This chapter-wise practice test covers Chapter 14: Marginal Costing - Test 1 for CA Intermediate Group 2 students preparing for the January 2027 examination attempt. It carries 50 marks across 25 questions in case scenarios and standalone practical MCQs with a time limit of 60 minutes and no negative marking.
25 questions across 1 chapter, 50 marks and 60 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: ICAI Study Material for CA Intermediate Paper 4: Cost and Management Accounting (relevant for 2027 attempt).
Questions
25
Marks
50
Time limit
60 minutes
Attempt
January 2027
Group
Group 2
Law basis
ICAI Study Material for CA Intermediate Paper 4: Cost and Management Accounting (relevant for 2027 attempt)
Content as of
2026-11-10
Chapters covered
Chapter 14: Marginal Costing (25 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Vikram Precision Components Ltd. manufactures a single control valve used in industrial pumping systems. The company prepares a monthly cost-volume-profit report before accepting its production schedule. It follows a make-to-order policy, and production is equal to sales; there is no opening or closing finished-goods inventory. The relevant range is 25,000 to 50,000 saleable valves per month, within which total fixed costs remain unchanged. The practical capacity of the automated line is 50,000 saleable valves after scheduled maintenance and normal process loss. The stated direct-material cost already includes the cost of normal scrap, so no separate scrap adjustment is required. The variable dispatch commission is incurred only on units sold.
Monthly operating data:
| Particulars | Amount |
| Selling price per valve | ₹250 |
| Direct materials per saleable valve | ₹72 |
| Direct labour per saleable valve | ₹34 |
| Variable factory overhead per saleable valve | ₹20 |
| Variable dispatch commission per unit sold | ₹14 |
| Fixed manufacturing expenses | ₹24,75,000 (includes depreciation of ₹9,90,000) |
| Fixed selling and administration expenses | ₹14,85,000 (all cash) |
| Forecast monthly sales | 40,000 valves |
The machine requires 1.25 hours for each saleable valve and has 62,500 practical machine hours available per month. The factory manager confirms that all fixed manufacturing and fixed selling/administration expenses are unavoidable for the month, regardless of the number of units sold within the relevant range. For the board report, management wants the contribution-based break-even level, the cash break-even level after excluding non-cash depreciation, and the sales volume required to earn a specified monthly profit. Ignore income tax and assume selling price and unit variable costs remain constant throughout the relevant range.
What is the P/V ratio of Vikram Precision Components Ltd. for the month?
44% (correct answer)
49.6%
52%
40%
Answer: A — 44%
Explanation. Variable cost per valve = ₹72 + ₹34 + ₹20 + ₹14 = ₹140. Contribution per valve = ₹250 − ₹140 = ₹110. Therefore, P/V ratio = ₹110 ÷ ₹250 × 100 = 44%. Fixed costs are not deducted in computing this ratio. Option b omits the variable dispatch commission, while option c omits variable factory overhead; both errors understate total variable cost and inflate the P/V ratio. The ratio must include every variable cost, whether manufacturing or non-manufacturing.
Where it goes wrong. Omitting variable selling and distribution cost while calculating contribution.
Question 3 · 2 marks · Chapter 14: Marginal Costing · medium
What is the cash break-even sales quantity after excluding depreciation from fixed costs?
22,500 valves
27,000 valves (correct answer)
36,000 valves
31,500 valves
Answer: B — 27,000 valves
Explanation. Total fixed cost is ₹39,60,000, of which depreciation of ₹9,90,000 is non-cash. Cash fixed cost = ₹39,60,000 − ₹9,90,000 = ₹29,70,000. Contribution per valve remains ₹110. Cash break-even quantity = ₹29,70,000 ÷ ₹110 = 27,000 valves. Option c wrongly retains depreciation and reproduces the ordinary break-even quantity. Option a equals fixed manufacturing expenses of ₹24,75,000 divided by ₹110, which omits the fixed selling and administration expenses entirely.
Where it goes wrong. Omitting fixed selling and administration expenses from cash fixed costs.
Question 4 · 2 marks · Chapter 14: Marginal Costing · hard
How many valves must Vikram Precision Components Ltd. sell to earn a monthly profit of ₹13,20,000?
42,000 valves
45,000 valves
47,000 valves
48,000 valves (correct answer)
Answer: D — 48,000 valves
Explanation. Required contribution = Fixed cost + Desired profit = ₹39,60,000 + ₹13,20,000 = ₹52,80,000. Contribution per valve is ₹110. Required sales quantity = ₹52,80,000 ÷ ₹110 = 48,000 valves. This is within the practical capacity of 50,000 valves. Option c is close but results from an incorrect contribution per unit; option a does not provide enough contribution to cover both fixed cost and target profit.
Where it goes wrong. Adding target profit to fixed cost correctly but dividing by an incorrect contribution per unit.
Question 5 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Apex Polychem Ltd. manufactures two grades of industrial polymer containers, Product P and Product Q. Both products use the same production hall and share common monthly fixed factory and administration costs. Management expects the sales mix to remain constant because distributor contracts specify the relative quantities of the two grades. One composite sales package for planning purposes consists of 3 units of P and 2 units of Q. All output is sold in the month of production, and there are no product-specific fixed costs or inventory movements.
Product and cost data:
| Particulars | Product P | Product Q |
| Selling price per unit | ₹400 | ₹600 |
| Variable manufacturing cost per unit | ₹225 | ₹350 |
| Variable selling and distribution per unit | ₹25 | ₹40 |
| Total variable cost per unit | ₹250 | ₹390 |
| Machine hours per unit | 2 hours | 3 hours |
The common fixed cost for the month is ₹52,20,000. Practical machine capacity is 96,000 hours, and confirmed demand at the stated mix is sufficient for up to 8,000 composite packages. The production plan is 8,000 packages, comprising 24,000 units of P and 16,000 units of Q; this plan uses the full 96,000 machine hours. For CVP purposes, management treats the 3:2 quantity mix as stable at all sales levels under review. Selling prices, variable costs per unit and common fixed costs are assumed constant within the relevant range. The finance controller wants a composite P/V ratio, the aggregate and product-wise break-even quantities, the break-even sales value attributable to Product Q, and the profit expected at the planned monthly sales volume. No income tax or financing cost is to be considered.
What is the composite P/V ratio of Apex Polychem Ltd. at the stipulated 3:2 quantity sales mix?
36.25% (correct answer)
37.50%
35.00%
40.00%
Answer: A — 36.25%
Explanation. Contribution per unit of P = ₹400 − ₹250 = ₹150; contribution per unit of Q = ₹600 − ₹390 = ₹210. A composite package has sales value of (3 × ₹400) + (2 × ₹600) = ₹2,400 and contribution of (3 × ₹150) + (2 × ₹210) = ₹870. Composite P/V ratio = ₹870 ÷ ₹2,400 × 100 = 36.25%. Option b simply reports Product P's individual 37.5% P/V ratio, while option c reports Product Q's individual 35% ratio; neither is the weighted composite ratio.
Where it goes wrong. Averaging individual product P/V ratios without applying the stipulated quantity mix.
Question 6 · 2 marks · Chapter 14: Marginal Costing · hard
At the common break-even point, what is the aggregate number of physical units to be sold, and how is it split between P and Q?
24,000 units: 14,400 P and 9,600 Q
30,000 units: 18,000 P and 12,000 Q (correct answer)
28,000 units: 16,800 P and 11,200 Q
32,000 units: 19,200 P and 12,800 Q
Answer: B — 30,000 units: 18,000 P and 12,000 Q
Explanation. Contribution per composite package = ₹870, from the weighted quantities 3P and 2Q. Break-even packages = ₹52,20,000 ÷ ₹870 = 6,000 packages. Each package contains five physical units, so aggregate break-even quantity = 6,000 × 5 = 30,000 units. The mix gives P = 6,000 × 3 = 18,000 and Q = 6,000 × 2 = 12,000. Option a treats each composite package as four physical units rather than five; options c and d do not correspond to the 6,000-package break-even quantity.
Where it goes wrong. Confusing composite packages with physical units or failing to preserve the 3:2 mix.
Question 7 · 2 marks · Chapter 14: Marginal Costing · medium
At the common break-even point, what is the break-even sales value attributable to Product Q?
₹60,00,000
₹64,00,000
₹76,00,000
₹72,00,000 (correct answer)
Answer: D — ₹72,00,000
Explanation. The break-even volume is 6,000 composite packages, containing 12,000 units of Q. Product Q sells for ₹600 per unit. Therefore, its break-even sales value is 12,000 × ₹600 = ₹72,00,000. The total break-even sales value is ₹1,44,00,000, split equally by value between P and Q because 18,000 × ₹400 and 12,000 × ₹600 are each ₹72,00,000. Option a understates Q's break-even quantity; option c does not follow the stipulated mix.
Where it goes wrong. Applying the 3:2 quantity mix directly to sales value without using each product's selling price.
Question 8 · 2 marks · Chapter 14: Marginal Costing · hard
What monthly profit is expected at the planned sales volume of 8,000 composite packages?
₹14,40,000
₹16,80,000
₹17,40,000 (correct answer)
₹20,40,000
Answer: C — ₹17,40,000
Explanation. Contribution per composite package = ₹870. At 8,000 packages, total contribution = 8,000 × ₹870 = ₹69,60,000. Deduct common fixed cost of ₹52,20,000 to obtain profit of ₹17,40,000. The result is also consistent with sales of ₹1,92,00,000 and a composite P/V ratio of 36.25%. Option b may arise from subtracting a wrongly weighted fixed-cost amount; option d effectively overstates contribution by ignoring part of the variable cost.
Where it goes wrong. Calculating contribution for only one product or subtracting a product-level rather than common fixed cost.
Question 9 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Zenith Consumer Appliances Ltd. manufactures a compact air purifier at one facility. It has no opening or closing inventory in the months under review, and all production is sold. The monthly relevant range is 18,000 to 36,000 saleable units. The plant has 72,000 practical machine hours available, with each good unit requiring 2 machine hours. Routine normal scrap is already reflected in the standard material cost per saleable unit. Fixed monthly costs are expected to remain constant within the relevant range, and the company uses the same selling price and variable cost structure in both comparative months.
Per-unit operating data:
| Particulars | Amount |
| Selling price | ₹400 |
| Direct material | ₹150 |
| Direct labour | ₹70 |
| Variable factory overhead | ₹35 |
| Variable selling and distribution | ₹25 |
Comparative monthly results:
| Particulars | January | February |
| Units sold | 24,000 | 30,000 |
| Sales revenue | ₹96,00,000 | ₹1,20,00,000 |
| Profit | ₹7,20,000 | ₹14,40,000 |
Management is preparing the March plan at sales of 33,000 units. It is also reviewing a possible price promotion under which the selling price may be reduced by 10%, while the variable cost per unit and monthly fixed costs remain unchanged. The promotion would be considered only if the revised break-even volume remains within practical capacity. Assume a linear cost and revenue relationship, constant unit variable cost, constant fixed cost in the relevant range, and no change in sales mix because only one product is manufactured. Ignore income tax. The finance team wants the P/V ratio checked using the change-in-profit/change-in-sales method before evaluating the March margin of safety and the revised break-even threshold.
Using the comparative monthly results, what is Zenith Consumer Appliances Ltd.'s P/V ratio?
25%
12%
30% (correct answer)
35%
Answer: C — 30%
Explanation. Change in sales = ₹1,20,00,000 − ₹96,00,000 = ₹24,00,000. Change in profit = ₹14,40,000 − ₹7,20,000 = ₹7,20,000. Since fixed costs and unit cost structure are unchanged, P/V ratio = change in profit ÷ change in sales × 100 = ₹7,20,000 ÷ ₹24,00,000 × 100 = 30%. Option b is the February profit-to-sales percentage (₹14,40,000 ÷ ₹1,20,00,000), which is not the P/V ratio; option d overstates the incremental ratio.
Where it goes wrong. Using one period's profit-to-sales ratio instead of the change-in-profit/change-in-sales formula.
Question 10 · 2 marks · Chapter 14: Marginal Costing · hard
What is the break-even sales quantity for Zenith Consumer Appliances Ltd. at the existing selling price and cost structure?
15,000 units
21,600 units
24,000 units
18,000 units (correct answer)
Answer: D — 18,000 units
Explanation. Contribution per unit = ₹400 − (₹150 + ₹70 + ₹35 + ₹25) = ₹120. January contribution = 24,000 × ₹120 = ₹28,80,000. Deduct January profit of ₹7,20,000 to derive monthly fixed cost of ₹21,60,000. Break-even units = ₹21,60,000 ÷ ₹120 = 18,000 units. Option c mistakes January sales volume for break-even volume; option b treats fixed cost in rupees as a unit count.
Where it goes wrong. Treating actual sales volume as break-even volume instead of first deriving fixed cost and contribution per unit.
Question 11 · 2 marks · Chapter 14: Marginal Costing · medium
At the March plan of 33,000 units, what is the margin of safety in sales value?
₹60,00,000 (correct answer)
₹18,00,000
₹72,00,000
₹45,00,000
Answer: A — ₹60,00,000
Explanation. Break-even quantity from the same cost structure is 18,000 units. March planned sales are 33,000 units, so margin of safety = 33,000 − 18,000 = 15,000 units. At ₹400 per unit, margin of safety in sales value = 15,000 × ₹400 = ₹60,00,000. Option b is the contribution earned on the 15,000 margin-of-safety units (15,000 × ₹120), not their sales value; option c is break-even sales, not margin of safety.
Where it goes wrong. Reporting the contribution on margin-of-safety units instead of the sales value of those units.
Question 12 · 2 marks · Chapter 14: Marginal Costing · hard
If the selling price is reduced by 10% while unit variable cost and fixed costs remain unchanged, what will be the revised break-even quantity?
18,000 units
24,000 units
27,000 units (correct answer)
30,000 units
Answer: C — 27,000 units
Explanation. Revised selling price = ₹400 × 90% = ₹360. Variable cost per unit remains ₹280, so revised contribution = ₹360 − ₹280 = ₹80. Monthly fixed cost remains ₹21,60,000. Revised break-even quantity = ₹21,60,000 ÷ ₹80 = 27,000 units, which is within the 36,000-unit practical capacity. Option a retains the old contribution of ₹120; option b would require a contribution of ₹90, but the recalculated contribution is ₹80. The revised threshold must therefore be recomputed from the new price and unchanged variable cost.
Where it goes wrong. Applying the price reduction percentage to contribution instead of recalculating contribution per unit.
Question 13 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A product is sold for ₹800 per unit. Its variable costs are: direct material ₹288, direct labour ₹152, variable factory overhead ₹104 and variable selling cost ₹64 per unit. What is its P/V ratio?
A product is sold for ₹800 per unit. Its variable costs are: direct material ₹288, direct labour ₹152, variable factory overhead ₹104 and variable selling cost ₹64 per unit. What is its P/V ratio?
22%
25%
30%
24% (correct answer)
Answer: D — 24%
Explanation. Total variable cost per unit = ₹288 + ₹152 + ₹104 + ₹64 = ₹608. Contribution per unit = ₹800 − ₹608 = ₹192. P/V ratio = ₹192 ÷ ₹800 × 100 = 24%. Fixed costs, if any, would not affect this ratio. Option a overstates variable cost and therefore understates contribution; option c understates variable cost and therefore overstates contribution. All variable selling costs must be included along with variable manufacturing costs.
Where it goes wrong. Excluding variable selling cost or confusing contribution per unit with the P/V percentage.
Question 14 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A company reports sales of ₹15,00,000 and profit of ₹2,00,000 in one period, and sales of ₹25,00,000 and profit of ₹6,00,000 in another period. Fixed costs and the cost structure are unchanged. What is the break-even sales value?
A company reports sales of ₹15,00,000 and profit of ₹2,00,000 in one period, and sales of ₹25,00,000 and profit of ₹6,00,000 in another period. Fixed costs and the cost structure are unchanged. What is the break-even sales value?
₹10,00,000 (correct answer)
₹12,50,000
₹15,00,000
₹8,00,000
Answer: A — ₹10,00,000
Explanation. P/V ratio = change in profit ÷ change in sales = (₹6,00,000 − ₹2,00,000) ÷ (₹25,00,000 − ₹15,00,000) = ₹4,00,000 ÷ ₹10,00,000 = 40%. At sales of ₹15,00,000, contribution is ₹6,00,000; fixed cost is therefore ₹6,00,000 − ₹2,00,000 = ₹4,00,000. Break-even sales = ₹4,00,000 ÷ 40% = ₹10,00,000. Option b confuses the first-period sales with a break-even estimate.
Where it goes wrong. Using the profit-to-sales ratio for a single period instead of the incremental P/V ratio.
Question 15 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A business earns a profit of ₹3,75,000 and has a P/V ratio of 25%. What is its margin of safety in sales value?
A business earns a profit of ₹3,75,000 and has a P/V ratio of 25%. What is its margin of safety in sales value?
₹10,00,000
₹15,00,000 (correct answer)
₹12,50,000
₹18,75,000
Answer: B — ₹15,00,000
Explanation. Margin of safety in sales value = Profit ÷ P/V ratio = ₹3,75,000 ÷ 25% = ₹15,00,000. This follows because contribution earned on sales above break-even equals profit. Option a results from using 37.5% as the ratio; option c may result from treating 30% as the P/V ratio. The margin of safety is not the profit itself and should be expressed as a sales value when this formula is used.
Where it goes wrong. Multiplying profit by the P/V ratio instead of dividing profit by the P/V ratio.
Question 16 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A product sells for ₹750 per unit and has a variable cost of ₹450 per unit. Fixed costs are ₹18,00,000. What quantity must be sold to earn a target profit of ₹9,00,000?
A product sells for ₹750 per unit and has a variable cost of ₹450 per unit. Fixed costs are ₹18,00,000. What quantity must be sold to earn a target profit of ₹9,00,000?
7,500 units
8,000 units
9,000 units (correct answer)
10,000 units
Answer: C — 9,000 units
Explanation. Contribution per unit = ₹750 − ₹450 = ₹300. Required total contribution = fixed cost + target profit = ₹18,00,000 + ₹9,00,000 = ₹27,00,000. Required sales quantity = ₹27,00,000 ÷ ₹300 = 9,000 units. The corresponding sales value is 9,000 × ₹750 = ₹67,50,000. Option b covers fixed cost but not the full target profit; option d adds an excessive unit allowance.
Where it goes wrong. Calculating only the break-even quantity and failing to add the contribution required for target profit.
Question 17 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A product currently sells for ₹500 per unit and has variable cost of ₹320 per unit. Fixed cost is ₹14,40,000. For the next period, selling price is increased by 8%, variable cost rises by ₹40 per unit, and fixed cost increases by ₹1,44,000. What is the revised break-even quantity?
A product currently sells for ₹500 per unit and has variable cost of ₹320 per unit. Fixed cost is ₹14,40,000. For the next period, selling price is increased by 8%, variable cost rises by ₹40 per unit, and fixed cost increases by ₹1,44,000. What is the revised break-even quantity?
8,000 units
8,400 units
9,600 units
8,800 units (correct answer)
Answer: D — 8,800 units
Explanation. Revised selling price = ₹500 × 108% = ₹540. Revised variable cost = ₹320 + ₹40 = ₹360; revised contribution = ₹180 per unit. Revised fixed cost = ₹14,40,000 + ₹1,44,000 = ₹15,84,000. Revised break-even quantity = ₹15,84,000 ÷ ₹180 = 8,800 units. Option a uses the original fixed cost and ignores its increase; option c is consistent with an incorrectly understated contribution after the price and variable-cost revisions.
Where it goes wrong. Updating only one or two of the three changed CVP inputs rather than recalculating each specified alternative individually.
Question 18 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A company sells 500 units at ₹100 each; variable cost is ₹60 per unit. The selling price is reduced by 20%, with variable cost per unit unchanged. By what percentage must sales value increase to maintain the same total contribution as before the price reduction?
A company sells 500 units at ₹100 each; variable cost is ₹60 per unit. The selling price is reduced by 20%, with variable cost per unit unchanged. By what percentage must sales value increase to maintain the same total contribution as before the price reduction?
60% (correct answer)
full
50%
40%
Answer: A — 60%
Explanation. Original contribution per unit = ₹100 − ₹60 = ₹40; at 500 units, total contribution is ₹20,000. Revised selling price = ₹80 and revised contribution per unit = ₹80 − ₹60 = ₹20. To retain ₹20,000 contribution, 1,000 units must be sold. Original sales value is 500 × ₹100 = ₹50,000; revised sales value is 1,000 × ₹80 = ₹80,000, an increase of 60%. Option b confuses the quantity increase with the sales-value increase.
Where it goes wrong. Assuming that the required percentage increase in quantity is also the percentage increase in sales value.
Question 19 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A company sells a product for ₹120 per unit. Variable cost is ₹72 per unit and total fixed cost is ₹9,60,000. What is the break-even quantity?
A company sells a product for ₹120 per unit. Variable cost is ₹72 per unit and total fixed cost is ₹9,60,000. What is the break-even quantity?
18,000 units
19,200 units
20,000 units (correct answer)
24,000 units
Answer: C — 20,000 units
Explanation. Contribution per unit = ₹120 − ₹72 = ₹48. Break-even quantity = fixed cost ÷ contribution per unit = ₹9,60,000 ÷ ₹48 = 20,000 units. The corresponding break-even sales value is 20,000 × ₹120 = ₹24,00,000. Option d is the break-even sales value incorrectly presented as a number of units; option b divides by an incorrect contribution of ₹50.
Where it goes wrong. Confusing break-even sales value with break-even units.
Question 20 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. Products A and B have P/V ratios of 35% and 50%, respectively. Their planned sales mix is 60:40 by sales value. What is the composite P/V ratio?
Products A and B have P/V ratios of 35% and 50%, respectively. Their planned sales mix is 60:40 by sales value. What is the composite P/V ratio?
37%
41% (correct answer)
42.5%
44%
Answer: B — 41%
Explanation. For a sales-value mix, weight each product's P/V ratio by its share of total sales value. Composite P/V ratio = (35% × 60%) + (50% × 40%) = 21% + 20% = 41%. Option a may be obtained by applying the mix weights to the wrong products; option c is the simple unweighted average of 35% and 50% (42.5%), which ignores the 60:40 sales-value weights. The 60:40 weights are value shares, not unit shares, so they must be applied directly to the ratios as stated.
Where it goes wrong. Using an unweighted average or treating a sales-value mix as a quantity mix.
Question 21 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Products A and B have P/V ratios of 35% and 40%, respectively. Their sales-value mix is 3:2 and common fixed costs are ₹14,80,000. What is Product B's break-even sales value?
Products A and B have P/V ratios of 35% and 40%, respectively. Their sales-value mix is 3:2 and common fixed costs are ₹14,80,000. What is Product B's break-even sales value?
₹12,00,000
₹14,00,000
₹15,00,000
₹16,00,000 (correct answer)
Answer: D — ₹16,00,000
Explanation. Composite P/V ratio = (35% × 3/5) + (40% × 2/5) = 21% + 16% = 37%. Total break-even sales = ₹14,80,000 ÷ 37% = ₹40,00,000. Product B represents 2/5 of sales value, so its break-even sales value = ₹40,00,000 × 2/5 = ₹16,00,000. Option c incorrectly uses a 37.5% composite ratio; option b applies the quantity mix to the wrong denominator.
Where it goes wrong. Finding total break-even sales correctly but allocating it using the wrong sales-mix weight.
Question 22 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A company sells three products in a constant quantity mix of A:B:C = 2:3:1. Selling prices per unit are ₹100, ₹150 and ₹200, while variable costs are ₹60, ₹90 and ₹140, respectively. Common fixed costs are ₹9,60,000. What is the aggregate break-even quantity, with the product-wise mix?
A company sells three products in a constant quantity mix of A:B:C = 2:3:1. Selling prices per unit are ₹100, ₹150 and ₹200, while variable costs are ₹60, ₹90 and ₹140, respectively. Common fixed costs are ₹9,60,000. What is the aggregate break-even quantity, with the product-wise mix?
18,000 units: 6,000 A, 9,000 B and 3,000 C (correct answer)
15,000 units: 5,000 A, 7,500 B and 2,500 C
20,000 units: 6,000 A, 10,000 B and 4,000 C
24,000 units: 8,000 A, 12,000 B and 4,000 C
Answer: A — 18,000 units: 6,000 A, 9,000 B and 3,000 C
Explanation. Unit contributions are A ₹40, B ₹60 and C ₹60. One composite bundle of 2A, 3B and 1C contributes (2 × ₹40) + (3 × ₹60) + (1 × ₹60) = ₹320. Break-even bundles = ₹9,60,000 ÷ ₹320 = 3,000. Each bundle contains six units, giving 18,000 units in total: 6,000 A, 9,000 B and 3,000 C. Option b understates the package count; options c and d do not satisfy the common fixed-cost recovery calculation.
Where it goes wrong. Using a simple average contribution per unit instead of contribution per composite bundle.
Question 23 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A company has total fixed costs of ₹18,00,000, including depreciation of ₹4,50,000 and amortisation of ₹1,50,000. The product's contribution is ₹80 per unit. What is the cash break-even quantity?
A company has total fixed costs of ₹18,00,000, including depreciation of ₹4,50,000 and amortisation of ₹1,50,000. The product's contribution is ₹80 per unit. What is the cash break-even quantity?
16,875 units
13,500 units
15,000 units (correct answer)
18,000 units
Answer: C — 15,000 units
Explanation. Cash fixed costs exclude the two non-cash charges. Cash fixed costs = ₹18,00,000 − ₹4,50,000 − ₹1,50,000 = ₹12,00,000. Cash break-even quantity = ₹12,00,000 ÷ ₹80 = 15,000 units. Option d uses total fixed costs and gives ordinary break-even units; option a excludes depreciation but wrongly retains amortisation, producing ₹13,50,000 ÷ ₹80 = 16,875 units. Both non-cash items must be removed for the cash break-even calculation.
Where it goes wrong. Removing depreciation but overlooking another non-cash fixed charge.
Question 24 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A manufacturer sells 25,000 units at ₹320 per unit. Variable cost is ₹212 per unit and fixed costs are ₹18,90,000. What is the period profit under marginal costing?
A manufacturer sells 25,000 units at ₹320 per unit. Variable cost is ₹212 per unit and fixed costs are ₹18,90,000. What is the period profit under marginal costing?
₹6,30,000
₹8,10,000 (correct answer)
₹9,00,000
₹10,80,000
Answer: B — ₹8,10,000
Explanation. Contribution per unit = ₹320 − ₹212 = ₹108. Total contribution = 25,000 × ₹108 = ₹27,00,000. Profit = contribution − fixed cost = ₹27,00,000 − ₹18,90,000 = ₹8,10,000. This applies the marginal cost equation: Sales − Variable Cost = Contribution, and Contribution − Fixed Cost = Profit. Option c incorrectly subtracts only ₹18,00,000 of fixed cost; option d fails to deduct all variable costs before charging fixed cost against contribution.
Where it goes wrong. Subtracting fixed cost from sales instead of from contribution after deducting all variable costs.
Question 25 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. After break-even, sales of Product A and Product B each increase by ₹4,00,000. Their P/V ratios are 45% and 30%, respectively. Which statement about the angle of incidence and the additional profit is correct?
After break-even, sales of Product A and Product B each increase by ₹4,00,000. Their P/V ratios are 45% and 30%, respectively. Which statement about the angle of incidence and the additional profit is correct?
Product B has the larger angle; its additional profit is higher by ₹60,000.
Both products have the same angle; each earns additional profit of ₹1,50,000.
Product A has the larger angle; its additional profit is lower by ₹60,000.
Product A has the larger angle; its additional profit is higher by ₹60,000. (correct answer)
Answer: D — Product A has the larger angle; its additional profit is higher by ₹60,000.
Explanation. Once break-even is crossed, additional contribution becomes additional profit if fixed costs are unchanged. Product A earns ₹4,00,000 × 45% = ₹1,80,000 additional profit; Product B earns ₹4,00,000 × 30% = ₹1,20,000. Product A therefore earns ₹60,000 more. The higher P/V ratio indicates a higher rate of profit growth and a larger angle of incidence. Option c identifies the product correctly but reverses the profit difference.
Where it goes wrong. Reversing the relationship between P/V ratio, post-break-even profit growth and angle of incidence.
ICAI SM: Cost and Management Accounting, Chapter 14 (Marginal Costing)
Questions people ask
What does this Chapter 14: Marginal Costing - Test 1 practice test cover?
This practice test carries 50 marks across 25 questions covering core costing principles, cost accounting standards, formulas, mathematical models, and practical ICAI case scenarios.
How many questions are there and what is the time limit?
There are 25 questions carrying 2 marks each, giving a maximum score of 50 marks in 60 minutes with no negative marking.
Which study material and syllabus apply to these questions?
Questions strictly reflect the official ICAI Study Material for CA Intermediate Paper 4 Cost and Management Accounting for the 2027 examination sessions.
Can I sit this test in both exam and practice modes?
Yes. Practice mode gives immediate answers with mathematical step-by-step workings and trap explanations after each question. Exam mode simulates actual exam conditions with a live timer and issues a downloadable performance certificate.
