# Strategic Cost Management MCQ

Please find below Strategic Cost Management MCQ

1 – A company has the capacity of production of 80,000 units and presently sells 20,000 units at ₹100 each. The demand is sensitive to selling price and it has been observed that with every reduction of ₹10 in selling price the demand is doubled. What should be the target cost at full capacity if profit margin on sale is taken as 25%?
(A) ₹75
(B) ₹90
(C) ₹60
(D) ₹25

2 – If the direct labour cost is reduced by 20% with every doubling of output, what will be the cost of labour for the sixteenth unit produced as an approximate percentage of the cost of the first unit produced?
(A) 51.2%
(B) 40.96%
(C) 62%
(D) None of these

3 – A company determines its selling price by marking up variable costs 60%. In addition, the company uses frequent selling price mark down to stimulate sales. If the mark down average 10%, what is the company’s contribution margin ratio?
(A) 30.6%
(B) 44%
(C) 86.4%
(D) None of these

4 – B Ltd. Has earned net profit of ₹1 lakh, and its overall P/V ratio and margin of safety are 25% and 50% respectively. What is the total fixed cost of the company?
(A) ₹2,50,000
(B) ₹2,00,000
(C) ₹3,00,000
(D) ₹1,00,000

5 – If the time taken to produce the first unit of a product is 4000 hrs, what will be the total time taken to produce the 5th to 8th unit of the product, when a 90% learning curve applies?
10,500 hours
12,968 hours
9,560 hours
10,368 hours

6 – A company has forecast sales and cost of sales for the coming year as ₹25 lakhs and ₹18 lakhs respectively. The inventory turnover has been taken as 9 times per year. In case the inventory turnover increases to 12 times and the short term interest rate on working capital is taken as 10%, what will be saving in cost?
(A) ₹10,000
(B) ₹20,000
(C) ₹15,000
(D) ₹5,000

7 – Which of the following would decrease unit contribution margin the most?
15% decrease in selling price
15% increase in variable costs
15% decrease in variable costs
15% decrease in fixed costs

8 – A company produces two joint products, P and V. In a year, further processing costs beyond split-off point spent were ₹8,000 and ₹12,000 for 800 units of P and 400 units of V respectively. P sells at ₹25 and V sells at ₹50 per unit. A sum of ₹9,000 of joint cost were allocated to product P based on the net realization method. What were the total joint cost in the year?
(A) ₹20,000
(B) ₹10,000
(C) ₹15,000
(D) None of these

9 – Nulook Ltd. Uses a JIT system and back flush accounting. It does not use a raw material stock control account During May, 8000 units were produced and sold. The standard cost per unit is ₹100; this includes materials of ₹45. During May, ₹4,80,000 of conversion costs were incurred. The debit balance on cost of goods sold account for May was
(A) ₹8,00,000
(B) ₹8,40,000
(C) ₹8,80,000
(D) ₹9,20,000

10 – In calculating the life cycle costs of a product, which of the following items would be included?
A. Planning and concept design costs          B. Preliminary and detailed design costs
C. Testing costs          D. Production costs       E. Distribution costs
All of the above
D and E
B, D and E
D

11 – A Ltd., developing a new product, makes a model for testing and goes for regular production. From past experience of similar models, it is known that a 90% learning curve applies. If the time taken to make the model is 300 hours, what will be the total time taken to produce 3rd to 4th unit of the product?
540 hours
486 hours
432 hours
None of the above

12 – A particular job required 800 kgs of material – P. 500 kgs. of the particular material is currently in stock. The original price of the material – P was ₹300 but current resale value of the same has been determined as ₹200. If the current replacement price of the material – P is ₹0.80 per kg., the relevant cost of the material – P required for the job would be:
(A) ₹640
(B) ₹440
(C) ₹300
(D) None of these

13 – A company has 2000 units of an obsolete item which are carried in inventory at the original purchase price of ₹30,000. If these items are reworked for ₹10,000, they can be sold for ₹18,000. Alternatively, they can be sold as scrap for ₹3,000 in the market. In a decision model used to analyze the reworking proposal, the opportunity cost should be taken as:
(A) ₹8,000
(B) ₹12,000
(C) ₹3,000
(D) ₹10,000

14 – When allocation service department cost to production departments, the method that does not consider different cost behavior patterns is the
Step method
Reciprocal method
Single rate-method
Dual rate-method

15 – ASHLIN LTD., has developed a new product just complete the manufacture of first four units of the product. The fist unit took 2 hours to manufacture and the first four units together took 5.12 hours to produce. The Learning Curve rate is
(A) 83.50%
(B) 80.00%
(C) 75.50%
(D) None of (A), (B) or (C)

16 – A company has a capacity to make 4,00,000 units of a product. It has noted from market conditions that at a price of ₹50 per unit, it can sell 1,00,000 units but the demand would double for each ₹5 fall in the selling price. A minimum margin of 25% is required. The target cost for the company should be:
(A) ₹50
(B) ₹40
(C) ₹30
(D) ₹20

17 – A company makes components and sells internally to its subsidiary and also to external market. The external market price is ₹24 per component, which gives a contribution of 40% of sales. For external sales, variable costs include ₹1.50 per unit for distribution costs. This is, however not incurred in internal sales. There are no capacity constraints. To maximize company profit, the transfer price to subsidiary should be:
(A) ₹9.60
(B) ₹12.90
(C) ₹14.40
(D) None of these

18 – SUVAM Ltd., has the capacity of production of 80,000 units and presently sells 20,000 units at ₹100 each. The demand is sensitive to selling price and it has been observed that with every reduction of ₹10 in selling price, the demand is doubled. What should be the target cost at full capacity if profit margin on sale is taken as 25%?
(A) ₹67.50
(B) ₹60.00
(C) ₹45.00
(D) None of the above

19 – A company makes and sells a single product. The selling price and marginal revenue equations are:
Selling Price = ₹50 – ₹0.001X Marginal Revenue = ₹50 – ₹0.002X
Where X is the product the company makes. The variable cost amount to 20 per unit and the fixed costs are ₹1,00,000. In order to maximize the profit, the selling price should be
(A) ₹25
(B) ₹30
(C) ₹35
(D) ₹40

20 – A Company requires ₹85,00,000 in sales to meet its target net profit. Its contribution margin is 30% and the fixed costs are ₹15,00,000. What is the target net profit?
(A) ₹10,50,000
(B) ₹19,50,000
(C) ₹25,50,000
(D) ₹35,00,000

21 – In a factory where standard costing system is followed, the production department consumed 1100 kgs of a material @ ₹8 per kg for product X resulting in material price variance of ₹2200 (Fav) and material usage variance of ₹1000 (Adv). What is the standard material cost of actual production of product X?
(A) 11,000
(B) 20,000
(C) 14,000
(D) 10,000

22 – The following information relate to ABC
Activity level                          60%                80%
Variable costs (₹)                  12,000             16,000
Fixed costs (₹)                       20,000             22,000
The differential cost for 20% capacity is
(A) ₹4,000
(B) ₹2,000
(C) ₹6,000
(D) ₹5,000

23 – By making and selling 9,000 units of a product, a company makes a profit of ₹10,000, whereas in the case of 7,000 units, it would lose ₹10,000 instead. The number of units to break-even is
7,500 units
8,000 units
7,750 units
8,200 units

24 – 1200 units of microchips are required to be sold to earn a profit of ₹1,06,000 in a monopoly market. The fixed cost for the period is ₹74,000. The contribution in the monopoly market is as high as 3/4th of its variable cost. Determine the target selling price per unit.
(A) 450
(B) 325
(C) 400
(D) 350

25 – An operation has a 90% learning curve and the first unit produced took 28 minutes. The labour cost is ₹20 per hour. How much should the second unit cost?
(A) ₹9.80
(B) ₹7.60
(C) ₹8.40
(D) ₹6.60

26 – If project A has a net present value (NPV) of ₹30,00,000 and project B has an NPV of ₹50,00,000, what is the opportunity cost if project B is selected?
(A) ₹23,00,000
(B) ₹30,00,000
(C) ₹20,00,000
(D) ₹50,00,000

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