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INTEGRATED REVIEW 2: Management Advisory Services (MAS)#2 | Cost-Volume-Profit Analysis 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)_ The rate or amount th...

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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. B. C. D.

P800,000 P600,000 P200,000 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 Selling expense (35% variable, 65% fixed)

29,000 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 :

Compared to industry average Selling price Variable cost Fixed Cost Break-even point

Low Range of Activity

High Range of Activity

lower

the same lower the same

higher 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. B. C. D.

Some costs are semi-variable Production is not equal to sales There is a significant amount of change in inventories 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. Seminarrelated expenses are estimated as follows: Guest speaker’s fee (for 2 days) Accommodations - guest speaker and his accompanying staff Plane ticket and other transportation costs - guest speaker and party Other fixed costs for the seminar Expenses for each participant: Seminar kit Hotel accommodations for the duration of the seminar, including meals and snacks Other variable costs

P 300,000 24,000 60,000 36,000 1,000 5,000 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....