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INTEGRATED REVIEW 2: Management Advisory Services (MAS)

#2 | Cost-Volume-Profit Analysis

1. Total unit cost


A. needed for determining product information
B. irrelevant in marginal analysis
C. independent cost system
D. relevant for cost-volume-profit analysis
(CPAR Reviewer, 2018)

2. The rate or amount that sales may decline before losses are incurred is called:
A. residual income rate
B. variable sales ratio
C. sensitive level of income
D. margin of safety
(CPAR Reviewer, 2018)

3. In a multi-product company, as the mix of the products being sold changes, the other
overall contribution margin ratio will also change. If the shift in mix is toward less
profitable products, then the contribution margin ratio will
A. rise
B. change in direction to break-even point
C. not change
D. fall
(CPAR Reviewer, 2018)

4. For a profitable company, the amount by which sales can decline before losses occur is
known as the:
A. Variable sales ratio
B. Margin of safety
C. Sales volume variance
D. Marginal income tax
(CPAR Reviewer, 2018)
5. To reduce the break-even point, the company may
A. decrease both fixed cost and the contribution margin
B. increase both fixed cost and the contribution margin
C. decrease the fixed cost and increase the contribution margin
D. increase the fixed cost and decrease the contribution margin
(CPAR Reviewer, 2018)

6. The Childless Company sells widgets. The company breaks even at an annual sales
volume of 75,000 units. Actual annual sales volume was 100,000 units, and the company
reported a profit of P200,000.

The annual fixed costs for the Childless Company are


A. P800,000
B. P600,000
C. P200,000
D. P150,000
(Bobadilla, 2011)
7. The costs to produce 24,000 units at 70% capacity are:
P 36,000
Direct materials
Direct labor 54,000
Factory overhead, all fixed 29,000
Selling expense (35% variable, 65% fixed) 24,000

What unit price would the company have to charge to make P2,250 on a sale of 1,500
additional units that would be shipped out of the normal market area?
A. P5.10
B. P5.60
C. P4.10
D. P5.00
(Bobadilla, 2011)

8. XY Company’s product mix includes P720,000 in sale of Product X and P640,000 in


sale of Product Y. Product X’s contribution margin is 60 percent and Product Y is 40
percent of sales. Total fixed costs amount to P505,880. Product Y’s sale at breakeven
point should amount to:
A. P640,000
B. P720,000
C. P529,488
D. P470,600
(Bobadilla, 2011)

9. Levi’s Company has revenues of P500,000, variable costs of P300,000, and pretax profit
of P150,000. If the company increases the sales price per unit by 10%, reduces fixed
costs by 20%, and leaves variable cost per unit unchanged, what would be the new
breakeven point in pesos?
A. P88,000
B. P80,000
C. P100,000
D. P125,000
(Bobadilla, 2011)

10. Food From Heaven, Inc. (FFHI) sells loose biscuits for P5 per unit. The fixed costs are
210,000 and the variable costs are P45% of the selling price. What would be the amount
of sales if FFHI were to realize a profit of 15% of sales?
A. P700,000
B. P472,500
C. P525,000
D. P420,000
(Bobadilla, 2011)
ALMODOVAR, Marco Layug (11-20)

21. It involves a systematic examination of the relationships among cost, cost driver, and
profit.
A. Financial statement analysis
B. Cost-volume-profit analysis
C. Cost-benefit analysis
D. Profit planning
(Roque 2016)

22. In CVP analysis, it is assumed that


A. All costs are classifiable as either direct of indirect costs
B. Cost and revenue relations are predictable and linear over any range of activity
C. Selling prices per unit and market conditions remain unchanged
D. Total fixed costs are constant over the relevant range, but fixed costs per unit
vary directly with the cost driver or volume.
(Roque 2016)

23. Management may use CVP analysis to determine the relative profitability of a product
by
A. determining the unit contribution margin and the projected profits at various
levels of production
B. Controlling the physical production of the products
C. Assigning costs to a product in such a way that the contribution margin is
maximized
D. Keeping all costs to an absolute minimum
(Roque 2016)

24. In a contribution income statement,


A. Costs are classified as to function
B. Fixed and variable manufacturing costs are combined as one level item
C. Fixed costs are shown separately from variable costs
D. Fixed manufacturing costs are shown separately from variable manufacturing
costs, but fixed and variable operating costs are combined as one line item
(Roque 2016)

25. It is the excess of sales price over the related variable cost, contributing to the recovery
of fixed expenses
A. Gross margin
B. Margin of safety
C. Contribution Margin
D. Gross profit
(Roque 2016)

For Items #26-28 refer to the problem below:


Genevieve Co. and Odessa Co. sell the same product in a competitive industry. Thus, the selling
price of the product for each company is the same. Other data about the two companies are as
follows:
Genevieve Co. Odessa Co.
Fixed Costs P 50,000 P 70,000
Contribution margin ratio 40% 52%

26. The companies’ break-even points are


Genevieve Co. Odessa Co.
A. P 125,000 P 134,615.38
B. 125,000 units 134,615.38 units
C. P 20,000 P 36,400
D. 20,000 units 36,400 units
(Roque 2016)

27. The indifference point in terms of peso sales volume where the peso profits of the two
companies are equal is
A. P 125,000
B. P 134,615.38
C. P 166,666.67
D. P 129,807.69

28. At the indifference point, the companies’ profit amounts to


A. 0
B. P 666,666.67
C. P P86,666.67
D. P 16,666.67
(Roque 2016)
For Items #29-30 refer to the problem below:
Medilab, Inc. is a medical laboratory that perform test for physicians. On the average, fee per
test P500, and the variable cost per test is P200. Medilab anticipates performing between 200 to
5000 tests during the month of November. Fixed costs are estimated as follows:

Low range activity (0-1999 tests performed) P 300,000


High range of activity (2000-5000 tests performed) 660,000

The company’s accountant conducted a study involving a comparison of Medilab’s selling


price, costs and breakeven point with industry averages. The study showed the following :

Low Range of Activity High Range of Activity


Compared to industry average
Selling price lower the same
Variable cost lower
Fixed Cost higher the same
Break-even point the same

29. What is the break-even point in number of tests at the low activity range?
A. 2200
B. 1600
C. 1000
D. 3200

30. How much revenue is required to break-even point at the high range activity level?
A. P 1,100,000
B. P 800,000
C. P 500,000
D. P 1,600,000
(Roque 2016)
31. CVP analysis may be used by managers in planning and decision-making, which may
involve the following, except
A. Choosing the type of product to produce and sell
B. Choosing the pricing policy to follow
C. Choosing the type of productive facilities to acquire
D. Choosing the analytical technique to use
(Roque, 2016)

32. The type of costing system that will provide the best information for CVP and BE
analyses if inventories are expected to change is
A. Process costing
B. Job-order costing
C. Absorption (full) costing
D. Variable (direct) costing
(Roque, 2016)

33. The conventional break-even chart adopted by businessmen and accountants does not
take for granted that
A. Some costs are semi-variable
B. Production is not equal to sales
C. There is a significant amount of change in inventories
D. The sales mix ratio of the products being sold changes within the relevant range
(Roque, 2016)

34. It is the level of output or sales at which total revenues equal total costs, that is, the point
at which operating income is zero
A. Indifference point
B. Break-even point
C. Sangley point
D. Order point
(Roque, 2016)
35. Sensitivity analysis, when used in CVP,
A. Is done through various possible scenarios and computes the impact on profit of
various predictions of future events
B. Is done through various possible scenarios and determines the effect of the cost
accounting systems used in each scenario
C. Allows the decision-maker to introduce probabilities in the evaluation of
decision alternatives
D. Allows managers to study how total fixed costs vary with cost drivers
(Roque, 2016)

36. Dianice Corp. has sales of P300,000, a variable cost ratio of 80% and a margin of safety
of P120,000. What is Dianice’s fixed cost?
A. P144,000
B. P24,000
C. P60,000
D. P36,000
(Roque, 2016)

37. Jing, Inc. has sales of P500,000, a break-even sales ratio of 60%, and a variable cost
ratio of 70%. How much is Jing’s profit?
A. P90,000
B. P60,000
C. P150,000
D. Cannot be determined
(Roque, 2016)

38. Amado Co. manufactures and sells Product A. During the previous month, 77,500 units
of Product A were sold. Total fixed costs amounted to P189,100. Its margin of safety was
15,500 units or P65,875. The variable cost per unit of Product A is
A. P1.20
B. P4.25
C. P0.96
D. P2.44
(Roque, 2016)
For numbers 39 to 40 refer to the problem below:
Consult, Inc. is a domestic corporation that offers, among others, business seminars. These
seminars help update the knowledge of corporate officers and employees. Consult, Inc. caters to
participants who are sponsored by their employers.

At present, the company is very busy preparing for a seminar to be held next month. This is one
big event, since this is the company’s first seminar where the resources speaker is a foreign
national.

Consult, Inc.’s president, Mr. Phensitpa Labok, got the idea for this seminar from a close friend,
the president of another company who just came from a business convention in Singapore.
According to him, he was so lucky he attended such convention because one of the speakers
was Mr. Lum Pyang Shanghai, a business systems expert and author of the internationally
known book on Business Systems. The convention, he said, was a big success.

Mr. Labok picked up from there. He contacted Mr. Shanghai and inquired about the possibility
of the latter’s coming to manila and be the corporation’s guest speaker. Mr. Shanghai accepted
the invitation.

Consult, Inc., then sent letters’ brochures about the seminar to the officers of the top 1,000
corporations in the Philippines. As of today, Consult, Inc. has received confirmation from 150
sponsored participants. Deadline for payment of the seminar fee is on the first day of the
seminar month.

The seminar will be held for two (2) days. The seminar fee is P15,000 per participant. Seminar-
related expenses are estimated as follows:

Guest speaker’s fee (for 2 days) P 300,000


Accommodations - guest speaker and his accompanying staff 24,000
Plane ticket and other transportation costs - guest speaker and party 60,000
Other fixed costs for the seminar 36,000
Expenses for each participant:
Seminar kit 1,000
Hotel accommodations for the duration of the seminar, including
meals and snacks 5,000
Other variable costs 2,000
Mr. Labok is very excited. He said that Consult, Inc. will earn a big amount of profit if all
confirmed participants will pay and attend the seminar. He also said that even if some of the 150
confirmed participants would back out, the company would not incur a loss. This, according to
him, is based on the break-even analysis prepared by the company’s accountant.

The accountant, whose favorite subject is Management Advisory Services, showed in his report:

(Roque, 2016)
39. A break-even point for the seminar of
A. 150 participants
B. 60 participants
C. 90 participants
D. 28 participants
40. If all confirmed 150 participants would pay and attend, the margin of safety would be
A. 60 participants
B. 60%
C. 90%
D. 150 participant

For items #41-44, refer to the problem below:


The owners of Kelsey’s Daily Mart have been looking for ways to improve sales at the store.
One of the proposals is to have a weekly raffle with a total price of P10,000 per week. For every
P50 worth of goods purchased, the customer shall receive a numbered ticket for the raffle. The
variable cost to print and distribute the tickets has been estimated at P5.00. Promotions and
other fixed costs in connection with the raffle likewise, have been estimated at P15,000 per
week. The current weekly operating results of Kelsey are given below:

Sales - P1,000,000
Variable Costs - P700,000
Fixed Costs for the week - P120,000
(Roque, 2016)
41. Whats is the sales revenue required to break even without the raffle?
A. 180,000
B. 171,428
C. 300,000
D. 400,000

42. What is the sales revenue required to break even with the raffle?
A. 725,000
B. 483,333
C. 675,000
D. 580,000
43. If the raffle ticket can increase sales by 50% per week, profit will:
A. Increase by 155,000
B. Increase by 25,000
C. Decrease by 25,000
D. Remain Unchanged

44. If the company’s objective in conducting the weekly raffle is to double its present profit,
how much sales must be generated to attain this profit objective?
A. 2,525,000
B. 1,625,000
C. 2,000,000
D. 1,683,333

45. A company sells two products A & B. the sales mix consists of a composite unit of 5
units of A for every 3 units of B (5:3). Fixed costs amounts to 202,500. The unit
contribution margins are P4.80 for A and P10 for B.

If sales mix ratio is changed from 5:3 to 3:5, only one of the following statements is not
true and that is:
A. The WaUCM will increase to P8.05
B. The BEP will decrease to 25,155.28 composite units
C. Total Fixed Costs will remain the same
D. The WaUCM will not change
(Online Handouts)

46. Basic Illustration Corp. produces and sells a single product. The selling price is P25 and
the variable costs is 15 per unit. The corporation’s fixed costs is 100,000 per month.
Average monthly sales is 11,000 units. What is the corporation’s operating leverage
factor at the present average monthly sales of 11,000?
A. 6
B. 11
C. 9.09
D. 90.09
(Online Handouts)

47. If Variable costs per unit will go up by P5, the peso break even sales will increase
(decrease) to
A. 500,000
B. 250,000
C. (500,000)
D. (250,000)
(Online Handouts)
48. The alternative that would increase the contribution margin per unit the most is a
A. 10% decrease in unit variable cost
B. 10% increase in selling price
C. 10% decrease in fixed cost
D. 10% decrease in selling price

(Online Handouts)

49. Which of the following changes in CVP factors will reduce the break even point?
A. A decrease in total fixed costs
B. A decrease in selling price
C. An increase in unit variable cost
D. An increase in total fixed costs
(Online Handouts)
50. CVP analysis is most essential in the determination of the
A. Relationship between revenues and costs at various levels of operations
B. Volume of operation in order to break even
C. Variable costs necessary to equal fixed costs
D. Production Level that is equal to sales
(Online Handouts)

51. In planning product mix for maximum profit, CVP analysis would stimulate sales of the
product by increasing the:
A. sales price
B. variable cost per unit
C. contribution margin
D. emphasis on customer priority
(Bobabilla, 2014)

52. A relatively low margin of safety ratio for a product is usually an indication that the
product:
A. is losing money
B. has a high contribution margin
C. is riskier than higher margin of safety product
D. is less risky than higher margin of safety products
(Bobabilla, 2014)

53. Within the relevant range, total revenues and total costs
A. increase, but at a decreasing rate.
B. decrease.
C. remain constant.
D. can be graphed as straight lines.
(Bobabilla, 2014)
54. An assumption in a CVP analysis is that a change in costs is caused by a change in
A. unit direct material cost
B. the number of units
C. sales commission per unit
D. efficiency due to learning curve effect
(Bobabilla, 2014)

55. Which of the following would not affect the breakeven point?
A. Number of units sold.
B. Variable cost per unit.
C. Total fixed costs.
D. Sales price per unit.
(Bobabilla, 2014)

56. The ff. is the Lux Corporation's contribution format income statement for last month:
Sales P2,000,000
Less variable expenses 1,400,000
Contribution margin 600,000
Less fixed expenses 360,000
Net income P 240,000

The company has no beginning or ending inventories. A total of 40,000 units were
produced and sold last month. What is the company's degree of operating leverage?
A. 0.12
B. 0.40
C. 2.50
D. 3.30
(Bobabilla, 2014)

57. Delmar Company has the opportunity to increase its annual sales by P125,000 by selling
to a new, riskier group of customers. The uncollectible expense is expected to be 10%,
and collection costs will be 10%. The company’s manufacturing and selling expenses
are 70% of sales, and its effective tax rate is 40%. If Delmar were to accept this
opportunity, the company’s after tax profits would increase by
A. P 7,500
B. P 6,000
C. P12,500
D. P15,000
(Bobabilla, 2014)
58. Albatross Company has fixed costs of P90,300. At a sales volume of P360,000, return
on sales is 10%; at a P600,000 volume, return on sales is 20%. What is the break-even
volume?
A. P225,000
B. P258,000
C. P301,000
D. P240,000
(Bobabilla, 2014)

59. The sales price per unit will increase from P32 to P40. The variable cost per unit will
remain at P24, and the fixed costs will remain unchanged at P400,000. How many fewer
units must be sold to break-even at the new sales price of P40 per unit?
A. 25,000
B. 2,500
C. 10,000
D. 12,500
(Bobabilla, 2014)

60. Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000.
Based on this relationship, what is its projected profit at P1,200,000 sales?
A. P 50,000
B. P200,000
C. P150,000
D. P400,000
(Bobabilla, 2014)

61. Which of the following statements is not correct?


All other things remaining the same,
A. equal percentage increases in both the selling price and variable cost per unit will
cause the break-even point in sales pesos to remain unchanged.
B. equal percentage increases in both the selling price and variable cost per unit will
cause the contribution margin ratio to remain unchanged.
C. equal peso increases in both the selling price and variable cost per unit will cause
break-even point in units to remain unchanged.
D. equal peso increases in both the selling price and variable cost per unit will cause
the break-even point in pesos to remain unchanged.
(Roque, 2016)

62. The margin of safety is a key concept of CVP analysis. Which of the following is not a
correct description of margin of safety?
A. It is the amount of sales which may be reduced without resulting into a loss.
B. It is the difference between budgeted sales and break-even sales.
C. It may be expressed in terms of units or in pesos.
D. Its presence means that the company earns profit.
(Roque, 2016)

63. Which of the following statements is false?


A. If Product 1 has a higher unit contribution margin than Product 2, then Product 1
will always have a higher CM ratio than Product 2.
B. If the product mix changes, the break-even point may change.
C. For a given increase in peso sales, a high CM ratio will result in a greater
increase in profits than will a low CM ratio
D. If a company’s cost structure shifts toward greater fixed costs and lower variable
costs, one would expect the company’s CM ratio to rise.
(Roque, 2016)

64. As a company’s sales move farther from its break-even point, one would expect the
degree of operating leverage to
A. increase.
B. decrease.
C. remain unchanged.
D. vary in direct proportion to changes in the activity level.
(Roque, 2016)

Items 65 to 69 are based on the following information:


Basic Illustration Corp. produces and sells a single product. The selling price is P25 and the
variable costs is P15 per unit. The corporation’s fixed costs is P100,000 per month. Average
monthly sales is 11,000 units.

65. How much sales (in pesos) must be generated to earn profit that is 8% of such sales?
A. P270,000
B. P312,500
C. P208,333.33
D. P230,000

66. How many units must be sold to earn profit of P2 per unit?
A. 8,333.33
B. 10,000
C. 12,500
D. 312,500

67. With an average monthly sales of P11,000 units, the corporation’s margin of safety is
A. 1,000 units or P25,000.
B. 11,000 units or P275,000.
C. 10,000 units or P250,000.
D. P10,000.

68. If fixed costs will increase by P20,000, the break-even point in units will increase
(decrease) by
A. 12,000
B. 10,000
C. 50,000
D. 2,000

69. If selling price will increase to P30, the break-even point in units will
A. remain unchanged.
B. decrease by 166,666.75.
C. decrease to 6,666.67.
D. decrease by 6,666.67.
(Roque, 2016)

70. A company has fixed costs of P150,000, a variable cost ratio of 60%, and margin of
safety ratio of 25%. Considering the given data, which of the following is not correct?
A. The company’s profit ratio is 10%.
B. Sales amounted to P375,000.
C. Profit amounts to P50,000.
D. The contribution margin amounts to P200,000.
(Roque, 2016)

71. Cost-volume-profit analysis cannot be used if which of the following occurs?


A. Costs cannot be properly classified into fixed and variable costs.
B. The per unit variable costs change.
C. The total fixed costs change.
D. Per unit sales prices change.
(Bobadilla, 2014)

72. The most useful information derived from a breakeven chart is the
A. Amount of sales revenue needed to cover enterprise variable costs.
B. Amount of sales revenue needed to cover enterprise fixed costs.
C. Relationship among revenues, variable costs, and fixed costs at various levels of
activity.
D. Volume or output level at which the enterprise breaks even.
(Bobadilla, 2014)

73. Which of the factors is (are) involved in studying cost-volume-profit relationships?


A. Levels of production
B. Fixed costs
C. Variable costs
D. All of these
(Bobadilla, 2014)

74. At the breakeven point, fixed cost is always


A. Less than the contribution margin
B. More than the contribution margin
C. Equal to the contribution margin.
D. More than the variable cost
(Bobadilla, 2014)

75. At the break-even point:


A. net income will increase by the unit contribution margin for each additional item
sold above break-even.
B. the total contribution margin changes from negative to positive
C. fixed costs are greater than contribution margin
D. the contribution margin ratio begins to increase
(Bobadilla, 2014)

76. In 2006 Lucia Company had a net loss of P8,000. The company sells one product with a
selling price of P80 and a variable cost per unit of P60. In 2007, the company would
like to earn a before-tax profit of P40,000. How many additional units must the
company sell in 2007 than it sold in 2006? Assume that the tax rate is 40 percent.
A. 1,600
B. 2,000
C. 2,400
D. 5,400
(Bobadilla, 2014)
77. Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of
P120,000, and an operating loss of P20,000. How much increase in sales would Bulusan
need to make in order to achieve a target operating income of 10% of sales?
A. P400,000
B. P500,000
C. P462,000
D. P800,000
(Bobadilla, 2014)

78. The following data apply to Diva Corporation for the year 2006:

Total variable cost per unit P3.50


Contribution margin/sales 30%
Breakeven sales (present volume) P1,000,000

Diva wants to sell an additional 50,000 units at the same selling price and contribution
margin per unit. By how much can fixed costs increase to generate a gross margin equal
to 10% of the sales value of the additional 50,000 units to be sold?
A. P50,000
B. P67,500
C. P57,500
D. P125,000
(Bobadilla, 2014)

79. Marsman Company had a margin of safety ratio of 20%, variable costs of 60% of sales,
fixed costs of P240,000, a break-even point of P600,000, and an operating income of
P60,000 for the current year. What are the current year's sales?
A. P 500,000
B. P 750,000
C. P 600,000
D. P 900,000
(Bobadilla, 2014)

80. Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the
variable costs are 60% of the selling price. What would be the amount of sales if Regal
is to realize a profit of 10% of sales?
A. P700,000
B. P525,000
C. P472,500
D. P420,000
(Bobadilla, 2014)

81. Which of the following is an output of a financial planning model?


A. Strategic plan
B. Actual financial results
C. Projected financial statements
D. Variance analysis
(Wiley, 2016)
82. The master budget
A. Shows forecasted and actual results
B. Reflects controllable costs only
C. Can be used to determine manufacturing costs variances
D. Contains the operating budget
(Wiley, 2016)

83. Which of the following budgeting system focuses on improving operations?


A. Responsibility budgeting
B. Activity- based budgeting
C. Operational budgeting
D. Kaizen budgeting
(Wiley, 2016)
84. The diagram below is a cost-volume-profit chart.
Y

D
o
l
l B
a
A
r
s

X
Activity Level

At point A compared to point B, as a percentage of sales revenues

Variable costs are Fixed costs are


A. Greater Greater
B. Greater The same
C. The same The same
D. The same Greater

85. Which one of the following is an advantage of using variable costing?


A. Variable costing complies with the US Internal Revenue Code
B. Variable costing complies with generally accepted accounting principles
C. Variable costing makes cost-volume relationships more easily apparent
D. Variable costing is most relevant to long-run pricing strategies
(Wiley, 2016)

86. Mien Co. is budgeting sales of 53,000 units of product Nous for October 2014. The
manufacture of one unit of Nous requires four kilos of chemical Loire. During October
2014, Mien plans to reduce the inventory of Nous by 6,000 units. There is no Nous work
in process inventory. How many kilos of Loire is Mien budgeting to purchase in October
2014?
A. 138,000
B. 162,000
C. 186,000
D. 238,000
(Wiley, 2014)
87. Assume that as an investor, you are planning to enter the construction industry as a
panel formwork supplier. The potential number of forthcoming projects, you forecasted
that within two years, your fixed cost for producing formworks is P300,000. The
variable unit cost for making one panel is P15. The sale price for each panel will be P25.
If you charge P25 for each panel, how many panels do you need to sell in total in order
to start making money?
A. 20,000
B. 25,000
C. 30,000
D. 35,000
(Cabrera,2009)
88. A manufacturing company supplies its products to construction job sites. The average
monthly fixed cost per site is P4,500, while each unit cost P35 to produce and selling
price is P50 per unit. Determine the monthly breakeven volume.
A. 200
B. 300
C. 250
D. 350
(Cabrera, 2009)
For items #89-90:
A store sells t-shirts. Average selling price of the t-shirts are P150 and the average variable cost
is P90. Thus, every time the store sells a shirt ithas P60 remaining after it pays the manufacturer.
Suppose fixed costs of operating the store is P1,000,000 per year. Find the break-even in units.
89. Find the break-even in units.
A. 16,667
B. 23,333
C. 15,000
D. 20,000

90. If the average selling price rose to P160, break even volume would fall to?
A. 13,333
B. 14,286
C. 14,667
D. 15,163
(Cabrera, 2009)

91. With the aid of computer software, managers can vary assumptions regarding selling
prices, costs, and volume and can immediately see the effects of each change on the
break-even point and profit. Such an analysis is called
A. What if or sensitivity analysis
B. Vary the data analysis
C. Computer aided analysis
D. Data gathering
(Bobadilla, 2015)
92. Target costing is
A. a substitute for CVP analysis
B. used by companies that cannot classify their costs by behavior
C. Inappropriate if a company has already established a target profit
D. Used in decisions to offer a new product or enter a new market
(Bobadilla, 2015)
93. A cost-volume profit graph reflects relationships
A. That are expected to hold over the relevant range
B. Of results over the past few years
C. That the company’s managers would like to have happen
D. Likely to prevail for the industry
(Bobadilla, 2015)

94. In CVP analysis, when the number of units changes, which one of the following will
remain the same?
A. Total sales revenues
B. Total variable costs
C. Total fixed costs
D. Total contribution margin
(Bobadilla, 2015)

95. As the company sells more of higher-contribution margin product in relation to other
products, the
A. Breakeven in units declines
B. Margin of safety stays constant
C. Break-even point goes up
D. Weighted-average contribution margin ratio remains unchanged
(Bobadilla, 2015)

96. An increase in the income tax rate


A. Raises the break-even point
B. Lowers the break-even point
C. Decreases sales required to earn a particular after-tax profit
D. Increases sales required to earn a particular after-tax profit
(Bobadilla, 2015)

97. Introducing income taxes into cost-volume profit analysis


A. Raises the break-even point
B. Lowers the break-even point
C. Increases unit sales needed to earn a particular target profit
D. Decreases the contribution margin percentage
(Bobadilla, 2015)
For Items #98-100, refer to the problem below:
Anilao Ski Company recently expanded in manufacturing capacity to allow it to produce up to
15,000 pairs of cross-counter skis of either he mountaineering model or the touring model. The
sales department assures management that it can sell between 9,000 and 13,000 pairs (units) of
either product this year. The following data were compiled by the accounting department.

Mountaineering Touring
Selling price per unit P88.00 P80.00
Variable cost per unit 52.8 52.8
Fixed cost will total P 369,800 if the touring model is produced. Anilao Ski Company is
subject to a 40% income tax rate.

98. If Anilao Ski Company desies an after-tax net income of P24,000, how many pairs of
touring model skis will the company have to sell?
A. 13, 118
B. 12,529
C. 13,853
D. 4,460

99. The total sales revenue at which Anilao Ski Company would make the same profit or
loss regardless of the ski model it decided to produce is
A. P880,000
B. 442,400
C. 924,000
D. 686,400

100. How much would the variable cost per unit of the touring model have to change
before it had the same breakeven point in units as the mountaineering model?
A. P2.68/unit increase
B. P4.53/unit increase
C. P5.03/unit decrease
D. P2.97/unit decrease
(Bobadilla, 2015

The following information should be used to answer Question Nos. 101 through 107:
Due to erratic sales of its sole product a high capacity battery for laptop computers, Salcedo
Company has been experiencing difficulty for some time. The company’s income statement for
the most recent month is given below:

Sales (19,500 units @ P300) P5,850,000


Less variable expenses (4,095,000)
Contribution margin 1,755,000
Less fixed expenses 1,800,000
Net loss P (45,000)

101. The president believes that a P160,000 increase in the monthly advertising
budget, combined with an intensified effort by the sales staff, will result in an P800,000
increase in monthly sales. If the president is right, what will be the effect on the
company’s monthly net income or loss?
A. P 120,000 increase C. P 120,000 decrease
B. P 80,000 increase D. P 80,000 decrease

102. Refer to the original data. The sales manager is convinced that a 10% reduction
in the selling price, combined with an increase of P600,000 in the monthly advertising
budget, will cause unit sales to double. What will the new profit or loss if these changes
are adopted?
A. P 60,000 C. P 45,000
B. P(60,000) D. P (45,000)

103. Refer to the original data. The Marketing Department thinks that a fancy new
package for the laptop computer battery would help sales. The new package would
increase packaging costs by P7.50 per unit. Assuming no other changes, how many units
would have to be sold each month to earn a profit of P97,500?
A. 21,818 C. 25,450
B. 23,000 D. 28,000

104. Refer to the original data. By automating certain operations, the company could
reduce variable costs by P30 per unit. However, fixed costs would increase by P72,000
each month. How would the breakeven point in units change if the company automated
the operations?

A. 1,000 units increase C. 3,000 units increase


B. 1,000 units decrease D. 3,000 units decrease

105. Which of the two methods (the present or the automated) has higher income at
the level of sales of 26,000 units?
A. Manual, P60,000 C. Manual, P240,000
B. Automated, P60,000 D. Automated, P240,000
106. At what level of production would the automation of the production process be
indifferent to the present process?
A. 18,000 C. 24,000
B. 21,000 D. 28,000

107. The break even in peso sales for Salcedo Company is:
A. P 6,000,000 C. P 5,852,756
B. P 2,571,429 D. P 7,500,000
(Bobadilla, 2017)

108. With respect to fixed costs, C-V-P analysis assumes total fixed costs
A. per unit remains constant as volume changes
B. remain constant from one period to the next
C. vary directly with volume
D. remain constant across changes in volume
(Bobadilla, 2017)

109. Advocates of cost-volume-profit analysis argue that:


A. Fixed costs are irrelevant for decision making.
B. Fixed costs are mandatory for CVP decision making.
C. Differentiation between the patterns of variable costs and fixed costs is critical.
D. Fixed costs are necessary to calculate inventory valuations.
(Bobadilla, 2017)

110. The CVP model assumes that over the relevant range of activity:
A. only revenues are linear C. unit variable cost is not constant
B. total fixed cost changes D. revenues and total costs are linear

(Bobadilla, 2017)

111. Which of the ff. is correct? The break-even point occurs on the CVP graph
where:
A. total profit equals total expenses.
B. total profit equals total fixed expenses.
C. total contribution margin equals total fixed expenses.
D. total variable expenses equal total contribution margin.
(GARRISON)

112. If a company decreases its total fixed expenses while increasing the variable
expense
per unit, the total expense line relative to its previous position on a cost-volume-profit
graph will:
A. shift upward and have a steeper slope.
B. shift upward and have a flatter slope.
C. shift downward and have a steeper slope.
D. shift downward and have a flatter slope.
(GARRISON)

113. East Company manufactures and sells a single product with a positive
contribution margin. If the selling price and the variable expense per unit both increase
5% and fixed expenses do not change, what is the effect on the contribution margin per
unit and the contribution margin ratio?
Contribution Contribution
margin per unit margin ratio
A. No change No change
B. Increase Increase
C. Increase No change
D. Increase Decrease
(GARRISON)

114. Mossfeet Shoe Company is a single product firm. Mossfeet is predicting that a
price
increase next year will not cause unit sales to decrease. What effect would this price
increase have on the following items for next year?
Contribution Break-even
Margin Ratio Point
A. Increase Decrease
B. Decrease Decrease
C. Increase No effect
D. Decrease No effect
(GARRISON)

115. The contribution margin ratio is equal to:


A. Total manufacturing expenses/Sales.
B. (Sales - Variable expenses)/Sales.
C. 1 - (Gross Margin/Sales).
D. 1 - (Contribution Margin/Sales).
(GARRISON)
(Problems #116-120, no solutions submitted)

121. Which of the following is not an assumption underlying C-V-P analysis?


A. The behavior of total revenue is linear.
B. Unit variable expenses remain unchanged as activity varies.
C. Inventory levels at the beginning and end of the period are the same.
D. The number of units produced exceeds the number of units sold.
(Bobadilla)

122. Classifying a cost as fixed or variable depends on how it behaves


A. per unit, as the volume of activity changes.
B. in total, as the volume of activity changes.
C. both A and B are correct.
D. none of the above.
(Bobadilla)

123. A Cost-Volume-Profit graph contains an “Area of Loss” and “Area of


Profitability” Which of the following best explains the difference between the two points
on the graph?
A. The area of loss represents the difference between Sales and Variable Cost.
B. The area of loss begins with the concept that fixed costs have to be recovered
prior to sales contributing to profit.
C. The area of profit represents the difference between Sales and Variable Cost.
D. The area of profit begins with the concept that no company would have any level
of sales below the break-even point.
(Bobadilla)

124. Seal Yard Ornaments sells lawn ornaments for P15 each. Seal’s contribution
margin ratio is 40%. Fixed costs are P32,000. Should fixed costs increase 30%, how
many additional units will Seal have to produce and sell in order to generate the same
net profit as under the current conditions?
A. 1,600.
B. 5,333.
C. 6,933.
D. 1,067.
(Bobadilla)

125. The Opposition Sales Corporation is expecting an increase of fixed costs by


P78,750 upon moving their place of business to the downtown area. The company
anticipates that the selling price per unit and the variable expenses will not change. At
present, the sales volume necessary to breakeven is P750,000 but with the expected
increase in fixed costs, the sales volume necessary to breakeven would go up to
P975,000.

Based on these projections, what were the total fixed costs before the increase of
P78,750?
A. P341,250
B. P262,500
C. P183,750
D. P300,000
(Bobadilla)

126. Alexandra Co. provides two products, Velvet and Cotton. Velvet accounts for 60
percent of total sales. The variable costs as a percentage of selling prices are 60% for
Velvet and 85% for Cotton. Total fixed costs are P225,000. If fixed costs will increase by
30 percent, what amount of peso sales would be necessary to generate an operating
profit of P48,000?
A. P1,350,000
B. P 486,425
C. P1,135,000
D. P 910,000
(Bobadilla)

127. Last month, Zamora Company had an income of P0.75 per unit with sales of
60,000 units. During the current month when the unit sales are expected to be only
45,000, there is a loss of P1.25 per unit. Both the variable cost per unit and total fixed
costs remain constant. The fixed costs amounted to
A. P 80,000
B. P247,500
C. P360,000
D. P210,000
(Bobadilla)

128. During the month of June, Armani Corporation produced 12,000 units and sold
them for P20 per unit. Total fixed costs for the period were P154,000, and the operating
profit was P26,000. The variable cost per unit for June was
A. P4.50
B. P5.00
C . P6.00
D. P7.17
(Bobadilla)

129. Stone Company plans to sell 400,000 laundry hangers. The fixed costs are
P600,000, and the variable cost is 60% of the selling price. If the company wants to
realize a profit of P120,000, the selling price of each laundry hanger must be
A. P2.50
B. P3.75
C. P4.50
D. P5.00
(Bobadilla)
130. An organization’s break-even point is 4,000 units at a sales price of P50 per unit,
variable cost of P30 per unit, and total fixed costs of P80,000. If the company sells 500
additional units, by how much will its profit increase?
A. P25,000
B. P15,000
C. P10,000
D. P12,000
(Bobadilla)

For Item #131-133, refer to the problem below:


Following information pertains to X Company’s two products:

Digicam Videocam
Break-even point-units 360 240
Selling price P 4,500 P14,250
Variable costs 2,250 5,000

131. What is the weighted average contribution per margin?


A. P11,500
B. P5,050
C. P19.17
D. P25,250

132. How much is total fixed costs?


A. P3,030,000
B. P5,040,000
C. P2,010,000
D. P5,050,000

133. How many units of each product should be sold if the company desires to earn
profit before tax of P15,000?
Digicam Webcam
A. 900 900
B. 360 240
C. 360 540
D. 540 360

(Roque, 2016)

134. A company is making plans for next year, using cost-volume-profit analysis as its
planning tool.
Next year’s sales data about its product are as follows
Selling price P60
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.5
Fixed operating costs (60% is manufacturing costs) P148,500
Income tax rate 30%

How much should sales be next year if the company wants to earn profit after tax of
P23,100, the same amount that it earned last year?

A. P310,800
B. P397,500
C. P330,000
D. P222,000
(Roque, 2016)

For Items #135-137, refer to the problem below:


Assume that the company’s management learned that a new technology that will increase the
quality of its product is available

If implemented, its projections for next year will be changed


a. The selling price of the product will increase to P75 per unit
b. Fixed manufacturing costs will increase by 20%
c. Additional advertising costs will be incurred to promote the higher quality
product. This will increase fixed non-manufacturing cost by 10%
d. The improved product will require a new material that will increase direct
materials cost by P4.50

135. If the new technology is adapted, how much sales should the company make to
earn a pre-tax profit of 10% on sales ?
A. P336,130
B. P358,875
C. P253,324
D. 353,897

136. If the sales required in item no.136 is realized, the company will have a margin
of safety of
A. P297,000
B. 61,875 units
C. P825
D. 17.24%
137. If the sales required in Item no 136 is realized, the company will have an
operating leverage factor of
A. 8.53
B. 5.80
C. 17.24%
D. 5.50
(Roque, 2016)

138. Contribution per unit is £1. Fixed costs are £5,000. Production and sales are
7,500 units. Profit is
A. 2,500
B. 3,500
C. 1,500
D. 2,000
(Roque, 2016)

139. Break-even analysis is based upon several simplifying assumptions. For a multi-
product company, such assumptions are as follows, except
A. Production volume always exceed sales volume
B. A given sales mix is maintained for all volume changes
C. Variable costs are constant per unit
D. Total fixed costs are constant regardless of volume changes within the relevant
range.
(Roque, 2016)

140. The break-even point is 10,000 units, sales are 12,000 units. The margin of safety
expressed as a percentage of the break-even point is therefore:
A. 25%
B. 80%
C. 120%
D. 20%
(Roque, 2016)
141. A product has a selling price of P20 and unit variable cost of P14. the effect of a
P2 per unit increase in variable cost is to increase the break-even level capacity by
A. 33 ⅓%
B. 50%
C. P2 per unit
D. 66.67%
(Roque,2016)

142. Amoroso Corp. sells a single product for P180 per unit. Last year, it sold 120,000
units and earned profit before tax of P300,000. Fixed costs amounted to P1,500,000.
Next year, fixed costs is expected to increase by 40%. What should the selling price be
next year to make the same amount of profit before tax of P300,000?
A. P180
B. P252
C. P5
D. P185
(Roque,2016)

143. Antiporda, Inc. sells three products, A, B, and C. The company sells three (3)
units of C. Total fixed costs amount to P760,000. Product A’s contribution margin per
unit is P2, Product B’s is 150% of A’s, and Product C’s is twice as much as B’s. How
many units of each product must be sold to break-even?

Product A Product B Product C


A. 2,000 12,000 6,000
B. 20,000 120,000 60,000
C. 29,231 58,462 87,692
D. 69,091 414,546 207,273
(Roque,2016)

144. A company has fixed costs of P150,000, a variable cost ratio of 60%, and a
margin of safety ratio of 25%. Considering the given data, which of the following
statements is not correct?

A. The company’s profit ratio is 10%


B. Sales amounted to P375,000
C. Profit amounts to P50,000
D. The contribution margin amounts to P200,000
(Roque,2016)
ITEMS #145-148, refer to the problem below:
In 200A, the company’s sales was P500,000. Its fixed costs amounts to P100,000 per year. In
200B, sales was 20% higher, while profit was P30,000 higher than 200A figures. For 200C, the
company expects to have sales that is twice as much as the 200A sales. The expected increase in
production to meet the sales demand in 200C will not require the company to exceed its normal
capacity.

145. What is the company’s contribution margin ratio?


A. 70%
B. 30%
C. 10%
D. 60%
146. How much profit does the company expect to earn in 200C?
A. P200,000
B. P160,000
C. P100,000
D. P150,000

147. What is the company’s break-even point in units?


A. P333,333.33
B. 333,333.33 units
C. 500,000
D. Cannot be determined from that given information
(Roque,2016)

148. A company’s break-even sales (BES) is P600,000. If fixed costs would increase
10% of this BES, such BES would increase by 40%. What is the variable cost ratio?
A. 25%
B. 75%
C. 40%
D. 10%

149. How much is fixed costs at the new BES level?


A. P450,000
B. P150,000
C. P630,000
D. P210,000
(Roque,2016)

150. A company’s product is sold for P60. The variable cost per unit is P28.80 and
fixed costs amounts to P216,000. The company is considering to acquire a new
equipment that would increase fixed costs to P240,000 and decrease variable cost per
unit by P4.80.
Considering the given data, which of the following is not correct?

A. If the new equipment is acquired, the break-even point will decrease


B. The indifference point between the two cost structures is equal to 5,000 units
C. If expected sales will be above the indifference point, it is better not to acquire
the new equipment
D. If the expected sales will be lower than the indifference point, the company
should not acquire the new equipment.
(Roque,2016)

151. To which function of management is CVP analysis most applicable?


A. Planning
B. Organizing
C. Directing
D. Controlling
(Bobadilla, 2015)
152. The term contribution margin is best defined as the:
A. Difference between fixed costs and variable costs.
B. Difference between revenue and fixed costs.
C. Amount available to cover fixed costs and profit.
D. Amount available to cover variable costs.
(Bobadilla, 2015)
153. As the projected net income increases the
A. Degree of operating leverage declines
B. Margin of safety stays constant
C. Break-even point goes down
D. Contribution margin ratio goes up
(Bobadilla, 2015)
154. If a company raises its target peso profit, its
A. Break-even point rises
B. Fixed costs increase
C. Required total contribution margin increases
D. Selling price rises
(Bobadilla, 2015)

155. If a company is operating at a loss,


A. Fixed costs are greater than sales
B. Selling price is lower than the variable cost per unit
C. Selling price is less than the average total cost per unit.
D. Fixed cost per unit is greater than variable cost per unit.
(Bobadilla, 2015)

For Items #156-157, refer to the problem below:


Carribean Company produces a product that sells for P60. the variable manufacturing costs are
P30 per unit. The fixed manufacturing cost is P10 per unit based on the current level of activity,
and fixed selling and administrative costs are P8 per unit. A selling commission of 10% of the
selling price is paid on each unit sold.

156. The contribution margin per unit is:


A. 24
B. 36
C. 30
D. 54
(Bobadilla, 2015)

For Item #157, consider the following information


Fixed expenses P78,000
Unit contribution margin 12
Target net profit P42,000

157. How many unit sales are required to earn the target net profit?
A. 15,000 units
B. 10,000 units
C. 12,800 units
D. 20,000 units
(Bobadilla, 2015)
For Item #158, consider the following information
Mercado, Inc. had the following economic data for 2010:
Net sales P400,000
Contribution margin 160,000
Margin of safety 40,0000

158. What is Mercado’s breakeven point in 2010?


A. 360,000
B. 288,000
C. 320,000
D. 80,000
(Bobadilla, 2015)

For Item #159, consider the following information


Below is the income statement for Blender Co. for 2010:
Sales P 400,000
Variable costs (125,000)
Contribution margin P 275,000
Fixed costs (200,000)
Profit before tax P 75,000

159. What is the degree of operating leverage for Blender Company for 2010?
A. 3.67
B. 1.45
C. 5.33
D. 1.67
(Bobadilla. 2015)
For Item #160 consider the following information
The following information pertains to Hennin Corporation for the year ending Dec 31, 2009:
Budgeted sales P1,000,000
Breakeven sales 700,000
Budgeted contribution margin 600,000
Cash flow breakeven 200,000

160. The margin of safety for Hennin Corporation is:


A. 300,000
B. 400,000
C. 500,000
D. 800,000
(Bobadilla, 2015)

161. Harry Manufacturing incurs annual fixed costs of P250,000 in producing and
selling a single product. Estimated unit sales are 125,000. An after-tax income of
P75,000 is desired by management. The company projects its income tax rate at 40
percent. What is the maximum amount that Harry can expend for variable costs per unit
and still meet its profit objective if the sales price per unit is estimated at P6?
A. P3.37
B. P3.59
C. P3.00
D. P3.70
(CPAR Reviewer, 2017)

162. For its most recent fiscal year, a firm reported that its contribution margin was
equal to 40 percent of sales and that its net income amounted to 10 percent of sales. If its
fixed costs for the year were P60,000, how much was the margin of safety?
A. P150,000
B. P200,000
C. P600,000
D. P 50,000
(CPAR Reviewer, 2017)

163. Sam Company manufactures a single product. In the prior year, the company had
sales of P90,000, variable costs of P50,000, and fixed costs of P30,000. Sam expects its
cost structure and sales price per unit to remain the same in the current year, however
total sales are expected to increase by 20 percent. If the current year projections are
realized, net income should exceed the prior year’s net income by:
A. 100 percent
B. 80 percent
C. 20 percent
D. 50 percent
(CPAR Reviewer, 2017)
For Items #164-165, refer to the problem below:
A company is making plans for next year, using cost-volume-profit analysis as its planning tool.

Next year’s sales data about its product are as follows:


Selling price P60.00
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%

164. How much should sales be next year if the company wants to earn profit after tax
of P22,440, the same amount that it earned last year?
A. P310,800
B. P397,500
C. P330,000
D. P222,000

165. Assume that the company’s management learned that a new technology that will
increase the quality of its product is available. If implemented, its projections for next
year will be changed:

I. I. The selling price of the product will increase to P75 per unit.
II. Fixed manufacturing costs will increase by 20%.
III. Additional advertising costs will be incurred to promote the higher-
quality product. This will increase fixed non-manufacturing cost by 10%.
IV. The improved product will require a new material that will increase direct
materials cost by P4.50

If the new technology is adapted, how much sales should the company make to earn a
pre-tax profit of 10% on sales?

A. P366,130
B. P358,875
C. P253,324
D. P353,897
(CPAR Reviewer, 2017)

166. Yamyam Company is considering introducing a new product that will require a
P250,000 investment of capital. The necessary funds would be raised through a bank
loan at an interest rate of 8%. The fixed operating costs associated with the product
would be P122,500 while the variable cost ratio would be 58%. Assuming a selling price
of P15 per unit, determine the number of units (rounded to the nearest whole unit)
Yamyam would have to sell to generate earnings before interest and taxes (EBIT) of
32% of the amount of capital invested in the new product.
A. 35,318 units
B. 25,575 units
C. 32,143 units
D. 23,276 units
(CPAR Reviewer, 2017)

167. The following information relates to Hera Corporation for last year:
Sales P500,000
Net operating income P25,000
Degree of operating leverage 5

Sales at Hera are expected to be P600,000 next year. Assuming no change in cost
structure, this means that net operating income for next year should be:
A. 30,000
B. 45,000
C. 50,000
D. 125,000
(CPAR Reviewer, 2018)
For Items #168-169, consider the following information:
Total Cost Unit Cost
Sales (40,000 units) P1,000,000 P25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead:
Variable 80,000 2
Fixed 360,000
Selling and general expenses:
Variable 120,000 3
Fixed 225,000

168. How many units does the company need to produce and sell to make a before-tax
profit of 10% of sales?
A. 65,000 units
B. 36,562 units
C. 90,000 units
D. 29,250 units

169. Assuming that the company sells 80,000 units, what is the maximum that can be
paid for an advertising campaign while still breaking even?
A. 135,000
B. 1,015,000
C. 535,000
D. 695,000
(CPAR Reviewer, 2018)
170. As projected net income increases the
A. degree of operating leverage declines.
B. margin of safety stays constant.
C. break-even point goes down.
D. contribution margin ratio goes up.
(CPAR Reviewer, 2017)
ORTEGA, Norman Dotollo (171-180)
PAGUNSAN, Kevin Michael Madres (181-190)

191. Wheel and Tire Manufacturing currently produces 1,000 tires per month. The
following per unit data apply for sales to regular customers:

Direct materials $20


Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
Total manufacturing costs $39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000
tires. What is the total cost of producing 2,000 tires?
A. $39,000
B. $78,000
C. $68,000
D. $62,000
(Horngren Testbank, 2013)

192. Tire and Spoke Manufacturing currently produces 1,000 bicycles per month. The
following per unit data apply for sales to regular customers:

Direct materials $50


Direct manufacturing labor 5
Variable manufacturing overhead 14
Fixed manufacturing overhead 10
Total manufacturing costs $79

The plant has capacity for 3,000 bicycles and is considering expanding production to
2,000 bicycles.
What is the per unit cost of producing 2,000 bicycles?
A. $79 per unit
B. $158 per unit
C. $74 per unit
D. $134 per unit
(Horngren Testbank, 2013)

193. Pederson Company reported the following:


Manufacturing costs $2,000,000
Units manufactured 50,000
Units sold 47,000 units sold for $75 per unit
Beginning inventory 0 units
What is the amount of gross margin?
A. $1,750,000
B. $3,525,000
C. $5,405,000
D. $1,645,000
(Horngren Testbank, 2013)

194. The following information pertains to the Cannady Corporation:


Beginning work-in-process inventory $ 50,000
Ending work-in-process inventory 48,000
Beginning finished goods inventory 180,000
Ending finished goods inventory 195,000
Cost of goods manufactured 1,220,000
What is cost of goods sold?
A. $1,235,000
B. $1,205,000
C. $1,218,000
D. $1,222,000
(Horngren Testbank, 2013)

195. The following information pertains to the Duggan Corporation:


Beginning work-in-process inventory $ 20,000
Ending work-in-process inventory 23,000
Beginning finished goods inventory 36,000
Ending finished goods inventory 34,000
Cost of goods manufactured 246,000
What is cost of goods sold?
A. $244,000
B. $248,000
C. $243,000
D. $249,000
(Horngren Testbank, 2013)
For Items #196-198, use the information below:
Beginning finished goods, 1/1/20X3 $ 90,000
Ending finished goods, 12/31/20X3 77,000
Cost of goods sold 270,000
Sales revenue 500,000
Operating expenses 155,000

196. What is cost of goods manufactured for 20X3?


A. $230,000
B. $257,000
C. $283,000
D. $355,000

197. What is gross margin for 20X3?


A. $283,000
B. $355,000
C. $230,000
D. $257,000

198. What is operating income for 20X3?


A. $75,000
B. $112,000
C. $62,000
D. $230,000
(Horngren Testbank, 2013)
For Items #199-200, use the information below:
The Singer Company manufactures several different products. Unit costs associated with
Product ICT101 are as follows:
Direct materials $ 60
Direct manufacturing labor 10
Variable manufacturing overhead 18
Fixed manufacturing overhead 32
Sales commissions (2% of sales) 4
Administrative salaries 16
Total $140

199. What are the inventoriable costs per unit associated with Product ICT101?
A. $120
B. $140
C. $50
D. $88

200. What are the period costs per unit associated with Product ICT101?
A. $4
B. $16
C. $20
D. $52
(Horngren Testbank, 2013)

201. The contribution margin ratio always increases when the:


A. break-even point increases.
B. break-even point decreases.
C. variable expenses as a percentage of net sales decrease.
D. variable expenses as a percentage of net sales increase.
(Garrison)

202. Salinas Corporation has a degree of operating leverage of 8. This means that a
1% change in sales dollars at Salinas will generate an 8% change in:
A. variable expenses.
B. fixed expenses.
C. contribution margin.
D. net operating income.
203. A $2.00 increase in a product's variable expense per unit accompanied by a $2.00
increase in its selling price per unit will:
A. decrease the degree of operating leverage.
B. decrease the contribution margin.
C. have no effect on the break-even volume.
D. have no effect on the contribution margin ratio.
(Garrison)

204. To obtain the dollar sales volume necessary to attain a given target profit, which
of the following formulas should be used?
A. (Fixed expenses + Target net profit)/Total contribution margin
B. (Fixed expenses + Target net profit)/Contribution margin ratio
C. Fixed expenses/Contribution margin per unit
D. Target net profit/Contribution margin ratio
(Garrison)
205. The contribution approach income statement:
A. organizes costs on a functional basis.
B. provides owners with more cash flows.
C. is particularly helpful to the manager in planning and decision making.
D. provides a gross margin figure from which selling and administrative expenses
are deducted.
E. none of these.
(Garrison)

206. Green Corporation expects to sell 3,000 plants a month. Its operations manager
estimated the following monthly costs:

Variable costs P7,500


Fixed costs 15,000

What sales price per plant does she need to achieve to begin making a profit if she sells
the estimated number of plants per month?
A. P7.51
B. P7.50
C. P5.00
D. P2.50
(Bobadilla, 2014)

207. Information concerning the 2007 financial projections of the Silver Company is
as follows:
Net sales of P3,000,000.
Fixed costs of P800,000.
P0.65 increase in cost of sales for each peso increase in net sales.

What is the projected cost of sales for 2007?


A. P950,000
B. P2,750,000
C. P1,050,000
D. P1,850,000
(Bobadilla, 2014)

208. The sales mix for Dial Enterprise is as follows:


Product A: 12 units @ P5.25 sales price; P4.85 variable cost per unit.
Product B: 10 units @ P7.50 sales price; P6.95 variable cost per unit.
Product C: 6 units @ P12.25 sales price; P10.35 variable cost per unit.
Dial Enterprise's fixed costs are P75,950.
What are the composite break-even point?
A. 98,000
B. 2,000
C. 3,500
D. 4,000
(Bobadilla, 2014)

209. Adventurous Co. is considering dropping a product. Variable costs are P60.00
per unit. Fixed overhead costs, exclusive of depreciation, have been allocated at a rate
of P3.50 per unit and will continue whether or not production ceases. Depreciation on
the equipment is P60,000 a year. If production is stopped, the equipment can be sold for
P270,000, if production continues, however, it will be useless at the end of 1 year and
will have no salvage value. The selling price is P100 a unit. Ignoring taxes, the
minimum number of units to be sold in the current year to break even on a cash flow
basis is
A. 1,500 units.
B. 6,750 units.
C. 8,250 units.
D. 9,750 units
(Bobadilla, 2014)
210. BM Motors, Inc. employs 40 sales personnel to market its line of economy
automobiles. The average car sells for P1,200,000 and a 6% commission is paid to the
salesperson. BM Motors is considering a change to a commission arrangement that
would pay each salesperson a salary of P24,000 per month plus a commission of 2% of
the sales made by that salesperson.

The amount of total car sales at which the two expense structures would be indifferent is
A. P22,500,000
B. P24,000,000
C. P30,000,000
D. P12,000,000
(Bobadilla, 2014)

211. When using conventional cost-volume-profit analysis, some assumptions about


costs and sales prices are made. Which of the following is one of those assumptions?

A. The contribution margin will change as volume increases


B. The variable cost per unit will decrease as volume increases
C. The sales price per unit will remain constant as volume increases
D. Fixed cost per unit will remain the same as volume increases
(Bobadilla, 2014)
212. Cost-volume-profit analysis is a technique available to management to
understand better the interrelationships of several factors that affect a firm's profit. As
with many such techniques, the accountant oversimplifies the real world by making
assumptions. Which of the following is not a major assumption underlying CVP
analysis?

A. All costs incurred by a firm can be separated into their fixed and variable
components.
B. The product’s selling price per unit is constant at all volume levels within a
relevant range.
C. Operating efficiency and employee productivity is constant at all volume levels.
D. For multi-product situations, the sales mix can vary at different volume levels.

(Bobadilla, 2014)

213. Broadway Company sells three products: A, B and C. Product A's unit
contribution margin is higher than Product B's which is higher than Products C's. Which
one of the following events is most likely to increase the company's overall break-even
point?
A. The installation of new automated equipment and subsequent lay-off of factory
workers.
B. A decrease in Product C's selling price.
C. An increase in the overall market demand for Product B.
D. A change in the relative market demand for the products, with the increase
favoring Product A relative to Product B and Product C.
(Bobadilla, 2014)

214. A company’s breakeven point in peso sales may be affected by equal percentage
increases in both selling price and variable cost per unit (assume all other factors are
equal within the relevant range). The equal percentage changes in selling price and
variable cost per unit will cause the breakeven point in peso sales to

A. Decrease by less than the percentage increase in selling price.


B. Decrease by more than the percentage increase in the selling price.
C. Increase by less than the percentage increase in selling price.
D. Remain unchanged.
(Bobadilla, 2014)

The Harper Corporation manufactures and sells T-shirts imprinted with college names
and slogans. Last year, the shirts sold for P7.50 each, and the variable cost to
manufacture them was P2.25 per unit. The company needed to sell 20,000 shirts to
break even. The net income last year was P5,040. Harper’s expectations for the coming
year include the following:

1.The sales price of the T-shirts will be P9


2.Variable cost to manufacture will increase by one-third
3.Fixed costs will increase by 10%
4.The income tax rate of 40% will be unchanged

215. The selling price that would maintain the same contribution margin rate as last
year is
A. P 9.00
B. P10.00
C. P 8.25
D. P 9.75
(Bobadilla, 2014)

For Items #216-220, refer to the problem below:


San Carlos operates a general hospital but rents space and beds to separate entities for
specialized treatment such as pediatrics, maternity, psychiatric, etc. San Carlos charges each
separate entity for common services to its patients like meals and laundry and for all
administrative services such as billings, collections, etc. All uncollectible accounts are charged
directly to the entity. Space and bed rentals are fixed for the year.

For the entire year ended June 30, the Pediatrics Department at San Carlos Hospital charged
each patient an average of P650 per day, had a capacity of 60 beds, operated 24 hours per day
for 365 days, and had revenue of P10,676,250.

Expenses charged by the hospital to the Pediatrics Department for the year ended June 30 were:
Basis of Allocation
Patient Days Bed Capacity

Dietary P 328,500
Janitorial P 118,400
Laundry 197,100
Lab, other than direct charges to patients
410,625
Pharmacy 410,625
Repairs and maintenance 65,700 66,045
General administrative services 1,218,780
Rent 2,546,710
Billings and collections 689,850
Bad debt expense 246,375
Others 114,975 240,315
Total P2,463,750 P4,190,250

The only personnel directly employed by the Pediatrics Department are supervising nurses,
nurses, and aides. The hospital has minimum personnel requirements based on total annual
patient days.

Hospital requirements beginning at the minimum, expected level of operation follow:

Annual Patient Days Aides Nurses Supervising Nurses


10,000 – 14,000 21 11 4
14,001 – 17,000 22 12 4
17,001 – 23,725 22 13 4
23,726 – 25,550 25 14 5
25,551 – 27,375 26 14 5
27,376 – 29,200 29 16 6

The staffing levels above represent full-time equivalents, and it should be assumed that the
Pediatrics Department always employs only the minimum number of required full-time
equivalent personnel.

Annual salaries for each class of employee follow: supervising nurses, P180,000; nurses,
P130,000; and aides, P50,000. Salary expense for the year ended June 30 for supervising
nurses, nurses, and aides was P720,000, P1,560,000, and P1,100,000, respectively.

The Pediatrics Department operated at 100% capacity during 111 days of the past year. It is
estimated that during 90 of these capacity days, the demand average 17 patients more than
capacity and even went as high as 20 patients more on some days. The hospital has an
additional 20 beds available for rent for the coming fiscal year.
216. The contribution margin per patient day is
A. P 400.00
B. P 450.00
C. P 500.00
D. P 525.00

217. How many patient days are necessary to cover fixed costs for bed capacity and
for supervisory nurses?
A. 9,500
B. 9,820
C. 10,250
D. 12,000

218. The number of patient days needed to cover total costs is


A. 14,780
B. 15,140
C. 15,820
D. 16,080

219. If the Pediatrics Department rented an additional 20 beds and all other factors
remain the same as in the past year, what would be the increase in revenue?
A. P 994,500
B. P 877,500
C. P 1,054,500
D. P 897,500

220. What is the increase in fixed cost applied for bed capacity, given the increase in
number of beds?
A. P 1,396,667
B. P 1,470,000
C. P 1,187,238
D. P 1,520,000
(Bobadilla, 2014)

221. At the breakeven point, the contribution margin equals total


A. Variable costs.
B. Sales revenue.
C. Selling and administrative costs.
D. Fixed costs.
(Wiley, 2014)

222. The most likely strategy to reduce the breakeven point would be to
A. Increase both the fixed costs and the contribution margin.
B. Decrease both the fixed costs and the contribution margin.
C. Decrease the fixed costs and increase the contribution margin.
D. Increase the fixed costs and decrease the contribution margin.
(Wiley, 2014)

223. In calculating the breakeven point for a multi-product company, which of the
following assumptions are commonly made when variable costing is used?
I. Sales volume equals production volume.
II. Variable costs are constant per unit.
III. A given sales mix is maintained for all volume changes.

A. I and II.
B. I and III.
C. II and III.
D. I, II, and III.
(Wiley, 2014)

224. The elements of CVP analysis include the following, except


A. Total fixed costs.
B. Unit variable cost.
C. Volume or number of units.
D. Relevant costs.
(Roque, 2016)

225. Which of the following statements is correct?


A. Gross margin and contribution margin are the same.
B. Contribution margin is the excess of sales over variable costs, and this is the
amount available for the recovery of fixed assets and generation of profit.
C. One inherent, simplifying assumption in CVP analysis is that production equals
sales.
D. Unit variable costs change directly with the cost driver or activity level.
(Roque, 2016)

226. In contribution income statement,


A. costs are classified as to function.
B. fixed and variable manufacturing costs are combined as one level item.
C. fixed costs are shown separately from variable costs.
D. fixed manufacturing costs are shown separately from variable manufacturing
costs, but fixed and variable operating costs are combined as one line item.

(Roque, 2016)
(ITEMS 227 TO 229 ARE BASED ON THE FOLLOWING INFORMATION)
A company sells two products, Product 1 and Product 2. Three units of Product are sold for
every two units of Product 2. Fixed costs is P234,000 per year.

Product 1 is sold for P20 per unit and the variable costs identified with the production and sale
of each unit of the product amounts to P14. Product 2 is sold for P24 per unit, and the variable
costs identified with the production and sale of each unit of the product amounts to P20.

227. The weighted-average unit contribution margin is


A. P26
B. P10
C. P50
D. P5.20

228. The break-even point in units:


A. Product 1 45,000 units; Product 2 45,000 units
B. Product 1 27,000 units; Product 2 18,000 units
C. Product 1 135,000 units; Product 2 90,000 units
D. Product 1 3 units; Product 2 2 units

229. The weighted-average contribution margin ratio is


A. 24%
B. 46.67%
C. 9.33%
D. 11.82%
(Roque, 2016)

230. Which of the following is not correct? At break-even,


A. profit equals zero.
B. gross profit equals zero.
C. sales equals total costs.
D. fixed costs equals contribution margin.
(Roque, 2016)

231. The difference between total sales in dollars and total variable expenses is called:
A. net operating income.
B. net profit.
C. the gross margin.
D. the contribution margin.
(Garrison 9/e)

232. The total contribution margin decreases if sales volume remains the same and:
A. fixed expenses increase.
B. fixed expenses decrease.
C. variable expense per unit increases.
D. variable expense per unit decreases.
(Garrison 9/e)

233. The break-even in units sold will decrease if there is an increase in:
A. unit sales volume.
B. total fixed expenses.
C. unit variable expenses.
D. selling price.
(Garrison 9/e)

234. The ratio of fixed expenses to the unit contribution margin is the:
A. break-even point in unit sales.
B. profit margin.
C. contribution margin ratio.
D. margin of safety.
(Garrison 9/e)

235. A company increased the selling price for its product from $1.00 to $1.10 a unit
when total fixed expenses increased from $400,000 to $480,000 and variable expense
per unit remained unchanged. How would these changes affect the break-even point?
A. The break-even point in units would increase.
B. The break-even point in units would decrease.
C. The break-even point in units would remain unchanged.
D. The effect cannot be determined from the information given.
(Garrison 9/e)

236. The margin of safety is equal to:


A. Sales - Net income.
B. Sales - (Variable expenses/Contribution margin).
C. Sales - (Fixed expenses/Contribution margin ratio).
D. Sales - (Variable expenses + Fixed expenses).
(Garrison 9/e)

237. The break-even point in unit sales increases when variable expenses:
A. increase and the selling price remains unchanged.
B. decrease and the selling price remains unchanged.
C. decrease and the selling price increases.
D. remain unchanged and the selling price increases.
(Garrison 9/e)

238. North Company sells a single product. The product has a selling price of $30 per
unit and variable expenses of 70% of sales. If the company's fixed expenses total
$60,000 per year, then it will have a break-even of:
A. $60,000.
B. $85,714.
C. $42,000.
D. $200,000
(Garrison 9/e)

239. Carver Company produces a product which sells for $30. Variable manufacturing
costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current
level of activity, and fixed selling and administrative costs are $4 per unit. A selling
commission of 10% of the selling price is paid on each unit sold. The contribution
margin per unit is:
A. $ 3.
B. $15.
C. $ 8.
D. $12.
(Garrison 9/e)

240. The following is last month's contribution format income statement:


Sales (8,000 units) ................ $800,000
Less variable expenses .............. 500,000
Contribution margin .................. 300,000
Less fixed expenses ................... 200,000
Net income ................................. $100,000
What is the company's degree of operating leverage?
A. 0.125
B. 8.0
C. 3.0
D. 0.333
(Garrison 9/e)
241. Cost-volume-profit relationships that are curvilinear may be analyzed linearly by
considering only
A. A relevant range of activity.
B. The variable costs.
C. The fixed costs.
D. The relevant costs.
(Roque, 2016)

242. The assumptions under which CVP analysis operates primarily hinge on
certainty. However, when uncertainty enters the situation, the results may not be so clear.
In this case, the MAS consultant should
A. Use a sample from the entire population of data to generate a decision model and
make the decision for management.
B. Do nothing. It is not the MAS consultant’s responsibility to be concerned with
the uncertainty of the results and/or assumptions.
C. Ascertain the probabilities of various outcomes and work with management on
understanding those probabilities in reference to the CVP decision.
D. Refer the case to another consultant who is an expert in making accurate
predictions.
(Roque, 2016)

243. A calculation used in CVP analysis is the break-even point. At this point, total
revenue equals total costs. Beyond the break-even point, operating income will increase
by the
A. Variable cost per unit for each additional unit.
B. Selling price per unit for each additional unit.
C. Contribution margin per unit for each additional unit.
D. Gross profit per unit for each additional unit.
(Roque, 2016)

244. One of the major assumptions limiting the reliability of break-even analysis is
that

A. Unit variable costs and total fixed costs will vary directly with the change in
units sold.
B. There is a relevant range in which the various relationships are true for a given
period of time.
C. Productive efficiency will increase as more units are produced.
D. Changes in inventory are significant in amount. (Roque, 2016)
245. Which of the following statements is not correct?
A. All other factors remaining constant, a 10% decrease in the selling price of a
given product will have the same effect on profit as a 10% increase in the unit
variable cost of such product.
B. Other things as they are, a P10,000 decrease in fixed costs will increase
operating profit by the same amount.
C. A change in the amount of fixed costs will not affect the ratio of variable costs to
sales.
D. A change in fixed costs has no effect on the contribution margin.
(Roque, 2016)

Items 246 to 250 are based on the following information:


Basic Illustration Corp. produces and sells a single product. The selling price is P25 and the
variable costs is P15 per unit. The corporation’s fixed costs is P100,000 per month. Average
monthly sales is 11,000 units.

246. The corporation’s contribution margin per unit and as a percent of sales (CMR) is
A. P10 per unit; 40%
B. P40 per unit; 160%
C. 10 units; 40%
D. P10 per unit; 60%

247. The corporation’s break-even point


A. P10,000
B. 250, 000 units
C. 10,000 units or P250,000
D. 250,000 units or P10,000

248. If the corporation desires to earn profit of P20,000 before tax, it must generate
sales of
A. P12,000
B. 300,000 units
C. 10,000 units or P250,000
D. 12,000 units or P300,000

249. If the corporation pays corporate income tax at the rate of 30%, and it desires to
earn after-tax profit og P21,000, it must generate sales of
A. P325,000 or 13,000 units
B. P13,000 or 325,000 units
C. 12,040 units or P301,000
D. 16,375 units or P409,375

250. How much sales (in pesos) must be generated to earn profit that is 8% of such
sales?
A. P270,000
B. P312,500
C. P208,333.33
D. P230,000
(Roque, 2016)

251. Harry Manufacturing incurs annual fixed costs of P250,000 in producing and
selling a single product. Estimated unit sales are 125,000. An after-tax income of
P75,000 is desired by management. The company projects its income tax rate at 40
percent. What is the maximum amount that Harry can expend for variable costs per unit
and still meet its profit objective if the sales price per unit is estimated at P6?
A. P3.37
B. P3.59
C. P3.00
D. P3.70
(CPAR Special Handouts, 2016)

252. For its most recent fiscal year, a firm reported that its contribution margin was
equal to 40 percent of sales and that its net income amounted to 10 percent of sales. If its
fixed costs for the year were P60,000, how much was the margin of safety?

A. P150,000
B. P200,000
C. P600,000
D. P50,000
(CPAR Special Handouts, 2016)

253. Sam Company manufactures a single product. In the prior year, the company had
sales of P90,000, variable costs of P50,000, and fixed costs of P30,000. Sam expects its
cost structure and sales price per unit to remain the same in the current year, however
total sales are expected to increase by 20 percent. If the current year projections are
realized, net income should exceed the prior year’s net income by:
A. 100 percent
B. 80 percent
C. 20 percent
D. 50 percent
(CPAR Special Handouts, 2016)

254. Edil Company produces and sells a single product. The costs and selling prices
on a per-unit basis are as follows:
Selling Price P120
Materials 35
Labor 15
Variable overhead 10
Fixed overhead 10
Variable selling and administrative 20
Fixed selling and administrative 5

The above per-unit figures are computed based on the company’s normal capacity of
20,000 units.
The company’s expected margin of safety is
A. 7,500 units
B. P2,400,000
C. 62.5%
D. P12,500
(CPAR Special Handouts, 2016)

ITEMS 255 to 256 ARE BASED ON THE FOLLOWING INFORMATION:


A company is making plans for next year, using cost-volume-profit analysis as its planning
tool.

Next year’s sales data about its product are as follows:


Selling price P60.00
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%

255. How much should sales be next year if the company wants to earn profit after tax
of P22,440, the same amount that it earned last year?
A. P310,800
B. P397,500
C. P330,000
D. P222,000
(CPAR Special Handouts, 2016)

256. Assume that the company’s management learned that a new technology that will
increase the quality of its product is available. If implemented, its projections for next
year will be changed:
■ The selling price of the product will increase to P75 per unit.
■ Fixed manufacturing costs will increase by 20%.
■ Additional advertising costs will be incurred to promote the higher-quality
product. This will increase fixed non-manufacturing cost by 10%.
■ The improved product will require a new material that will increase direct
materials cost by P4.50

If the new technology is adapted, how much sales should the company make to earn a
pre-tax profit of 10% on sales?
A. P366,130
B. P358,875
C. P253,324
D. P353,897
(CPAR Special Handouts, 2016)

257. As projected net income increases the


A. degree of operating leverage declines
B. margin of safety stays constant.
C. break-even point goes down.
D. contribution margin ratio goes up.
(CPAR Special Handouts, 2016)

258. Yamyam Company is considering introducing a new product that will require a
P250,000 investment of capital. The necessary funds would be raised through a bank
loan at an interest rate of 8%. The fixed operating costs associated with the product
would be P122,500 while the variable cost ratio would be 58%. Assuming a selling price
of P15 per unit, determine the number of units (rounded to the nearest whole unit)
Yamyam would have to sell to generate earnings before interest and taxes (EBIT) of
32% of the amount of capital invested in the new product.
A. 35,318 units
B. 25,575 units
C. 32,143 units
D. 23,276 units
(CPAR Special Handouts, 2016)

259. Which of the ff. changes in cost-volume-profit factors will reduce break-even
point?
A. A decrease in total fixed cost
B. A decrease in selling price
C. An increase in unit variable cost
D. An increase in total fixed cost
(Roque, 2016)

260. Cost-volume-profit analysis is most essential in the determination of the


A. Relationship between revenues and costs at various levels of operations
B. Volume of operation in order to break-even
C. Variable costs necessary to equal fixed costs
D. Production level that is equal to sales
(Roque, 2016)

261. The break-even point would be increased by:


A. a decrease in total fixed expenses.
B. a decrease in the ratio of variable expenses to sales.
C. an increase in the contribution margin ratio.
D. none of these.
(Garrison- Test bank 13th ed)

262. Which of the following strategies could be used to reduce the break-even point
Fixed expenses Contribution margin
A. Increase Increase
B. Decrease Decrease
C. Decrease Increase
D. Increase Decrease
(Garrison- Test bank 13th ed)

263. Break-even analysis assumes that:


A. Total revenue is constant.
B. Unit variable expense is constant.
C. Unit fixed expense is constant.
D. Selling prices must fall in order to generate more revenue.
(Garrison- Test bank 13th ed)

264. Target profit analysis is used to answer which of the following questions?
A. What sales volume is needed to cover all expenses?
B. What sales volume is needed to cover fixed expenses?
C. What sales volume is needed to earn a specific amount of net operating income?
D. What sales volume is needed to avoid a loss?
(Garrison- Test bank 13th ed)

265. The margin of safety can be calculated by:


A. Sales − (Fixed expenses/Contribution margin ratio).
B. Sales − (Fixed expenses/Variable expense per unit).
C. Sales − (Fixed expenses + Variable expenses).
D. Sales − Net operating income.
(Garrison- Test bank 13th ed)

266. Hopi Corporation expects the following operating results for next year:

Sales $400,000
Margin of safety $100,000
Contribution margin ratio 75%
Degree of operating leverage 4

What is Hopi expecting total fixed expenses to be next year?


A. $75,000
B. $100,000
C. $200,000
D. $225,000
(Garrison- Test bank 13th ed)

267. Escareno Corporation has provided its contribution format income statement for
June. The company produces and sells a single product.
Sales (8,400 units) $764,400
Variable expenses 445,200
Contribution margin 319,200
Fixed expenses 250,900
Net operating income $ 68,300

If the company sells 8,200 units, its total contribution margin should be closest to:
A. $301,000
B. $311,600
C. $319,200
D. $66,674
(Garrison- Test bank 13th ed)
268. Rovinsky Corporation, a company that produces and sells a single product, has
provided its contribution format income statement for November.

Sales (5,700 units) $319,200


Variable expenses 188,100
Contribution margin 131,100
Fixed expenses 106,500
Net operating income $ 24,600

If the company sells 5,300 units, its net operating income should be closest to:
A. $24,600
B. $2,200
C. $22,874
D. $15,400
(Garrison- Test bank 13th ed)

269. Sorin Inc., a company that produces and sells a single product, has provided its
contribution format income statement for January.

Sales (4,200 units) $155,400


Variable expenses 100,800
Contribution margin 54,600
Fixed expenses 42,400
Net operating income $ 12,200

If the company sells 4,600 units, its total contribution margin should be closest to:
A. $54,600
B. $59,800
C. $69,400
D. $13,362
(Garrison- Test bank 13th ed)

270. Decaprio Inc. produces and sells a single product. The company has provided its
contribution format income statement for June.

Sales (8,800 units) $528,000


Variable expenses 290,400
Contribution margin 237,600
Fixed expenses 211,700
Net operating income $ 25,900

If the company sells 9,200 units, its net operating income should be closest to:
A. $27,077
B. $49,900
C. $36,700
D. $25,900
(Garrison- Test bank 13th ed)

271. At the breakeven point, the contribution margin equals total


A. Variable costs
B. Sales revenues
C. Selling and administrative costs
D. Fixed costs
(Wiley 2016)

272. The most likely strategy to reduce the breakeven point would be to
A. Increase both the fixed costs and the contribution margin
B. Decrease both the fixed costs and the contribution margin
C. Decrease the fixed costs and increase the contribution margin
D. Increase the fixed costs and decrease the contribution margin
(Wiley 2016)

273. Del Co. has fixed costs of $100,000 and break-even sales of $800,000. What is
its projected profit at $1,200,000 sales?
A. $ 50,000
B. $150,000
C. $200,000
D. $400,000
(Wiley 2016)
274. Associated Supply, Inc. is considering introducing a new product that will
require a $250,000 investment of capital. The necessary funds would be raised through a
bank loan at an interest rate of 8%. The fixed operating costs associated with the product
would be $122,500 while the contribution margin percentage would be 42%. Assuming
a selling price of $15 per unit, determine the number of units (rounded to the nearest
whole unit) Associated would have to sell to generate earnings before interest and taxes
(EBIT) of 32% of the amount of capital invested in the new product.
A. 35,318 units
B. 32,143 units
C. 25,575 units
D. 23,276 units
(Wiley 2016)

275. During 2013, Thor Lab supplied hospitals with a comprehensive diagnostic kit
for $120. At a volume of 80,000 kits, Thor had fixed costs of $1,000,000 and a profit
before income taxes of $200,000. Due to an adverse legal decision, Thor’s 2014 liability
insurance increased by $1,200,000 over 2013. Assuming the volume and other costs are
unchanged, what should the 2014 price be if Thor is to make the same $200,000 profit
before income taxes?
A. $120.00
B. $135.00
C. $150.00
D. $240.00
(Wiley 2016)

276. Break-even analysis assumes that over the relevant range


A. Unit revenues are nonlinear
B. Unit variable costs are unchanged
C. Total costs are unchanged
D. Total fixed costs are nonlinear.
(Wiley 2016)
277. Product Cott has sales of $200,000, a contribution margin of 20%, and a margin
of safety of $80,000. What is Cott’s fixed cost?
A. $16,000
B. $24,000
C. $80,000
D. $96,000
(Wiley 2016)
278. On January 1, 2014, Lake Co. increased its direct manufacturing labor wage
rates. All other budgeted costs and revenues were unchanged. How did this increase
affect Lake’s budgeted break-even point and budgeted margin of safety?
Budgeted breakeven point Budgeted margin of safety
A. Increase Increase
B. Increase Decrease
C. Decrease Decrease
D. Decrease Increase
(Wiley 2016)

279. Thomas Company sells products X, Y, and Z. Thomas sells three units of X for
each unit of Z, and two units of Y for each unit of X. The contribution margins are $1.00
per unit of X, $1.50 per unit of Y, and $3.00 per unit of Z. Fixed costs are $600,000.
How many units of X would Thomas sell at the breakeven point?
A. 40,000
B. 120,000
C. 360,000
D. 400,000
(Wiley 2016)
280. In calculating the breakeven point for a multiproduct company, which of the
following assumptions are commonly made?

I. Sales volume equals production volume.


II. Variable costs are constant per unit.
III. A given sales mix is maintained for all volume changes.

A. I and II.
B. I and III.
C. II and III.
D. I, II, and II
(Wiley 2016)