In the following multiple choice questions, select the correct answers.

(i) The margin of safety for a firm in a very volatile market is 5 per cent. Which of the following is true?

(a) The margin of safety is probably too high,

(b) The margin of safety is probably too low,

(c) The margin of safety is adequate,

(d) We can’t tell.

(ii) Contribution per unit is ₹100. Fixed costs are ₹6,00,000. Production and sales are 8,000 units. When sales rise

(a) total contribution rises by an amount greater than profit,

(b) total contribution rises by an amount smaller than profit,

(c) total contribution and profit rise by the same amount,

(d) contribution margin drops.
(iii) Contribution per unit is ₹100. Fixed costs are ₹6,00,000. Production and sales are 8,000 units.
Total contribution is

(a) ₹6,00,000,

(b) ₹4,00,000,

(c) ₹8,00,000,

(d) None of the above.
(iv) Contribution per unit is ₹100. Fixed costs are ₹6,00,000. Production and sales are 8,000 units. Profit is

(a) ₹2,00,000,

(b) ₹6,00,000,

(c) ₹6,00,000,

(d) None of the above.
(v) Break-even is not affected with changes in

(a) sales price per unit,

(b) variable cost per unit,

(c) total fixed costs,

(d) number of units sold.
(vi) Contribution margin ratio (C/V ratio) is 25%. The fixed costs are ₹30,00,000. The break even point is

(a) ₹1,20,00,000,

(b) ₹60,00,000,

(c) ₹30,00,000,

(d) ₹15,00,000.
(vii) Variable cost is ₹400 per unit, fixed costs are ₹80,00,000, selling price per unit is ₹900, sales are 5,000 units. If selling price increases by ₹100, contribution increases by

(a) ₹10,000,

(b) ₹100,

(c) ₹5,00,000,

(d) ₹80,00,000.
(viii) Variable cost is ₹400 per unit, fixed costs are ₹80,00,000, selling price per unit is ₹900, sales are 5,000 units. If fixed costs increase by ₹10,00,000, contribution

(a) increases by ₹10,00,000,

(b) decreases by ₹10,00,000,

(c) remains unchanged,

(d) can’t say.
(ix) Variable cost is ₹400 per unit, fixed costs are ₹80,00,000, selling price per unit is ₹900, sales are 5,000 units. If sales decrease by 2,000 units, contribution margin

(a) increases by ₹10,00,000,

(b) decreases by ₹10,00,000,

(c) remains unchanged,

(d) can’t say.
(x) Variable cost is ₹400 per unit, fixed costs are ₹80,00,000, selling price per unit is ₹900, sales are 5,000 units. The target profit is ₹1,00,00,000. What must the sales revenue be?

(a) ₹3,24,00,000,

(b) ₹2,00,00,000,

(c) ₹1,60,00,000,

(d) ₹3,53,00,000.
(xi) Company B sells two products:
Product A: [Contribution margin ratio = 20%, Sales = ₹100,000]
Product B: [Contribution margin ratio = 40%, Sales = ₹200,000]
If actual sales were (A) ₹200,000 and (B) ₹100,000, total contribution would:

(a) increase by ₹20,000,

(b) decrease by ₹20,000,

(c) increase by ₹40,000,

(d) decrease by ₹40,000 (xii) Company B sells two products:
Product A: [Contribution margin ratio = 20%, Sales = ₹100,000]
Product B: [Contribution margin ratio = 40%, Sales = ₹200,000]
If actual sales were (A) ₹200,000 and (B) ₹100,000, fixed costs are ₹50,000. The break-even point in sales revenue would be

(a) ₹175,000,

(b) ₹200,000,

(c) ₹150,000,

(d) ₹187,970.
(xiii) One of the following is not an assumption that underlies CVP analysis.

(a) Fixed costs per unit will remain the same throughout the relevant range.

(b) Variable cost per unit will increase as sales increases.

(c) Variable costs have a linear relationship with sales.

(d) Selling price is constant throughout the relevant range.
(xiv) Which is the correct equation that calculates P (profit before tax)
Assume, Selling Price per unit = ₹S, Variable Cost per unit = ₹V, Number of units sold = U units and Total Fixed costs = ₹F.

(a) P = SV – F,

(b) P = U (S – V) – F,

(c) P = FS – V,

(d) P = S (V – S).
(xv) The break-even point is 10,000 units, sales are 12,000 units. The margin of safety expressed in percentage is:

(a) 16.67%,

(b) 80%,

(c) 120%,

(d) 20%.