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Name;________________________________ Course/Year;__________________

Cost-Volume Profit Analysis

1. Last month, Bingo Company had sales of P220,000, a C/M ratio of 40%, and an M/S ratio of
30%. During the current month, a decrease in sales price and a decrease in fixed costs have
resulted in a C/M ratio of 36% and an M/S ratio of 24%.
Compute the following;
a.) How much is the amount of sales decrease? ____________
b.) How much is the new break-even point? ____________
c.) How much is the profit during the current month? ___________
d. How much is the decrease in fixed costs? _______________

2. Citation Company expects to incur the following costs to produce and sell 70,000 units of its
product:
Variable manufacturing cost P210, 000.00
Fixed manufacturing cost 80, 000.00
Variable marketing expense 105, 000.00
Fixed marketing and administrative expenses 60, 000.00
Required:
1. What price does Citation have to charge for the product in order just to break
even if all 70,000 units produced are sold?_____________
2. Citation plans to expand capacity next year to 100,000 units. The increased
capacity will increase fixed manufacturing costs to P130,000.00. If the sales
price of each unit remains at P8.00, how many units must Citation sell in order
to produce a profit of 20% of sales?______________

3. Based on the information given, determine the amount of each item required.
a. Net profit is 12% of sales
C/M ratio is 30%
Sales P200, 000.00

Required: Break-even sales _______________

b. Net profit is 7.5% of sales


Variable cost ratio is 70%
Break-even sales is P150, 000.00

Required: Actual sales ___________________

c. Net profit is 7% of sales


Break-even sales percentage is 80%
Variable costs, P260, 000.00

Required: Actual sales ___________________


d. Variable cost ratio is 65%
Break-even sales percentage is 60%
Net profit is P56, 000.00

Required: 1.) Margin of safety ___________________


2.) Fixed costs ___________________

e. Break-even sales percentage is 64%


Net profit is 12% of sales
Fixed costs, P128, 000.00

Required: Actual sales _____________________

f. Break-even point is 1,400 units


Unit selling price is P65.00
Current sales volume is 1,600 units

Required: Margin of safety percentage _________________

Test: Multiple choice.


1. 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
2. A fixed cost is the same percentage of sales in 3 different months. Which of the following is
true?
a. The company had the same sales in each of those months.
b. The cost is both fixed and variable
c. The company is operating at its break-even point.
d. The company is achieving its target level of profit.
3. Which of the following would decrease unit contribution margin most?
a. A 15% decrease in selling price
b. A 15% increase in variable expenses
c. A 15% decrease in variable expenses
d. A 15% decrease in fixed expenses
3. A company's breakeven point in sales pesos may be affected equal percentage increases in
both selling price and variable cost per unit (assume all other factors are constant within the
relevant range). The equal percentage changes in selling price and variable cost per unit will
cause the breakeven point is sales pesos to;
a. Remain unchanged
b. Increase by the percentage change in variable cost per unit
c. Decrease by more than the percentage increase in the selling price
d. Decrease by less than the percentage increase in selling price
4. Two companies produce and sell the same product in a competitive industry. Thus, the
selling price of the product for each company is the same. Company 1 has a contribution
margin ratio of 40% and fixed costs of 25 million. Company 2 is more automated, making
its fixed costs 40% higher than those of company 1. Company 2 also has a contribution
margin ratio that is 30% greater than that of company 1. By, comparison, Company 1 will
have <list A> breakeven point in terms of peso sales volume and will have the <list B> peso
profit potential once the indifference point in peso sales volume is exceeded.
List A List B
a. Lower Lesser
b. Lower Greater
c. Higher Lesser
d. Higher Greater

5. Meptz Company produces Product A and sells it for P18.00. The following cost data apply:

Per Unit
Direct materials (3 lb. x 1.50) 4.50
Direct labor 6.45
Variable overhead 1.35
Fixed overhead 1.50
Variable selling expense 1.10
Fixed selling expense 2.20
17.10
====
Meptz has thought of marketing a new Product B with the same cost structure as product
A except that the price will be 15.60. Meptz company currently has the idle plant capacity
necessary for this expansion. Because of the cost structure, Meptz company will find the
production and sale of product B in the short run to be;

a. Not profitable at any price


b. Not profitable unless the price can be raised to 17.10
c. Profitable to produce and sell Product B in the short run at the price of 15.60.
d. Not profitable at 15.60 because the fixed selling expense and fixed manufacturing
overhead will not be covered by the price.
6. If the sales price and the variable cost per unit both increase by 10% and the fixed cost does
not change, the effect on the contribution margin per unit and the contribution margin ratio is
that:
a. The contribution margin per unit increases and the contribution margin ratio decreases.
b. The contribution margin per unit increases and the contribution margin ratio remains
unchanged.
c. The contribution margin per unit and the contribution margin ratio both increases.
d. The contribution margin per unit and the contribution margin ratio both unchanged.
7. Cost-volume-profit analysis allows management to determine relative profitability of a
product by:
a. Assigning costs to a product in a manner that maximizes the contribution margin.
b. Determining contribution margin per unit and projected profits at various levels of
production.
c. Keeping fixed costs to an absolute minimum.
d. Highlighting potential bottlenecks in the production process.
8. The major assumptions as to cost and revenue behavior underlying conventional
cost/volume/profit calculation is the;
a. Linearity of relationships.
b. Curvilinearity of relationships.
c. Variability of unit prices and efficiency
d. Constancy of fixed costs.
9. Cost volume earnings analysis includes some inherent, simplifying assumptions. Which of
the following is not one of these assumptions?
a. Variable costs fluctuate proportionally with volume.
b. Cost and revenues are predictable and are linear over the relevant range.
c. Sales mix will change as fixed costs increase beyond the relevant range. Sales mix for
multiple products is determinable but there is no assumption that it will change beyond
the relevant range.
d. Changes in beginning and ending inventory levels are insignificant in amount.
10. 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. For multi-product situation, the sales mix can vary at all volume levels.
b. Operating efficiency and employee productivity is constant at all volume levels.
c. The product-selling price per unit is constant at all volume levels.
e. All costs incurred by a firm can be separated into their fixed and variable components.
11. The ethical standards established for management accountants are in the areas of:
a. Competence, licensing, reporting and education.
b. Budgeting, cost allocation, product costing and insider trading.
c. Competence, confidentiality, integrity and objectivity.
d. Disclosure, communication, decision making and planning.
12. When cost relationship are linear, total variable costs will vary in proportion to changes in.
a. Direct labor hours c. Total Overhead cost
b. Total material costs d. Volume of production
13. If a company raises its target profit, its;
a. Breakeven point rises
b. Required total contribution margin increases
c. Fixed costs increases
d. Selling price rises
14. Among the following major parts of a project feasibility study, which grouping in considered
critical?
a. Management, financial and social returns.
b. Technical, financial and environmental aspects.
c. Marketing, engineering or technical and financial.
d. Economic benefits, management, financial.
15. The following are the basic steps in the preparation of a project feasibility study except.
a. Data gathering and collection.
b. Audit of the projected financial statements.
c. Evaluation and analysis of the data obtained.
d. Formulation of conclusions and recommendations.
16. Which of the following is not an activity covered by feasibility study?
a. Activity based accounting of the endeavor leading to conclusions.
b. Collection of data.
c. Evaluation and analysis of data collected.
d. Formulation of recommendation.
17. The preparation of a project feasibility study covers various processes. All of the following
are among these processes except.
a. In-depth technical studies and validation.
b. Commissioning up to commercial start up of the business.
c. Sensitivity analyses considering various likely scenarios.
d. Collection of data.
18. These are the reasons why a project feasibility study is required before undertaking an
economic project, except.
a. It is basically that a forecast based on the most reasonable and available information and
opinion and will tally with actual events.
b. It enhances the probability of success of a particular undertaking.
c. It is required by the financial institution to be able to decide on financing requests by
project proponents.
d. It is a guide to action by certain government agencies on such issue as incentives,
taxation and social desirability.
19. During the course of an audit, the client's controller asks your advice on how to revise the
purchase journal so as to reduce the amount of time his staff takes in posting. How should
you respond?
a. Explain that under the Code of the Professional Ethics you cannot give advice on
management advisory services areas at the same time you are doing an audit.
b. Explain that under the Statement on Management Advisory Services informal advice of
this type is prohibited.
c. Respond with definite recommendations based upon your audit of these records but state
that you do not assume any responsibility for any changes unless your specific
recommendations are followed.
d. Respond as practicable at the moment and express the basis for your response so it will
be accepted for what it is.
20. In financial accounting, certain rules and regulations must be followed on how financial
statements must be presented to the reader. In management accounting no such restrictions
generally apply because it is:
a. An entirely different field that need not observe the broad guidelines in financial
accounting.
b. Designed to provide management with non-financial information of decision making.
c. Designed to provide accounting and other financial data to assist management in making
business decisions.
d. A discipline that does not require preparation of financial statements.
16. In working on C-V-P analysis, the accountant is unsure of the exact result an assumptions
under which to operate. What can the accountant do to help management in this CVP
decision:
a. Nothing, it is not the responsibility of the accountant to be concerned with the
ambiguity of the results and/or assumptions.
b. Ascertain the probabilities of various outcomes and work with management on
understanding those probabilities in reference to the CVP decision.
c. Calculate the probability of various outcomes and make the decision for
management.
d. Use a random number table to generate a decision model and make the decision
for management.