This chapter-wise practice test covers Chapter 14: Marginal Costing - Test 2 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. Kaveri Alloy Castings Ltd. manufactures precision-engineered industrial pump housings for domestic and export customers. The company operates a single production line and prepares monthly break-even reports for its management. The normal process scrap rate is 2%, and the standard material cost per saleable unit already incorporates this normal loss. There is no abnormal wastage during the month. All production is made against confirmed orders, and there is no opening or closing inventory.
The following information relates to November 2026:
| Particulars | Amount |
| Selling price per housing | ₹600 |
| Direct material per saleable unit | ₹190 |
| Direct labour per unit | ₹110 |
| Variable factory overhead per unit | ₹70 |
| Variable selling commission per unit | ₹30 |
| Fixed manufacturing expenses | ₹21,60,000 |
| Included depreciation | ₹3,60,000 |
| Fixed administration and selling expenses | ₹14,40,000 |
| Forecast sales | 27,000 units |
The fixed administration and selling expenses are entirely cash expenses. Manufacturing depreciation is non-cash. All other fixed expenses are payable during the month. The relevant production range extends from 10,000 to 30,000 saleable units. Practical machine capacity is 42,000 machine hours, with each saleable housing requiring 1.4 machine hours. The forecast production schedule is therefore within available capacity.
Management wants to establish the ordinary break-even point and the cash break-even point separately, as well as assess the margin of safety at the forecast sales level. The finance department has been instructed to treat all variable manufacturing and selling costs as relevant variable costs. Selling price, unit variable cost and total fixed costs remain constant throughout the relevant range. Income tax and financing costs are to be ignored.
What is the ordinary break-even point of Kaveri Alloy Castings Ltd. in physical units and monetary value?
16,200 units; ₹97,20,000
18,000 units; ₹1,08,00,000 (correct answer)
18,000 units; ₹1,44,00,000
20,000 units; ₹1,20,00,000
Answer: B — 18,000 units; ₹1,08,00,000
Explanation. Total variable cost per unit = ₹190 + ₹110 + ₹70 + ₹30 = ₹400. Contribution per unit = ₹600 − ₹400 = ₹200. Total fixed expenses = ₹21,60,000 + ₹14,40,000 = ₹36,00,000. BEP = ₹36,00,000 ÷ ₹200 = 18,000 units. Break-even sales value = 18,000 × ₹600 = ₹1,08,00,000. Option a incorrectly excludes depreciation from ordinary fixed cost, while option c multiplies the correct quantity by an incorrect selling price.
Where it goes wrong. Excluding non-cash depreciation while computing ordinary BEP instead of only excluding it for cash BEP.
Question 2 · 2 marks · Chapter 14: Marginal Costing · hard
What is the cash break-even point of the company in units and sales value?
18,000 units; ₹1,08,00,000
15,000 units; ₹90,00,000
17,000 units; ₹1,02,00,000
16,200 units; ₹97,20,000 (correct answer)
Answer: D — 16,200 units; ₹97,20,000
Explanation. Total fixed expenses are ₹36,00,000. Depreciation of ₹3,60,000 is non-cash, so cash fixed expenses = ₹36,00,000 − ₹3,60,000 = ₹32,40,000. Contribution per unit remains ₹200. Cash BEP = ₹32,40,000 ÷ ₹200 = 16,200 units. Cash break-even sales value = 16,200 × ₹600 = ₹97,20,000. Option a retains depreciation, while option b wrongly removes the entire fixed manufacturing expense instead of only its non-cash component.
Where it goes wrong. Deducting all manufacturing fixed expenses instead of excluding only depreciation from total fixed expenses.
Question 3 · 2 marks · Chapter 14: Marginal Costing · medium
At the forecast sales level of 27,000 units, what is the margin of safety in monetary terms and as a percentage of actual sales?
₹54,00,000; 33⅓% (correct answer)
₹48,00,000; 30%
₹54,00,000; 40%
₹60,00,000; 37.5%
Answer: A — ₹54,00,000; 33⅓%
Explanation. Actual sales = 27,000 × ₹600 = ₹1,62,00,000. Ordinary break-even sales are ₹1,08,00,000. Therefore, margin of safety = ₹1,62,00,000 − ₹1,08,00,000 = ₹54,00,000. MOS percentage = ₹54,00,000 ÷ ₹1,62,00,000 × 100 = 33⅓%. Profit is 27,000 × ₹200 − ₹36,00,000 = ₹18,00,000. Dividing this profit by the P/V ratio of 33⅓% also gives ₹54,00,000. Option c uses an incorrect percentage denominator.
Where it goes wrong. Calculating MOS percentage on break-even sales rather than actual sales.
Question 4 · 2 marks · Chapter 14: Marginal Costing · hard
Due to a temporary reduction in customer demand, actual sales decrease by 15% from the forecast level of 27,000 units. What profit will the company earn after this reduction?
₹7,50,000
₹8,10,000
₹9,90,000 (correct answer)
₹11,10,000
Answer: C — ₹9,90,000
Explanation. Reduced sales quantity = 27,000 × 85% = 22,950 units. Contribution per unit remains ₹200. Total contribution = 22,950 × ₹200 = ₹45,90,000. Deducting total fixed expenses of ₹36,00,000 gives profit of ₹9,90,000. The revised sales quantity is still above the break-even quantity of 18,000 units. Option a incorrectly applies the 15% reduction directly to contribution, while option d understates the fixed expenses recovered from contribution.
Where it goes wrong. Applying the percentage reduction to profit or contribution rather than recalculating the revised sales quantity.
Question 5 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Pioneer Multi-Metals Ltd. manufactures three grades of industrial components, identified as Products A, B and C. All three products are processed in a common manufacturing facility and share common factory and administration fixed expenses. The company maintains a stable quantity-based sales mix under annual supply agreements with its distributors. For its monthly operating review, management uses one composite production package consisting of 2 units of A, 3 units of B and 1 unit of C.
The relevant product information is as follows:
| Particulars | Product A | Product B | Product C |
| Selling price per unit | ₹300 | ₹240 | ₹600 |
| Variable cost per unit | ₹180 | ₹150 | ₹360 |
| Contribution per unit | ₹120 | ₹90 | ₹240 |
| Machine hours per unit | 1.5 | 1 | 2 |
Common monthly fixed expenses amount to ₹45,00,000, including depreciation of ₹5,00,000. There are no product-specific fixed expenses. Each composite package requires 8 machine hours, and practical monthly machine capacity is 64,000 hours. The planned monthly production and sales are 8,000 composite packages, which exactly utilise the available machine capacity. Demand is sufficient to sell the entire planned production.
Normal production losses have already been incorporated into the variable cost figures. There is no opening or closing inventory, and every unit produced is sold during the month. Management requires the composite break-even point, product-wise break-even quantities and values, and the expected profit at planned sales. The sales mix will remain unchanged at every sales level considered. Assume that selling prices, variable costs and fixed costs remain constant within the relevant range and that all products contribute towards recovery of the same common fixed expenses.
What is the composite break-even point in terms of composite packages and aggregate physical units?
6,000 packages; 36,000 physical units (correct answer)
5,000 packages; 30,000 physical units
6,000 packages; 30,000 physical units
7,000 packages; 42,000 physical units
Answer: A — 6,000 packages; 36,000 physical units
Explanation. Contribution per composite package = (2 × ₹120) + (3 × ₹90) + (1 × ₹240) = ₹750. Composite break-even packages = ₹45,00,000 ÷ ₹750 = 6,000 packages. Each package contains 2 + 3 + 1 = 6 units. Therefore, aggregate physical break-even quantity = 6,000 × 6 = 36,000 units. Option c confuses contribution packages with physical units, while option b understates the required composite packages by using an incorrect weighted contribution.
Where it goes wrong. Confusing the number of composite packages with the total number of individual product units.
Question 6 · 2 marks · Chapter 14: Marginal Costing · hard
What are the break-even quantity and corresponding sales value of Product B?
12,000 units; ₹28,80,000
18,000 units; ₹36,00,000
18,000 units; ₹43,20,000 (correct answer)
24,000 units; ₹57,60,000
Answer: C — 18,000 units; ₹43,20,000
Explanation. The composite break-even volume is 6,000 packages. Each package contains 3 units of Product B. Therefore, Product B break-even quantity = 6,000 × 3 = 18,000 units. Its selling price is ₹240 per unit, giving break-even sales value of 18,000 × ₹240 = ₹43,20,000. Option b incorrectly uses ₹200 as the selling price; option a uses Product A's quantity proportion instead of Product B's stipulated quantity proportion.
Where it goes wrong. Allocating composite break-even quantity using the wrong product's quantity weight or selling price.
Question 7 · 2 marks · Chapter 14: Marginal Costing · medium
What profit will Pioneer Multi-Metals Ltd. earn at its planned monthly sales volume of 8,000 composite packages?
₹12,00,000
₹13,50,000
₹16,20,000
₹15,00,000 (correct answer)
Answer: D — ₹15,00,000
Explanation. Contribution per composite package = ₹750. Total contribution at 8,000 packages = 8,000 × ₹750 = ₹60,00,000. Common fixed expenses are ₹45,00,000. Therefore, monthly profit = ₹60,00,000 − ₹45,00,000 = ₹15,00,000. The planned output uses 8,000 × 8 = 64,000 machine hours, exactly equal to practical capacity. Option a and option b result from understating composite contribution, while option c overstates the contribution available for fixed-cost recovery.
Where it goes wrong. Multiplying the number of composite packages by an average physical-unit contribution rather than package contribution.
Question 9 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Prism Electrical Systems Ltd. manufactures two categories of industrial motors through separate production divisions, R and S. Both divisions operate within the same industrial complex but maintain independent product-level cost records. Management is comparing their profitability and the relative rate at which each division generates profits after reaching its break-even point. Both divisions have stable monthly demand, no opening or closing inventory, and their entire production is sold.
The following information relates to November 2026:
| Particulars | Division R | Division S |
| Selling price per motor | ₹800 | ₹600 |
| Direct material per unit | ₹300 | ₹240 |
| Direct labour per unit | ₹100 | ₹90 |
| Variable factory overhead per unit | ₹60 | ₹40 |
| Variable selling cost per unit | ₹20 | ₹20 |
| Total fixed expenses | ₹24,00,000 | ₹21,00,000 |
| Depreciation included in fixed expenses | ₹6,00,000 | ₹7,00,000 |
| Actual units sold | 11,250 | 14,000 |
Division R requires 1.2 machine hours per motor and has 15,000 practical machine hours available. Division S requires 0.9 machine hour per motor and has 13,500 practical machine hours available. Both divisions operate within their practical capacities. Fixed expenses are independent of sales volume within the relevant range. All variable selling and manufacturing expenses are included in the respective variable costs.
The board wants to compare the monetary break-even points, margins of safety and angles of incidence of both divisions. It also wants to understand the additional profit generated if sales increase by an equal monetary amount after the respective break-even points. For purposes of graphical comparison, identical scales are to be used for both divisions. Assume that the selling prices, unit variable costs and fixed expenses remain constant throughout the relevant range. Ignore income tax and any change in product mix.
Which division has the wider angle of incidence? Also calculate the difference in additional profit when both divisions independently increase their sales by ₹10,00,000 after reaching their respective break-even points.
Division S; Division R earns ₹50,000 less
Both divisions have equal angles and equal additional profits
Division R; additional profit is higher by ₹1,00,000
Division R; additional profit is higher by ₹50,000 (correct answer)
Answer: D — Division R; additional profit is higher by ₹50,000
Explanation. Division R contribution = ₹800 − ₹480 = ₹320; its P/V ratio is ₹320 ÷ ₹800 × 100 = 40%. Division S contribution = ₹600 − ₹390 = ₹210; its P/V ratio is 35%. A higher P/V ratio indicates a wider angle of incidence. Additional profit on ₹10,00,000 sales is ₹4,00,000 for R and ₹3,50,000 for S. Therefore, Division R earns ₹50,000 more. Option c overstates the difference by ₹50,000.
Where it goes wrong. Comparing contribution per unit instead of P/V ratios when assessing the relative angle of incidence.
Question 10 · 2 marks · Chapter 14: Marginal Costing · hard
What are the monetary break-even points of Divisions R and S, respectively?
₹60,00,000 and ₹60,00,000 (correct answer)
₹60,00,000 and ₹75,00,000
₹48,00,000 and ₹60,00,000
₹60,00,000 and ₹72,00,000
Answer: A — ₹60,00,000 and ₹60,00,000
Explanation. For Division R, contribution per unit = ₹800 − ₹480 = ₹320, giving P/V ratio = 40%. BE sales = ₹24,00,000 ÷ 40% = ₹60,00,000. For Division S, contribution = ₹600 − ₹390 = ₹210, giving P/V ratio = 35%. BE sales = ₹21,00,000 ÷ 35% = ₹60,00,000. Although the divisions have different contribution ratios and fixed expenses, their monetary break-even sales are identical. Option b incorrectly applies the same fixed-cost amount to both divisions.
Where it goes wrong. Assuming identical break-even sales merely because the selling prices or contribution per unit differ.
Question 11 · 2 marks · Chapter 14: Marginal Costing · medium
Calculate the margin of safety of Division S in monetary terms and as a percentage of actual sales.
₹24,00,000; 33⅓%
₹30,00,000; 35.71%
₹24,00,000; 28.57% (correct answer)
₹20,00,000; 23.81%
Answer: C — ₹24,00,000; 28.57%
Explanation. Actual sales of Division S = 14,000 × ₹600 = ₹84,00,000. Its break-even sales are ₹60,00,000. Therefore, MOS = ₹84,00,000 − ₹60,00,000 = ₹24,00,000. MOS percentage = ₹24,00,000 ÷ ₹84,00,000 × 100 = 28.57%. The same result follows from profit divided by P/V ratio: profit = ₹84,00,000 × 35% − ₹21,00,000 = ₹8,40,000; ₹8,40,000 ÷ 35% = ₹24,00,000.
Where it goes wrong. Using Division R's actual sales or dividing margin of safety by break-even sales rather than actual sales.
Question 12 · 2 marks · Chapter 14: Marginal Costing · hard
If each division independently increases its sales by ₹10,00,000 beyond its break-even sales, what will be the combined additional profit earned by both divisions?
₹6,00,000
₹7,50,000 (correct answer)
₹8,00,000
₹8,40,000
Answer: B — ₹7,50,000
Explanation. After break-even, additional contribution is additional profit because fixed expenses remain unchanged. Division R's additional contribution = ₹10,00,000 × 40% = ₹4,00,000. Division S's additional contribution = ₹10,00,000 × 35% = ₹3,50,000. Combined additional profit = ₹4,00,000 + ₹3,50,000 = ₹7,50,000. Option a uses an understated composite contribution ratio, while option d incorrectly uses Division R's percentage for both divisions.
Where it goes wrong. Applying one division's P/V ratio to the combined increase in sales instead of applying each division's own ratio.
Question 13 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A manufacturer reports the following results for two successive periods, with unchanged selling prices and cost structure:
| Particulars | Period I | Period II |
| Sales | ₹72,00,000 | ₹96,00,000 |
| Profit | ₹6,00,000 | ₹12,00,000 |
Determine the break-even sales and the margin of safety percentage in Period II.
A manufacturer reports the following results for two successive periods, with unchanged selling prices and cost structure:
| Particulars | Period I | Period II |
| Sales | ₹72,00,000 | ₹96,00,000 |
| Profit | ₹6,00,000 | ₹12,00,000 |
Determine the break-even sales and the margin of safety percentage in Period II.
₹60,00,000; 37.5%
₹40,00,000; 58⅓%
₹48,00,000; 50% (correct answer)
₹48,00,000; 40%
Answer: C — ₹48,00,000; 50%
Explanation. P/V ratio = change in profit ÷ change in sales = ₹6,00,000 ÷ ₹24,00,000 = 25%. Period I contribution = ₹72,00,000 × 25% = ₹18,00,000. Fixed cost = ₹18,00,000 − ₹6,00,000 = ₹12,00,000. BE sales = ₹12,00,000 ÷ 25% = ₹48,00,000. Period II MOS = ₹96,00,000 − ₹48,00,000 = ₹48,00,000, giving MOS percentage of 50%.
Where it goes wrong. Using the profit-to-sales ratio of one period instead of the incremental P/V ratio derived from both periods.
Question 14 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A manufacturing concern has total fixed expenses of ₹48,00,000, comprising manufacturing fixed expenses of ₹30,00,000, including depreciation of ₹6,00,000, and fixed administration and selling expenses of ₹18,00,000, including amortisation of ₹3,00,000. Its P/V ratio is 30%. What is the cash break-even sales value?
A manufacturing concern has total fixed expenses of ₹48,00,000, comprising manufacturing fixed expenses of ₹30,00,000, including depreciation of ₹6,00,000, and fixed administration and selling expenses of ₹18,00,000, including amortisation of ₹3,00,000. Its P/V ratio is 30%. What is the cash break-even sales value?
₹1,30,00,000 (correct answer)
₹1,20,00,000
₹1,40,00,000
₹1,60,00,000
Answer: A — ₹1,30,00,000
Explanation. Total non-cash fixed expenses = depreciation ₹6,00,000 + amortisation ₹3,00,000 = ₹9,00,000. Cash fixed expenses = ₹48,00,000 − ₹9,00,000 = ₹39,00,000. Cash break-even sales = Cash fixed expenses ÷ P/V ratio = ₹39,00,000 ÷ 30% = ₹1,30,00,000. Option b excludes too much fixed expense, while option c retains part of the non-cash expenditure. Both depreciation and amortisation must be excluded.
Where it goes wrong. Excluding depreciation alone while overlooking other non-cash fixed expenses.
Question 15 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A company currently sells 20,000 units at ₹500 each. Variable cost is ₹300 per unit and total fixed expenses are ₹24,00,000. Under a revised pricing policy, the selling price is reduced by 10%, resulting in a 20% increase in sales quantity. Variable cost and fixed expenses remain unchanged. What is the revised margin of safety in sales value and as a percentage of revised sales?
A company currently sells 20,000 units at ₹500 each. Variable cost is ₹300 per unit and total fixed expenses are ₹24,00,000. Under a revised pricing policy, the selling price is reduced by 10%, resulting in a 20% increase in sales quantity. Variable cost and fixed expenses remain unchanged. What is the revised margin of safety in sales value and as a percentage of revised sales?
₹36,00,000; 30%
₹32,00,000; 33⅓%
₹30,00,000; 33⅓%
₹36,00,000; 33⅓% (correct answer)
Answer: D — ₹36,00,000; 33⅓%
Explanation. Revised selling price = ₹500 × 90% = ₹450. Revised sales quantity = 20,000 × 120% = 24,000 units. Contribution per unit = ₹450 − ₹300 = ₹150. Total contribution = ₹36,00,000; profit = ₹36,00,000 − ₹24,00,000 = ₹12,00,000. Revised P/V ratio = ₹150 ÷ ₹450 = 33⅓%. MOS = ₹12,00,000 ÷ 33⅓% = ₹36,00,000. Revised sales are ₹1,08,00,000, making MOS 33⅓% of sales.
Where it goes wrong. Using the original P/V ratio or original selling price after the pricing policy has changed.
Question 16 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A company records annual sales of ₹1,50,00,000, fixed expenses of ₹36,00,000 and profit of ₹24,00,000. Determine the break-even sales and margin of safety percentage.
A company records annual sales of ₹1,50,00,000, fixed expenses of ₹36,00,000 and profit of ₹24,00,000. Determine the break-even sales and margin of safety percentage.
₹72,00,000; 52%
₹90,00,000; 40% (correct answer)
₹80,00,000; 46.67%
₹96,00,000; 36%
Answer: B — ₹90,00,000; 40%
Explanation. Contribution = Fixed expenses + Profit = ₹36,00,000 + ₹24,00,000 = ₹60,00,000. P/V ratio = ₹60,00,000 ÷ ₹1,50,00,000 × 100 = 40%. BE sales = ₹36,00,000 ÷ 40% = ₹90,00,000. MOS = ₹1,50,00,000 − ₹90,00,000 = ₹60,00,000. MOS percentage = ₹60,00,000 ÷ ₹1,50,00,000 × 100 = 40%. Options a and c result from incorrectly deriving contribution or the break-even ratio.
Where it goes wrong. Using profit alone as contribution or confusing fixed expenses with the break-even sales amount.
Question 17 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Products A and B are sold in a constant quantity mix of 3:2. Contribution per unit is ₹150 for A and ₹90 for B. Common fixed expenses amount to ₹12,60,000. Calculate the composite break-even quantity and the individual break-even quantities of A and B.
Products A and B are sold in a constant quantity mix of 3:2. Contribution per unit is ₹150 for A and ₹90 for B. Common fixed expenses amount to ₹12,60,000. Calculate the composite break-even quantity and the individual break-even quantities of A and B.
10,000 units: 6,000 A and 4,000 B (correct answer)
8,000 units: 4,800 A and 3,200 B
12,000 units: 7,200 A and 4,800 B
10,000 units: 5,000 A and 5,000 B
Answer: A — 10,000 units: 6,000 A and 4,000 B
Explanation. One composite package consists of 3A and 2B. Composite contribution = (3 × ₹150) + (2 × ₹90) = ₹630. Composite BEP = ₹12,60,000 ÷ ₹630 = 2,000 packages. Product A BEP = 2,000 × 3 = 6,000 units. Product B BEP = 2,000 × 2 = 4,000 units. Total physical BEP = 10,000 units. Option d incorrectly assumes an equal product mix; options b and c use an incorrect composite contribution.
Where it goes wrong. Applying the quantity mix as a percentage of total fixed cost instead of using composite contribution.
Question 18 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A multi-product company has Products X and Y with P/V ratios of 25% and 50%, respectively. Their sales-value mix is 60:40. Total common fixed expenses are ₹28,00,000. Determine the composite P/V ratio, total break-even sales and product-wise break-even sales values.
A multi-product company has Products X and Y with P/V ratios of 25% and 50%, respectively. Their sales-value mix is 60:40. Total common fixed expenses are ₹28,00,000. Determine the composite P/V ratio, total break-even sales and product-wise break-even sales values.
37%; ₹75,67,568; X ₹45,40,541 and Y ₹30,27,027
40%; ₹70,00,000; X ₹42,00,000 and Y ₹28,00,000
35%; ₹80,00,000; X ₹48,00,000 and Y ₹32,00,000 (correct answer)
32.5%; ₹86,15,385; X ₹51,69,231 and Y ₹34,46,154
Answer: C — 35%; ₹80,00,000; X ₹48,00,000 and Y ₹32,00,000
Explanation. Composite P/V ratio = (25% × 60%) + (50% × 40%) = 15% + 20% = 35%. Total break-even sales = ₹28,00,000 ÷ 35% = ₹80,00,000. Product X represents 60% of sales value, giving ₹80,00,000 × 60% = ₹48,00,000. Product Y represents 40%, giving ₹32,00,000. Option b uses an incorrect composite P/V ratio; an unweighted average of the individual ratios is also inappropriate.
Where it goes wrong. Using a simple average of individual P/V ratios instead of weighting them by the sales-value mix.
Question 19 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. Two divisions have P/V ratios of 32% and 45%, respectively. Both divisions generate an additional sales value of ₹16,00,000 after reaching their respective break-even points. What is the difference in additional profit and which division has the wider angle of incidence?
Two divisions have P/V ratios of 32% and 45%, respectively. Both divisions generate an additional sales value of ₹16,00,000 after reaching their respective break-even points. What is the difference in additional profit and which division has the wider angle of incidence?
First division; ₹2,08,000 higher
Second division; ₹2,08,000 higher (correct answer)
Second division; ₹1,28,000 higher
First division; ₹1,28,000 higher
Answer: B — Second division; ₹2,08,000 higher
Explanation. Additional profit of the first division = ₹16,00,000 × 32% = ₹5,12,000. Additional profit of the second division = ₹16,00,000 × 45% = ₹7,20,000. Difference = ₹7,20,000 − ₹5,12,000 = ₹2,08,000. The second division has the wider angle of incidence because its P/V ratio is higher, indicating a faster rate of profit earning after break-even. Option c understates the calculated difference.
Where it goes wrong. Reversing the relationship between P/V ratio, additional profit and the angle of incidence.
Question 20 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A product has an existing selling price of ₹200 per unit and variable cost of ₹120 per unit. Monthly fixed expenses are ₹24,00,000. Management proposes a 20% reduction in selling price without any change in variable cost or fixed expenses. What will be the revised monetary break-even point?
A product has an existing selling price of ₹200 per unit and variable cost of ₹120 per unit. Monthly fixed expenses are ₹24,00,000. Management proposes a 20% reduction in selling price without any change in variable cost or fixed expenses. What will be the revised monetary break-even point?
₹60,00,000
₹80,00,000
₹90,00,000
₹96,00,000 (correct answer)
Answer: D — ₹96,00,000
Explanation. Revised selling price = ₹200 × 80% = ₹160. Variable cost remains ₹120, so revised contribution = ₹40 per unit. Revised P/V ratio = ₹40 ÷ ₹160 × 100 = 25%. Monetary BEP = Fixed expenses ÷ P/V ratio = ₹24,00,000 ÷ 25% = ₹96,00,000. The original P/V ratio was 40%, which would give the incorrect original BE sales of ₹60,00,000. The reduced price must be reflected in the new contribution ratio.
Where it goes wrong. Continuing to use the original P/V ratio after a change in selling price.
Question 21 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A company originally sells its product for ₹500 per unit with variable cost of ₹450 per unit. Both selling price and variable cost are increased by 10%. What is the effect on its P/V ratio and angle of incidence, assuming all other conditions remain unchanged?
A company originally sells its product for ₹500 per unit with variable cost of ₹450 per unit. Both selling price and variable cost are increased by 10%. What is the effect on its P/V ratio and angle of incidence, assuming all other conditions remain unchanged?
P/V ratio remains 10%; angle of incidence remains unchanged (correct answer)
P/V ratio increases to 11%; angle becomes wider
P/V ratio decreases to 9.09%; angle becomes narrower
P/V ratio increases to 20%; angle becomes wider
Answer: A — P/V ratio remains 10%; angle of incidence remains unchanged
Explanation. Original contribution = ₹500 − ₹450 = ₹50. Original P/V ratio = ₹50 ÷ ₹500 × 100 = 10%. Revised selling price = ₹550 and revised variable cost = ₹495. Revised contribution = ₹55. Revised P/V ratio = ₹55 ÷ ₹550 × 100 = 10%. Since the ratio is unchanged, the rate of profit earning after break-even and the angle of incidence remain unchanged under the same graph scale. Options b and d incorrectly treat the increase in rupee contribution as an increase in the percentage ratio.
Where it goes wrong. Assuming that an increase in absolute contribution necessarily increases the P/V ratio.
Question 22 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. The variable cost of a company represents 70% of sales. Break-even sales occur at 60% of its practical capacity sales. If monthly fixed expenses are ₹12,60,000, determine the practical capacity sales value and profit at 75% of capacity sales.
The variable cost of a company represents 70% of sales. Break-even sales occur at 60% of its practical capacity sales. If monthly fixed expenses are ₹12,60,000, determine the practical capacity sales value and profit at 75% of capacity sales.
₹60,00,000; ₹2,70,000
₹70,00,000; ₹3,00,000
₹70,00,000; ₹3,15,000 (correct answer)
₹80,00,000; ₹3,60,000
Answer: C — ₹70,00,000; ₹3,15,000
Explanation. P/V ratio = full − 70% = 30%. Break-even sales = ₹12,60,000 ÷ 30% = ₹42,00,000. This represents 60% of practical capacity sales. Therefore, capacity sales = ₹42,00,000 ÷ 60% = ₹70,00,000. Sales at 75% capacity = ₹52,50,000. Profit = (₹52,50,000 × 30%) − ₹12,60,000 = ₹3,15,000. Option b understates the profit by incorrectly applying the break-even percentage to capacity sales.
Where it goes wrong. Applying the 75% capacity level directly to break-even sales instead of first deriving total capacity sales.
Question 23 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A company manufactures a product having a selling price of ₹200 per unit. At sales of 10,000 units, it incurs a loss of ₹2 per unit. At sales of 20,000 units, it earns a profit of ₹4 per unit. Assuming constant fixed costs and variable cost per unit, determine the break-even point in units and monetary value.
A company manufactures a product having a selling price of ₹200 per unit. At sales of 10,000 units, it incurs a loss of ₹2 per unit. At sales of 20,000 units, it earns a profit of ₹4 per unit. Assuming constant fixed costs and variable cost per unit, determine the break-even point in units and monetary value.
10,000 units; ₹20,00,000
12,000 units; ₹24,00,000 (correct answer)
15,000 units; ₹30,00,000
16,000 units; ₹32,00,000
Answer: B — 12,000 units; ₹24,00,000
Explanation. Profit at 10,000 units = −₹20,000, while profit at 20,000 units = ₹80,000. Change in profit = ₹1,00,000 and change in sales = 10,000 × ₹200 = ₹20,00,000. P/V ratio = 5%, giving contribution per unit of ₹10. Fixed expenses = contribution at 10,000 units ₹1,00,000 plus loss ₹20,000 = ₹1,20,000. BEP = ₹1,20,000 ÷ ₹10 = 12,000 units, equivalent to sales of ₹24,00,000.
Where it goes wrong. Mistaking the profit per unit figures for contribution per unit when deriving fixed costs.
Question 24 · 2 marks · Chapter 14: Marginal Costing · hard
Scenario. A business reports profit of ₹6,00,000 and a P/V ratio of 40%. Its margin of safety represents 20% of actual sales. Calculate actual sales and break-even sales value.
A business reports profit of ₹6,00,000 and a P/V ratio of 40%. Its margin of safety represents 20% of actual sales. Calculate actual sales and break-even sales value.
₹60,00,000; ₹45,00,000
₹75,00,000; ₹55,00,000
₹80,00,000; ₹65,00,000
₹75,00,000; ₹60,00,000 (correct answer)
Answer: D — ₹75,00,000; ₹60,00,000
Explanation. MOS = Profit ÷ P/V ratio = ₹6,00,000 ÷ 40% = ₹15,00,000. Since MOS is 20% of actual sales, actual sales = ₹15,00,000 ÷ 20% = ₹75,00,000. Break-even sales = Actual sales − MOS = ₹75,00,000 − ₹15,00,000 = ₹60,00,000. The result also agrees with fixed expenses of ₹60,00,000 × 40% = ₹24,00,000. Option a incorrectly treats the margin of safety as the actual sales base.
Where it goes wrong. Applying the margin-of-safety percentage to break-even sales rather than actual sales.
Question 25 · 2 marks · Chapter 14: Marginal Costing · medium
Scenario. A company reports total fixed expenses of ₹54,00,000, comprising manufacturing fixed expenses of ₹36,00,000, including depreciation of ₹4,80,000, and administration and selling fixed expenses of ₹18,00,000, including amortisation of ₹1,20,000. The selling price is ₹600 per unit and variable cost is ₹360 per unit. Calculate the cash break-even quantity and corresponding monetary sales value.
A company reports total fixed expenses of ₹54,00,000, comprising manufacturing fixed expenses of ₹36,00,000, including depreciation of ₹4,80,000, and administration and selling fixed expenses of ₹18,00,000, including amortisation of ₹1,20,000. The selling price is ₹600 per unit and variable cost is ₹360 per unit. Calculate the cash break-even quantity and corresponding monetary sales value.
18,000 units; ₹1,08,00,000
22,500 units; ₹1,35,00,000
20,000 units; ₹1,20,00,000 (correct answer)
25,000 units; ₹1,50,00,000
Answer: C — 20,000 units; ₹1,20,00,000
Explanation. Total non-cash fixed expenses = ₹4,80,000 + ₹1,20,000 = ₹6,00,000. Cash fixed expenses = ₹54,00,000 − ₹6,00,000 = ₹48,00,000. Contribution per unit = ₹600 − ₹360 = ₹240. Cash BEP quantity = ₹48,00,000 ÷ ₹240 = 20,000 units. Cash break-even sales value = 20,000 × ₹600 = ₹1,20,00,000. Option a excludes additional fixed expenses incorrectly, while option d uses an overstated cash fixed-cost figure.
Where it goes wrong. Retaining depreciation or amortisation while computing cash break-even quantity.
ICAI SM: Cost and Management Accounting, Chapter 14 (Marginal Costing)
Questions people ask
What does this Chapter 14: Marginal Costing - Test 2 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.
