MODULE 3 – DO IT YOURSELF

Ms. Carmel Mae M. Tumulak, CPA |02-17-21

1. It involves a systematic examination of the relationships among costs, cost driver, and
profit.

a. Financial statement analysis

b. Cost-volume-profit analysis
c. Cost-benefit analysis
d. Profit planning

2. 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.

3. 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.

4. 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.

5. In CVP analysis, it is assumed that

a. all costs are classifiable as either direct or indirect costs.

b. cost and revenue relationships 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.

6. 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.

7. 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.
 MODULE 3 – DO IT YOURSELF
Ms. Carmel Mae M. Tumulak, CPA |02-17-21

8. 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.

9. 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.

10. 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.
11. It is the excess 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

12. Which of the following is not correct?

a. profit equals zero.

b. gross profit equals zero.
c. sales equals total costs.
d. fixed costs equals contribution margin.

13. 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 costs.
d. 10% decrease in selling price.

14. Which of the following changes in cost-volume-profit 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.

15. 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.
 MODULE 3 – DO IT YOURSELF
Ms. Carmel Mae M. Tumulak, CPA |02-17-21

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
the 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.

ITEMS 16 TO 25 ARE BASED ON THE FOLLOWING INFORMATION:

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

16. 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 unit; 40%
d. P10 per unit; 60%

17. The corporation’s break-even point is

a. P10,000.
b. 250,000 units.
c. 10,000 units or P250,000.
d. 250,000 units or P10,000.

18. 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.

19. If the corporation pays corporate income tax at the rate of 30%, and it desires to earn
after-tax profit of 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.

20. How much sale (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

21. 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
 MODULE 3 – DO IT YOURSELF
Ms. Carmel Mae M. Tumulak, CPA |02-17-21

22. With an average monthly sales of 11,000 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.

23. The margin of safety ratio (MSR) and the break-even sales ratio (BESR) are

MSR BESR

a. 9%; 91%
b. 40%; 60%
c. 91%; 9%
d. 60%; 40%
24. At the present average monthly sales level of 11,000 unit, the corporation’s operating
leverage factor (OLF) is

a. 6.
b. 11.
c. 9.09
d. 90.9.

25. 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.

ITEMS 26 TO 28 ARE BASED ON THE FOLLOWING INFORMATION:

Item 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 the 200A figures.

For 200C, the company expects to have a sale 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.

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

a) 70%
b) 30%
c) 10%
d) 60%

27. How much profit does the company expect to earn in 200C?

a) P200,000
b) P160,000
c) P100,000
d) P150,000
 MODULE 3 – DO IT YOURSELF
Ms. Carmel Mae M. Tumulak, CPA |02-17-21

28. 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 the given information

29. A company’s break-even sales (BES) is P600,000. If fixed costs would increase by 10% of
this BES, such BES would increase by 40%.

What is the company’s variable cost ratio?

a) 25%
b) 75%
c) 40%
d) 10%

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

a) P450,000
b) P150,000
c) P630,000
d) P210,000