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THEORY 5. Which of the following decision-making tools would NOT be useful in

Cost Behavior determining the slope and intercept of a mixed cost?
1 Which of the following statements is false? A. high-low method C. linear programming
A. At zero production level, fixed costs is also zero. B. least-squares method D. scatter diagrams
B. At zero production level, fixed costs are positive. 6. A cost that bears an observable and known relationship to a
C. At zero production level, variable costs are usually zero. quantifiable activity base is a(n)
D. At zero production level, total costs equal total fixed costs. A. Engineered cost. C. Indirect cost.
B. Fixed cost. D. Target cost.
2. Variable costs are all costs
A. Of manufacturing incurred to produce units of output. 7. Costs that increase as the volume of activity decreases within the
B. That are associated with marketing, shipping, warehousing, and relevant range are
billing activities. A. Average costs per unit. C. Total fixed costs.
C. That fluctuate in total in response to small changes in the rate of B. Average variable costs per unit. D. Total variable costs.
utilization of capacity.
D. That do not change in total for a given period and relevant range 8. When production levels are expected to increase within a relevant
but become progressively smaller on a per unit basis as volume range and a flexible budget is used. What effect would be
increases. anticipated with respect to each of the following costs?
A. B. C. D.
3. NTQ, Inc.’s net sales in 1996 were 15% below the 1995 level. Fixed Costs per Increase Increase Decrease Decrease
NTQ’s semi-variable costs would Unit
A. Increase in total and increase as a percentage of net sales. Variable Costs Increase No No change Decrease
B. Increase in total, but decrease as a percentage of net sales. per Unit change
C. Decrease in total, but increase as a percentage of net sales.
D. Decrease in total and decrease as a percentage of net sales. 9. Weaknesses of the high-low method include all of the following
except
4. RST’s average cost per unit is the same at all levels of volume. A. the mathematical calculations are relatively complex.
Which of the following is true? B. the high and low activity levels may not be representative.
A. RST must have only fixed costs. C. only two observations are used to develop the cost function.
B. RST must have only variable costs. D. the method does not detect if the cost behavior is nonlinear.
C. RST must have some fixed costs and some variable costs.
D. RST’s cost structure cannot be determined from this information. 10.The scatter diagram method of cost estimation
A. requires the use of judgment
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B. uses the least-squares method 15.Cost-volume-profit analysis is most important for the determination
C. is influenced by extreme observations of the
D. is superior to other methods in its ability to distinguish between A. Volume of operation necessary to break-even.
discretionary and committed fixed costs B. Sales revenue necessary to equal variable costs.
C. Variable revenues necessary to equal fixed costs.
11.Regression analysis is superior to other cost behavior techniques D. Relationship between revenues and costs at various levels of
because it operations.
A. Examines only one variable. C. Produces measures of
probable error. 16.The relevant range is
B. Is not a sampling technique. D. Proves a cause and effect A. a relatively wide range of sales where all costs remain the same
relationship. B. a relatively wide range of sales where total variable costs remain
the same
C. a relatively narrow range of production where total variable
12.The number of variables used in simple regression analysis is: costs remain the same
A. one C. three D. a relatively wide span of production where total fixed costs are
B. two D. more than three expected to remain the same

13.The first to be undertaken in a simple regression analysis approach 17.Which of the following assumptions does NOT pertain to cost-
is volume-profit analysis?
A. To calculate the coefficient correlation. A. Inventories are constant
B. To find the standard error of estimate. B. The total revenues function is linear.
C. To make the least squares computation. C. All costs are classified as fixed or variable
D. To plot two variables in a scatter diagram. D. The units produced will equal the units sold
E. Sales mix may vary during the related period
14.If the coefficient of correlation between two variables is zero, how
might a scatter diagram of these variables appear? 18.The sum of the costs necessary to effect a one-unit increase in the
A. Random points. activity level is a(n)
B. A least squares line that slopes up to the right. A. Incremental cost. C. Marginal cost.
C. A least squares line that slopes down to the right. B. Margin of safety. D. Opportunity cost.
D. Under this condition a scatter diagram could not be plotted on a
graph. 19.As an accountant, the most useful information you can get from
break-even chart is the
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A. Volume or output level at which the enterprise breaks even.
B. Amount of sales revenue needed to cover enterprise fixed costs.
C. Amount of sales revenue needed to cover enterprise variable
costs.
D. Relationship among revenues, variable costs, and fixed costs at
various levels of activity.
20.In a cost-volume-profit graph
A. the total revenue line crosses the horizontal axis at the
breakeven point.
B. an increase in unit variable costs would decrease the slope of
the total cost line.
C. an increase in the unit selling price would shift the breakeven
point in units to the left.
D. an increase in the unit selling price would shift the breakeven
point in units to the right.
E. beyond the breakeven sales volume, profits are maximized at
the sales volume where total revenues equal total costs.
21.In a cost-volume-profit graph, the slope of the total revenue curve
represents
A. total contribution margin D. the selling price per unit.
B. total revenues. E. the variable cost per unit
C. the contribution margin per unit
22.In a profit-volume graph, the slope of the profit curve represents
A. the contribution margin per unit D. total contribution margin
B. the selling price per unit E. total revenues.
C. the variable cost per unit
23.If a company’s variable costs are 70% of sales, which formula
represents the computation of dollar sales that will yield a profit
equal to 10% of the contribution margin when S equals sales in
MSQ-01 – COST BEHAVIOR & COST-VOLUME-PROFIT ANALYSIS
HILARIO TAN
dollars for the period and FC equals total fixed costs from the
period?
A. S = FC  0.2 C. S = 0.2  FC
B. S = FC  0.27 D. S = 0.27  FC
24.Cost-volume-profit analysis is a key factor in many decisions,
including choice of product lines, pricing of products, marketing
strategy, and utilization of productive facilities. A calculation used
in CVP analysis is the break-even point. Once the break-even point
has been reached operating income will increase by the
A. Fixed cost per unit for each additional unit sold.
B. Sales price per unit for each additional unit sold.
C. Gross margin per unit for each additional unit sold.
D. Contribution margin per unit for each additional unit sold.
25.When used in cost-volume-profit analysis, sensitivity analysis
A. Determines the most profitable mix of products to be sold.
B. Allows the decision maker to introduce probabilities in the
evaluation of decision alternatives.
C. Is limited because in cost-volume-profit analysis, costs are not
separated into fixed and variable components.
D. Is done through various possible scenarios and computes the
impact on profit of various predictions of future events.
26.At its present level of operations, a small manufacturing firm has
total variable costs equal to 75 percent of sales and total fixed costs
equal to 15 percent of sales. Based on variable costing, if sales
change by $1.00, income will change by
A. $0.10.
B. $0.25.
C. $0.75.
D. can't be determined from the information given.
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27.A company’s breakeven point in sales dollars may be affected by
equal percentage increases in both selling price and variable costs
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 in sales dollars to
A. Remain unchanged.
B. Increase by the percentage change in variable cost per unit.
C. Decrease by less than the percentage increase in selling price.
D. Decrease by more than the percentage increase in the selling
price.
28.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 cost and the contribution margin.
C. Increase the fixed costs and decrease the contribution margin.
D. Decrease the fixed costs and increase the contribution margin.
29.A company increased the selling price of its product from $1.00 to
$1.10 a unit when total fixed costs increased from $400,000 to
$480,000 and variable cost per unit remained unchanged. How will
these changes affect the breakeven point?
A. The breakeven point in units will be increased.
B. The breakeven point in units will be decreased.
C. The breakeven point in units will remain unchanged.
D. The effect cannot be determined from the information given.
30.According to CVP analysis, a company could never incur a loss that
exceeded its total
A. contribution margin. C. fixed costs.
B. costs. D. variable costs.
MSQ-01 – COST BEHAVIOR & COST-VOLUME-PROFIT ANALYSIS
HILARIO TAN
31.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 the <List A>
breakeven point in terms of dollar sales volume and will have the
<List B> dollar profit potential once the indifference point in dollar
sales volume is exceeded.
A. B. C. D.
List A Lower Lower Higher Higher
List B Lesser Greater Lesser Greater
32.Which of the following is a true statement about sales mix?
A. Profits will remain constant with an increase in total dollars of
sales if the total sales in units remains constant.
B. Profits will remain constant with a decrease in total dollars of
sales if the sales mix also remains constant.
C. Profits may decline with an increase in total dollars of sales if the
sales mix shifts to sell more of the high contribution margin
product.
D. Profits may decline with an increase in total dollars of sales if the
sales mix shifts to sell more of the lower contribution margin
product.
33.Saints Co. sells three chemicals: Simpol, Plutex, and Coplex.
Simpol is the most profitable product while Coplex is the least
profitable. Which one of the following events will definitely
decrease the firm’s overall B.E.P. for the upcoming accounting
period?
A. A decrease in Coplex’s selling price.
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B. An increase in Simpol raw materials cost. Cost

C. An increase in the overall market of Plutex. Electricity $100 + $20 per direct labor
D. An increase in anticipated sales of Simpol relative to the sales of hour
Plutex and Coplex. Maintenance $200 + $30 per direct labor
hour
34.A very high degree of operating leverage indicates a firm Supervisors’ salaries $10,000 per month
A. has high fixed costs Indirect materials $16 per direct labor hour
B. has a high net income If July production is expected to be 1,000 units requiring 1,500
C. has high variable costs direct labor hours, estimated manufacturing overhead costs would
D. is operating close to its breakeven point be
A. $10,366 C. $99,000
B. $76,300 D. $109,300
35.Love Corp. is operationally a highly leveraged company, that is, it 3. Bradley Co. budgets its total production costs at $220,000 for
has high fixed costs and low variable costs. As such, small changes 75,000 units of output and $275,000 for 100,000 units of output.
in sales volume result in Since additional facilities are needed to produce 100,000 units,
A. Large changes in net income. C. No change in net income. fixed costs are budgeted at 20% more than for 75,000 units. What
B. Negligible change in net income. D. Proportionate change in is Bradley's budgeted fixed cost at 100,000 units?
net income. A. 16,500 C. 156,000
B. 66,000 D. 165,000
PROBLEMS
Cost equation
1. Smart Company is relocating its facilities. The company estimates 4. Matias Corporation wishes to market a new product for P12.00 a
that it will take three trucks to move office contents. If the per truck unit. Fixed costs to manufacture this product are P800,000 for less
rental charge is $1,000 plus 25 cents per mile, what is the expected than 500,000 units and P1,200,000 for 500,000 or more units.
cost to move 800 miles? Contribution margin is 20%. How many units must be sold to
A. $1,000 C. $2,400 realize a net income from this product of P500,000?
B. $1,200 D. $3,600 A. 433,333 C. 666,667
B. 500,000 D. 708,333
2. The following cost functions were developed for manufacturing
overhead costs: High-low method
Manufacturing Overhead Cost Function 5. The Austin Manufacturing Company wants to develop a cost
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estimating equation for its monthly cost of electricity. It has the costs (Y) as a function of machine hours (X). Thirty (30) monthly
following data: observations were used to develop the foregoing regression
Month Cost of Electricity Direct Labor Hours equation. The related coefficient of determination was 0.90. If
January $6,750 1,500 2,500 machine hours are worked in one month, the related point
April 7,500 1,700 estimate of total variable maintenance costs would be
July 8,500 2,000 A. P19,125 C. P23,000
October 7,250 1,600 B. P21,250 D. P25,250
Using the high-low method, what is the best equation?
A. Y = $750 + $3.50X D. Y = $1,500 + $5.00X 8. Sago Co. uses regression analysis to develop a model for predicting
B. Y = $750 + $5.00X E. Y = $2,000 + $3.50X overhead costs. Two different cost drivers (machine hours and
C. Y = $1,500 + $3.50X direct materials weight) are under consideration as the independent
variable. Relevant data were run on a computer using one of the
6. Total production costs of prior periods for a company are listed as standard regression programs, with the following results:
follows. Assume that the same cost behavior patterns can be Coefficient
extended linearly over the range of 3,000 to 35,000 units and that Machine hours Direct materials
the cost driver for each cost is the number of units produced. weight
Production in units 3,000 9,000 16,000 35,000 Y intercept 2,500 4,600
per month B 5.00 2.60
Cost X $23,70 $52,68 $86,490 $178,26 R2 0.70 0.50
0 0 0 What regression equation should be used?
Cost Y 47,280 141,84 252,160 551,600 A. Y = 2,500 + 3.5X C. Y = 4,600 +1.3X
0 B. Y = 2,500 + 5.0X D. Y = 4,600 + 2.6X
What is the average cost per unit at a production level of 8,000
units for cost X? Contribution margin income statement
A. $4.83 C. $5.98 9. A retail company determines its selling price by marking up variable
B. $5.85 D. $7.90 costs 60%. In addition, the company uses frequent selling price
markdowns to stimulate sales. If the markdowns average 10%,
what is the company’s contribution margin ratio?
A. 27.5% C. 37.5%
Regression analysis B. 30.6% D. 41.7%
7. Y = P575,000 + P8.50X represents the behavior of maintenance

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Manufacturing overhead $5,598,720

General and administrative $3,732,480
Breakeven analysis Effective income tax rate 40%
10.Ultra Vogue Co. sells 50,000 units of “yo” a top-of-the-line garden The number of units the company must sell in the coming year in
sprinkler. These were taken from the company’s records: order to reach its breakeven point is
Accounts receivable, Contribution margin ratio, A. 388,800 units C. 583,200 units
P129,000. 49%. B. 518,400 units D. 972,000 units
Days sales outstanding, 15 Profit for the period was
days. P485,040. Profit planning
The ending receivables balance is the average balance during the 13.Merchandisers, Inc. sells Product O to retailers for P200. The unit
year. Assume a 360-day year. All sales are on credit. Determine variable cost is P40 with a selling commission of 10%. Fixed
the company’s break-even revenue. manufacturing costs total P1,000,000 per month while fixed selling
A. P1,032,000 C. P2,106,122 and administrative costs total P420,000. The income tax rate is
B. P1,517,040 D. P3,096,000 30%. The target sales if after tax income is P123,200 would be
A. 10,950 units. C. 13,750 units.
11.Tonykinn Company is contemplating of marketing a new product. B. 11,400 units. D. 15,640 units.
Fixed costs will be $800,000 for production of 75,000 units or less
and $1,200,000 if production exceeds 75,000 units The variable 14.NCB, Inc. manufactures computer tables. It has an investment of
cost ratio is 60% for the first 75,000. Contribution margin P1,750,000 in assets and expects a 25% return on investment. Its
percentage will increase to 50% for units in excess of 75,000. If the total fixed production costs for 2,000 units is P550,000 plus an
product is expected to sell for $25 per unit, how many units must additional P150,000 for selling and administrative expenses. The
Tonykinn sell to breakeven? variable cost to manufacture is P1,500 per table. The selling price
A. 80,000 C. 111,000 per table should be
B. 96,000 D. 120,000 A. P1,850.00 C. P2,531.25
B. P2,068.75 D. P2,725.00
12.A company manufactures a single product. Estimated cost data
regarding this product and other information for the product and 15.Story Manufacturing incurs annual fixed costs of $250,000 in
the company are as follows: producing and selling "Tales." Estimated unit sales for 2001 are
Sales price per unit $40 125,000. An after-tax income of $75,000 is desired by
Total variable production cost per unit $22 management. The company projects its income tax rate at 40
Sales commission (on sales) 5% percent. What is the maximum amount that Story can expend for
Fixed costs and expenses variable costs per unit and still meet its profit objective if the sales
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price per unit is estimated at $6? sales that would be necessary for Sari-sari to attain the same
A. $3.00 C. $3.59 weekly operating income is
B. $3.37 D. $3.70 A. P19,500. C. P29,250.
B. P20,000. D. P30,000.
Incremental analysis
16.A company is concerned about its operating performance, as 20.ABC Company breaks even at $300,000 sales and earns $30,000 at
summarized below: $350,000 sales. Which of the following is true?
Sales ($12.50 per unit) $300,000 A. Fixed costs are $20,000.
Variable costs 180,000 B. The selling price per unit is $3.
Net operating loss (40,000) C. Contribution margin is 60% of sales.
How many additional units should have been sold in order for the D. Profit at sales of $400,000 would be $80,000.
company to break even in 1992?
A. 8,000 C. 16,000 Sensitivity analysis
B. 12,800 D. 32,000 21.A product has a selling price of P5 and variable cost of P3.50 per
17.Scottso Enterprises has fixed costs of $120,000. At a sales volume unit. The effect of a P0.50 per unit increase in cost is to increase
of $400,000, return on sales is 10%. At a $600,000 volume, return the break-even level of activity by
on sales is 20%. What is the break-even volume? A. P1.50 per unit. C. 33-1/3%
A. $160,000 C. $300,000 B. 14.3% D. 50%
B. $210,000 D. $420,000
22.A company has sales of $500,000, variable costs of $300,000, and
18.Nette & Co. has sales of P400,000 with variable costs of P300,000, pretax profit of $150,000. If the company increased the sales price
fixed costs of P120,000, and an operating loss of P20,000. By how per unit by 10%, reduced fixed costs by 20%, and left variable cost
much would Nette need to increase its sales in order to achieve a per unit unchanged, what would be the new breakeven point in
target operating income of 10% of sales? sales dollars?
A. P400,000 C. P500,000 A. $88,000 C. $110,000
B. P462,000 D. P800,000 B. $100,000 D. $125,000

19.Sari-Sari Grocery is currently open only on Monday to Saturday. It is
considering opening on Sundays. The annual incremental costs of
Sunday opening is estimated at P124,800. Its gross margin is 20%.
It estimates that 60% of Sunday sales to customers would be on
other days if its stores were not open on Sundays. The Sunday
MSQ-01 – COST BEHAVIOR & COST-VOLUME-PROFIT ANALYSIS
23.Singsing, Inc. manufactures and sells key rings embossed with
college names and slogans. Last year, the key rings sold for P75
each, and the variable costs to manufacture them were P22.50 per
unit. The company needed to sell 20,000 key rings to break-even.
The net income last year was P50,400. The company expects the
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following for the coming year: price be if RPS is to make the same P200,000 profit before income
 The selling price of the key rings will be P90. taxes?
 Variable manufacturing costs per unit will increase by one-third. A. P120. C. P150.
 Fixed costs will increase by 10%. B. P135. D. P240.
 The income tax rate will remain unchanged.
For the company to break-even the coming year, the company 26.Lindsay Company reported the following results from sales of 5,000
should sell units of Product A for June:
A. 2,600 units. C. 21,250 units. Sales $200,000
B. 19,250 units. D. 21,600 units. Variable costs (120,000)
Fixed costs (60,000)
24.Austin Manufacturing, which is subject to a 40% income tax rate, Operating income $ 20,000
had the following operating data for the period just ended. Assume that Lindsay increases the selling price of Product A by 10
Selling price per unit $ 60 percent in July. How many units of Product A would have to be sold
Variable cost per unit 22 in July to generate an operating income of $20,000?
Fixed costs 504,000 A. 4,000 C. 4,500
Management plans to improve the quality of its sole product by: (1) B. 4,300 D. 5,000
replacing a component that costs $3.50 with a higher-grade unit
that costs $5.50 and (2) acquiring a $180,000 packing machine. 27.CGW Corporation sells Product T at a unit price of P5 deriving
Austin will depreciate the machine over a 10-year life with no annual gross sales of P50,000. The variable cost to produce T is
estimated salvage value by the straight-line method of P4.50 per unit and total fixed costs is P10,000. If it increases T’s
depreciation. If the company wants to earn after-tax income of unit price to P8, a decrease of sales to only 4,000 units would
$172,800 in the upcoming period, it must sell result. The effect of the price increase on CGW’s net income from
A. 19,300 units. C. 22,500 units. the sales of Product T will be a:
B. 21,316 units. D. 23,800 units. A. No effect. C. P9,000 increase.
B. P4,000 increase. B. P18,000 decrease.
28.Planners have determined that sales will increase by 25% next
25.During 1996, RPS Corporation supplied hospitals with a year, and that the profit margin will remain at 15% of sales. Which
comprehensive diagnostic kit for P120. At a volume of 80,000 kits, of the following statements is correct?
RPS has fixed cost of P1,000,000 and a profit before income taxes A. Profit will grow by 25%.
of P200,000. Due to an adverse legal decision, RPS’s 1997 liability B. The profit margin will grow by 15%.
insurance increased by P1,200,000 over 1996. Assuming the C. Profit will grow proportionately faster than sales.
volume and other costs are unchanged, what should be the 1997
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D. Ten percent of the increase in sales will become net income. The marketing department of Hennessy Co. proposed a price cut on its
29.LXQ Turo Turo stores are open for 15 hours a day (from 6:00 a.m. to leading brand, a product called “Henry.” From the accounting records
9:00 p.m.). It sells packaged meals at a price of P40 per meal. these are available:
Variable cost per meal is P30 while total fixed costs for operation of Price per unit P 92.00
all the stores amounted to 200,000 monthly. It is thinking to reduce Discount to customers 10%
its store hours to only 12 hours a day as this would reduce fixed Direct cost per unit P 52.60
costs (utilities and wages) by P60,000 a month. It is expected that Variable operating expense per unit P 5.60
the reduced store hours would result in loss of 1,500 packed meals Proposed price cut per unit P 10.00
monthly sales. The reduction in store hours would result in Estimated sales volume before price cut 1,220 pcs.
A. No change in monthly operating income.
B. A prospective decrease in monthly operating income. 31.How much is the estimated contribution margin that will be lost due
C. A prospective increase in monthly operating income of P45,000. to price cut, assuming the same pre-price cut sales volume?
D. A prospective increase in monthly operating income of P60,000. A. P10,980 C. P17,990
B. P13,000 D. P18,000
30.The Machan Manufacturing Company’s year-end income statement
is as follows: 32.For the same Hennessy Co., in the immediately preceding number,
Sales (20,000 units) $360,000 what is the additional volume required after the price cut to get the
Variable costs 220,000 same contribution margin before the price cut? Round off to the
Contribution margin $140,000 nearest whole unit.
Fixed costs 105,000 A. 409 units C. 704 units
Net income $ 35,000 B. 500 units D. 1,000 units
Management is unhappy with the results and plans to make some
changes for next year. Multiple products
If management implements a new marketing program, fixed costs 33.A company with $280,000 of fixed costs has the following data:
are expected to increase by $19,200 and variable costs to increase Product A Product
by $1 per unit. Unit sales are expected to increase by 15 percent. B
What is the effect on income? Sales price per unit $5 $6
A. no change D. increase of $14,800 Variable costs per unit $3 $5
B. increase of $1,800 E. decrease of $21,200 Assume three units of A are sold for each unit of B sold. How much
C. increase of $13,800 will sales be in dollars of product B at the breakeven point?
A. $200,000 C. $280,000
Questions 31 and 32 are based on the following information. B. $240,000 D. $840,000
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Company 1 Company 2
Questions 34 and 35 are based on the following information. Selling price per deck $ 3.00 $3.00
A company sells two products, X and Y. The sales mix consists of a Cost of paper deck 0.62 0.65
composite unit of two units of X for every five units of Y (2:5). Fixed Printing ink per deck 0.13 0.15
costs are $49,500. The unit contribution margins for X and Y are $2.50 Labor per deck 0.75 1.25
and $1.20, respectively. Variable overhead per 0.30 0.35
deck
34.Considering the company as a whole, the number of composite Fixed costs $960,000 $252,000
units to break even is Given these data, which of the following responses is correct?
A. 1,650 C. 8,250 (In units) A. B. C. D.
B. 4,500 D. 22,500
Breakeven point for Co. 1 533,334 533,334 800,000 800,000
35.If the company had a profit of $22,000, the unit sales must have
Breakeven point for Co. 2 105,000 105,000 420,000 420,000
been
Volume at which profits of
A. B. C. D. Co. 1 and Co. 2 are 1,000,00 1,180,00 1,000,00 1,180,00
Product X 5,000 13,000 23,800 32,500 equal 0 0 0 0
Product Y 12,500 32,500 59,500 13,000
Margin of safety
Point of Indifference 38.Product Cott has sales of $200,000, a contribution margin of 20%,
36.Wheels Corp. employs 45 sales personnel to market its sedan cars. and a margin of safety of $80,000. What is Cott’s fixed cost?
The average car sells for P690,000 and a 6% commission is paid to A. $16,000 C. $80,000
the sales person. It is considering changing the scheme to a B. $24,000 D. $96,000
commission arrangement that would pay each person a package of
P30,000 plus a commission of 2% of the sales made by the person. 39.Bell Company has a 25% margin of safety. Its before-tax return on
The amount of total monthly car sales at which Wheels Corp. would sales is 6%, and its tax rate is 40%. Assuming that current sales
be indifferent (answer may be rounded off) as to which plan to are $120,000, what is Bell’s total fixed costs.
select is A. $21,600 C. $84,000
A. P22,500,000 C. P36,500,000 B. $36,000 D. $60,000
B. P33,750,000 D. P45,000,000
Comprehensive
37.Two companies are expected to have annual sales of 1,000,000 Questions 40 through 42 are based on the following information.
decks of playing cards next year. Estimates for next year are Almo Company manufactures and sells adjustable canopies that attach
presented below:
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MANAGEMENT ADVISORY SERVICES HILARIO TAN

to motor homes and trailers. The market covers both new unit A. 1,250 C. 2,000
purchasers as well as replacement canopies. Almo developed its B. 1,700 D. 2,500
business plan based on the assumption that canopies would sell at a
42.If management decides to reduce the selling price by $40, what will
price of $400 each. The variable costs for each canopy were projected Almo's after-tax profit be?
at $200, and the annual fixed costs were budgeted at $100,000. A. $157,200 C. $241,200
Almo's after-tax profit objective was $240,000; the company's effective B. $160,800 D. $301,200
tax rate is 40%. ANSWER KEY
While Almo's sales usually rise during the second quarter, the May Theory Problems
financial statements reported that sales were not meeting 1. A 21. D 1. D 21. D 41. D
expectations. For the first 5 months of the year, only 350 units had 2. C 22. A 2. D 22. A 42. C
been sold at the established price, with variable costs as planned, and 3. C 23. B 3. D 23. B
4. B 24. D 4. D 24. C
it was clear that the after-tax profit projection would not be reached
5. C 25. D 5. C 25. B
unless some actions were taken. Almo's president assigned a 6. A 26. B 6. C 26. A
management committee to analyze the situation and develop an 7. A 27. A 7. B 27. C
alternative course of action. The following was presented to the 8. C 28. D 8. B 28. A
president. 9. A 29. D 9. B 29. C
Reduce the sales price by $40. The sales organization forecasts that 10. A 30. B 10. C 30. E
with the significantly reduced sales price, 2,700 units can be sold 11. D 31. A 11. C 31. A
12. B 32. D 12. C 32. C
during the remainder of the year. Total fixed and variable unit costs
13. C 33. D 13. B 33. B
will stay as budgeted. 14. A 34. D 14. B 34. B
40.Assuming no changes were made to the selling price or cost 15. D 35. A 15. A 35. B
structure, how many units must Almo sell to break even? 16. D 16. A 36. B
A. 167 C. 500 17. E 17. C 37. D
B. 250 D. 1,700 18. C 18. A 38. B
41.Assuming no changes were made to the selling price or cost 19. D 19. D 39. A
structure, how many units must Almo sell to achieve its after-tax 20. C 20. C 40. C
profit objective?

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