T2 Chapter 10 Majid Ghauri

1. When units produced increase, total variable costs………

a) increase in proportion to the units produced

b) increase at a greater rate than units produced
c) increase at a lesser rate than units produced
d) stay the same

2. As production increases, total fixed costs ………

a) increase in proportion to the units produced

b) increase at a greater rate than units produced
c) increase at a lesser rate than units produced
d) stay the same

3. When units produced increase, variable cost per unit………

a) increase in proportion to the units produced

b) increase at a greater rate than units produced
c) increase at a lesser rate than units produced
d) stay the same

4. As production increases, fixed cost per unit ………

a) decrease
b) increase
c) we can't tell
d) stay the same

5. Which of the following would not be illustrated by the cost curve shown below?

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T2 Chapter 10 Majid Ghauri

a) direct material cost per unit

b) direct labor cost per unit
c) fixed production cost per unit
d) variable production cost per unit

6. Fixed cost per unit increases when

a) Variable cost per unit increase
b) Variable cost per unit decreases
c) Production volume increases
d) Production volume decreases

7. Variable cost per unit

a) a Varies when output varies
b) b Remains constant
c) c Increases when output increases
d) d Decrease when output decreases

8. Which of the followings is an example of fixed cost?

a) a Direct material cost
b) b Works manager’s salary
c) c Depreciation of machinery
d) d Chargeable expenses

9. Which of the following costs would be most likely to be illustrated by the cost curve?

a) total material cost

b) factory rent
c) total wages cost
d) telephone expense

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10. Which of the following represent the cost curve?

a) direct material cost per unit

b) direct labor cost per unit
c) variable production cost per unit
d) fixed production cost per unit

11. Which of the following best describes a fixed cost? A cost which:

a) represents a fixed proportion of total costs

b) remains at the same level up to a particular level of output
c) has a direct relationship with output
d) remains at the same level when output increases

12. A business's telephone bill should be classified into which one of these categories?

a) Fixed cost
b) Stepped fixed cost
c) Semi-variable cost
d) Variable cost

13. Which one of the following is a Period Cost?

a) Raw Materials
b) Direct Labor
c) Variable Overhead
d) Fixed Overhead

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14. A company makes computers. Which one of the following is likely to be a Variable Cost?

a) The salary of the managing director

b) The salary of the factory manager
c) The wages of shop floor workers paid by piece rate
d) The Business rates of the factory

15. A company makes made to measure plastic windows and doors. Which one of the following
is likely to be a Fixed Cost?

a) The cost of heating the factory

b) The labor cost of assembly
c) The cost of the plastic
d) Sales commission

16. For a boat building company, which one of the following is an indirect cost to the product?

a) The material cost of the engine

b) The sub-contract cost of testing the seaworthiness of the ship
c) The cost of buying a cutting machine used on a number of the boats
d) The material cost of the decking

17. For a plumber that repairs water pipes. Which one of the following is a direct cost to the
service he/she provides to a particular household?

a) Petrol cost of visiting house

b) Van insurance
c) Public Liability Insurance
d) Telephone Rental

18. Direct material + Direct labor + direct expense =

a) Factory cost
b) Prime cost
c) Production cost
d) Total cost

19. Hire of special plant or machinery or total for a particular job is an example of
a) Production overhead
b) Indirect expense
c) Direct expense
d) Indirect expense

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T2 Chapter 10 Majid Ghauri

20. The difference between selling price and marginal cost is called ___________
a) Cost of goods sold
b) Profit
c) Contribution
d) Break-even point

21. Under marginal costing only ___________ are charged to operations, processes or products
a) Variable cost
b) Fixed cost
c) Period cost
d) None of above

22. Net profit is equal to:

a) Sales less cost of sales and operating expenses
b) Gross profit less operating expenses
c) Sales less operating expense
d) Both (a) & (b)

23. At the end of the year, goods that are unsold are deducted from:
a) Finished goods
b) Closing stock
c) Cost of good sold
d) Opening stock

24. The value of finished goods inventory is calculated by which of the following formula?
a) Cost of goods manufactured/ no. of units manufactured
b) Closing finished goods units x cost per unit
c) Cost of goods available for sale x cost per unit
d) None of above

25. Which of the following is the correct formula to calculate cost of sales?
a) Purchases – opening inventory – closing inventory
b) Purchases + opening inventory + closing inventory
c) Purchases – opening inventory + closing inventory
d) Purchases + opening inventory – closing inventory

26. Consider the following data:

Direct Material = £4 per unit
Direct Labor = £2 per unit

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Variable Overhead = £1 per unit

Total Fixed overheads = £10,000
Number of units produced = 2,500 units

Under variable costing the variable cost per unit is:

a) £11
b) £6
c) £7
d) £9

27. Consider the following data:

Direct Material = £4 per unit
Direct Labor = £2 per unit
Variable Overhead = £1 per unit
Total Fixed overheads = £10,000
Number of units produced = 2,500 units

Under variable costing the absorption cost per unit is

a) £11
b) £6
c) £7
d) £9

28. Under Variable Costing accounting, when stocks decrease profits will be
a) Greater than under Absorption Costing accounts
b) Smaller than under Absorption Costing accounts
c) The same
d) We can’t tell

29. When opening stock is the same as closing stock

a) Variable Costing profit > Absorption Costing profit
b) Absorption Costing profit > Variable Costing profit
c) Absorption Costing profit = Variable Costing profit
d) We can’t tell

30. Which is the correct equation that calculates P (the net profit)?
Selling Price per unit = £S
Variable Cost per unit = £V
Number of units sold = U units
Total Fixed costs = £F
a) P = SV - F
b) P = U (S – V) - F
c) P = FS - V
d) P = S (V – S)

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T2 Chapter 10 Majid Ghauri