Question 1

If Fixed Cost is ?40,000 and Contribution per Unit is ?10, the Break-Even Point (in units) is:

40,000 units4,000 units10,000 units400 units

View Explanation

BEP (Units) = Fixed Cost / Contribution per Unit = 40,000 / 10 = 4,000 units.

Question 2

Profit Volume (PV) Ratio is calculated as:

Fixed Cost / SalesSales / ContributionContribution / Sales * 100Profit / Sales

View Explanation

PV Ratio indicates the rate at which profit is earned. Contribution = Sales - Variable Cost.

Question 3

"Margin of Safety" is the difference between:

Budgeted Sales and Actual Sales.Fixed Cost and Variable Cost.Actual Sales and Break-Even Sales.Total Sales and Variable Cost.

View Explanation

Margin of Safety indicates how much sales can fall before the company starts making a loss. Higher MoS means lower risk.

Question 4

When there is a "Limiting Factor" (Key Factor) like shortage of raw material, product mix decision should be based on:

Maximum Sales volume.Maximum Contribution per unit of the Limiting Factor.Maximum Contribution per Unit.Maximum Profit per Unit.

View Explanation

To maximize profit with scarce resources, a firm must prioritize products that yield the highest contribution per unit of the scarce resource (e.g., Contribution per kg of material).

Question 5

A firm should shut down its operations in the short run if the Selling Price cannot even cover:

Total Cost.Total Fixed Cost.Variable Cost.Administrative Cost.

View Explanation

In the short run, a firm can ignore fixed costs (sunk). But if revenue < variable cost, every unit sold increases the loss. Hence, the Shutdown Point is where Price = Average Variable Cost.

Question 6

Which of the following equations represents "Contribution"?

Sales - Total CostVariable Cost + ProfitSales - Fixed CostFixed Cost + Profit

View Explanation

Contribution = Sales - Variable Cost. Alternatively, Contribution = Fixed Cost + Profit (since Sales - VC - FC = Profit).

Question 7

In a "Make or Buy" decision, which cost is relevant for comparison with the external purchase price?

Total Cost (Fixed + Variable).Variable (Marginal) Cost only.Fixed Cost only.Sunk Cost.

View Explanation

Fixed costs will be incurred regardless of the decision (unless specific avoidable fixed costs exist). Therefore, the relevant cost to manufacture is only the Marginal/Variable cost.

Question 8

In a Break-Even Chart, the "Angle of Incidence" indicates:

The rate at which profit is earned once the BEP is crossed.Margin of Safety.Variable Cost.Fixed Cost.

View Explanation

A wider Angle of Incidence means higher profitability (profit grows fast as sales increase). A narrow angle suggests low profitability.

Question 9

The "Cost Indifference Point" is the level of output where:

Profit is maximum.Total Sales equal Total Cost.The Total Costs of two alternatives are equal.Total Cost is minimum.

View Explanation

The Cost Indifference Point is the volume of production at which total costs under two different methods (e.g., Machine A vs Machine B) are identical. Below this point, the option with lower fixed cost is preferred; above it, the option with lower variable cost is preferred.

Question 10

Which of the following will INCREASE the Profit Volume (P/V) Ratio?

Decrease in Selling Price per unit.Increase in Fixed Cost.Decrease in Variable Cost per unit.Increase in Variable Cost per unit.

View Explanation

P/V Ratio = (Sales - Variable Cost) / Sales. Reducing the Variable Cost increases the Contribution margin, thereby increasing the P/V Ratio. Fixed costs do not affect P/V ratio.

Question 11

To calculate the Sales volume required to achieve a "Target Profit", the formula is:

Fixed Cost / PV Ratio(Fixed Cost + Target Profit) / PV RatioTarget Profit / PV Ratio(Fixed Cost - Target Profit) / PV Ratio

View Explanation

Contribution must cover both Fixed Cost and the desired Target Profit. Dividing the total required Contribution (FC + Profit) by the PV ratio gives the required Sales volume.

Question 12

The sum of the P/V Ratio and the Variable Cost Ratio is always equal to:

1 (or 100%)ProfitFixed Cost0

View Explanation

Sales = Variable Cost + Contribution. Dividing by Sales: 1 = (VC/Sales) + (Contribution/Sales). Thus, VC Ratio + P/V Ratio = 1.

Question 13

If the Fixed Cost increases while Variable Cost per unit and Selling Price remain constant, the Break-Even Point will:

Decrease.Increase.Become zero.Remain unchanged.

View Explanation

BEP = Fixed Cost / Contribution per unit. Since the numerator (Fixed Cost) increases and the denominator (Contribution) stays same, the BEP increases (you need to sell more to cover higher fixed costs).

Question 14

If Sales are ?1,00,000, Profit is ?10,000, and Fixed Cost is ?30,000, what is the P/V Ratio?

10%30%25%40%

View Explanation

Contribution = Fixed Cost + Profit = 30,000 + 10,000 = 40,000. P/V Ratio = (Contribution / Sales) * 100 = (40,000 / 1,00,000) * 100 = 40%.

Question 15

If Margin of Safety is 20% and P/V Ratio is 40%, the Profit percentage on Sales is:

20%40%60%8%

View Explanation

Profit % = Margin of Safety % * P/V Ratio. 20% * 40% = 0.20 * 0.40 = 0.08 or 8%.

Question 16

A business is making a loss. To reach the Break-Even Point, it must:

Increase Variable Costs.Decrease Fixed Costs or Increase Sales.Decrease Selling Price.Increase Contribution equal to the Loss amount.

View Explanation

To stop loss (reach BEP), revenue must cover total costs. This can be done by increasing sales volume/price or reducing costs (Fixed or Variable).

JAIIB Quiz

Quiz Finished!