selling price per unit
A manufacturing company has fixed costs of Rs.20,000 and variable costs of Rs.8 per unit. If the selling price per unit is Rs.15, what is the company’s break-even point in dollars?
A) Rs.20,000
B) Rs.25,000
C) Rs.30,000
D) Rs.40,000
Answer: B) Rs.25,000
Which of the following is an example of a fixed expense for a retail store?
A) Cost of inventory
B) Utility bills
C) Employee wages
D) Commission paid to sales staff
Answer: B) Utility bills
In break-even analysis, contribution margin refers to:
A) The difference between total revenue and total variable costs
B) The portion of fixed costs covered by sales
C) The total profit after covering all expenses
D) The percentage of sales revenue retained as profit
Answer: A) The difference between total revenue and total variable costs
A service-based business has fixed costs of Rs.15,000 and a contribution margin ratio of 40%. If the selling price per service unit is Rs.50, what is the company’s break-even point in units?
A) 300 units
B) 375 units
C) 500 units
D) 750 units
Answer: B) 375 units
Which of the following would NOT affect a company’s break-even point?
A) Increase in variable costs per unit
B) Decrease in selling price per unit
C) Increase in fixed costs
D) Increase in demand for the product
Answer: D) Increase in demand for the product
A software company has fixed costs of Rs.50,000 and variable costs of Rs.10 per unit. If the company sells its software for Rs.30 per unit, what is the company’s break-even point in units?
A) 1,000 units
B) 2,000 units
C) 3,000 units
D) 4,000 units
Answer: B) 2,000 units
Which of the following is an example of a variable expense for a construction company?
A) Property taxes
B) Annual equipment maintenance fee
C) Cost of construction materials
D) Monthly rent for office space
Answer: C) Cost of construction materials
The break-even point is also known as:
A) Profit threshold
B) Revenue equilibrium
C) Cost recovery point
D) Margin of safety
Answer: C) Cost recovery point
Which of the following is NOT considered when calculating the break-even point?
A) Total variable costs
B) Selling price per unit
C) Market demand
D) Fixed expenses
Answer: C) Market demand
A manufacturing company has fixed costs of Rs.30,000 and variable costs of Rs.6 per unit. If the company sells its product for Rs.20 per unit, what is the company’s contribution margin ratio?
A) 30%
B) 40%
C) 50%
D) 60%
Answer: D) 60%
Which of the following statements about fixed expenses is true?
A) They fluctuate with changes in production levels
B) They are incurred only once during the lifetime of a business
C) They remain constant regardless of changes in production levels
D) They are directly proportional to sales revenue
Answer: C) They remain constant regardless of changes in production levels
What does the contribution margin represent in break-even analysis?
A) The total fixed costs of the business
B) The portion of sales revenue that contributes to covering fixed costs
C) The profit earned after covering all costs
D) The total variable costs of the business
Answer: B) The portion of sales revenue that contributes to covering fixed costs
Which of the following is a variable expense for a transportation company?
A) Annual insurance premium for vehicles
B) Monthly office rent
C) Fuel costs for vehicles
D) Salary of the receptionist
Answer: C) Fuel costs for vehicles
Break-even analysis is useful for:
A) Identifying opportunities for cost reduction
B) Assessing the financial health of a business
C) Evaluating investment opportunities
D) Setting long-term strategic goals
Answer: A) Identifying opportunities for cost reduction
A company’s break-even point occurs when:
A) Total revenue exceeds total costs
B) Total costs exceed total revenue
C) Total revenue equals total costs
D) Total revenue is unrelated to total costs
Answer: C) Total revenue equals total costs
In break-even analysis, what does the margin of safety measure?
A) The difference between actual sales and break-even sales
B) The difference between variable costs and fixed costs
C) The difference between budgeted revenue and actual revenue
D) The difference between total revenue and total costs
Answer: A) The difference between actual sales and break-even sales
Which of the following is an example of a fixed expense for a consultancy firm?
A) Travel expenses for consultants
B) Monthly internet service fee
C) Cost of office supplies
D) Annual license fee for software
Answer: B) Monthly internet service fee
The break-even point is expressed in terms of:
A) Units sold
B) Total variable costs
C) Fixed costs per unit
D) Total profit
Answer: A) Units sold
Which of the following factors can affect a company’s break-even point?
A) Economic conditions
B) Company size
C) Industry regulations
D) Organizational culture
Answer: A) Economic conditions
A manufacturing company has fixed costs of Rs.40,000 and variable costs of Rs.10 per unit. If the company sells its product for Rs.30 per unit, what is the company’s contribution margin per unit?
A) Rs.10
B) Rs.20
C) Rs.30
D) Rs.40
Answer: B) Rs.20
Break-even analysis helps businesses to:
A) Determine the maximum potential revenue
B) Assess the impact of competition
C) Identify the level of sales needed to cover costs
D) Measure customer satisfaction
Answer: C) Identify the level of sales needed to cover costs
Which of the following is a characteristic of variable expenses?
A) They remain constant regardless of production levels
B) They vary in direct proportion to production levels
C) They are incurred only once during the lifetime of a business
D) They are not influenced by changes in sales volume
Answer: B) They vary in direct proportion to production levels
The break-even point is useful for:
A) Assessing the market share of a business
B) Determining the optimal pricing strategy
C) Evaluating the feasibility of a business venture
D) Analyzing customer preferences
Answer: C) Evaluating the feasibility of a business venture
A company’s fixed expenses include:
A) Cost of raw materials
B) Salary of temporary employees
C) Rent for office space
D) Commission paid to sales representatives
Answer: C) Rent for office space
The break-even point occurs when:
A) Variable costs equal fixed costs
B) Total revenue exceeds total costs
C) Total costs exceed total revenue
D) Total revenue equals total costs
Answer: D) Total revenue equals total costs
Which of the following is an example of a variable expense for a hotel?
A) Annual property taxes
B) Monthly utility bills
C) Salary of the hotel manager
D) Cost of laundry services for guests
Answer: D) Cost of laundry services for guests
Break-even analysis helps businesses to:
A) Minimize variable expenses
B) Identify cost-saving opportunities
C) Maximize fixed expenses
D) Determine pricing strategies
Answer: B) Identify cost-saving opportunities
A company’s contribution margin is calculated as:
A) Total revenue minus total fixed costs
B) Total revenue minus total variable costs
C) Total fixed costs divided by total revenue
D) Total variable costs divided by total revenue
Answer: B) Total revenue minus total variable costs
What is the break-even point in units if fixed costs are Rs.20,000, variable costs per unit are Rs.5, and selling price per unit is Rs.10?
A) 1,000 units
B) 2,000 units
C) 3,000 units
D) 4,000 units
Answer: B) 2,000 units
Break-even analysis is useful for:
A) Identifying profit-maximizing strategies
B) Assessing financial risk
C) Setting long-term financial goals
D) Determining pricing strategies
Answer: B) Assessing financial risk
Which of the following is a fixed expense for a software development company?
A) Cost of software licenses
B) Monthly internet service fee
C) Salary of software developers
D) Cost of training programs
Answer: B) Monthly internet service fee
