MCQs of Mng. Ac.pdf

Tejas Gaydhane Sir
Mob. 9921586168
Gondwana University Gadchiroli Syllabus
B.Com. IInd Year (IVth Sem.)
Sub. - Management Accounting
Multiple Choice Questions (MCQs)
with answers
- Prof. Tejas Y. Gaydhane

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Gondwana University Syllabus
Sub. - Management Accounting
Unit 1 – Management A/c & Business Budgeting
MCQs with answers
Fundamentals Of Management Accounting
1. The term management accounting was first coined in
a) 1960
b) 1950
c) 1945
d) 1955
ANSWER: b) 1950
2. Management accounting is
A) Subjective
B) Objective
a) Only A
b) Only B
c) Both A and B
d) None of the above
ANSWER: a) Only A
3. The use of management accounting is
a) Optional
b) Compulsory
c) Legally obligatory
d) Compulsory to some and optional to others
ANSWER: a) Optional

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4. The management accounting can be stated an extension of
A) Cost Accounting
B) Financial Accounting
C) Responsibility Accounting
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
ANSWER: d) A, B, C
5. Which of the following is true about management accounting?
A) Management accounting is associated with presentation of accounting data.
B) Management accounting is extremely sensitive to investors needs.
a) Only A
b) Only B
c) Both A and B
ANSWER: a) Only A
6. Management accounting assists the management
a) Only in control
b) Only in direction
c) Only in planning
d) In planning, direction and control
ANSWER: d) In planning, direction and control
7. Which of the following are tools of management accounting?
A) Decision accounting

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B) Standard costing
C) Budgetary control
D) Human Resources Accounting
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
ANSWER: c) A, B and C
8. Management accounting is related with
a) The problem of choice making
b) Recording of transactions
c) Cause and effect relationships
a) A and B
b) B and C
c) A and C
d) All are false
ANSWER: c) a and c
9. Management accountancy is a structure for
a) Costing
b) Accounting
c) Decision making
d) Management
Ans. C
10. Who coined the concept of management accounting?
a) R.N Anthony
b) James H. Bliss
c) J. Batty
d) American Accounting Association
ANSWER: b) James H. Bliss

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11. Which of the following statements are false about management accounting?
A) Management accounting is concerned with historical events.
B) Management accounting is related only with such instances which can be expressed in
monetary terms.
C) Management accounting is a part of Financial Management
D) Management accounting information can be disclosed to outsiders.
a) A, B & D
b) A, C & D
c) A,B & C
d) A, B,C,D
ANSWER:
12. Management accounting deals with
a) Quantitative information
b) Qualitative information
c) Both a and b
ANSWER: c) Both a and b
13. Management accounting highlights staff relationship with top management as well as other
personnel.
a) True
b) False
ANSWER: b) False
14. The definition ‘Management Accounting is the presentation of accounting information in such a
way as to assist management in the creation of policy and the day-to-day operation of an
undertaking.’
a) Ango-American Council on Productivity
b) AICPA
c) Robert N. Anthony
d) All of the above

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ANSWER: a) Ango-American Council on Productivity
Business Budgeting
1) The cost of material at 50% capacity is Rs 8,000 and budget is to be prepared at 60%, 90% and 100% of
normal capacity. The cost of material at 60% and 90% capacity will be
a. Rs 9600 and Rs 14,400
b. Rs 14,400 and Rs 16,000
c. Rs 9600 and Rs 16,000
d. None of the above
ANSWER: Rs 9600 and Rs 14,400
2) If variable and fixed costs at 60% capacity are Rs 12,000 and Rs 9,000 respectively, total cost at 80%
capacity will be
a. Rs 25,000
b. Rs 28,000
c. Rs 24,000
ANSWER: Rs 25,000
3) If indirect material at 80% capacity (800 units) is Rs 248, of which variable component is Rs 0.06 per unit,
then the amount of indirect material at 100% capacity would be
a. Rs 260
b. Rs 600
c. Rs 310
Answer Rs. 260
4) At 50% capacity expenses are Rs 10,000, which increase by 10% between 60% and 80% level of activity
and 20% thereafter. These are
a. Variable expenses
b. Semi-variable expenses
c. Both a and b

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ANSWER: Semi-variable expenses
5) Production at 60% capacity 600 units, Materials cost Rs 100 per unit, Labour at Rs 40 per unit and
expenses at Rs 10 per unit. Factory expenses are Rs 40,000 (Fixed 40%) and Administration expenses Rs
30,000 (Fixed 60%). What is cost per unit at 60% and 80% capacity?
a. Rs 266.67 and Rs 252.50
b. Rs 252.50 and Rs 244
c. Rs 266.67 and Rs 244
ANSWER: Rs 266.67 and Rs 252.50
6) While preparing a flexible budget, direct material, direct labour and direct expenses all are placed under
the head of variable cost.
a. True
b. False
ANSWER: True
7) Semi-variable cost will not be zero, even if production is nil.
a. True
b. False
ANSWER: True
8) If semi-variable cost at 60% level of production is Rs 40,000 and at 80% level is Rs 44,000. What will it be
at 100% level of production?
a. Rs 40,000
b. Rs 42,000
c. Rs 44,000
d. Rs 48,000
ANSWER: Rs 48,000
9) The total costs at 60% and 70% of activity are Rs 28,290 and Rs 30,348 respectively. Production at 60%

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level is 720 units and selling price is Rs 38 per unit. Determine Profit and Loss at 80% activity level.
a. Rs 6,576
b. Rs 4,074
c. Rs 9,078
ANSWER: Rs 4,074
10) Semi-variable expenses increases with the increase in the level of activity,
a. In the same proportion as the activity increases
b. Not in the same proportion as the activity increases
c. In inverse proportion of activity increase
ANSWER: In the same proportion as the activity increases
11) Variable cost is also known as
a. Direct cost
b. Proportionate cost
c. Both a and b
ANSWER: Both a and b
12) In order to prepare a flexible budget, items of anticipated expenditures are classified into
_______ classes.
a. Five
b. Three
c. Two
ANSWER: Three
13) Flexible budget is used when
a. Demand remains static even when there is change in taste and fashion of customers
b. When the business unit is new
c. Whenever there is change of activity due to change in government policies
d. All of the above
ANSWER: All of the above

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14) Flexible budgeting is used when the supply of material and labor required for production is
_____.
a. Uncertain
b. Certain
c. Either a or b
ANSWER: Uncertain
15) Which of the following statements are true flexible budget?
a. On the basis of fixed budget, marginal analysis can be obtained
b. Flexible budget is important for cost reduction and cost control
c. Fixed budgetary system is more flexible than flexible budgetary system
ANSWER: Flexible budget is important for cost reduction and cost control
16) In _________ actual performance can easily be compared due to availability of budgets at
different levels of activity.
a. Fixed budget
b. Flexible budget
c. Both a and b
ANSWER: Flexible budget
17) Flexible budget is also known as
a. Sliding scale budget
b. Dynamic budget
c. Both a and b
ANSWER: Sliding scale budget
18) Flexible budget is that budget which presents __________ at various levels of business
activity.
a. Costs
b. Revenues

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c. Profits
d. All of the above
19) Fixed budget is of much help in the fixation of selling price or calculation of tender price.
a. True
b. False
ANSWER: False
20) ___________ is based on assumption that the firm will carry out its activity only at a specific
level and the targets of production determined in budget will be achieved.
a. Fixed budget
b. Flexible budget
c. Both a and b
ANSWER: Fixed budget
21) In a month, payment for salary was Rs. 5,750 when the lag in payment of salary is 1/8 month. If total salaries of
current month are Rs 6,000, determine the salaries of previous month.
a. Rs 4,800
b. Rs 4,250
c. Rs 4,000
d. Rs 4,750
ANSWER: Rs 4,800
22) In a firm, the forecast of wages for month of December, January, February and March are Rs 4,800, Rs 6,000,
Rs 6,400 and Rs 6,800. The time-lag in payment of wages is 1/8 month. Determine the amount of wages payable in
each month January to March.
a. Rs 6,750, Rs 6,350 and Rs 5,850
b. Rs 5,850, Rs 6,350 and Rs 6,750
c. Rs 5,850, Rs 6,750 and Rs 6,350
ANSWER: Rs 5,850, Rs 6,350 and Rs 6,750
23) Cash budget deals with historical data whereas Cash Flow Statement deals with future data.

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a. True
b. False
ANSWER: False
24) In cash flow method for preparing cash budget, payment of dividends and prepaid payments are
a. Deducted from opening balance of cash
b. Added to opening balance of cash
c. Not included in cash budget
ANSWER: Deducted from opening balance of cash
25) As per Cash flow method Increase in current liabilities and decrease in current assets are
a. Deducted from opening balance of cash
b. Added to opening balance of cash
ANSWER: Added to opening balance of cash
26) As per Cash flow method, the amount of expected net operating cash profit during the fiscal is
a. Added to the opening balance of cash
b. Deducted from the opening balance of cash
ANSWER: Added to the opening balance of cash
27) Which of the following method is based on technique of cash flow statement?
a. Cash Accounting Period
b. Projected Balance Sheet Method
c. Project forecast method
ANSWER: Project forecast method
28) Which of the following statements are not true about Projected Balance Sheet Method?
a. It is good for long-term
b. It is appropriate for annual cash forecast

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c. It is of extreme use for planning and control
ANSWER: It is of extreme use for planning and control
29) A budgeted balance sheet is prepared in Projected Balance sheet method and an estimate is made of the
values of all assets including bank overdraft, cash balance and bank.
a. True
b. False
ANSWER: False
30) Given estimated sales in February, March, April, May and June are Rs 90,000, Rs 96,000, Rs 54,000, Rs
87,000 and Rs 63,000. In case 50% of sales are realized in the next month and balance in the next of next month,
determine cash collection from sales in April and May.
a. Rs 93,000 and Rs 75,000
b. Rs 93,000 and Rs 70,500
c. Rs 75,000 and Rs 70,500
ANSWER: Rs 93,000 and Rs 75,000
31) If in any month, the amount of payment exceeds, it will be carried forward as opening balance in the next month.
a. True
b. False
ANSWER: True
32) While preparing cash budget from Cash Accounting method, if there is no specific direction in respect of a
particular item, it is assumed that payments or receipts will take place in
a. Current month
b. Month of occurrence
c. Insufficient data to decide
ANSWER: Month of occurrence
33) The receipts or payments having time lag are not included in cash budget.
a. True

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b. False
ANSWER: False
34) While preparing cash budget from Cash Accounting method,
a. Payments and receipts related to budget period are considered
b. Payments and receipts before budget period are considered
c. Payments and receipts after budget period are considered
d. All of the above
ANSWER: Payments and receipts related to budget period are considered
35) A columnar statement is prepared in ________ in which first column shows items of payments and receipts,
whereas the other columns represents the amount of payments and receipts in each time break-up of budget period.
a. Cash Accounting method
b. Budgeted method
c. Cash flow method
ANSWER: Cash Accounting method
36) Which of the following statements are true about cash budget?
a. Cash budget and cash flow statement are same
b. Fixed expenses are not shown in cash budget
c. Actual payments and receipts are shown in cash budget
ANSWER: None of the above
37) Cash budget is a __________ budget.
a. Short-term
b. Long-term
c. Both a and b
ANSWER: Short-term

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38) Project forecast method is also known as
a. Projected Balance Sheet Method
b. Cash Flow method
c. Budgeted Method
ANSWER: Cash Flow method
39) The payment made in lieu of purchase of fixed asset is
a. Cash payment for capital transaction
b. Cash payment for non-operating expenses
c. Cash payment for business operations
ANSWER: Cash payment for capital transaction
40) The payment of income tax, dividend, interest, and donation are examples of
ANSWER: Cash payment for non-operating expenses
41) The payment of salary, wages, overheads, cash purchase and payment to creditors are form of
ANSWER: Cash payment for business operations
42) The receipts from issue of shares, issue of debentures and sale of fixed investments are
a. Receipts from Non-business operations
b. Receipts from business operations
c. Receipts from capital transactions
ANSWER: Receipts from capital transactions

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43) The receipts from dividends, refund of tax, rent, interest etc. are
ANSWER: Receipts from Non-business operations
44) The receipts from cash sales, advance from customers, collection from debtors and bills receivable
are
ANSWER: Receipts from business operations
45) Outstanding expenses and reserve for doubtful debts are shown in cash budget.
a. True
b. False
ANSWER: False
46) While preparing a cash budget the focus should be on
a. Sources of cash inflow during a particular period
b. Amount of cash to be received from cash inflow sources
c. Timing of cash inflow
d. All of the above
47) Cash budget is more helpful in those business concerns where there are
a. No seasonal fluctuations
b. Wide seasonal fluctuations
c. Rare seasonal fluctuations
d. All of the above
ANSWER: Wide seasonal fluctuations
48) Cash budget helps in the formulation of suitable dividend policy.

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a. True
b. False
ANSWER: True
49) As per S.C Kuchhal, Cash budget is a schedule to record ________ over a period with a view to
locating the timing and magnitude of cash surplus and shortage.
a. Cash inflows
b. Cash outflows
c. Both a & b
ANSWER: Both a & b

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Sub.- Management Accountiong
Unit 2 - Break-even Analysis
MCQs with answers
1. The Break-even Point of a company is that level of sales income which will equal the sum
of its fixed cost.
a) True
b) False
ANSWER: a) True
2. Which of the following are characteristics of B.E.P?
a) There is no loss and no profit to the firm.
b) Total revenue is equal to total cost.
c) Contribution is equal to fixed cost.
d) All of the above.
ANSWER: d) All of the above.
3. Which of the following are assumptions for break-even analysis?
A) Elements of cost cannot be divided in different groups.
B) Fixed cost remains certain from zero production to full capacity.
C) Behavior of different costs is linear
D) Selling per price unit remains constant.
a) A, B, C
b) B, C, D
c) A, C, D
d) A, B, D
ANSWER: b) B, C, D
4. While measuring break-even analysis, it is considered that during a specific period there

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will be no change in general price level, i.e., labor, cost of material and other overheads.
a) True
b) False
ANSWER: a) True
5. Which of the following are limitations of break-even analysis?
A) Static concept
b) Capital employed is taken into account.
c) Limitation of non-linear behavior of costs
d) Limitation of presence of perfect competition
ANSWER: A) Static concept
6. Break-even analysis is used in “Make or Buy” decision.
a) True
b) False
ANSWER: a) True
7. Using equation method, Break-even point is calculated as
a) Sales = Variable expenses + Fixed expenses + Profit
b) Sales = Variable expenses + Fixed expenses - Profit
c) Sales = Variable expenses - Fixed expenses + Profit
ANSWER: a) Sales = Variable expenses + Fixed expenses + Profit
8. Given selling price is Rs 10 per unit, variable cost is Rs 6 per unit and fixed cost is Rs 5,000. What
is break-even point?
a) 500 units
b) 1,000 units
c) 1,250 units
ANSWER: c) 1,250 units

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9. Contribution is also known as
a) Contribution margin
b) Net Margin
c) Both a and b
ANSWER: a) Contribution margin
10. Given selling price is Rs 20 per unit, variable cost is Rs 16 per unit contribution is
a) Rs 1.25 per unit
b) Rs 4 per unit
c) Rs 0.8 per unit
ANSWER: b) Rs 4 per unit
11. The term marginal cost can be used as a substitute of variable cost while measuring
Contribution.
a) True
b) False
ANSWER: a) True
12. Determine total as well as per unit contribution if Sales is Rs 40,000, Sales in units is 4,000 and
variable cost is Rs 30,000.
a) Rs 10,000 and Rs 2.5
b) Rs 70,000 and Rs 3.5
c) Rs 36,000 and Rs 3.6
ANSWER: a) Rs 10,000 and Rs 2.5
13. Determine Contribution if Sales is Rs 1,50,000 and P/V ratio is 40%.
a) Rs 60,000
b) Rs 70,000
c) Rs 30,000

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ANSWER: a) Rs 60,000
14. Determine Contribution if Fixed cost is Rs 40,000 and profit is Rs 30,000.
a) Rs 60,000
b) Rs 70,000
c) Rs 30,000
ANSWER: b) Rs 70,000
15. Determine Contribution if Fixed cost is Rs 50,000 and loss is Rs 20,000.
a) Rs 60,000
b) Rs 70,000
c) Rs 30,000
ANSWER: c) Rs 30,000
16. Contribution and profit both are same concepts.
a) True
b) False
ANSWER: b) False
17. Which of the following statements are true?
a) Contribution doesn’t include fixed cost whereas profit includes fixed cost.
b) Contribution is not based on the concept of marginal cost.
c) Contribution above breakeven point becomes profit.
d) All of the above
ANSWER: c) Contribution above breakeven point becomes profit.
18. Profit-Volume ratio is also known as
a) Contribution ratio
b) Contribution/Sales ratio
c) Marginal Income percentage

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d) All of the above
ANSWER: d) All of the above
a) P/V Ratio can never be used to measure break-even point
b) Higher the P/V ratio less will be the profit and vice versa
c) Concept of P/V ratio is also used to determine profit at a given volume of sales
d) All of the above
ANSWER: c) Concept of P/V ratio is also used to determine profit at a given volume of sales
20. The P/V ratio can be improved by
a) Decreasing the selling price per unit
b) Increasing variable cost
c) Changing the sales mix
ANSWER: c) Changing the sales mix
21. P/V ratio can be calculated on the basis of variable cost ratio as
a) 1 - Variable Cost Ratio
b) 1 + Variable Cost Ratio
c) 1/Variable Cost Ratio
ANSWER: a) 1-Variable Cost Ratio
22. Determine P/V ratio if Sales is Rs 80,000 and Variable cost is Rs 60,000.
a) 40%
b) 25%
c) 50%
ANSWER: b) 25%
23. Determine P/V ratio if Sales is Rs 1,00,000, Fixed cost is Rs 30,000 and Profit is Rs 20,000.

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a) 25%
b) 50%
c) 45%
ANSWER: b) 50%
24. Determine P/V ratio if Sales per unit is Rs 10 and Variable cost per unit is Rs 7.
a) 25%
b) 50%
c) 45%
d) 30%
ANSWER: d) 30%
25. Compute P/V ratio if variable cost ratio is 60%.
a) 40%
b) 50%
c) 45%
d) 30%
ANSWER: a) 40%
26. Given sales is Rs 2,00,000 and Rs 4,00,000 in year 2013 and 2014 respectively. Profit is Rs -
10,000 and Rs 20,000 in 2013 and 2014 respectively. Compute P/V ratio.
a) 40%
b) 30%
c) 25%
d) 50%
ANSWER: b) 30%
27. Given sales is Rs 2,00,000 and Rs 4,00,000 in year 2013 and 2014 respectively. Cost is Rs
1,40,000 and Rs 2,40,000 in 2013 and 2014 respectively. Compute P/V ratio.
a) 40%
b) 30%
c) 25%

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d) 50%
ANSWER: d) 50%
28. A company produces and sells three types of products namely X, Y and Z. Total sales per month
is Rs 60,000 in which the share of these three goods are 40%, 40% and 20% respectively. Variable
costs of these three goods are 40%, 50% and 60% respectively. Compute combined P/V ratio.
a) 40%
b) 52%
c) 25%
d) 50%
ANSWER: b) 52%
29. Profit on sales is measured as
a) Sales*P/V Ratio – Fixed cost
b) Sales*P/V Ratio + Fixed cost
c) Sales + P/V Ratio + Fixed cost
ANSWER: a) Sales*P/V Ratio – Fixed cost
30. Sales for desired profit is measured as
a) (Fixed cost + profit)/ (P/V Ratio)
b) (Fixed cost + profit) * (P/V Ratio)
c) (Fixed cost - profit)/ (P/V Ratio)
ANSWER: a) (Fixed cost + profit)/ (P/V Ratio)

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31. Breakeven point can be calculated in terms of units as well as in terms of amount.
a) True
b) False
ANSWER: a) True
a) If per unit information is given in question and no specific direction available, B.E.P should e
calculated in terms of amount as well as in units.
b) If technique of P/V ratio is to be used, B.E.P should be obtained in terms of amount.
c) B.E.P is measured as Sales-Margin of safety
d) All of the above
33. Determine B.E.P in units and amount if Units produced if Rs 10,000, Fixed cost is Rs 40,000,
Selling price is Rs 50 per unit and Variable cost us Rs 30 per unit.
a) Rs 40 per unit, Rs 2,00,000
b) Rs 50 per unit, Rs 10,00,000
c) Rs 20 per unit, Rs 1,00,000
ANSWER: c) Rs 20 per unit, Rs 1,00,000
34. Determine B.E.P if Sales is Rs 1,00,000, Variable cost is Rs 50,000 and Profit is Rs 20,000.
a) Rs 60,000
b) Rs 40,000
c) Rs 80,000

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35. What will be the B.E.P if P/V ratio is 20% and Fixed cost is Rs 40,000.
a) Rs 2,00,000
b) Rs 4,00,000
c) Rs 6,00,000
ANSWER: a) Rs 2,00,000
36. What will be the B.E.P if Variable cost ratio is 70% and Fixed cost is Rs 36,000.
a) Rs 3,20,000
b) Rs 2,20,000
c) Rs 1,20,000
ANSWER: c) Rs 1,20,000
37. Calculate B.E.P if Fixed cost is Rs 1,50,000, Variable cost is Rs 2,00,000 and Profit is Rs 1,50,000.
a) Rs 2,00,000
b) Rs 2,50,000
c) Rs 3,00,000
ANSWER: b) Rs 2,50,000
38. Given Sales in first and second year is Rs 80,000 and Rs 90,000 respectively. Also, profit is Rs
10,000 and Rs 14,000 respectively. What is the break-even point in rupees?
a) Rs 10,000
b) Rs 24,000
c) Rs 55,000

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39. Margin of safety is that sales which is above Break-even point.
a) True
b) False
ANSWER: b) False
40. Margin of safety can be increased by
a) Decrease in setting price
b) Decline in volume of production
c) Reduction in fixed or the variable costs or both
ANSWER: c) Reduction in fixed or the variable costs or both
41. Determine Margin of safety if Profit is Rs 15,000 and P/V ratio is 40%.
a) Rs 37,500
b) Rs 33,000
c) Rs 38,000
42. What is Margin of Safety if Sales is 20,000 units and B.E.P is 15,000 units.
a) 35,000 units
b) 5,000 units
c) Rs 5,000
d) Rs 35,000
ANSWER: b) 5,000 units

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43. Calculate margin of safety if sales is Rs 3,00,000 and B.E.P is Rs 4,50,000.
a) Rs1,00,000
b) Rs 1,50,000
c) Amount of sales < B.E.P, therefore no margin of safety
ANSWER: a) Rs1,00,000
44. Determine sales in rupees for desired profit if fixed cost is Rs 10,000, Variable cost is Rs 30,000,
Sales is Rs 50,000 and desired profit is RS 5,000.
a) Rs 73,500
b) Rs 75,000
c) Rs 5,000
d) Rs 37,500
ANSWER: d) Rs 37,500
45. What will be sales in rupees for desired profit if fixed cost is Rs 30,000, desired profit is Rs
15,000 and P/V ratio is 30%?
a) Rs 1,50,000
b) Rs 1,00,000
c) Rs 2,00,000
46. Calculate sales in rupees for desired profit if fixed cost is Rs 10,000, selling price is Rs 20 per
unit, Variable cost is Rs 15 per unit and desired profit is Rs 1 per unit.
a) Rs 20,000
b) Rs 50,000
c) Rs 70,000
d) Rs 10,000
47. Determine sales in units for desired profit if Fixed cost is Rs 15,000, desired profit is Rs 5,000
Selling price per unit is Rs 20 and Variable cost per unit is Rs 16.

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a) 5,000 units
b) Rs 5,000
c) Rs 10,000
d) 10,000 units
ANSWER: a) 5,000 units
48. What will be sales in units if fixed cost is Rs 50,000 Contribution per unit is Rs 60 and desired
profit per unit is Rs 10.
a) 6,000 units
b) Rs 1,000
c) 1,000 units
d) Rs 6,000
ANSWER: c) 1,000 units
49. Given Break even sales is 40,000 Profit earned is Rs 2,000 and fixed cost is Rs 8,000. Determine
actual sales.
a) Rs 50,000
b) Rs 20,000
c) Rs 32,000
50. What will be the sales amount required to earn a profit of Rs 4,00,000, if fixed cost is Rs 80,000 ,
direct material is Rs 5 per unit, direct labor Rs 2 per unit, direct overhead 100% of direct labor and
selling price is Rs 12 per unit.
a) Rs 19,20,000
b) Rs 3,20,000
c) Rs 12,90,000
ANSWER: a) Rs 19,20,000

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51. Given fixed costs is Rs 1,00,000 selling price per unit is Rs 10 and variable cost per unit is Rs 6. If
fixed cost increase by 10% , B.E.P will
a) Decrease by 2,500 units
b) No change
c) Increase by 2,500 units
d) None of the above.
ANSWER: c) Increase by 2,500 units
variable cost increase by 10% , B.E.P will
a) Decrease by 4,214 units
b) Increase by 4,214 units
c) Decrease by 4,412 units
d) Increase by 4,412 units
ANSWER: d) Increase by 4,412 units
variable cost increase by 10% and fixed cost decrease by 10%s , B.E.P will
a) Increase by 1,471 units
b) Decline by 1,471 units
c) Increase by 4,171 units
ANSWER: a) Increase by 1,471 units
54. What will be the impact on B.E.P if fixed cost is increased?
a) Decrease
b) No change
c) Increase
ANSWER: c) Increase

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55. What will be the impact on B.E.P if variable costs are reduced?
a) Decrease
b) No change
c) Increase
ANSWER: a) Decrease
56. The profit at the level of existing sales is computed as
a) Sales - (Fixed cost + Variable cost)
b) Sales + (Fixed cost + Variable cost)
c) Sales - Variable cost
d) Sales - Fixed cost
ANSWER: a) Sales - (Fixed cost + Variable cost)
57. Profit at any level of sales in amount is measured as
a) Sales * P/V ratio – Variable cost
b) Sales * P/V ratio + Fixed cost
c) Sales * P/V ratio – Fixed cost
d) Sales * P/V ratio + Variable cost
ANSWER: c) Sales * P/V ratio – Fixed cost
58. Profit at any level of sales in units is measured as
a) Sales (units) * Cost per unit - Fixed cost
b) Sales (units) * Cost per unit + Fixed cost

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c) Sales (units) * Cost per unit
ANSWER: a) Sales (units) * Cost per unit - Fixed cost
59. What will be the amount of profit if Fixed cost is Rs 20,000 Sales is Rs 1,60,000 and P/V ratio is
25%?
a) Rs 40,000
b) Rs 20,000
c) Rs 10,000s
60. Determine amount of profit if Variable costs is Rs 1,20,000 Fixed costs is Rs 40,000 and sales is
Rs 2,00,000.
a) Rs 30,000
b) Rs 50,000
c) Rs 12,000
d) Rs 40,000
ANSWER: d) Rs 40,000
61. What will be amount of profit if Margin of safety is Rs 50,000 and P/V ratio is 25%?
a) Rs 12,500
b) Rs 1,25,000
c) Rs 1,250
62. Estimate amount of profit if Sales is 10,000 units Fixed cost is Rs 50,000, Variable cost per unit
is Rs 12 and selling price per unit is Rs 20.
a) Rs 12,000

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b) Rs 5,000
c) Rs 30,000
63. Calculate B.E.P capacity if Fixed cost is Rs 50,000, percentage of variable cost is 66 2/3% and
capacity is Rs 3,00,000.
a) 25%
b) 30%
c) 50%
ANSWER: c) 50%

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Unit 3 - Ratio Analysis
MCQs with answers
1) Determine Debtors turnover ratio if, closing debtors is Rs 40,000, Cash sales is 25% of credit sales and
excess of closing debtors over opening debtors is Rs 20,000.
a. 4 times
b. 2 times
c. 6 times
d. 8 times
ANSWER: 4 times
2) The relationship between two financial variables can be expressed in:
a. Pure ratio
b. Percentage
c. Rate or time
d. Either of the above
ANSWER: Either of the above
3) Liquid assets is determined by
a. Current assets – stock - Prepaid expenses
b. Current assets + stock + prepaid expenses
c. Current assets + Prepaid expenses

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ANSWER: Current assets – stock - Prepaid expenses
4) While calculating Gross Profit, if net profit is given,
a. It can be converted into gross profit by adding interest to it
b. It can be converted into Gross profit by adding indirect expenses to it
c. Both a and b
ANSWER: It can be converted into gross profit by adding interest to it
5) If sales is Rs 10,00,000, sales returns is Rs 50,000, Profit Before Tax is Rs 2,00,000, Income tax is 40%, Net
profit ratio is
a. 12.63%
b. 20%
c. 10%
d. 50%
ANSWER: 12.63%
6) Higher the ratio, the more favorable it is, doesn’t stand true for
a. Operating ratio
b. Liquidity ratio
c. Net profit ratio
d. Stock turnover ratio
ANSWER: Operating ratio
7) Given Sales is 1,20,000 and Gross Profit is 30,000, the gross profit ratio is

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a. 24%
b. 25%
c. 40%
d. 44%
ANSWER: 25%
8) If selling price is fixed 25% above the cost, the Gross Profit ratio is
a. 13%
b. 28%
c. 26%
d. 20%
ANSWER: 20%
9) Overall Profitability ratios are based on
a. Investments
b. Sales
c. Both a and b
ANSWER: Investments
10) Stock is considered as a liquid asset as anytime it can be converted into cash immediately.
a. Yes
b. No
ANSWER: No
11) The ideal level of liquid ratio is

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a. 3:3
b. 4:4
c. 5:5
d. All of the above
ANSWER: 3:3
12) Which of the following is not included in current assets?
a. Debtors
b. Stock
c. Cash at bank
d. Cash in hand
ANSWER: Stock
13) Determine Working capital turnover ratio if, Current assets is Rs 1,50,000, current liabilities is Rs 1,00,000
and Cost of goods sold is Rs 3,00,000.
a. 5 times
b. 6 times
c. 3 times
d. 1.5 times
ANSWER: 6 times
14) Collection of debtors
a. Decreases current ratio
b. Increases current ratio

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c. Has no effect on current ratio
ANSWER: Decreases current ratio
15) Determine Operating ratio, if operating expenses is Rs 60,000, Sales is Rs 9,40,000, Sales Return is Rs
40,000 and Cost of net goods sold is Rs 6,60,000.
a. 80%
b. 15%
c. 25%
d. 11%
ANSWER: 80%
16) What will be the Gross Profit if, total sales is Rs 2,60,000, cost of net goods sold is Rs 2,00,000 and sales
return is Rs 10,000?
a. 13%
b. 28%
c. 26%
d. 20%
ANSWER: 20%
17) Liquidity ratios are expressed in
a. Pure ratio form
b. Percentage
c. Rate or time

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ANSWER: Pure ratio form
18) Return on Proprietors funds is also known as:
a. Return on net worth
b. Return on Shareholders fund
c. Return on Shareholders Investment
d. All of the above
19) Determine stock turnover ratio if, Opening stock is Rs 31,000, Closing stock is Rs 29,000, Sales is Rs
3,20,000 and Gross profit ratio is 25% on sales.
a. 31 times
b. 11 times
c. 8 times
d. 32 times
ANSWER: 8 times
20) Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000. Determine value of stock.
a. Rs 54,000
b. Rs 60,000
c. Rs 1,62,000
ANSWER: Rs 54,000

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21) The most precise test of liquidity is
a. Quick ratio
b. Current ratio
c. Absolute Liquid ratio
ANSWER: Absolute Liquid ratio
22) Debt-equity ratio is a sub-part of
a. Short-term solvency ratio
b. Long-term solvency ratio
c. Debtors turnover ratio
ANSWER: Long-term solvency ratio
23) Liquid ratio is also known as
a) Quick ratio
b) Acid test ratio
c) Working capital ratio
d) Stock turnover ratio
a. A and B
b. A and C
c. B and C
d. C and D
ANSWER: A and B

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24) Current ratio is stated as a crude ratio because
a. It measures only the quantity of current assets
b. It measures only the quality of current assets
c. Both a and b
d. Offerings dimension
ANSWER: It measures only the quantity of current assets
25) The ideal level of current ratio is
a. 4:2
b. 2:1
c. Both a and b
26) Which ratio is considered as safe margin of solvency?
a. Liquid ratio
b. Quick ratio
c. Current ratio
ANSWER: Current ratio
27) Working capital turnover ratio can be determined by:
a. (Gross Profit / Working capital)
b. (Cost of goods sold / Net sales)

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c. (Cost of goods sold / Working capital)
ANSWER: (Cost of goods sold / Working capital)
28) Debtors Turnover ratio is also known as
A) Receivables turnover ratio
B) Debtors velocity
C) Stock velocity
D) Payable turnover ratio
a. A and B
b. A and C
c. B and C
d. C and D
ANSWER: A and B
29) Stock velocity establishes a relationship between
a. Cost of goods sold in a given period and the average amount of inventory held during that period
b. Cost of goods sold in a given period and the average amount of stock held during that period
c. Both a and b
30) The lower turnover ratio highlights the under utilizations of the resources accessible at the disposal of the

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firm.
a. True
b. False
ANSWER: True
31) Turnover ratios are also known as
a. Activity ratios
b. Performance ratios
c. Both a and b
32) While calculating Earnings per share, if both equity and preference share capitals are there, then
a. Preference share is deducted from the net profit
b. Equity share capital is deducted from the net profit
c. Both a and b
ANSWER: Preference share is deducted from the net profit
33) Return on equity capital is calculated on basis of:
a. Funds of equity shareholders
b. Equity capital only
c. Either a or b
ANSWER: Either a or b

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34) Which of the following is expenses ratio?
A) Administrative expenses ratio
B) Selling and Distribution expenses ratio
C) Factory expenses ratio
D) Finance Expenses ratio
a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B, C, D
35) Operating ratio is calculated by
a. (Operating Cost / Gross sales) * 100
b. (Operating Cost / Gross sales) * 100
c. (Operating cost / Net sales) * 100
ANSWER: (Operating cost / Net sales) * 100
36) Net operating profit ratio determines ___________ while net profit ratio determines
a. Overall efficiency of the business, working efficiency of the management
b. Working efficiency of the management, overall efficiency of the business
c. Overall efficiency of the external market, working efficiency of the internal management

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ANSWER: Working efficiency of the management, overall efficiency of the business
37) If sales is Rs 5,00,000 and net profit is Rs 1,20,000 Net Profit ratio is
a. 24%
b. 416%
c. 60%
ANSWER: 24%
38) Net Profit ratio is calculated by
a. (Gross Profit / Gross sales) * 100
b. (Gross Profit / Net sales) * 100
c. (Net Profit / Net sales) * 100
ANSWER: (Net Profit / Net sales) * 100
39) Gross Profit ratio should be adequate to cover
a. Selling expenses
b. Administrative expenses
c. Dividends
d. All of the above

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40) Gross profit ratio is calculated by
a. (Gross Profit / Gross sales) * 100
b. (Gross Profit / Net sales) * 100
c. (Net Profit / Gross sales) * 100
ANSWER: (Gross Profit / Net sales) * 100
41) While calculating Gross Profit ratio,
a. Closing stock is deducted from cost of goods sold
b. Closing stock is added to cost of goods sold
c. Closing stock is ignored
ANSWER: Closing stock is deducted from cost of goods sold
42) Gross Profit ratio is also termed as
a. Gross Profit Margin
b. Gross Margin to net sales
c. Both a and b
d. All of the above

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43) General Profitability ratios are based on
a. Investments
b. Sales
c. Both A & B
ANSWER: Sales
44) Which of the following falls under Profitability ratios?
A) General Profitability ratios
B) Overall Profitability ratios
C) Comprehensive Profitability ratios
a. A and B
b. A and C
c. B and C
ANSWER: A and B
45) Which of the following are limitations of ratio analysis?
A) Ratio analysis may result in false results if variations in price levels are not considered.
B) Ratio analysis ignores qualitative factors.
C) Ratio Analysis ignores quantitative factors.
D) Ratio Analysis is historical analysis.

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a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B and D
46) Profit for the objective of calculating a ratio may be taken as
a. Profit before tax but after interest
b. Profit before interest and tax
c. Profit after interest and tax
d. All of the above
47) The ratio analysis is helpful to management in taking several decisions, but as a mechanical substitute for
judgment and thinking, it is worse than useless.
a. True
b. False
ANSWER: True
48) Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.
B) Ratio analysis is helpful in communication and coordination.
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.

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a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B and D
49) The definition, “The term accounting ratio is used to describe significant relationship which exist between
figures shown in a balance sheet, in a profit and loss account, in a budgetary control system or in a any part of the
accounting organization” is given by " , - ,
" .
a. Biramn and Dribin
b. Lord Keynes
c. J. Betty
ANSWER: J. Betty
50) When the concept of ratio is defined in respect to the items shown in the financial statements, it is termed as
/ ,
.
a. Accounting ratio
b. Financial ratio
c. Costing ratio

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ANSWER: a) Accounting Ratio
51. Working Capital is the ______.
A) Capital borrowed from the Banks.
B) Difference between Current Assets and Current Liabilities.
C) Difference between Current Assets and Fixed Assets.
D) Cash and Bank Balance.
Answer B) Difference between Current Assets and Current Liabilities.
52. Liquid Ratio is equal to liquid assets divided by ______.
A) Current Liabilities.
B) Total Liabilities.
C) Contingent Liabilities.
D) Non-Current Liabilities.
Answer A) Current Liabilities.
53. Which of the following transactions will improve the Current Ratio?
A) Purchase of Goods for Cash.
B) Payment to Trade Payables.
C) Credit purchase of Goods.
D) Cash collected from Trade Receivables.
Answer B) Payment to Trade Payables.
54. The ______ is a measure of liquidity that excludes generally the least liquid asset.
A) Liquid ratio, Accounts receivable.
B) Current ratio, inventory.
C) Liquid ratio, inventory.

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D) Current ratio, Accounts receivable.
Answer C) Liquid ratio, inventory.
55. Two basic measures of liquidity are _____.
A) Current ratio and Quick ratio.
B) Gross Profit ratio and Operating ratio.
C) Current ratio and Average collection period.
D) Inventory turnover and Current ratio.
Answer A) Current ratio and Quick ratio.
56. The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they becom
A) Liquidity
B) Debt
C) Profitability
D) Activity
Answer A) Liquidity
57. Inventory ratio is a relationship between ______.
A) Cost of goods purchased and cost of average inventory.
B) Cost of goods sold and cost of average inventory, and cost of goods purchased and cost of average inventor
C) Cost of goods sold and cost of average inventory.
D) None of the options is correct.
Answer C) Cost of goods sold and cost of average inventory.
58. Debt to equity ratio establishes the relationship between ______.
A) Long-term debt (external equities) and current assets (internal equities).
B) Long-term debt (external equities) and equity (internal equities), and long-term debt (external equities) and cu
(internal equities).

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c) Long-term debt (external equities) and equity (internal equities).
D) None of the options are correct.
Answer C) Long-term debt (external equities) and equity (internal equities).
59. Operating ratio is ______.
A) Cost of the production + Operating expenses / Net revenue from operations.
B) Cost of revenue from operation + Operating expenses / Net revenue from operations.
C) Cost of production / Net revenue from operations.
D) Cost of revenue from operations + Selling expenses / Net revenue from operations.
Answer B) Cost of revenue from operation + Operating expenses / Net revenue from operations.
60. Equity or Shareholders fund is equal to _____.
A) Equity share capital + Preference share capital.
B) Equity share capital + Revenues and Surplus.
C) Equity share capital + Preference share capital + Revenues and Surplus.
D) None of the options are correct.
Answer C) Equity share capital + Preference share capital + Revenues and Surplus.

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Unit 4 – Fund Flow Statement
MCQs with answers
1. Funds flow statement is prepared on the basis of _________.
a. Profit and loss account of the current year
b. The balance sheet of the previous and current year
c. Both a and b
Answer: c
2. Which of the following are sources of funds for an organisation?
a. Conversion of debentures into shares
b. Conversion of loans into shares
c. Issue of shares against the purchase of fixed assets
Answer: d
3. Funds flow statement is also known as __________.
a. Statement of sources and uses of funds
b. Statement of sources and application of funds
c. Statement of funds flow
d. All of the above
Answer: d
4. The statement prepared while conducting funds flow analysis is called ________.
a. Funds flow statement
b. Schedule of changes in working capital
c. Both a and b
Answer: c
5. Funds flow statement is prepared to ________________.
a. Ascertain the item-wise outflow of funds in a given period
b. Identify changes in working capital

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c. Identify reasons behind changes in working capital
d. All of the above
Answer: d
6. Which of the following statements is not true?
a. Funds flow statement is prepared on an accrual basis
b. There is an inverse relationship between current assets and working
capital
c. Funds flow statement is also known as the statement of sources and
application of funds
d. All the above statements are true
Answer: a
7. Funds flow statement is based on the concept of ___________.
a. Going concern
b. Business entity
c. Accounting period
Answer: a
8. The term ‘flow of funds’ means ___________.
a. Change in working capital
b. Change in funds
c. Both a and b are incorrect
d. Both a and b are correct
Answer: d
9. Funds flow analysis is important for ________.
a. Financial management
b. Quality control management
c. Personnel management
d. All of the above
Answer: a
10.Funds flow statement is a tool for _________.
a. Performance analysis
b. Cost control
c. Financial analysis
Answer: c

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11.A statement that shows periodic increase or decrease of funds is called
_________.
a. Working capital statement
b. Cash flow statement
c. Funds flow statement
Answer: c
12.Which of the following are current assets?
a. Furniture
b. Accounts receivable
c. Fixed investments
Answer: b
13.Which of the following are current liabilities?
a. Accounts payable
b. Bonds payable
c. Deferred tax liabilities
Answer: a
14.A statement of change in a company’s financial position will not disclose the
effect of ________.
a. Cash dividends declared but not yet paid
b. Share capital issued to acquire facilities
c. Dividends declared on shares
d. All of the above
Answer: c
15.If the total sources of funds are Rs. 2,00,000 and total application of funds are
Rs. 2,50,000 then the working capital will ___________.
a. Decrease by Rs. 50,000
b. Increase by Rs. 50,000
c. Not be affected
Answer: a
16. Which statement is prepared in the process of funds flow analysis?

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a) Schedule of changes in working capital
b) Funds Flow Statement
c) Both a and b
ANSWER: a) Schedule of changes in working capital
17. Funds Flow Statement is prepared on the basis of data of P&L statement and two
consecutive balance sheets.
a) True
b) False
c) Value delivery
ANSWER: a) True
18. Which of the following rules stands true while preparation of Schedule of changes in
working capital?
A) An increase in current assets increases working capital.
B) An increase in current assets decreases working capital.
C) An increase in current liabilities decreases working capital.
D) An increase in current liabilities increases working capital
a) A and C
b) A and D
c) B and D
d) A, B, C and D
ANSWER: a) A and C
19. If reserve for bad and doubtful debts is mentioned in the question of Funds Flow
Statement Preparation, it can be shown as
a) In the schedule by deducting from total debtors under current assets
b) In the schedule separately under the heading of capital liabilities
c) Both a & b

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ANSWER: c) Both a & b
20. Funds Flow Statement is also known as
a) Statement of Funds Flow
b) Statement of Sources and Application of Funds
c) Statement of Sources and Uses of Funds
d) All of the above
21. Given Net profit for the year Rs 2, 50,000 Transferred to general reserves Rs
40,000 and old machinery bought for Rs 50,000 was sold for Rs 20,000. Calculate
funds from operations.
a) Rs 2, 80,000
b) Rs 2, 20,000
c) Rs 2, 90,000
d) Rs 3, 00,000
ANSWER: a) Rs 2, 80,000
22. Which of the following are sources of funds?
A) Issue of bonus shares
B) Issue of shares against the purchase of fixed assets
C) Conversion of debentures into shares
D) Conversion of loans into shares
a) A and C
b) A and D
c) A, B, C and D
ANSWER: d) None of the above
23. The share capital of A Ltd. stood at Rs 20,00,000 in 2013 and at Rs 26 lac in 2014.
As per records, the company bought asset of another company for Rs 6 lac payable in
fully paid shares. These assets included Goodwill Rs 2,00,000 Machinery Rs 1, 83, 600
and Stock Rs 2,16,400. What is the fund from issue of shares?

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a) Rs 2,15,600
b) Rs 2,16,400
c) Rs 2,00,000
ANSWER: b) Rs 2,16,400
24. Debentures are Rs 2,50,000 and Rs 3,50,000 in the balance sheet of 2013 and
2014. 1000 of the debentures of Rs 100 each were issued at par in 2014 of which 400
debentures were issued to a supplier for the purchase of a machine. Determine amount
of issue for debentures for the purpose of funds flow statement.
a) Rs 60,000
b) Rs 40,000
c) RS 10,000
25. In the balance sheet of Praveen for 2013 and 2014, 4% debentures are Rs 5,00,000
and Rs 4,00,000, respectively. Profit on redemption of debentures in 2013 is nil while in
2014 is Rs 4,000. What is the amount of redemption for the purpose of funds flow
statement?
a) Rs 96,000
b) Rs 1,04,000
c) Rs 9,00,000
d) Rs 9,04,000
26. The balance of property at cost has been RS 20,000 and Rs 17,000 in 2013 and
2014 respectively. The profit on sale of property of Rs 2000 is credited to Capital
Reserves Account. New property costing Rs 5000 bought in 2014. Determine sale of
proceeds from land.
a) Rs 3000
b) Rs 10,000
c) Rs 7000
d) Rs 15,000

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27. The Balance sheet of Ram at end of 2013 and 2014 disclose investments in shares
of Rs 2000 and Rs 3000, respectively. Rs 100 as pre-acquisition dividend has been
credited to investments account. Determine purchase of investments.
a) RS 5000
b) Rs 1000
c) Rs 1,100
ANSWER: c) Rs 1,100
28. The balance of fixed assets of Y Ltd. at cost at the end of 2013 and 2014 were Rs
5,70,800 and Rs 6,15,300. During the year 2014 a machinery costing Rs 60,000 was
sold. Determine the purchase of fixed assets.
a) Rs 1,04,500
b) Rs 1,40,500
c) Rs 1,64,500
29. Which of the following are applications of funds?
a) Payment of dividend on share capital
b) Payment of tax
c) Increase in working capital
d) All of above
ANSWER: d) All of above
30. Which of the following are treated as long term investments?
a) Non-current investments
b) Trade Investments
c) Sinking fund investments
d) All of the above

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31. Provision of taxation is treated as
a) As a current liability
b) As an appropriation of profits
c) Either a or b
ANSWER: c) Either a or b
32. As per accounting standard AS3, provision for taxation should be treated as
a) As a current liability
b) As an appropriation of profits
c) Either a or b
ANSWER: b) As an appropriation of profits
33. Which of the following statement is true?
a) If the amount of good will increases during current year, the difference is treated as
purchase of goodwill.
b) If the amount of good will decreases during current year, It will treated as written off.
c) Both a and b
ANSWER: c) Both a and b
34. The opening and closing balance of general reserves are Rs 10,000 and Rs 9,000,
respectively. It is stated in addition information that a loss of Rs 1000 has been written
off in general reserves. In such a case, decline in reserve and loss on investment will be
adjusted in P&L account.
a) True
b) False
ANSWER: b) False

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