Skip to content

CMA Intermediate · Management Accounting · Applications of Marginal Costing in Short Term Decision Making

Nair Pumps uses 12,000 units of a part. Making costs variable Rs 55 per unit, plus avoidable fixed cost of Rs 1,20,000. A vendor offers Rs 62 per unit. At what annual volume are the two options equal in cost?

The indifference volume is about 17,143 units. Setting 55Q plus Rs 1,20,000 equal to 62Q gives 7Q equal to Rs 1,20,000. Below that volume buying is cheaper, so at 12,000 units the firm should buy.

  1. A12,000 units
  2. B17,143 unitsCorrect
  3. C20,000 units
  4. D15,000 units

Explanation

Set 55Q + 1,20,000 = 62Q, so 7Q = 1,20,000 and Q = 17,142.86, about 17,143 units. Below this volume buying is cheaper; above it making is cheaper. At 12,000 units buying is cheaper.

Did you get it right without looking?

One question tells you little. A timed set on Applications of Marginal Costing in Short Term Decision Making shows your real accuracy, how long you take and where you lose marks.

Practise Applications of Marginal Costing in Short Term Decision MakingFree diagnostic mock

More Applications of Marginal Costing in Short Term Decision Making questions