CVP Analysis

Cost-Volume-Profit Analysis
MODULE 4 C. Relationship among revenues, variable costs, and fixed costs at

COST-VOLUME-PROFIT ANALYSIS various levels of activity.
D. Volume or output level at which the enterprise breaks even.
THEORIES: Bobadilla
1. To which function of management is CVP analysis most applicable?
A. Planning C. Directing 7. Which of the factors is (are) involved in studying cost-volume-profit
B. Organizing D. Controlling Bobadilla relationships?
A. Levels of production C. Fixed costs
2. The systematic examination of the relationships among selling B. Variable costs D. All of these Bobadilla
prices, volume of sales and production, costs, and profits is termed:
A. contribution margin analysis C. budgetary analysis 8. At the breakeven point, fixed cost is always
B. cost-volume-profit analysis D. gross profit analysis Bobadilla A. Less than the contribution margin C. More than the
contribution margin
3. The term contribution margin is best defined as the: B. Equal to the contribution margin. D. More than the variable cost
A. difference between fixed costs and variable costs. Bobadilla
B. difference between revenue and fixed costs.
C. amount available to cover fixed costs and profit. 9. At the break-even point:
D. amount available to cover variable costs. Bobadilla A. net income will increase by the unit contribution margin for each
additional item sold above break-even.
4. Cost-volume-profit analysis allows management to determine the B. the total contribution margin changes from negative to positive
relative profitability of a product by C. fixed costs are greater than contribution margin
A. Highlighting potential bottlenecks in the production process. D. the contribution margin ratio begins to increase Bobadilla
B. Determining the contribution margin per unit and projected
profits at various levels of production. 10.In cost-volume-profit analysis, the greatest profit will be earned at
C. Assigning costs to a product in a manner that maximizes the A. One hundred percent at normal productive capacity.
contribution margin. B. The production point with the lowest marginal cost.
D. Keeping fixed costs to an absolute minimum. Bobadilla C. The production point at which average total revenue exceeds
average marginal cost.
5. Cost-volume-profit analysis cannot be used if which of the following D. The point at which marginal cost and marginal revenue are
occurs? equal. Bobadilla
A. Costs cannot be properly classified into fixed and variable costs.
B. The per unit variable costs change. 11.Which of the following is not an assumption underlying C-V-P
C. The total fixed costs change. analysis?
D. Per unit sales prices change. Bobadilla A. The behavior of total revenue is linear.
B. Unit variable expenses remain unchanged as activity varies.
6. The most useful information derived from a breakeven chart is the C. Inventory levels at the beginning and end of the period are the
A. Amount of sales revenue needed to cover enterprise variable same.
costs. D. The number of units produced exceeds the number of units sold.
B. Amount of sales revenue needed to cover enterprise fixed costs. Bobadilla
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B. The process assumes variable costs per unit are available.
12.Which of the following assumptions is inherent to C-V-P analysis? C. Efficiency is assumed to be constant.
A. In manufacturing firms, the beginning and ending inventory D. Inventory levels are assumed to not change. Bobadilla
levels are the same.
B. In a multi-product organization, the sales mix varies over time. 18.Cost-volume-profit analysis is a technique available to management
C. The behavior of total revenue is curvilinear. to understand better the interrelationships of several factors that
D. he relevant range is not a consideration. Bobadilla affect a firm's profit. As with many such techniques, the accountant
oversimplifies the real world by making assumptions. Which of the
13.Which of the following assumptions is closely relevant to cost- following is not a major assumption underlying CVP analysis?
volume-profit analysis? A. All costs incurred by a firm can be separated into their fixed and
A. for multiple product analysis, the sales mix is not important variable components.
B. inventory levels remain unchanged B. The product’s selling price per unit is constant at all volume
C. total fixed costs and unit variable costs can be identified and levels within a relevant range.
remain constant over the relevant range C. Operating efficiency and employee productivity is constant at all
D. B and C Bobadilla volume levels.
D. For multi-product situations, the sales mix can vary at different
14.Advocates of cost-volume-profit analysis argue that: volume levels. Bobadilla
A. Fixed costs are irrelevant for decision making.
B. Fixed costs are mandatory for CVP decision making. 19.Pines Company has a higher degree of operating leverage than
C. Differentiation between the patterns of variable costs and fixed Tagaytay Company. Which of the following is true?
costs is critical. A. Pines has higher variable expense.
D. Fixed costs are necessary to calculate inventory valuations. B. Pines is more profitable than Tagaytay Company’s.
Bobadilla C. Pines is more risky than Tagaytay is.
D. Pines' profits are less sensitive to percentage changes in sales.
15.With respect to fixed costs, C-V-P analysis assumes total fixed costs Bobadilla
A. per unit remains constant as volume changes
B. remain constant from one period to the next 20.As projected net income increases the
C. vary directly with volume A. degree of operating leverage declines. C.
D. remain constant across changes in volume Bobadilla break-even point goes down.
Bobadilla
16.The CVP model assumes that over the relevant range of activity: B. margin of safety stays constant. D. contribution margin ratio
A. only revenues are linear. C. unit variable cost is not goes up.
constant. Bobadilla
B. total fixed cost changes. D. revenues and total costs are 21.Given the following notations, what is the breakeven sales level in
linear. units?
SP = selling price per unit
17.Which of the following is not a limiting factor of Cost-Volume-Profit FC = total fixed cost
analysis? VC = variable cost per unit
A. The process assumes a linear relationship among the variables. A. SP / (FC/VC) C. VC/(SP – FC)
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B. FC/(VC/SP) D. FC/(SP – VC) Bobadilla 26.With the aid of computer software, managers can vary assumptions
regarding selling prices, costs, and volume and can immediately
22.A company increased the selling price for its product from P1.00 to see the effects of each change on the break-even point and profit.
P1.10 a unit when total fixed costs increased from P400,000 to Such an analysis is called
P480,000 and variable cost per unit remained unchanged. How A. “What if” or sensitivity analysis. C. Computer aided analysis.
would these changes affect the breakeven point? B. Vary the data analysis. D. Data gathering. Bobadilla
A. The breakeven point in units would be increased.
B. The breakeven point in units would be decreased. 27.If a company raises its target peso profit, its
C. The breakeven point in units would remain unchanged. A. break-even point rises.
D. The effect cannot be determined from the information given. B. fixed costs increase.
Bobadilla C. required total contribution margin increases.
D. selling price rises. Bobadilla
23.On January 1, 2007, Incremental Company increased its direct labor
wage rates. All other budgeted costs and revenues were 28.Broadway Company sells three products: A, B and C. Product A's
unchanged. How did this increase affect Incremental Company’s unit contribution margin is higher than Product B's which is higher
budgeted break-even point and budgeted margin of safety? than Products C's. Which one of the following events is most likely
Bobadilla A. B. C. D. to increase the company's overall break-even point?
Budgeted Break-even Increas Increas Decreas Decreas A. The installation of new automated equipment and subsequent
Point e e e e lay-off of factory workers.
Expected Margin of Increas Decreas Decreas Increas B. A decrease in Product C's selling price.
Safety e e e e C. An increase in the overall market demand for Product B.
D. A change in the relative market demand for the products, with
24.As the variable cost increases but the selling price remains the increase favoring Product A relative to Product B and Product
constant, the C. Bobadilla
A. Degree of operating leverage declines C.
Breakeven point goes down 29.Which of the following is not a benefit of using sensitivity analysis?
Bobadilla A. More people can see the impact of their ideas on the project.
B. Margin of safety stays constant D. Contribution margin ratio B. The use of a spreadsheet program increases the accuracy of the
goes up projections.
C. What will happen is not known in advance so a variety of options
25.A very high degree of operating leverage (DOL) indicates that a can be explored prior to making a decision.
firm: D. A well-written spreadsheet will allow for a variety of questions to
A. has high fixed costs. C. has high variable costs. be answered in a minimal amount of time. Bobadilla
Bobadilla
B. has a high net income. D. is operating close to its 30.A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area
breakeven point. 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.
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B. The area of loss begins with the concept that fixed costs have to A. per unit, as the volume of activity changes.
be recovered prior to sales contributing to profit. B. in total, as the volume of activity changes.
C. The area of profit represents the difference between Sales and C. both A and B are correct.
Variable Cost. D. none of the above. Bobadilla
D. The area of profit begins with the concept that no company
would have any level of sales below the break-even point. 35.A fixed cost is the same percentage of sales in three different
Bobadilla months. Which of the following is true?
A. The company had the same sales in each of those months.
31.Which of the following best describes the impact of selling more B. The cost is both fixed and variable.
units? C. The company is operating at its break-even point.
A. The increase in sales volume increases total variable cost. D. The company is achieving its target level of profit. Bobadilla
B. The increase in sales volume means an increase in total fixed
cost. 36.Per-unit variable cost
C. The increase in sales increases contribution margin, causing net A. remains constant within the relevant range.
income to decrease. B. increases as volume increases within the relevant range.
D. The increase in sales increases contribution margin per unit C. decreases as volume increases within the relevant range.
causing the break-even point to decrease. Bobadilla D. decreases if volume increases beyond the relevant range.
Bobadilla
32.On a cost-volume-profit chart (break-even graph), where are the
total fixed costs shown? 37.In planning product mix for maximum profit, CVP analysis would
A. As the point where the sales line intersects the vertical axis stimulate sales of the product by increasing the:
(pesos) A. sales price C. contribution margin
B. As the point where the sales line crosses the total cost line B. variable cost per unit D. emphasis on customer priority
C. As the point where the sales line crosses the horizontal axis Bobadilla
(volume)
D. As the point where the total cost line intersects the vertical axis 38.A relatively low margin of safety ratio for a product is usually an
(pesos) Bobadilla indication that the product:
A. is losing money
33.When using conventional cost-volume-profit analysis, some B. has a high contribution margin
assumptions about costs and sales prices are made. Which of the C. is riskier than higher margin of safety products
following is one of those assumptions? D. is less risky than higher margin of safety products Bobadilla
A. The contribution margin will change as volume increases
B. The variable cost per unit will decrease as volume increases 39.Within the relevant range, total revenues and total costs
C. The sales price per unit will remain constant as volume A. increase, but at a decreasing rate. C. remain constant.
increases B. decrease. D. can be graphed as straight
D. Fixed cost per unit will remain the same as volume increases lines. Bobadilla
Bobadilla
40.An assumption in a CVP analysis is that a change in costs is caused
34.Classifying a cost as fixed or variable depends on how it behaves by a change in
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A. unit direct material cost C. sales commission per unit A. the break-even point. C. total variable costs.
Bobadilla B. contribution margin. D. unit selling price. Bobadilla
B. the number of units D. efficiency due to learning
curve effect 47.The most likely strategy to reduce the breakeven point would be to
A. Increase both the fixed costs and the contribution margin.
41.In CVP analysis, when the number of units changes, which one of B. Decrease both the fixed costs and the contribution margin.
the following will remain the same? C. Decrease the fixed costs and increase the contribution margin.
A. Total sales revenues C. Total fixed costs D. Increase the fixed costs and decrease the contribution margin.
B. Total variable costs D. Total contribution margin Bobadilla
Bobadilla
48.The break-even point in total sales decreases when:
42.As fixed costs for a firm rise, all other things held constant, the A. variable cost increases and sales remain unchanged
breakeven point will B. variable cost increases and sales increase
A. be unchanged C. increase C. fixed cost increases
B. not be affected by fixed costs D. decrease Bobadilla D. fixed cost decreases Bobadilla
43.Which of the following would not affect the breakeven point? 49.Which of the following best describes the impact of an increase in
A. Number of units sold. C. Total fixed costs. fixed cost?
B. Variable cost per unit. D. Sales price per unit. Bobadilla A. The increase in fixed cost will result in an increase in selling
more units.
44.The margin of safety is a key concept of CVP analysis. The margin B. The increase in fixed cost will cause an increase in variable cost.
of safety is C. The increase in fixed cost causes net income to decrease and
A. The contribution margin rate. the break-even point to decrease.
B. The difference between budgeted contribution margin and D. The increase in fixed cost causes net income to decrease and
actual contribution margin. the break-even point to increase. Bobadilla
C. The difference between budgeted contribution margin and
breakeven contribution margin 50.A company’s breakeven point in peso sales may be affected by
D. The difference between budgeted sales and breakeven sales. equal percentage increases in both selling price and variable cost
Bobadilla per unit (assume all other factors are equal within the relevant
range). The equal percentage changes in selling price and variable
45.A technique for determining what would happen in a decision cost per unit will cause the breakeven point in peso sales to
analysis if a key prediction or assumption proves to be wrong is A. Decrease by less than the percentage increase in selling price.
called: B. Decrease by more than the percentage increase in the selling
A. CVP analysis. C. Post-audit analysis. Bobadilla price.
B. Sensitivity analysis. D. Contribution-margin variation C. Increase by less than the percentage increase in selling price.
analysis. D. Remain unchanged. Bobadilla
46.An increase in the unit variable cost will generally cause an increase
in all of the following except
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51.If the fixed costs attendant to a product increase while variable
costs and sales price remains constant, what will happen to 54.If a company is operating at a loss,
contribution margin (CM) and breakeven point (BEP)? A. fixed costs are greater than sales.
Bobadilla A. B. C. D. B. selling price is lower than the variable cost per unit.
CM Increase Decrease Unchange Unchange C. selling price is less than the average total cost per unit.
d d D. fixed cost per unit is greater than variable cost per unit.Bobadilla
BEP Decrease Increase Increase Unchange
d 55.As volume increases, average cost per unit
A. increases.
52.Which of the following will decrease the breakeven point? Bobadilla B. decreases.
Decrease in Selling Increase in Direct Increase in Fixed C. remains constant.
Price Labor Cost D. increases in proportion to the change in volume. Bobadilla
A YES YES YES
56.If all goes according to plan except that unit variable cost falls,
.
A. total contribution margin will be lower than expected.
B YES NO YES
B. the contribution margin percentage will be lower than expected.
.
C. profit will be higher than expected.
C NO NO YES
D. per-unit contribution margin will be lower than expected.
.
Bobadilla
D NO NO NO
.
57.Which of the following decreases per-unit contribution margin the
most for a company that is currently earning a profit?
53.Which of the following is an incorrect statement? A. A 10% decrease in selling price. C. A 10% increase in fixed
A. The contribution income statement that is prepared for internal costs. Bobadilla
users is better than the traditional income statement as a B. A 10% increase in variable cost per unit. D. A 10%
management tool to predict the results of increases or increase in fixed cost per unit.
decreases in sales volume, variable costs, and fixed costs.
B. The greater the proportion of fixed costs in a firm's cost 58.If variable cost as a percentage of sales increases, the
structure, the smaller will be the impact on profit from a given A. contribution margin percentage increases.
percentage change in sales revenue. B. selling price increases.
C. In an economic recession, the highly automated company with C. break-even point in pesos increases.
high fixed costs will be less able to adapt to lower consumer D. fixed costs decrease. Bobadilla
demand than will a firm with a more labor-intensive production
process. 59.Introducing income taxes into cost-volume-profit analysis
D. A major difference between income statements prepared under A. raises the break-even point.
the traditional format and those prepared under the contribution B. lowers the break-even point.
format is that expenses under the traditional format are shown C. increases unit sales needed to earn a particular target profit.
by function, while the expenses shown under the contribution D. decreases the contribution margin percentage. Bobadilla
format are shown by function and cost behavior. Bobadilla
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60.If a company is earning a profit, its fixed costs A. the total revenue line crosses the horizontal axis at the
A. are less than total contribution margin. breakeven point. Bobadilla
B. are equal to total contribution margin. B. beyond the breakeven sales volume, profits are maximized at
C. are greater than total variable costs. the sales volume where total revenues equal total costs.
D. can be greater than or less than total contribution margin. C. an increase in unit variable costs would decrease the slope of
Bobadilla the total cost line.
D. an increase in the unit selling price would shift the breakeven
61.A cost-volume-profit graph reflects relationships point in units to the left.
A. that are expected to hold over the relevant range.
B. of results over the past few years. 65.An increase in the income tax rate
C. that the company's managers would like to have happen. A. raises the break-even point.
D. likely to prevail for the industry. Bobadilla B. lowers the break-even point.
C. decreases sales required to earn a particular after-tax profit.
62.The following diagram is a cost-volume-profit graph for a D. increases sales required to earn a particular after-tax profit.
manufacturing company. Bobadilla
E 66.If the sales mix shifts toward higher contribution margin products,
the break-even point
P A. decreases.
C
D B. increases.
C. remains constant.
A D. it is impossible to tell without more information. Bobadilla
B
67.Target costing is
O A. a substitute for CVP analysis.
Volume B. used by companies that cannot classify their costs by behavior.
The difference between line AB and line AC (area BAC) is the C. inappropriate if a company has already established a target
A. contribution ratio. C. total variable cost. profit.
B. contribution margin per unit. D. total fixed cost. Bobadilla D. used in decisions to offer a new product or enter a new market.
Bobadilla
63.Select the answer that best describes the labeled item on the
diagram. 68.In order for the break-even computation to be meaningful to
A. Area CDE represents the area of net loss. management, sales mix should be computed using the
B. Line AC graphs total fixed costs. A. expected mix C. most desirable mix
C. Point D represents the point at which the contribution margin B. least desirable mix D. traditional mix Bobadilla
per unit increases.
D. Line AC graphs total costs. Bobadilla 69.Which of the following is a true statement about sales mix?
64.In a cost-volume-profit graph
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A. Profits may decline with an increase in total peso of sales if the Floor show and strolling entertainment 10,000
sales mix shifts to sell more of the high contribution margin The committee members would like to charge P300 per person for
product. the evening’s activities.
B. Profits may decline with an increase in total peso of sales if the Assume that only 250 persons are expected to attend the
sales mix shifts to sell more of the lower contribution margin extravaganza, what ticket price must be charged to breakeven?
product. A. P420 C. P320
C. Profits will remain constant with an increase in total peso of B. P350 D. P390 Bobadilla
sales if the total sales in units remains constant.
D. Profits will remain constant with a decrease in total peso of sales 4
. Consider the following:
if the sales mix also remains constant. Bobadilla Fixed expenses P78,000
Unit contribution margin 12
Target net profit 42,000
PROBLEMS: How many unit sales are required to earn the target net profit?
1
. Green Corporation expects to sell 3,000 plants a month. Its A. 15,000 units C. 12,800 units
operations manager estimated the following monthly costs: B. 10,000 units D. 20,000 units Bobadilla
Variable costs P 7,500
Fixed costs 15,000 5
. Carribean Company produces a product that sells for P60. The
What sales price per plant does she need to achieve to begin variable manufacturing costs are P30 per unit. The fixed
making a profit if she sells the estimated number of plants per manufacturing cost is P10 per unit based on the current level of
month? activity, and fixed selling and administrative costs are P8 per unit. A
A. P7.51 C. P5.00 selling commission of 10% of the selling price is paid on each unit
B. P7.50 D. P2.50 Bobadilla sold.
The contribution margin per unit is:
2
. An organization's break-even point is 4,000 units at a sales price of A. P24. C. P30.
P50 per unit, variable cost of P30 per unit, and total fixed costs of B. P36. D. P54. Bobadilla
P80,000. If the company sells 500 additional units, by how much
will its profit increase? 6
. Seal Yard Ornaments sells lawn ornaments for P15 each. Seal's
A. P25,000 C. P10,000 contribution margin ratio is 40%. Fixed costs are P32,000. Should
B. P15,000 D. P12,000 Bobadilla fixed costs increase 30%, how many additional units will Seal have
to produce and sell in order to generate the same net profit as
3
. The Red Lions Brotherhood is planning its annual Riverboat under the current conditions?
Extravaganza. The Extravaganza committee has assembled the A. 1,600. C. 6,933.
following expected costs for the event: B. 5,333. D. 1,067. Bobadilla
Dinner per person P 70
Programs and souvenir per person 30 7
. At a break-even point of 5,000 units sold, variable expenses were
Orchestra 15,000 P10,000 and fixed expenses were P50,000. The profit from the
Tickets and advertising 7,000 5,001st unit would be?
Riverboat rental 48,000 A. P10 C. P15
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B. P50 D. P12 Bobadilla Sales P2,000,000
Less variable expenses 1,400,000
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. Galactica Company has fixed costs of P100,000 and breakeven Contribution margin 600,000
sales of P800,000. Based on this relationship, what is its projected Less fixed expenses 360,000
profit at P1,200,000 sales? Net income P 240,000
A. P 50,000 C. P150,000 The company has no beginning or ending inventories. A total of
B. P200,000 D. P400,000 Bobadilla 40,000 units were produced and sold last month. What is the
company's degree of operating leverage?
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. The sales price per unit will increase from P32 to P40. The variable A. 0.12 C. 2.50
cost per unit will remain at P24, and the fixed costs will remain B. 0.40 D. 3.30 Bobadilla
unchanged at P400,000. How many fewer units must be sold to
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break-even at the new sales price of P40 per unit? . Delmar Company has the opportunity to increase its annual sales
A. 25,000 C. 10,000 by P125,000 by selling to a new, riskier group of customers. The
B. 2,500 D. 12,500 Bobadilla uncollectible expense is expected to be 10%, and collection costs
will be 10%. The company’s manufacturing and selling expenses
10
. The Hard Company sells widgets. The company breaks even at an are 70% of sales, and its effective tax rate is 40%. If Delmar were
annual sales volume of 80,000 units. At an annual sales volume of to accept this opportunity, the company’s after tax profits would
100,000 units the company reports a profit of P220,000. The increase by
annual fixed costs for the Hard Company are: A. P 7,500 C. P12,500
A. P 880,000 C. P 800,000 B. P 6,000 D. P15,000 Bobadilla
B. P1,100,000 D. P1,000,000 Bobadilla
15
. In 2006 Lucia Company had a net loss of P8,000. The company
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. Albatross Company has fixed costs of P90,300. At a sales volume of sells one product with a selling price of P80 and a variable cost per
P360,000, return on sales is 10%; at a P600,000 volume, return on unit of P60. In 2007, the company would like to earn a before-tax
sales is 20%. What is the break-even volume? profit of P40,000. How many additional units must the company
A. P225,000 C. P301,000 sell in 2007 than it sold in 2006? Assume that the tax rate is 40
B. P258,000 D. P240,000 Bobadilla percent.
A. 1,600 C. 2,000
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. An entity has fixed costs of P200,000 and variable costs per unit of B. 2,400 D. 5,400 Bobadilla
P6. It plans on selling 40,000 units in the coming year. If the entity
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pays income taxes on its income at a rate of 40%, what sales price . Bulusan Company has sales of P400,000 with variable costs of
must the firm use to obtain an after-tax profit of P24,000 on the P300,000, fixed costs of P120,000, and an operating loss of
40,000 units? P20,000. How much increase in sales would Bulusan need to make
A. P11.60 C. P12.00 in order to achieve a target operating income of 10% of sales?
B. P11.36 D. P12.50 Bobadilla A. P400,000 C. P500,000
B. P462,000 D. P800,000 Bobadilla
13
. The following is the Lux Corporation's contribution format income
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statement for last month: . The following data apply to Diva Corporation for the year 2006:
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Total variable cost per unit P3.50 The management is considering installing a new, automated
Contribution margin/sales 30% manufacturing process that will increase fixed costs by P50,000 and
Breakeven sales (present volume) P1,000,000 reduce variable manufacturing cost by P3 per unit. The
Diva wants to sell an additional 50,000 units at the same selling management set a target a profit of P70,000 before and after the
price and contribution margin per unit. By how much can fixed acquisition of the automated machine. After installation of the
costs increase to generate a gross margin equal to 10% of the sales automated machine, what will be the change in the units required
value of the additional 50,000 units to be sold? to achieve the target profit?
A. P 50,000 C. P 67,500 A. 6,667 unit increase C. 3,333 unit decrease
B. P 57,500 D. P125,000 Bobadilla B. 5,667 unit decrease D. 4,333 unit decrease Bobadilla
18 21
. Marsman Company had a margin of safety ratio of 20%, variable . In planning its operations for next year based on a sales forecast of
costs of 60% of sales, fixed costs of P240,000, a break-even point of P6,000,000, Herran, Inc. prepared the following estimated costs and
P600,000, and an operating income of P60,000 for the current year. expenses:
What are the current year's sales? Variable Fixed
A. P 500,000 C. P 750,000 Direct materials
B. P 600,000 D. P 900,000 Bobadilla P1,600,000
Direct labor 1,400,000
19
. Regal, Inc. sells Product M for P5 per unit. The fixed costs are Factory overhead 600,000 P 900,000
P210,000 and the variable costs are 60% of the selling price. What Selling expenses 240,000 360,000
would be the amount of sales if Regal is to realize a profit of 10% of Administrative 60,000 140,000
sales? expenses
A. P700,000 C. P525,000 P3,900,000 P1,400,000
B. P472,500 D. P420,000 Bobadilla What would be the amount of peso sales at the breakeven point?
A. P2,250,000. C. P4,000,000.
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. The following economic data were provided by the corporate B. P3,500,000. D. P5,300,000. Bobadilla
planning staff of Heaven, Inc.:
Sales volume 30,000 units 22
. The Expressive Company currently has fixed cost of P770,500. This
Sales price per unit P30 cost is expected to increase by P103,500 if the company expands
Unit variable costs: its production facilities. Currently, it sells its product for P47. The
Variable manufacturing P13 product has a variable cost per unit of P24. How many more units
Other variable costs 8 must the company sell to break even, at the current sales price per
Unit variable costs P21 unit, than it did to break even prior to the increase in fixed cost?
Unit contribution margin P 8 A. 3,500 C. 4,500
B. 4,000 D. 6,000 Bobadilla
Fixed costs:
Manufacturing P150,000 23
. The Tanker Company estimated the following data for the coming
Other fixed costs P 50,000 year:
Total fixed costs P200,000 Fixed manufacturing costs P565,000
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Variable production costs per peso of sales Margin of safety 40,000
Materials P 0.125 What is Mercado’s breakeven point in 2007?
Direct labor 0.150 A. P360,000 C. P320,000
Variable overhead 0.075 B. P288,000 D. P 80,000 Bobadilla
Variable selling costs per peso of sales 0.150
Tanker estimates its sales for the coming year to be P2,000,000. 27
. Marquez Co. manufactures a single product. For 2006, the
company had sales of P90,000, variable costs of P50,000, and fixed
The expected cost of goods sold for the coming year is costs of P30,000. Marquez expects its cost structure and sales
A. P1,265,000 C. P1,565,000 price per unit to remain the same in 2007; however total sales are
B. P1,115,000 D. P 700,000 Bobadilla expected to jump by 20%. If the 2007 projections are realized, net
income in 2007 should exceed net income in 2006 by
24
. At a sales volume level of 2,250 units, Baluarte Company’s A. 100% C. 20%
contribution margin is one and one-half of the fixed costs of B. 80% D. 50% Bobadilla
P36,000. Contribution margin is 30% How much peso sales should
the Baluarte Company sell to earn 10 percent of sales? 28
. Below is the income statement for Harpo Co. for 2006:
A. P270,000 C. P360,000 Sales P400,000
B. P180,000 D. P540,000 Bobadilla Variable costs ( 125,000)
Contribution margin P275,000
25
. The Alpine Company’s year-end income statement is as follows: Fixed costs ( 200,000)
Sales (20,000 units) P360,000 Profit before tax P 75,000
Variable costs 220,000 Assuming that the fixed costs are expected to remain at P200,000
Contribution margin P140,000 for 2007, and the sales price per unit and variable cost per unit are
Fixed costs 105,000 also expected to remain constant, how much profit before tax will
Net income P 35,000 be produced if the company anticipates 2007 sales rising to 130%
Alpine’s management is unhappy with the results and plans to of the 2006 level?
make some changes for next year. If management implements a A. P 97,500 C. P195,000
new marketing program, fixed costs are expected to increase by B. P157,500 D. P180,000 Bobadilla
P19,200 and variable costs to increase by P1 per unit. Unit sales
are expected to increase by 15 percent. 29
. Almos Corporation produces a product that sells for P10 per unit.
The variable cost per unit is P6 and total fixed costs are P12,000.
What is the effect on income if the foregoing changes are At this selling price, the company earns a profit equal to 10% of
implemented? total peso sales. By reducing its selling price to P9 per unit, the
A. decrease of P21,200 C. increase of P 1,800 manufacturer can increase its unit sales volume by 25%. Assume
B. increase of P13,800 D. increase of P14,800 Bobadilla that there are no taxes and that total fixed costs and variable cost
per unit remain unchanged. If the selling price were reduced to P9
26
. Mercado, Inc. had the following economic data for 2007: per unit, the company’s profit would have been
Net sales P400,000 A. P3,000. C. P5,000.
Contribution margin 160,000 B. P4,000. D. P6,000. Bobadilla
11
34
. Levi’s Company has revenues of P500,000, variable costs of
30
. Information concerning the 2007 financial projections of the Silver P300,000, and pretax profit of P150,000. Had the company
Company is as follows: increased the sales price per unit by 10%, reduced fixed costs by
Net sales of P3,000,000. 20%, and left variable cost per unit unchanged, what would the new
Fixed costs of P800,000. breakeven point in pesos have been?
P0.65 increase in cost of sales for each peso increase in net A. P 88,000 C. P100,000
sales. B. P 80,000 D. P125,000 Bobadilla
What is the projected cost of sales for 2007?
A. P 950,000 C. P1,050,000 35
. A firm has fixed costs of P200,000 and variable cost per unit of P6.
B. P2,750,000 D. P1,850,000 Bobadilla It plans to sell 40,000 units in the coming year. If the firm pays
income taxes on its income at a rate of 40%, what sales price must
31
. The Childless Company sells widgets. The company breaks even at the firm use to obtain an after-tax profit of P24,000?
an annual sales volume of 75,000 units. A. P11.60 C. P11.36
B. P12.00 D. P12.50 Bobadilla
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 36
. Below is the income statement for Blender Co. for 2007:
A. P800,000 C. P200,000 Sales P400,000
B. P600,000 D. P150,000 Bobadilla Variable costs (125,000)
32
. The costs to produce 24,000 units at 70% capacity are: Fixed costs ( 200,000)
Direct materials P36,000 Profit before tax P 75,000
Direct labor 54,000 What is the degree of operating leverage for Blender Company for
Factory overhead, all fixed 29,000 2007?
Selling expense (35% variable, 65% fixed) 24,000 A. 3.67 C. 5.33
What unit price would the company have to charge to make P2,250 B. 1.45 D. 1.67 Bobadilla
on a sale of 1,500 additional units that would be shipped out of the
normal market area? 37
. Food Factory, Inc. sells loose biscuits for P5 per unit. The fixed
A. P5.10 C. P4.10 costs are P210,000 and the variable costs are 45% of the selling
B. P5.60 D. P5.00 Bobadilla price. What would be the amount of sales if Food Factory, Inc. were
to realize a profit of 15% of sales?
33
. The Mandarin Company's product mix includes P720,000 in sale of A. P700,000 C. P525,000
X and P640,000 in sale of Y. X's contribution margin is 60% and Y's B. P472,500 D. P420,000 Bobadilla
is 40% of sales. Fixed costs amount to P505,881. Y's sale at
breakeven point should amount to 38
. The Opposition Sales Corporation is expecting an increase of fixed
A. P640,000 C. P529,490 costs by P78,750 upon moving their place of business to the
B. P720,000 D. P470,590 Bobadilla downtown area. The company anticipates that the selling price per
unit and the variable expenses will not change. At present, the
12
sales volume necessary to breakeven is P750,000 but with the A. P1,125,000 C. P1,325,000
expected increase in fixed costs, the sales volume necessary to B. P1,187,500 D. P1,387,500 Bobadilla
breakeven would go up to P975,000.
42
. Mauresmo Company developed the following information for the
Based on these projections, what were the total fixed costs before year ended December 31, 2007:
the increase of P78,750? Product A Product B Total
A. P341,250 C. P183,750 Units Sold 4,000 6,000 10,000
B. P262,500 D. P300,000 Bobadilla
Sales P12,000 P27,000 P39,000
39
. At 40,000 units of sales, Benevolent Corporation had an operating Variable costs 6,000 15,000 21,000
loss of P3.00 per unit. When sales were 70,000 units, the company Contribution margin P 6,000 P12,000 18,000
had a profit of P1.20 per unit. The number of units to breakeven is Fixed costs 12,600
A. 35,000 C. 45,000 Net income P 5,400
B. 52,500 D. 57,647 Bobadilla If the sales mix changes to 5,000 units of Product A and 5,000 units
of Product B, the effect on the company’s break-even point would
40
. The following information pertains to Hennin Corporation for the be
year ending December 31, 2006: A. to increase it by 200 units. C. to increase it by 1,200 units.
Budgeted sales P1,000,000 B. to decrease it by 200 units. D. no change. Bobadilla
Breakeven sales 700,000
Budgeted contribution margin 600,000 43
. Menor Company sells two products with the following per unit data:
Cashflow breakeven 200,000 Standard Deluxe
The margin of safety for the Hennin Corporation is: Selling price/unit P75 P120
A. P300,000 C. P500,000 Variable costs/unit 45 60
B. P400,000 D. P800,000 Bobadilla Contribution margin/unit P30 P 60
41 Sales mix 3 2
. Balboa, Inc. had the following economic information for the year
If fixed costs are P630,000, the number of standard and deluxe
2006:
units that Menor must sell to break even is Bobadilla
Sales (50,000 units @ P20) P1,000,000
A. 1,800 standard and 1,200 deluxe. C. 9,000 standard and 6,000
Variable manufacturing costs 400,000
deluxe.
Fixed costs 250,000
B. 3,600 standard and 2,400 deluxe. D. 21,000 standard and
Income tax rate 40 percent
14,000 deluxe.
Balboa, Inc. budgets its 2007 sales at 60,000 units or P1,200,000.
The company anticipates an increased competition; hence, an 44
additional P75,000 advertising costs is budgeted in order to . The following are projections about the two products of Dorine
maintain its sales target for 2007. Company, baubles and trinkets, for the coming year:
Baubles Trinkets
What is the amount of peso sales needed for 2007 in order to equal Units Amou Units Amou Total
the after-tax income in 2006? nt nt
13
Sales 10,00 P10,0 7,500 P10,0 P20,0 If fixed costs will increase by 30 percent, what amount of peso sales
0 00 00 00 would be necessary to generate an operating profit of P48,000?
Costs A. P1,350,000 C. P1,135,000
Fixed P P P B. P 486,425 D. P 910,000 Bobadilla
2,000 5,600 7,600
Variable 6,00 3,00 9,0 47
. Last month, Zamora Company had an income of P0.75 per unit with
0 0 00 sales of 60,000 units. During the current month when the unit sales
P P P16,6 are expected to be only 45,000, there is a loss of P1.25 per unit.
8,000 8,600 00 Both the variable cost per unit and total fixed costs remain
Income before P P P constant.
taxes 2,000 1,400 3,400
Assuming that the customers purchase composite units of four The fixed costs amounted to
baubles and three trinkets, the breakeven output for the two A. P 80,000 C. P360,000
products would be B. P247,500 D. P210,000 Bobadilla
Bobadilla A. B. C. D.
48
Baubles 6,909 6,909 5,000 5,000 . Bytes Company is a retailer of video disks. The projected after-tax
Trinkets 6,909 5,182 8,000 6,000 income for the current year is P120,000 based on a sales volume of
200,000 video disks. Bytes has been selling the disks at P16 each.
45
. The sales mix for Dial Enterprise is as follows: The variable costs consist of the P10 per unit purchase price of the
Product A: 12 units @ P5.25 sales price; P4.85 variable cost per disks and a handling cost of P2 per disk. Bytes’ annual fixed costs
unit. are P600,000, and Bytes is subject to a 40% income tax rate.
Product B: 10 units @ P7.50 sales price; P6.95 variable cost per Management is planning for the coming year when it expects that
unit. the unit purchase price of the video disks will increase 30%.
Product C: 6 units @ P12.25 sales price; P10.35 variable cost per
unit. Bytes Company’s breakeven point for the current year in number of
video disks is
Dial Enterprise's fixed costs are P75,950. A. 100,000 units C. 50,000 units
B. 150,000 units D. 60,000 units Bobadilla
What are the composite break-even point? 49
A. 98,000 C. 3,500 . Alonzo Corporation had sales of P120,000 for the month of May. It
B. 2,000 D. 4,000 Bobadilla has a margin of safety ratio of 25 percent, and an after-tax return
on sales of 6 percent. The company assumes its sales being
46
. Alexandra Co. provides two products, Velvet and Cotton. Velvet constant every month. If the tax rate is 40 percent, how much is the
accounts for 60 percent of total sales. The variable costs as a annual fixed cost?
percentage of selling prices are 60% for Velvet and 85% for Cotton. A. P 36,000 C. P 90,000
Total fixed costs are P225,000. B. P432,000 D. P360,000 Bobadilla
14
50
. Cultured Company is a manufacturer of its only one product line. It An advertising agency claims that an aggressive advertising
had sales of P400,000 for 2007 with a contribution margin ratio of campaign would enable Santos to increase its unit sales by 20%.
20 percent. Its margin of safety ratio was 10 percent. What is the maximum amount that Santos Company can pay for
advertising and have an operating profit of P200,000 next year?
What are the company’s fixed costs? A. P100,000 C. P300,000
A. P 72,000 C. P 80,000 B. P200,000 D. P550,000 Bobadilla
B. P288,000 D. P320,000 Bobadilla
53
. Adventurous Co. is considering dropping a product. Variable costs
51
. Glareless Company manufactures and sells sunglasses. The price are P60.00 per unit. Fixed overhead costs, exclusive of
and cost data are as follows: depreciation, have been allocated at a rate of P3.50 per unit and
Selling price per pair of Sunglasses P25.00 will continue whether or not production ceases. Depreciation on the
Variable costs per pair of sunglasses: equipment is P60,000 a year. If production is stopped, the
Raw materials P11.00 equipment can be sold for P270,000, if production continues,
Direct labor 5.00 however, it will be useless at the end of 1 year and will have no
Manufacturing overhead 2.50 salvage value. The selling price is P100 a unit. Ignoring taxes, the
Selling expenses 1.30 minimum number of units to be sold in the current year to break
Total variable costs per unit P19.80 even on a cash flow basis is
Annual fixed costs: A. 1,500 units. C. 8,250 units.
Manufacturing overhead P192,000 B. 6,750 units. D. 9,750 units Bobadilla
Selling and administrative 276,000
54
Total fixed costs P468,000 . Pansipit Company had a 25 percent margin of safety. Its after-tax
Forecasted annual sales volume (120,000 pairs)P3,000,000 return on sales is 6 percent. The company’s income is subject to tax
Income tax rate 40% rate of 40 percent. If fixed costs amount to P320,000, how much
Glareless Company estimates that its direct labor costs will increase peso sales did Pansipit make for the year?
8 percent next year. How many units will Glareless have to sell next A. P1,066,667 C. P1,280,000
year to reach breakeven? B. P1,000,000 D. P 800,000 Bobadilla
A. 97,500 units C. 101,740 units
B. 83,572 units D. 86,250 units Bobadilla 55
. The management of Mesa Company has performed cost studies and
has projected the following annual costs based on 60,000 units of
52
. Santos Company is planning its advertising campaign for next year production and sales:
and has prepared the following budget data based on a zero Total Annual Percent of Variable Portion of Total
advertising expenditure: Costs Annual Costs
Normal plant capacity 200,000 units Direct P600,000 100
Sales 150,000 units material
Selling price P25 per unit Direct 720,000 80
Variable manufacturing costs P15 per unit labor
Fixed manufacturing costs P800,000 Mfg. 400,000 50
Fixed selling costs P700,000 Overhead
15
Selling 192,500 25 The total number of units that MultiFrame needs to produce and sell
costs in order to break even is
What selling price will yield a 15 percent profit from sales of 60,000 A. 150,000 units C. 153,947 units
units? B. 100,000 units D. 300,000 units Bobadilla
A. P41.67 C. P27.30
58
B. P37.50 D. P35.42 Bobadilla . During 2006, St. Paul Lab supplied hospitals with a comprehensive
diagnostic kit for P120. At a volume of 80,000 kits, St. Paul had
56
. The following data relate to Harvester Company which sells a single fixed costs of P1,000,000 and operating income before income
product: taxes of P200,000. Because of an adverse legal decision, St. Paul’s
Unit selling price P 80.00 2007 liability insurance increased by P1,200,000 over 2006.
Purchase cost per unit 55.00 Assuming the volume and other costs are unchanged, what should
Sales commission 15 % of selling price 12.00 the 2007 price be if St. Paul is to make the same P200,000
Monthly fixed costs P180,000 operating income before income taxes?
The firm’s two salespersons would like to change their A. P120 C. P150
compensation from a 15 percent commission to a 7.5 percent B. P135 D. P240 Bobadilla
commission plus P15,000 each per month in fixed salary. Currently,
59
they only receive commissions as their compensation. . The following data relate to Herbert Company which sells a single
product:
At what sales volume in units would the two cost structures be Unit selling price P 20.00
indifferent? Purchase cost per unit 11.00
A. 2,500 units C. 4,000 units Sales commission, 10% of selling price 2.00
B. 3,000 units D. 5,000 units Bobadilla Monthly fixed costs P80,000
The firm’s salespersons would like to change their compensation
57
. MultiFrame Company has the following revenue and cost budgets from a 10 percent commission to a 5 percent commission plus
for the two products it sells: P20,000 per month in salary. Currently, they only receive
Plastic Frames Glass Frames commissions as their compensation.
Sales price P10.00 P15.00
Direct materials ( 2.00) ( 3.00) The change in compensation plan should change the monthly
Direct labor ( 3.00) ( 5.00) breakeven point by
Fixed overhead ( 3.00) ( 2.75) A. 1,071 Increase C. 1,538 Increase
Net income per P 2.00 P 4.25 B. 1,071 Decrease D. 1,538 Decrease Bobadilla
unit 60
Budgeted unit 100,000 300,000 . The manager of Naughty Food Company reviewed the following
sales data:
The budgeted unit sales equal the current unit demand, and total Fruits Meat Canned
fixed overhead for the year is budgeted at P975,000. Assume that Products
the company plans to maintain the same proportional mix. Contribution margin 40% 50% 40%
ratio
16
Sales mix in pesos 20% 30% 50% 1. The sales price of the T-shirts will be P9
Fixed costs, P1,290,000 per month. 2. Variable cost to manufacture will increase by one-third
The breakeven sales for each month is 3. Fixed costs will increase by 10%
A. P1,677,000 C. P4,500,000 4. The income tax rate of 40% will be unchanged
B. P3,000,000 D. P6,000,000 Bobadilla The selling price that would maintain the same contribution margin
rate as last year is
61
. The Oregano Watch Company manufactures a line of ladies’ A. P 9.00 C. P10.00
watches which are sold through discount houses. Each watch is B. P 8.25 D. P 9.75 Bobadilla
sold for P1,500; the fixed costs are P3,600,000 for 30,000 watches
64
or less; variable cost is P900 per watch. . During the month of June, Armani Corporation produced 12,000
units and sold them for P20 per unit. Total fixed costs for the period
What is Oregano’s degree of operating leverage at sales of 12,000 were P154,000, and the operating profit was P26,000. The variable
watches? cost per unit for June was
A. 2.0X C. 0.5X A. P4.50 C. P6.00
B. 5.0X D. 0.2X Bobadilla B. P5.00 D. P7.17 Bobadilla
65
62
. Duke, Inc. owns and operates a chain of food centers. The . Stone Company plans to sell 400,000 laundry hangers. The fixed
management is considering installing machines that will make costs are P600,000, and the variable cost is 60% of the selling
popcorn on the premises. These machines are available in two price. If the company wants to realize a profit of P120,000, the
different sizes with the following details: selling price of each laundry hanger must be
Economy Regular A. P2.50 C. P4.50
Annual capacity 20,000 50,000 B. P3.75 D. P5.00 Bobadilla
Costs: Annual machine P60,000.00 P82,500.00 66
rental . The unit contribution margin of Product A is P20 and of Product B is
Popcorn cost per box 3.90 3.90 P16. If six units of Product A and eight units of Product B can be
Cost of each box 0.80 0.80 produced per machine hour, the contribution margin of the products
Other variable cost per box 6.60 4.20 per machine hour is Bobadilla
The level of output in boxes at which the Economy and the Regular A. Product A, P160; Product B, P96 C. Product A, P3.33; Product
would earn the same profit (loss) is B, P2.00
A. 20,000 boxes C. 15,000 boxes B. Product A, P120; Product B, P128 D. Product A, P32.00;
B. 9,375 boxes D. 12,500 boxes Bobadilla Product B, P30.00
67
63
. The Harper Corporation manufactures and sells T-shirts imprinted . The Bittersweet Company is a wholesale distributor of candy. The
with college names and slogans. Last year, the shirts sold for P7.50 company services various grocery, convenience, and drug stores in
each, and the variable cost to manufacture them was P2.25 per Metro Manila. Small, but steady growth in sales, has been achieved
unit. The company needed to sell 20,000 shirts to break even. The by the company over the past few years while candy prices have
net income last year was P5,040. Harper’s expectations for the been increasing. The company is formulating its plans for the
coming year include the following:
17
coming fiscal year. Presented below are the data used to project A new machine will also be needed to increase plant capacity. The
the current year’s after-tax net income of P110,400. machine would cost P18,000 with a useful life of 6 years and no
Average selling price P4.00 per box salvage value. The company uses straight-line depreciation
Average variable costs method on all plant assets.
Cost of candy P2.00 per box
Selling expenses 0.40 per box If Larz wishes to maintain the same contribution margin ratio after
Total P2.40 per box implementing the changes, what selling price per unit of product
must it charge next year to cover the increased material costs?
Annual fixed costs: A. P27.00 C. P25.00
Selling P 169,000 B. P32.50 D. P28.33 Bobadilla
Administrative 280,000
Total P 440,000 69
. BM Motors, Inc. employs 40 sales personnel to market its line of
Expected annual sales volume (390,000 boxes)P1,560,000 economy automobiles. The average car sells for P1,200,000 and a
The manufacturers of candies have announced that they will 6% commission is paid to the salesperson. BM Motors is
increase prices of their products an average of 15% in the coming considering a change to a commission arrangement that would pay
year due to increases in raw material (sugar, cocoa, peanuts, etc.) each salesperson a salary of P24,000 per month plus a commission
and labor costs. Bittersweet Company expects that all other costs of 2% of the sales made by that salesperson.
will remain at the same rates or levels as the current year.
Bittersweet is subject to 40 percent tax rate. The amount of total car sales at which the two expense structures
would be indifferent is
If net income after taxes would remain the same after the cost of A. P22,500,000 C. P30,000,000
candy increases but no increase in the sales price is made, how B. P24,000,000 D. P12,000,000 Bobadilla
many boxes of candy must Bittersweet sell?
A. 480,000 C. 400,000 70
. Round Company is a grocery store that is currently open only
B. 27,600 D. 29,300 Bobadilla Monday through Saturday. Round Company is considering opening
on Sundays. The annual incremental costs of Sunday openings are
68
. Larz Company produces a single product. It sold 25,000 units last estimated at P31,200. Round’s gross margin on sales is 25 percent.
year with the following results: Round estimates that 75 percent of its Sunday sales to customers
Sales P625,000 would be made on other days if the store were not open on
Variable costs P375,000 Sundays.
Fixed costs 150,000 525,000
Net income before P100,000 The one-day volume of Sunday sales that would be necessary for
taxes Round to attain the same weekly operating as the current six-day
Income taxes 40,000 week is
Net income P 60,000 A. P2,400 C. P9,600
In an attempt to improve its product in the coming year, Larz is B. P3,200 D. P9,984 Bobadilla
considering replacing a component part in its product that has a
cost of P2.50 with a new and better quality costing P4.50 per unit.
18
71
. Ailu Company has the following operating data for its Variable costs:
manufacturing operations: Direct labor P 80.00/pipe
Unit selling price P 250 Direct materials 32.50/pipe
Unit variable cost 100 Variable overhead 25.00/pipe
Total fixed costs 840,000 Total variable costs P137.50/pipe
The company’s decision to increase the wages of hourly workers Fixed costs:
will increase the unit variable cost by 10 percent. Increases in the Manufacturing P 250,000
salaries of factory supervisors and property taxes for the factory will Selling 400,000
increase fixed costs by 4 percent. If sales price is held constant, the Administrative 700,000
next break-even point for Ailu Company will be Total fixed costs P1,350,000
A. Increased by 640 units. C. Decreased by 640 units.
B. Increased by 400 units. D. Increased by 800 units. Selling price, per pipe P 250.00
Bobadilla Expected sales, 2007 (20,000 units) P5,000,000
Tax rate: 40%
72
. Solar Company sells two products, Biggs and Boggs. Last year, The company has set the sales target for 2007 at a level of
Solar Company sold 12,000 units of Biggs and 24,000 units of P5,500,000 (or 22,000 pipes).
Boggs.
If an additional P112,500 have to be spent for advertising in 2007,
Related data for last year are: what is the required sales level in pesos to equal 2006’s after-tax
Product Unit Selling Price Unit Variable Unit Contribution income?
Cost Margin A. P4,750,000 C. P5,250,000
Biggs P120 P80 P40 B. P5,750,000 D. P4,250,000 Bobadilla
Boggs 80 60 20 74
Assuming that last year’s fixed costs totaled P910,000, what was . Adobe Company sold 100,000 units of its product at P20 per unit.
Solar Company’s composite break-even point? Variable costs were P14 per unit, consisting of manufacturing costs
A. 34,125 C. 11,375 of P11 and selling costs of P3. Fixed costs, which were incurred
B. 27,302 D. 9,101 Bobadilla uniformly throughout the year, amounted to P792,000
(manufacturing costs of P500,000 and selling expenses of
73 P292,000). There had been no beginning or ending inventories.
. River and Co., maker of quality pipes, has experienced a steady
growth in sales for the past five years. However, increase in
If labor costs comprise of 50 percent variable costs and 20 percent f
competition has led River Co. to believe that an aggressive
fixed costs, a 10 percent increase in wages and salaries would
advertising campaign will be necessary next year to maintain the
increase the number of units required to break even to
company’s present growth.
A. 152,423 C. 143,875
B. 175,617 D. 129,938 Bobadilla
To prepare for next year’s advertising campaign, the company’s
accountant has prepared and presented the management with data 75
for the current year, 2006, as presented below: . Mellow, Inc. sells its single product for P40 per unit. Mellow
Cost Schedule purchases the product for P20. The salespeople receive a salary
19
plus a commission of 5% of sales. Last year the corporation’s net A. Product XY-7 should be produced, yielding a contribution margin
income was P100,800. The corporation is subject to 30% income of P75,000.
tax rate. The fixed costs of the company are: B. Product XY-7 should be produced, yielding a contribution margin
Advertising P124,000 of P133,333.
Rent 60,000 C. Product BD-4 should be produced, yielding a contribution margin
Salaries 180,000 of P187,500.
Other fixed costs 32,000 D. Product BD-4 should be produced, yielding a contribution margin
Total P396,000 of P250,000.
The company is considering changing the compensation plan for
sales personnel. If the organization increases the commission to 77
. Drape Corp. would like to market a new product at a selling price of
10% of revenues and reduces salaries by P80,000, what revenues P15 per unit. Fixed costs for this product are P1,000,000 for less
must the organization have to raise in order to earn the same net than 500,000 units of output and P1,500,000 for 500,000 or more
income as last year? units of output. The contribution margin percentage is 35%. How
A. P1,600,000 C. P1,350,000 many units of this product must be sold to earn a target operating
B. P1,150,000 D. P1,630,000 Bobadilla income of P1 million?
A. 366,667 C. 476,190
76
. Tactless Manufacturing Company produces two products for which B. 380,952 D. 256,410 Bobadilla
the following data have been tabulated. Fixed manufacturing cost
is applied at a rate of P1.00 per machine hour. 78
. Care Company sold 100,000 units of its product at P20 per unit.
Per Unit XY-7 BD-4 Variable costs are P14 per unit, consisting of manufacturing costs of
Selling price P4.00 P3.00 P11 and selling costs of P3. Fixed costs, which are incurred
Variable manufacturing cost P2.00 P1.50 uniformly throughout the year, amount to P792,000 (manufacturing
Fixed manufacturing cost P0.75 P0.20 costs of P500,000 and selling costs of P292,000). There were no
Variable selling cost P1.00 P1.00 beginning or ending inventories.
The sales manager has had a P160,000 increase in the budget
allotment for advertising and wants to apply the money to the most If labor costs are 50% of variable costs and 20% of fixed costs, a
profitable product. The products are not substitutes for one another 10% increase in wages and salaries would increase the number of
in the eyes of the company’s customers. units required to breakeven (in fraction form) to
A. 807,840/5.3. C. 807,840/14.7.
The manager may devote the entire P160,000 to increased B. 831,600/5.78. D. 831,600/14.28. Bobadilla
advertising for either XY-7 or BD-4.
Question Nos. 79 through 81 are based on the following:
Suppose Tactless has only 100,000 machine hours that can be Metal Industries, Inc. operates its production department only when
made available to produce additional units of XY-7 and BD-4. If the orders are received for one or both of its two products, two sizes of
potential increase in sales units for either product resulting from metal discs. The manufacturing process begins with the cutting of
advertising is far in excess of this production capacity, which doughnut-shaped rings from rectangular strips of sheet metal; these
product should be advertised and what is the estimated increase in rings are then pressed into discs. The sheets of metal, each 4 feet long
contribution margin earned? Bobadilla and weighing 32 ounces, are purchased P13.60 per running foot. The
20
department has been operating at a loss for the past year as shown Questions 82 through 86 are based on the Statement of Income of
below. Davao, Inc. which represents the operating results for the current fiscal
Sales for the year P1,720,000 year ending December 31. Davao had sales of 1,800 tons of product
Less: expenses 1,772,000 during the current year. The manufacturing capacity of Davao’s
Net loss for the department P 52,000 facilities is 3,000 tons of product. Consider each question’s situation
separately.
The following information is available. Sales P900,000
Variable costs
Ten thousand 4-foot pieces of metal yielded 40,000 large discs, each Manufacturing P315,000
weighing 4 ounces and selling for P29, and 40,000 small discs, each Selling costs 180,000
weighing 2.4 ounces and selling for P14. Total variable costs P495,000
The corporation has been producing at less than “normal capacity” and Fixed costs
has had no spoilage in the cutting step of the process. The skeletons Manufacturing P 90,000
remaining after the rings have been cut are sold for scrap at P8.00 per Selling 112,500
pound. Administration 45,000
Total fixed costs P247,500
The variable conversion cost of each large disc is 80% of the disc’s Net income before income taxes P157,500
direct material cost, and variable conversion cost of each small disc is Income taxes (40%) (63,000)
75% of the disc’s direct material cost. Variable conversion costs are Net income after income taxes P 94,500
the sum of direct labor and variable overhead.
Fixed costs were P860,000. 82
. The breakeven volume in tons of product for the year is
A. 420 C. 1,100
79
. The net cost per ounce of material is B. 495 D. 550 Bobadilla
A. P2.00 C. P1.70
B. P1.60 D. P1.80 Bobadilla 83
. If the sales volume is estimated to be 2,100 tons in the next year,
and if the prices and costs stay at the same levels and amounts
80
. The total variable costs per unit for the large and small discs, next year, the after-tax income that Davao can expect for next year
respectively, are is
A. P10.20 and P8.60. C. P 9.10 and P5.30. A. P135,000 C. P110,250
B. P14.40 and P8.40. D. P11.80 and P6.60. Bobadilla B. P283,500 D. P184,500 Bobadilla
81 84
. If the material costs for large and small discs are P8.50 and P5.10, . Davao has a potential foreign customer that has offered to buy
respectively, and the normal production capacity is 100,000-unit 1,500 tons at P450 per ton. Assume that all of Davao’s costs would
level, what is the breakeven point? be at the same levels and rates as last year. What net income after
A. 91,611. C. 79,816. taxes would Davao make if it took this order and rejected some
B. 87,216. D. 82,412. Bobadilla business from regular customers so as not to exceed capacity?
A. P297,500 C. P211,500
21
B. P252,000 D. P256,500 Bobadilla
87
. If Anilao Ski Company desires an after-tax net income of P24,000,
85
. Without prejudice to your answers to previous questions, and how many pairs of touring model skis will the company have to sell?
assume that Davao plans to market its product in a new territory. A. 13,118 C. 13,853
Davao estimates that an advertising and promotion program B. 12,529 D. 4,460 Bobadilla
costing P61,500 annually would need to be undertaken for the next
two or three years. In addition, a P25 per ton sales commission 88
. The total sales revenue at which Anilao Ski Company would make
over and above the current commission to the sales force in the the same profit or loss regardless of the ski model it decided to
new territory would be required. How many tons would have to be produce is
sold in the new territory to maintain Davao’s current after-tax A. P880,000 C. P924,000
income of P94,500? B. P422,400 D. P686,400 Bobadilla
A. 307.5 C. 273.3
B. 1,095.0 D. 1,545.0 Bobadilla 89
. 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
86
. Without prejudice to preceding questions, assume that Davao the mountaineering model?
estimates that the per ton selling price will decline 10% next year. A. P2.68/unit increase C. P5.03/unit decrease
Variable costs will increase P40 per ton and the fixed costs will not B. P4.53/unit increase D. P2.97/unit decrease Bobadilla
change. What sales volume in pesos will be required to earn an
after-tax income of P94,500 next year? 90
. If the variable cost per unit of touring skis decreases by 10%, and
A. P1,140,000 C. P1,500,000 the total fixed cost of touring skis increases by 10%, the new
B. P 825,000 D. P1,350,000 Bobadilla breakeven point will be
A. 10,730 pairs
Question Nos. 87 through 91 are based on the following: B. 13,007 pairs
Anilao Ski Company recently expanded its manufacturing capacity to C. 12,812 pairs Bobadilla
allow it to product up to 15,000 pairs of cross-country skis of either the D. Unchanged from 11,648 pairs because the cost changes are
mountaineering model or the touring model. The sales department equal and offsetting
assures management that it can sell between 9,000 and 13,000 pairs
(units) of either product this year. Because the models are very 91
. If the Anilao Ski Company sales department could guarantee the
similar, Anilao Ski will produce only one of the two models. The annual sale of 12,000 skis of either model, Anilao would
following data were compiled by the accounting department. A. Produce touring skis because they have a lower fixed cost.
Mountaineering Touring B. Produce only mountaineering skis because they a lower
Selling price per P88.00 80.00 breakeven point.
unit C. Produce mountaineering skis because they are more profitable.
Variable cost per 52.80 2.80 D. Be indifferent as to which model is sold because each model has
unit the same variable cost per unit. Bobadilla
Fixed costs will total P369,600 if the mountaineering model is produced
but will be only P316,800 if the touring model is produced. Anilao Ski Question Nos. 92 through 96 are based on the following:
Company is subject to a 40% income tax rate.
22
Pullman Company is a small but growing manufacturer of “That’s the last straw,” Kim replied angrily. “Those agents have been
telecommunications equipment. The company has no sales force of its demanding more and more, and this time they’ve gone too far. How
own; rather, it relies completely on independent sales agents to market can they possibly defend a 20% commission rate?”
its products. These agents are paid a commission of 15% of selling
price for all items sold. “They claim that after paying for advertising, travel, and the other
costs of promotion, there’s nothing left over for profit,” replied Maui.
Maui Soliman, Pullman’s controller, has just prepared the company’s
budgeted income statement for next year. The statement follows: “I say it’s just plain robbery,” retorted Kim. “And I also say it’s time we
dumped those guys and got our own sales force. Can you get your
Pullman Company people to work up some cost figures for us to look at?”
Budgeted Income Statement
For the Year Ended December 31 “We’ve already worked them up,” said Maui. “Several companies we
Sales P16,000,000 know about pay a 7.5% commission to their own salespeople, along
Manufacturing costs: with a small salary. Of course, we would have to handle all promotion
Variable P7,200,000 costs, too. We figure our fixed costs would increase by P2,400,000 per
Fixed overhead 2,340,000 9,540,000 year, but that would be more than offset by the P3,200,000 (20% x
Gross margin 6,460,000 P16,000,000) that we would avoid on agents’ commissions.”
Selling and administrative
costs: The breakdown of the P2,400,000 cost figure follows:
Commissions to agents 2,400,000 Salaries:
Fixed marketing costs* 120,000 Sales manager P 100,000
Fixed administrative costs 1,800,000 4,320,000 Salespersons 600,000
Net operating income 2,140,000 Travel and entertainment 400,000
Less fixed interest cost 540,000 Advertising 1,300,000
Income before income 1,600,000 Total P2,400,000
taxes
Less income tax (30%) 480,000 “Super,” replied Kim. “And I note that the P2,400,000 is just what
Net income P1,120,000 we’re paying the agents under the old 15% commission rate.”
*Primarily depreciation on storage facilities
“It’s even better than that,” explained Maui. “We can actually save
As Maui handed the statement to Kim Viceroy, Pullman’s president, she P75,000 a year because that’s what we’re having to pay the auditing
commented, “I went ahead and used the agents’ 15% commission rate firm now to check out the agents’ reports. So our overall
in completing these statements, but we’ve just learned that they administrative costs would be less.”
refuse to handle our products next year unless we increase the
commission rate to 20%.” “Pull all of these number together and we’ll show them to the
executive committee tomorrow,” said Kim. “With the approval of the
committee, we can move on the matter immediately.”
23
92
. What is the breakeven point in pesos for next year assuming that For the entire year ended June 30, the Pediatrics Department at San
the agents’ commission rate remains unchanged at 15%? Carlos Hospital charged each patient an average of P650 per day, had
A. P10,650,000 C. P 9,000,000 a capacity of 60 beds, operated 24 hours per day for 365 days, and
B. P12,000,000 D. P10,750,000 Bobadilla had revenue of P10,676,250.
93
. What is the breakeven point in pesos for next year assuming that Expenses charged by the hospital to the Pediatrics Department for the
the agents’ commission rate is increased to 20%? year ended June 30 were:
A. P13,171,000 C. P13,714,286 Basis of Allocation
B. P15,000,000 D. P12,750,000 Bobadilla Patient Bed
Days Capacity
94
. What is the breakeven point in pesos for next if the company Dietary P 328,500
employs its own sales force? Janitorial P
A. P15,000,000 C. P13,090,909 118,400
B. P12,954,545 D. P15,157,895 Bobadilla Laundry 197,100
Lab, other than direct charges to
95
. Assume that Pullman Company decides to continue selling through patients
agents and pays the 20% commission rate. The volume of sales 410,625
that would be required to generate the same net income as Pharmacy 410,625
contained in the budgeted income statement for next year would Repairs and maintenance 65,700 66,045
be: General administrative services 1,218,780
A. P18,285,714 C. P19,225,000 Rent 2,546,710
B. P18,368,421 D. P20,414,714 Bobadilla Billings and collections 689,850
Bad debt expense 246,375
96
. The volume of sales at which net income would be equal regardless Others 114,975 240,315
of whether Pullman Company sells through agents at a 20% Total P2,463,75 P4,190,25
commission rate or employs its own sales force: 0 0
A. P11,625,000 C. P19,200,000 The only personnel directly employed by the Pediatrics Department are
B. P12,000,000 D. P18,600,000 Bobadilla supervising nurses, nurses, and aides. The hospital has minimum
personnel requirements based on total annual patient days. Hospital
Question Nos. 97 through 102 are based on the following information: requirements beginning at the minimum, expected level of operation
San Carlos operates a general hospital but rents space and beds to follow:
separate entities for specialized treatment such as pediatrics, Annual Patient Aides Nurses Supervising Nurses
maternity, psychiatric, etc. San Carlos charges each separate entity Days
for common services to its patients like meals and laundry and for all 10,000 – 14,000 21 11 4
administrative services such as billings, collections, etc. All 14,001 – 17,000 22 12 4
uncollectible accounts are charged directly to the entity. Space and 17,001 – 23,725 22 13 4
bed rentals are fixed for the year. 23,726 – 25,550 25 14 5
25,551 – 27,375 26 14 5
24
27,376 – 29,200 29 16 6 B. P229,500 D. P239,350 Bobadilla
The staffing levels above represent full-time equivalents, and it should
102
be assumed that the Pediatrics Department always employs only the .What is the increase in fixed cost applied for bed capacity, given the
minimum number of required full-time equivalent personnel. increase in number of beds?
A. P1,396,667 C. P1,470,000
Annual salaries for each class of employee follow: supervising nurses, B. P1,187,238 D. P1,520,000 Bobadilla
P180,000; nurses, P130,000; and aides, P50,000. Salary expense for
the year ended June 30 for supervising nurses, nurses, and aides was Question Nos. 103 – 105 are based on the following:
P720,000, P1,560,000, and P1,100,000, respectively. Ms. Sharkey started a pizza restaurant in 2003. For this purpose a
building was rented for P40,000 per month. Two women were hired to
The Pediatrics Department operated at 100% capacity during 111 days work full time at the restaurant and six college students were hired to
of the past year. It is estimated that during 90 of these capacity days, work 30 hours per week delivering pizza. This level of employment has
the demand average 17 patients more than capacity and even went as been consistent. An outside accountant was hired for tax and
high as 20 patients more on some days. The hospital has an additional bookkeeping purposes, for which Ms. Sharkey pays P30,000 per month.
20 beds available for rent for the coming fiscal year. The necessary restaurant equipment and delivery cars were purchased
with cash. Ms. Sharkey has noticed that expenses for utilities and
97
. The contribution margin per patient day is supplies have been rather constant. Ms. Sharkey increased her
A. P400.00 C. P500.00 business between 2003 and 2006. Profits have more than doubled
B. P450.00 D. P525.00 Bobadilla since 2003. Ms. Sharkey does not understand why profits have
increased faster than volume.
98
. How many patient days are necessary to cover fixed costs for bed
capacity and for supervisory nurses? A projected income statement for the year ended December 31, 2007,
A. 9,500 C. 10,250 prepared by the accountant, is shown below:
B. 9,820 D. 12,000 Bobadilla Sales P9,500,000
Cost of food sold P2,850,000
99
. The number of patient days needed to cover total costs is Wages & fringe benefits:
A. 14,780 C. 15,820 Restaurant help 815,000
B. 15,140 D. 16,080 Bobadilla Delivery help 1,730,000
Rent 480,000
100
. If the Pediatrics Department rented an additional 20 beds and all Accounting services 360,000
other factors remain the same as in the past year, what would be Depreciation:
the increase in revenue? Delivery equipment 500,000
A. P 994,500 C. P1,054,500 Restaurant equipment 300,000
B. P 877,500 D. P 897,500 Bobadilla Utilities 232,500
Supplies 120,000 7,387,500
101
.Continuing to consider the 20 additional rented beds, the increase in Net income before taxes P2,112,500
total variable cost applied per patient day is Income taxes (40%) 845,000
A. P229,350 C. P229,650 Net income P1,267,500
25
Note: The average pizza sells for P250. fixed annual salary of P160,000. All other fixed costs, as well as the
variable cost percentages, would remain the same as the estimates in
103
.What is the tax shield on the noncash fixed costs? the 2007 budgeted income statement.
A. P320,000 C. P149,500
106
B. P340,000 D. P540,000 Bobadilla .How much is the estimated break-even point in peso sales for the
year ending December 31, 2007, based on the budgeted income
104
.What is the breakeven point in number of pizzas that must be sold? statement prepared by the controller?
A. 25,929 C. 23,569 A. P500,000 C. P250,000
B. 18,150 D. 42,114 Bobadilla B. P400,000 D. P125,000 Bobadilla
107
105
.What is the cash flow breakeven point in number of pizzas that must .How much is the estimated break-even point in peso sales for the
be sold? year ending December 31, 2007, if the company employs its own
A. 19,529 C. 12,990 sales personnel?
B. 21,284 D. 10,773 Bobadilla A. P 542,857 C. P 875,000
B. P 742,857 D. P1,000,000 Bobadilla
Question Nos. 106 through 109 are based on the following information:
108
Timex Sporting Goods Company, a wholesale supply company, .How much volume in peso sales would be required for the year
engages independent sales agents to market the company’s products ending December 31, 2007, to yield the same net income as
throughout the country. These agents currently receive a commission projected in the budgeted income statement, if Timex continues to
of 20 percent of sales, but they are demanding an increase to 25 use the independent sales agents and agrees to their demand for a
percent of sales made during the year ending December 31, 2007. 25 percent sales commission?
The controller already prepared the 2007 budget before learning of the A. P 8,000,000 C. P10,000,000
agents’ demand for an increase in commission. The budgeted 2007 B. P 9,533,333 D. P13,333,333 Bobadilla
income statement is shown below. Assume that cost of goods sold is
100 percent variable cost. 109
.How much is the estimated volume in peso sales that would
Sales P10,000,000 generate an identical net income for the year ending December 31,
Cost of goods sold 6,000,000 2007, regardless of whether Timex employs its own sales personnel
Gross margin P 4,000,000 or continues to use the independent sales agents and pays them a
Selling and administrative 25 percent commission?
Commissions P2,000,000 A. P1,000,000 C. P1,500,000
Other expenses (fixed) 100,000 2,100,000 B. P1,250,000 D. P1,800,000 Bobadilla
Income before taxes P 1,900,000
Income tax (30%) 570,000 Question Nos. 110 through 113 are based on the following data:
Net income P 1,330,000 Step Company produces toys and other items for use in beach and
Timex’s management is considering the possibility of employing full- resort areas. A small, inflatable toy has come onto the market that the
time sales personnel. Three individuals would be required, at an company is anxious to produce and sell. Enough capacity exists in the
estimated annual salary of P30,000 each, plus commissions of 5 company’s plant to produce 16,000 units of the toy each month.
percent of sales. In addition, a sales manager would be employed at a
26
Variable costs to manufacture and sell one unit would be P12.50, and Contribution margin 135,000
fixed costs associated with the toy would total P350,000 per month. Less fixed expenses 90,000
Net income P 45,000
The company’s Marketing Department predicts that demand for the The industry in which Bolton Company operates is quite sensitive to
new toy will exceed the 16,000 units that the company is able to cyclical movements in the economy. Thus, profits vary considerably
produce. Additional manufacturing space can be rented from another from year to year according to general economic conditions. The
company at a fixed cost of P10,000 per month. Variable costs in the company has a large amount of unused capacity and is studying ways
rented facility would total P14 per unit, due to somewhat less efficient of improving profits.
operations than in the main plant. The new toy will sell for P30 per
unit. A new equipment has come onto the market that would allow Bolton
Company to automate a portion of its operations. Variable costs would
110
.The breakeven units for the new toy would be: be reduced by P9 per unit. However, fixed costs would increase to a
A. 20,000 C. 21,000 total of P225,000 each month.
B. 18,000 D. 22,500 Bobadilla
114
.How much income for the month would the company earn if the new
111
.How many units should the company need to sell in order to earn a equipment is purchased?
before-tax profit of P150,000? A. P45,000 C. P60,000
A. 9,143 C. 31,875 B. P30,000 D. P75,000 Bobadilla
B. 30,375 D. 35,000 Bobadilla
115
.How many units are required as increase or decrease in breakeven
112
.If the sales manager receives a bonus of P1.00 for each unit sold in point if the new equipment is purchased?
excess of the break-even point, how many units must be sold each A. Zero C. 3,200 units
month to earn a return of 25% on the monthly investment in fixed B. 2,500 units D. 4,000 units Bobadilla
costs?
116
A. 23,344 C. 29,833 .The degree of operating leverage during the month where the new
B. 27,000 D. 30,000 Bobadilla equipment is used is:
A. 3.0 times C. 6.0 times
113
.Assuming that Step Company will just rent a manufacturing space B. 4.5 times D. 9.0 times Bobadilla
for a month in order to produce special order for 8,000 toys. What
117
is the acceptable minimum selling price to Step Company for the .Refer to the original data. Rather than purchase a new equipment,
special sale? the president is thinking about changing the company’s marketing
A. P14.00 C. P22.00 method. Under the new method, sales would increase by 20% each
B. P15.25 D. P24.00 Bobadilla month and net income would increase by one-third. Fixed costs
could be slashed to only P48,000 per month. Compute the
Question Nos. 114 through 118 are based on the following: break-even point for the company after the change in marketing
Bolton Company’s income statement for last month is given below: method.
Sales (15,000 units @ P30) P450,000 A. 8,000 units C. 9,000 units
Less variable expenses 315,000 B. 12,500 units D. 10,000 units Bobadilla
27
120
.If 18,000 pairs of shoes are sold in a year, what would be Davao
118
.Assuming that during the month following the month new sales outlet’s net income?
equipment has been started in use, the unit sales increased by A. P 600,000 C. P 500,000
4,500 units. The variable expenses per unit and the monthly fixed B. P(600,000) D. P(500,000) Bobadilla
costs as affected by the acquisition of the new equipment are
expected to remain constant. 121
.The company is considering paying the store manager of Davao
sales outlet an incentive commission of P75 per pair of shoes (in
What is the expected profit of the company for that month? addition to the salesperson’s commission). If this change is made,
A. P 81,000 C. P 85,500 what will be the new breakeven in pairs of shoes?
B. P126,000 D. P 45,000 Bobadilla A. 26,667 C. 20,000
B. 16,000 D. 22,000 Bobadilla
Question Nos. 119 through 124 are based on the following:
Zapatero Corporation operates a chain of shoe stores around the 122
.Instead of paying the manager a straight P75 per pair of shoes
country. The stores carry many styles of shoes that are all sold at the commission on all pairs of shoes sold, the company is considering
same price. To encourage sales personnel to be aggressive in their paying the store manager P50 commission on each pair of shoes
sales efforts, the company pays a substantial sales commission on sold in excess of the breakeven point. If this change is made, what
each pair of shoes sold. Sales personnel also receive a small basic will be the sales outlet’s net income or loss if 25,000 pairs of shoes
salary. are sold?
A. P 250,000 C. P1,500,000
The following cost and revenue data relate to Davao sales outlet and B. P 900,000 D. P1,250,000 Bobadilla
are typical of the company’s many sales outlets:
Selling price P800 123
.If the company would pay the manager P50 commission on each
Variable expenses: pair of shoes sold in excess of the breakeven point, how many pairs
Invoice costs P360 of shoes are required to earn P900,000 profit?
Sales commission 140 A. 23,600 C. 25,000
P500 B. 23,000 D. 27,500 Bobadilla
Fixed expenses per year: 124

.The company is considering eliminating sales commissions entirely
Rent P1,600,000 in its stores and increasing fixed salaries by P2,142,000 annually.
Advertising 3,000,000
Salaries 1,400,000 If this change is made, what will be the number of pairs of shoes to
Total P6,000,000 be sold by Davao outlet to be indifferent to commission basis?
119
A. 25,300 C. 21,000
.How many units are required for the company’s Davao sales outlet B. 15,300 D. 18,505 Bobadilla
to breakeven?
A. 12,000 pairs C. 20,000 pairs The following information should be used to answer Question Nos. 125
B. 17,143 pairs D. 22,000 pairs Bobadilla through 131.
28
Due to erratic sales of its sole product - a high-capacity battery for 129
.Refer to the original data. By automating certain operations, the
laptop computers, Salcedo Company has been experiencing difficulty company could reduce variable costs by P3 per unit. However, fixed
for some time. The company’s income statement for the most recent costs would increase by P72,000 each month.
month is given below:
Sales (19,500 units @ P300) P5,850,000 How would the breakeven point in units change if the company
Less variable expenses 4,095,000 automated the operations?
Contribution margin 1,755,000 A. 1,000 units increase C. 3,000 units increase
Less fixed expenses 1,800,000 B. 1,000 units decrease D. 3,000 units decrease Bobadilla
Net loss P (45,000)
130
.At what level of production would the automation of the production
125
.The break even in peso sales for Salcedo Company is: process be indifferent to the present process?
A. P6,000,000 C. P5,852,756 A. 18,000 C. 24,000
B. P2,571,429 D. P7,500,000 Bobadilla B. 21,000 D. 28,000 Bobadilla
126
.The president believes that a P160,000 increase in the monthly 131
.Which of the two methods (the present or the automated) has
advertising budget, combined with an intensified effort by the sales higher income at the level of sales of 26,000 units?
staff, will result in an P800,000 increase in monthly sales. If the A. Manual, P60,000 C. Manual, P240,000
president is right, what will be the effect on the company’s monthly B. Automated, P60,000 D. Automated, P240,000
net income or loss? Bobadilla
A. P120,000 increase C. P120,000 decrease
B. P 80,000 increase D. P 80,000 decrease Bobadilla Question Nos. 132 – 134 are based on the following:
Almo Company manufactures and sells adjustable canopies that attach
127
.Refer to the original data. The sales manager is convinced that a to motor homes and trailers. The market covers new unit purchases as
10% reduction in the selling price, combined with an increase of well as replacement canopies. Almo developed its 2007 business plan
P600,000 in the monthly advertising budget, will cause unit sales to based on the assumption that canopies would sell at a price of P400
double. What will the new profit or loss if these changes are each. The variable costs for each canopy were projected at P200, and
adopted? the annual fixed costs were budgeted at P100,000. Almo’s after–tax
A. P 60,000 C. P 45,000 profit objective was P240,000; the company’s effective tax rate is 40
B. P(60,000) D. P(45,000) Bobadilla percent.
128
.Refer to the original data. The Marketing Department thinks that a While Almo’s sales usually rise during the second quarter, the May
fancy new package for the laptop computer battery would help financial statements reported that sales were not meeting
sales. The new package would increase packaging costs by P7.50 expectations. For the first five months of the year, only 350 units had
per unit. Assuming no other changes, how many units would have been sold at the established price, with variable costs as planned, and
to be sold each month to earn a profit of P97,500? it was clear that the 2007 after-tax profit projection would not be
A. 21,818 C. 25,450 reached unless some actions were taken. Almo’s president assigned a
B. 23,000 D. 28,000 Bobadilla management committee to analyze the situation and develop several
29
alternative courses of action. The following mutually exclusive A. P239,400 C. P241,200
alternatives, labeled A, B, and C, were presented to the president. B. P204,000 D. P399,000 Bobadilla
Reduce the sales price by P40. The sales organization forecast that 136
.How much would be the expected income for the year if the
with the significantly reduced sales price, 2,700 units can be sold management cut fixed costs by P10,000, and lower the sales price
during the remainder of the year. Total fixed and variable unit costs will by 5 percent, with variable costs per unit unchanged and sales of
stay as budgeted. 2,000 units are expected for the remainder of the year?
A. P239,400 C. P241,200
Lower the variable costs per unit by P25 through the use of less B. P204,000 D. P399,000 Bobadilla
expensive materials and slightly modified manufacturing techniques.
The sales price will also be reduced by P30, and sales of 2,200 units for 137
.If the sales price is reduced by 6.25 percent starting June 1, an
the remainder of the year are forecast. analysis indicates that 2,500 unit sales can be made if the company
has to spent for additional advertising. What is the maximum
Cut fixed costs by P10,000, and lower the sales price by 5 percent. amount of advertising cost that the company can spend and still
Variable costs per unit will be unchanged. Sales of 2,000 units are the profit objective is achieved?
expected for the remainder of the year. A. P35,000 C. P15,000
B. P22,500 D. P 7,500 Bobadilla
132
.Assuming no changes were made to the selling price or cost
structure, how many units must Almo sell to break even?
A. 167 C. 500
B. 250 D. 1,700 Bobadilla
133
.Assuming no changes were made to the selling price or cost
structure, how many units must Almo sell to achieve its after-tax
profit objective?
A. 1,250 C. 2,000
B. 1,700 D. 2,500 Bobadilla
134
.If management decides to reduce the selling price by P40, what will
Almo's after-tax profit be?
A. P157,200 C. P241,200
B. P160,800 D. P301,200 Bobadilla
135
.If the management can reduce the variable cost per unit by P25
through the use of less expensive materials and slightly modified
manufacturing techniques, with the sales price reduced by P30, and
sales of 2,200 units for the remainder of the year are forecast, the
amount of expected income for the year was:
30
1 .Answer: B
Contribution Margin = Fixed costs
= P15,000
(Contribution Margin/Unit Sales) + Variable cost per unit

= Desired Minimum Sales Price
(P15,000 ÷ 3,000) + (P7,500 ÷ 3,000) 7.50
2 .Answer: C
Unit contribution margin (P50 - P30) P 20.00
Additional profit (500 x P20) P10,000
After the break-even level, the amount of profit equals the unit contribution margin
multiplied by the number of units sold in excess of break-even units.
The candidates should remember that the profit increases by the amount of
contribution margin brought by additional units sold.
3 .Answer: A
Cost of dinner P 70.00
Favors and program 30.00
Fixed costs
(15,000 + 7,000 + 48,000 + 10,000)/250 320.00
Cost to be charged P420.00
4 .Answer: B
The number of units required to earn the target profit is equal to the sum of fixed
expenses and the target profit divided by the unit contribution margin. The number
of units required to earn the target net profit is:
(P78,000 + P42,000) ÷ P12 10,000
5 .Answer: A
Selling Price P 60
Less: Variable Manufacturing Cost ( 30)
10% Commission ( 6)
Unit Contribution Margin P 24
6 .Answer: A
Current break-even:
Pesos: (P32,000 ÷ 0.40) P80,000
Units: [P32,000 ÷ P6) 5,333
Contribution margin per unit: P15 x 0.40 P 6.00
Additional units to cover additional fixed costs:

(P32,000 x 0.3)  P6 1,600
Alternative solution:
New breakeven units (P32,000 x 1.3) ÷ P6 6,933
Less current breakeven units 5,333
Increase in breakeven units 1,600
7 .Answer: A
The amount of contribution margin per unit is constant within a relevant range.
The amount of profit is increased by the amount of unit contribution margin.
Contribution margin per unit:
fixed cost ÷ breakeven unit sales 50,000 ÷ 5,000 P10.00
At breakeven point, the profit is zero. Therefore, the profit at a level of 5,001 units
will be P10 which is the amount of contribution provided by the unit (one unit) in
excess of breakeven point.
8 Answer: A
CMR= Fixed cost/Sales
= 100,000/800,000 = 12.50%
Profit = (1,200,000 – 800,000)0.125 P50,000
The amount of sales that provides profit should be the sales revenues above the
break even sales.
Total contribution margin 1,200,000 x 0.125 P150,000
Fixed costs 100,000
Profit P 50,000
9 .Answer: A
Current unit contribution margin (P32 – P24) P8
Current break-even units (P400,000 ÷ P8) 50,000
New unit contribution margin (P40 - P24) P16
New break-even units (400,000 ÷ 16) 25,000
Net decrease in breakeven units
(50,000 – 25,000) 25,000
10 .Answer: A
CM per unit: 220,000 / (100,000 – 80,000) 11.00
Fixed costs: 80,000 x 11 P880,000
The contribution margin per unit is linear or constant per unit.

Therefore: TCM  Units = UCM
11 .Answer: B
TCM  Sales = CMR
Change in TCM: (600,000*0.2) – (360,000*0.1) 84,000
CMR: Increase in TCM ÷ Increase in Sales
84,000 ÷ 240,000 35%
Breakeven sales 90,300 ÷ 0.35 258,000
12 .Answer: C
Before-tax profit 24,000 ÷ 0.6 40,000
Add fixed cost 200,000
Total contribution margin 240,000
Selling price = UVC + UCM

Selling Price = 6 + (240,000 ÷ 40,000) 12.00
13 .Answer: C
The company's degree of operating leverage is determined as follows:
Degree of operating leverage = Contribution margin ÷ Net income
Degree of operating leverage = P600,000 ÷ P240,000 = 2.50
14 .Answer: A
Increase in sales 125,000
Less variable costs and expenses
0.90 x 125,000 112,500
Additional profit before tax 12,500
Less additional tax 0.40 x 12,500 5,000
Additional profit 7,500
15 .Answer: B
Additional profit ÷ UCM = additional unit sales
= (40,000 + 8,000) ÷ (80-60)
= 2,400 units
16 .Answer: A
Total peso sales required 120,000 ÷ (0.25 – 0.1) 800,000*
Less prior sales 400,000
Required increase in sales 400,000
*Peso sales required to earn profit stated as percentage of sales (ROS):

S = [FC + (ROSS)]  CMR
(CMR S) = [FC + (ROSS)]
(CMR S) - (ROSS) = FC
(CMR – ROS) S = FC
S = FC  (CMR – ROS)
17 .Answer: A
Contribution margin 50,000 x (5-3.50) 75,000
Less: additional profit (250,000 x 0.10) 25,000
Additional fixed costs 50,000
Selling price = P3.50 ÷ 0.70 P5.00
18 .Answer: C
A shorter calculation of finding the amount of sales is to divide breakeven sales by
(1 – MSR)
Sales = P600,000  (1 – 0.2) P750,000
An alternative solution to find sales is to compute the profit margin.
Profit margin = Contribution margin ratio x margin of safety ratio.

Profit margin = 20% x 40% 8%
Sales = Profit ÷ Profit margin
Sales (60,000 ÷ 0.08) P750,000
19 .Answer: A
Peso sales = FC/(CMR - ROS)
= P210,000/(0.40 - 0.10) P700,000
CMR = 40%
A long computation of required sales uses the following equation:
S = P210,000 + 0.10S
0.40
0.40S = P210,000 + 0.10S

0.40S - 0.10S = P210,000
S = P210,000/(0.40 – 0.10)
S = P700,000
20 .Answer: C
Current number of units required to earn the target net profit:
[(P200,000 + P70,000) ÷ P9] 30,000
After the automated machine is placed into service,

the number of units required to earn the target
net profit will be:
((P250,000 + P70,000) ÷ P12) 26,667
Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales
21 .Answer: C
CMR= 100% - (3.9 ÷ 6.0) = 35%
BES = 1,400,000 ÷ .35 4,000,000
22 .Answer: C
New break-even point: P874,000 ÷ P23 38,000
Current break-even point in units: P770,500 ÷ P23 33,500
Increase in units: 38,000 - 33,500 4,500
Alternative solution: (P103,500 ÷ P23) 4,500
23 .Answer: A
The estimated cost of goods sold
= P565,000 + 0.35S*
*Sum of all percentages for variable production costs
= P565,000 + (P2,000,000 x 0.35)

= P1,265,000
24 .Answer: B
Peso sales required to earn 10% of sales;
FC/(CMR – ROS)
= P36,000/(0.30-0.10)
= 180,000
25 .Answer: A
Revised contribution margin 20,000 x 1.15 x (7-1)138,000
Fixed cost (105,000 + 19,200) 124,200
Revised profit 13,800
Prior profit 35,000
Decrease in profit 21,200
26 .Answer: A
Margin of Safety = Budgeted sales – Breakeven sales
Margin of Safety: P400,000 – P40,000 P360,000
27 .Answer: B
DOL at P90,000 sales:
Sales 90,000
Variable costs 50,000
Total Contribution margin 40,000
Fixed costs 30,000
Profit 10,000
DOL = TCM/OP
= 40,000/10,000 4 times
% increase in sales x DOL = % increase in profit

4 x 20% = 80%
28 .Answer: B
2006 DOL = 275,000/75,000 3.67
Percentage Increase in profit, 2007 = 3.67 x 30% 110%
2007 Profit = 75,000 +(75,000 x 1.10) P157,500
29 .Answer: A
Peso sales 12,000/(0.40 – 0.1) P40,000
Unit sales P40,000/10 4,000
Increased units 4,000 x 1.25 5,000
Revised contribution margin 5,000 x (9 – 6) P15,000
Less fixed cost 12,000
Revised profit P 3,000
30 .Answer: B
Projected cost of sales:
P800,000 + (P3,000,000 x 0.65) P2,750,000
31 .Answer: B
Unit CM = Change in Profit ÷ Change in Sales
= 200,000 ÷ (100,000 – 75,000)
=8
Fixed costs = Breakeven units x UCM

75,000 x 8 = 600,000
32 .Answer: B
Unit cost:
Materials (P36,000 ÷ 24,000) P1.50
Labor (P54,000 ÷ 24,000) 2.25
Variable selling expense 0.35
Variable unit cost P4.10
Required profit (2,250 ÷ 1,500) 1.50
Required minimum selling price P5.60
33 .Answer: D
Composite ratio:
X: 640,000 ÷ (720,000 + 640,000) 47.059%
Y: 720,000 ÷ (720,000 + 640,000) 52.941%
Weighted-Average Contribution Margin:

(.52941 × .60) + (.47059 × .40) 0.505882
Breakeven sales in pesos:

(505,881 ÷ 0.505882) P1,000,000
Y’s peso sales at breakeven P1M x 0.47059 P 470,590
34 .Answer: A
Sales (500,000 x 1.10) 550,000
Variable cost 300,000
Contribution margin 250,000
CMR = 250 ÷ 550 = 45.45%
Original fixed costs:
500,000 – 300,000 – 150,000 = 50,000
New fixed cost = 50,000 x 0.80 = 40,000
Breakeven sales = 40,000/0.4545 = P88,000
35 .Answer: B
Before-tax profit (24,000 ÷ 0.6) P 40,000
Add fixed costs 200,000
Total contribution margin P240,000
Contribution margin per unit (P240,000 ÷ 40,000) P 6.00

Variable cost per unit 6.00
Selling price P12.00
36 .Answer: A
DOL = CM/OP
= 275,000/75,000
= 3.67 times
37 .Answer: C
Peso sales : FC ÷ (CMR - Profit Margin)
= P210,000 ÷ (0.55 - 0.15)
= P525,000
CMR = 100% - 45% = 55%
38 .Answer: B
CMR: Change in Fixed Costs ÷ Change in Breakeven Sales
78,750 ÷ (975,000 – 750,000)
0.35
Fixed costs before an increase of 78,750:

750,000 x 0.35 262,500
The increase in fixed costs of P78,750 equals the increase in contribution margin in
order to continue at breakeven sales.
39 .Answer: D
UCM = (70,000 x 1.20)+(40,000 x 3)
70,000 – 40,000
= P6.80
FC = Units(UCM – profit per unit)

= 70,000(6.80 – 1.20)
= P392,000
BEU = 392,000/6.80
= 57,647
40 .Answer: A
Margin of safety in peso sales = Budgeted sales – Breakeven sales
Margin of safety = P1M – P.7M P300,000
41 .Answer: A
2006 Sales 1,000,000
Advertising Cost (75000 ÷ .6) 125,000
Required 2007 peso sales 1,125,000
42 .Answer: A
Revised WACM (0.5 x 1.50) + (0.5 x 2) 1.75
Original WACM (0.4 x 1.50) + (0.6 x 2) 1.80
Revised Breakeven units 12,600/1.75 7,200
Original Breakeven units 12,600/1.80 7,000
Increase in breakeven units 200
43 .Answer: C
WACM = (30 x 0.6) + (60 x 0.4) P42
Breakeven units: 630,000/42 15,000
Breakdown:
Product Standard 15,000 x 0.6 9,000
Product Deluxe 15,000 x 0.4 6,000
44 .Answer: B
WACM = (4/7 x 0.40)+(3/7 x 0.93 = P0.62857
BE units = 7,600/0.62857 = 12,091
Baubles = 12,091 x 4/7 = 6,909
Trinkets = 12,091 x 3/7 = 5,182
45 .Answer: C
Total sales revenue per composite sales:
(12 x P5.25) + (10 x P7.50) + (6 x P12.25) P211.50
Total variable cost per composite sales:
(12 x P4.85) + (10 x P6.95) + (6 x P10.35) P189.80
Total contribution margin per composite sales
(P211.50 - P189.80) P 21.70
Composite breakeven point
P75,950 ÷ P21.70 3,500
Note: Total breakeven units: 3,500 x 28 = 98,000
46 .Answer: C
WACMR = (.6 x .4) + (.4 x .15) 30%
Fixed Costs = 225000 x 1.3 P 292,500
Sales (292500 + 48000) ÷ .3 P1,135,000
47 .Answer: C
UCM = (60,000 x 0.75)+(45,000 x 1.25)
60,000 – 45,000
= 6.75
Fixed cost = (60,000 x 6.75)-(60,000 x 0.75) P360,000
48 .Answer: B
BEV = 600,000 P150,000
16 – 12
49 .Answer: B
CMR = Before Tax Profit Margin
M/S Ratio
= (0.06 ÷ 0.6) ÷ .25
= 40%
FC = (120,000 x .40) – (120,000 x .10) = P36,000
Annual FC = 36,000 x 12 P432,000
50 .Answer: A
Profit Margin = 20% x 10% = 2%
Profit = 400,000 x 2% = 8,000
Fixed Costs = CM - Profit
Fixed Costs = (400,000 x 20%) – 8,000 P72,000
51 .Answer: A
Revised UCM = 25 – 19.80 – (5 x 0.08) P4.80
BEU = 468,000/4.80 97,500
52 .Answer: A
The Company projected zero profit based on zero advertising expenditure.
Additional CM (30,000 units @ 10) P300,000
Less: Required profit 200,000
Maximum advertising cost P100,000
53 .Answer: B
Cash-flow breakeven: 270,000 ÷ (100-60) 6,750
54 .Answer: A
CMR = Before-tax return on sales/MSR
= (0.06  0.60)  0.25 0.40 or 40%
BES = 320,000  0.40 P 800,000
Sales = 800,000  0.75 P1,066,667
55 .Answer: B
The easier calculation of sales value of 60,000 units is to divide the total annual
costs by total cost ratio of 85% (100% - 15%).
Sales required = P1,912,500/0.85 P2,250,000
Unit selling price = 2,250,000/60,000 P37.50
56 .Answer: D
Indifference Point = Change in Fixed Cost ÷ Change in Variable Cost
Increase in fixed cost: 2 @ 15,000 P30,000
Decrease in variable cost (15% - 7.5%) 80 P6
Indifference point: 30,000 ÷ 6 5,000 units
57 .Answer: A
WACM = (0.25 x 5)+(0.75 x 7)
= 6.50
BEU = 975,000/6.50
= 150,000
58 .Answer: B
The additional fixed costs of P1,200,000 should be fully covered by the same
amount as additional sales (also additional contribution margin) through an
increase in selling price.
Increased price P120 +(1.20M/80,000) P 135
59 .Answer: A
Breakeven point:
Old policy: P80,000/7 11,429
New policy: P100,000/8 12,500
Increase in Breakeven point 1,071
60 .Answer: B
WACMR = (.4 x .2) + (.5 x.3) + (.4 x.5) = 0.43
BES = 1,290,000 ÷ .43 = P3,000,000
61 .Answer: A
Contribution margin 12,000 x (1,500 – 900) P7,200,000
Fixed costs 3,600,000
Operating profit P3,600,000
DOL: 7.2/3.6 = 2 times
62 .Answer: B
The indifference point refers to the level of sales that would give equal profit or
total costs for the two alternatives
11.30x + 60,000 = 8.90x + 82,500
2.40x = 22,500
x = 9,375
63 .Answer: C
Variable cost ratio = 2.25/7.50 = 30%
Variable cost next year = 2.25 x 1.3333 = 3
Selling price required = 3/0.30 = P10
64 .Answer: B
Total Fixed Cost P154,000
Operating Profit 26,000
Total Contribution Margin P180,000
Selling price P 20
Contribution margin per unit
(180,000 ÷ 12,000) 15
Unit variable cost P 5
65 .Answer: C
Fixed costs 600,000
Operating profit 120,000
Unit contribution margin 720,000 ÷ 400,000 1.80
Selling price (1.80 ÷ 0.40) P4.50
66 .Answer: B
Contribution margin per machine hour: Contribution margin per unit x No. of units
produced per machine hours
Product A P20 x 6 P120
Product B P16 x 8 P128
67 .Answer: A
440,000 + (110,400/0.61) = 480,000
4 – 2.70
Revised variable cost: P2.40 + (P2.00 x 0.15) P2.70
68 .Answer: D
VC Ratio 375,00/625,000 = 60%
VC / unit 375,000/25,000 = P15
New VC = 15 + (4.50 – 2.50)= P17
SP = 17/0.6 = P28.33
69 .Answer: B
The level of sales that would give equal costs:
0.06S = (40 x 24,000)+ 0.02S
0.04S = 960,000
S = 24M
70 .Answer: C
Additional fixed cost/week:
31,200/52 = 600
Additional weekly sales to cover additional fixed cost:

600/0.25 = 2,400
Total Sunday’s sales (where 2,400 represents 25%):

2,400/0.25 = 9,600
600 = 0.25 x 0.25S
600 = 0.0625S
S = 9,600
71 .Answer: A
New BES = 873,600/140 = 6,240
New FC = 840,000 x 1.04 = 873,600
New CM = 250 – 100 –(100 x 0.10) = 140
Old BES = 840,000/150 = 5,600
Increase in BEU = 6,240 – 5,600 = 640
72 .Answer: C
Composite CM = 40 + (2 x 20)
= 80
Composite BE = 910,000/80
= 11,375
73 .Answer: C
Required new sales = 2005 sales + (P112,500/CMR)
= P5M +(P112,500/0.45)
P5.25M
CMR = (250 – 137.50)/250 45%
74 .Answer: A
Breakeven units = 807,840 ÷ 5.30 152,423
New CM/unit = 20 – 14.70 = 5.30
New variable cost: (14 + (14 x.5 x 0.10) = 14.70
New FC = 792,000 + (792,000 x.20x.10) = 807,840
75 .Answer: A
Indifference point = Decrease in Fixed Cost
Increase in Variable Cost
= 80,000/0.05
= P1.60M
76 .Answer: D
Processing hours per unit:
XY – 7: 0.75/1 = 0.75 or 45 minutes
BD – 4: 0.20/1 = 0.20 or 12 minutes
Additional contribution margin using 100,000 hours:

XY – 7: 100,000/0.75 x P1 = P133,333
BD – 4: 100,000/0.20 x P0.50 = P250,000
77 .Answer: B
Units sold to earn P1M:
(1,000,000 + 1,000,000) / 5.25 = 380,952
The use of P1M fixed costs will require 380,952 units which are within the first
range.
78 .Answer: A
Fixed costs
= 792,000 +(792,000 x 0.20 x 0.10)
= 807,840
UCM = 20 – 14 –(14 x 0.50 x 0.10)= 5.30

Computation = 807,840/5.30
79 .Answer: A
Cost of one 4–foot piece of metal 4 x 13.60 54.40
Less proceeds from sale of scrap 6.4 / 16 x 8 3.20
Net cost of one 4- foot piece of metal 51.20
Net cost per ounce P 51.20 ÷ 25.6 oz P2.00
Output per one 4-foot piece of metal

Large 4 x 4oz 16.00
Small 4 x 2.4oz 9.60
Scrap 6.40
Total oz 32.00
80 .Answer: B
Material cost per unit
Large: 4 x P2 x 1.8 P14.40
Small 2.4 x P2 x 1.75 P 8.40
81 .Answer: A
Unit CM
Large: 29.00 – (8.5 x 1.8) = 13.70
Small: 14.00 – ( 5.1 x 1.75) = 5.075
WACM = (13.70 + 5.075) ÷ 2 = 9.3875

Breakeven point = 860,000/9.3875
= 91,611
82 .Answer: C
CM /unit 405,000 ÷ 1,800 225
BEV = 247,500 ÷ 225 1,100 units
83 .Answer: A
Operating Profit: (2,100 x 225) – 247,500 = P225,000
After–tax profit: 225,000 x 60% = 135,000
84 .Answer: C
Contribution margin
Regular sales 1,500 x 225 337,500
Special sale 1500 x 175 262,500
Total Contribution 600,000
Fixed costs 247,500
Taxable income 352,500
Income tax 141,000
Net income 211,500
85 .Answer: A
Additional FC/ New Unit CM
61,500 ÷ 200 = 307.5 tons
86 .Answer: D
New SP = 500 x . 450 100%
90
New VC 275 + 40 315 70%
New CM 135 30%
Sales required:]
(Fixed costs + Before Tax profit) ÷ CMR
247,500 + (94,500 ÷ 60) P1,350,000
87 .Answer: A
Unit sales required:
(316,800 + 40,000) ÷ 27.20 = 13,118 pairs
Unit Contribution Margin, Touring:
80.00 – 52.80 P27.20
88 .Answer: A
Indifference point in peso sales:
0.4S – P369,600 = 0.34S – P316,800
0.06S = 52,800
S = P880,000
89 .Answer: D
Breakeven sales, Mountaineering:
369,600 ÷ 35.20 = 10,500
Required contribution margin – Touring
316,800 ÷ 10,500 = 30.17
Present contribution margin – Touring 27.20
Required decrease in variable cost per unit 2.97
90 .Answer: A
New breakeven point: 348,480 ÷ 32.48 10,730
New UCM, Touring: 27.20 + (52.80 x 0.1) = 32.48
New Fixed costs: 316,800 x 1.1 = 348,480
91 .Answer: C
The indifference point in number of pairs is 6,600. Inasmuch that the expected
level is 12,000 units, it is better to sell Mountaineering because it has high leverage
than the touring model. Once the indifference point is exceeded, the one with the
higher contribution margin (leverage) has the advantage over the one with the
lower contribution margin.
92 .Answer: B
Fixed Costs:
Overhead 2,340,000
Marketing 120,000
Administrative 1,800,000
Interest 540,000
Total 4,800,000
Contribution margin ratio:

1 - [(7,200,000 + 2,400,000)/16M] = 40%
Breakeven next year with no change in commission:

4,800,000 ÷ 0.4 = P12,000,000
93 .Answer: C
If the commission rate is increased by 5%, the contribution margin is decreased by
5% or a new contribution margin ratio of 35%
Breakeven sales next year.

4,800,000 / 0.35 = P13,714,286
94 .Answer: A
Fixed cost under 15% commission plan 4,800,000
Increase in Fixed cost 2,400,000
Decrease in audit fee ( 75,000)
Increased fixed costs 7,125,000
The commission rate of 7.5%, instead of 15% will raise the contribution margin
ratio to 47.5% (40% + 7.5%).
Revised breakeven sales 7,125,000 / .475 = P 15M
95 .Answer: A
Required sales, with 20% commission and profit target of P1,120,000:
(P4,800,000 + 1,600,000) ÷ .35 = 18,285,714
96 .Answer: D
The question asked for is the indifference point. The peso sales required to produce
equal income can be easily calculated by dividing the net increase in fixed costs by
the increase in contribution margin ratio:
Difference in CMR = 35% - 47.5 = 12.5%

Increase in fixed costs = 2,400,000 – 75,000 P2,325,000
Indifference Point: 2,325,000 ÷ 0.125 P18.6M
Alternative Solution:
.355 – 4,800,000 = .475S – 7,125,000
.125S = 2,325,000
S = P18,6M
97 .Answer: C
Billing charge per patient day P650
Variable cost per patient day 150
Contribution margin P500
Number of patient days for the year:

P10,676,250/650 16,425
Variable cost per patient day:

P2,463,650÷16,425 P150
98 .Answer: B
Fixed costs for bed capacity P4,190,000
Salary, supervisory nurse 720,000
Total P4,910,000
Number of patient days required to cover fixed costs for bed capacity and
salaries of supervisory nurse
4,910,000 ÷ 500 9,820
99 .Answer: B
In solving for the breakeven level where there are step fixed costs, the logical
approach is to test the validity of the ranges of activities.
First Range:
Fixed costs based on capacity 4,190,000
Salaries:
Aides 21 x 50,000 1,050,000
Nurses 11 x 130,000 1,430,000
Supervisor 4 x 180,000 720,000 3,200,000
Total 7,390,000
Breakeven calculation: 7,390,000 ÷ 500 14,780
The calculated breakeven point of 14,780 is invalid because the number falls under
the second range wherein the amount of fixed costs that had been used are not
relevant to that range.
Second Range (Final calculation):

Total fixed cost, lowest range 7,390,000
Additional fixed cost:
1 aide 50,000
1 nurse 130,000
Total 7,570,000
Breakeven in patient days:
7,570,000 ÷ 500 15,140
100 .Answer: A
Additional revenues if 20 beds are rented:
90 days @ 17 patient days x 650994,500
101 .Answer: B
Increase in variable cost should be calculated based on additional patient days for
90 days at P150 per patient day.
17 beds x 90 days x P150P229,500
102 .Answer: A
The increase in fixed cost based on bed capacity:
P4,190,250 ÷ 60 x 20P1,396,750
103 .Answer: A
Tax shield in non cash expenses
40% x 800,000 = P320,000
104 .Answer: A
Breakeven in number of pizzas (traditional)
4,537,500/(250 – 75)= 25,929
Units sold: P9,500,000/250 = 38,000
Unit variable cost (cost of food)

2,850,000 ÷ 38,000 = P75.00
Fixed cost = 7,387,500 – 2,850,000 P4,537,500
105 .Answer: A
Cash Flow Breakeven:
3,417,500 ÷ 17519,529
Total fixed cost: P4,537,500

Less: Noncash fixed cost ( 800,000)
Tax shield on noncash
Fixed costs ( 320,000)
Fixed cash flow P3,417,500
106 .Answer: A
Breakeven sales based on 20% commission:
P100,000 ÷ 0.20P500,000
Contribution margin ratio:

(10M – 8M) ÷ 10M 20%
107 .Answer: D
Breakeven sales if the company employs its own salesmen:
(P350,000 ÷ 0.35) P1,000,000
The new contribution margin ratio is (20% + 15%) 35%
Fixed costs are expected to be P350,000

(100,000 + 90,000 + 160,000)
108 .Answer: D
The required peso sales to earn net income of P1,330,000 if the commission is
raised to 25%:
(P100,000 + P1,900,000) ÷ 0.15 P13,333,333
109 .Answer: B
The indifference point, the level of sales where the alternatives will have equal
profits:
.15S- 100,000 = .35S – 350,000
2S = 250,000
S = P1,250,000
110 .Answer: C
The problem illustrates a calculation of breakeven point for a company with a step
variable and step fixed cost.
Contribution Margin per Unit:

60,000 or less (P30 – P12.50)P17.50
Units above 60,000 (P30 – P14.00) P16.00
Total contribution margin from the first

60,000 (60,000 x P17.50) P280,000
Let X = Number of units above 16,000
0 = 280,000 + 16X -360,000

X = 80,000 ÷ 16
X = 5,000 units
Breakeven units: 16,000 + 5,000 21,000
Total fixed costs P360,000

Less Contribution margin from 60,000 units 280,000
Remaining fixed costs to be covered by
additional units, each with CM of P16 P 80,000
Breakeven units: 16,000 + (80,000 ÷ 16) 21,000
111 .Answer: B
The units that will generate the desired profit of P150,000 for the company,
contributes P16 each. These units are the excess of 21,000 units to breakeven.

21,000 + (150,000 ÷ P16)30,375
112 .Answer: B
The bonus plan of P1.00 per unit on sales made in excess of breakeven point
(21,000 units) will necessarily decrease the contribution margin to P15.
The desired profit based on fixed cost:

25% x P360,000P90,000
Units required: 21,000 + (P90,000 ÷ 15) 27,000
113 .Answer: B
In determining the minimum selling price for the 8,000 units should consider the
increased variable cost per unit and the additional fixed cost. Any cost and losses
on the first 16,000 units are irrelevant:
Variable cost per unitP14.00
Additional fixed cost per unit (10,000 ÷ 8,000) 1.25
Minimum selling price P15.25
114 .Answer: A
The net income for the month if the new equipment is acquired:
Contribution margin based on the present systemP135,000
Add increase in contribution margin due to
decrease in variable cost (15,000 x 9) 135,000
Increased contribution margin 270,000
Less Increased fixed costs 225,000
Net income P 45,000
115 .Answer: B
The increase in breakeven point would be:
(12,500 – 10,000)2,500 units
Breakeven, present (P90,000 ÷ P9) 10,000 units
Breakeven, proposed (P225,000 ÷ P18) 12,500 units
116 .Answer: C
The degree of operating leverage (DOL)
during the month that the new
equipment would be used: (270,000 ÷ 45,000)6X
(Please see solution for No. 94)
117 .Answer: A
Breakeven units if there is a change in marketing method:
P48,000 ÷ 68,000 units
Contribution margin per unit:

(Fixed cost + profit) ÷ Units sold
(P48,000 + P60,000) ÷ 18,000 units P6.00
118 .Answer: B
The percentage increase in profit can be calculated by multiplying the degree of
operating leverage (DOL) by the percentage increase in sales during the second
month.
The sales increased by 30% (P4,500 ÷ P15,000) and therefore the profit
percentage increased by 180% (6 x 30%).
The expected profit during the next month would be:
P45,000 + (P45,000 x 1.8)P126,000
119 .Answer: C
Breakeven Units:
Fixed Costs ÷ Unit Contribution Margin
P6,000,000 ÷ 30020,000 pairs
120 .Answer: B
Contribution margin (P18,000 x 300)P5,400,000
Less Fixed costs 6,000,000
Net loss P( 600,000)
121 .Answer: A
The breakeven level for the sales outlet is expected to rise because of additional
commission, a variable cost item, and such a commission is being paid for all pairs
of shoes sold.
Breakeven in pairs of shoes:

6,000,000 ÷ (300 – 75)26,667 pairs
122 .Answer: D
Though an additional commission is paid on pairs of shoes sold, the breakeven
point is not affected and shall remain at 20,000 because the additional commission
applies only to number of pairs of shoes sold in excess of breakeven level.
The profit contribution by the 5,000 pairs is based on reduced contribution margin
per pair.
Profit: 5,000 x (300 – 50)P1,250,000
Sales (25,000 x P800) P20,000,000
Variable costs (24,000 x P500) 12,750,000
Total contribution margin 7,250,000
Fixed costs 600,000
Profit P 1,250,000
123 .Answer: A
Because the breakeven level is unchanged, the calculation of the number of pairs
to earn P900,000 is simple. The amount of the desired profit will be contributed by
the number of pairs of shoes in excess of breakeven, each contributing P250.
20,000 +(P900,000 ÷ 250)23,600 pairs
124 .Answer: B
300X – P6,000,000 = 440X – P8,142,000
140X = P2,142,000
X = 15,300 pairs
125 .Answer: A
Breakeven peso sales: P1,800,000 ÷ 0.3P6,000,000
CMR = P1,755,000 ÷ P5,850,000 30%
126 .Answer: B
Additional contribution margin P800,000 x 0.30P240,000
Additional fixed cost 160,000
Increase in profit P 80,000
127 .Answer: B
Sales 39,000 x P270P10,530,000
Variable cost 39,000 x P210 8,190,000
Contribution margin 2, 340,000
Fixed cost 2,400,000
Net loss P( 60,000)
128 .Answer: B
Original unit contribution margin
(1,755,000 ÷ 19,500)P90.00
Less increase in packaging cost 7.50
New Unit contribution margin P82.50

(P1,800,000 + P97,500) ÷ P82.50 23,000
129 .Answer: A
Breakeven units, Automated
(P1,800,000 + P720,000) ÷ (P90 + P30)
P2,520,000 ÷ 9021,000
Breakeven units, Present
(P1,800,000 ÷ 90) 20,000
Increase in breakeven units 1,000
130 .Answer: C
The computation of the indifference point for the two processes can be determined
by dividing the increase in fixed costs by the decrease in variable cost per unit
because the selling price was unchanged.
Indifference Point: P720,000 ÷ 3024,000
131 .Answer: B
If the level of sales is higher than the indifference point, the one with higher
leverage, i.e., higher fixed costs and lower unit variable cost, will provide higher
income. The automated process has the higher leverage and therefore, it has
higher income:
Difference in income: (26,000 – 24,000)30P60,000
132 .Answer: C
Breakeven units = Fixed costs  Unit contribution margin
P100,000  (P400 – P200)
500 units
133 .Answer: D
Step 1: Compute before-tax profit:
P240,000  (1.0 – 0.4)P400,000
Units sales required to earn before-tax profit:

(P100,000 + P400,0000)  P200 2,500 units
Profit = Sales – Variable costs – Fixed costs
P400,000 = P400X – P200X – P100,000

P500,000 = P200X
X = 2,500 units
134 .Answer: C
Revenue (350 x P400) + (2,700 x P360)P1,112,000
Variable costs (3,050 x P200) 610,000
Fixed expenses 100,000
Operating income P 402,000
Income tax 160,800
Net income P 241,200
135 .Answer: A
Revenue (350 x P400) + (2,200 x P370)P 954,000
Variable costs (350 x P200) + (2,200 x P175) 455,000
Fixed expenses 100,000
Operating income 399,000
Income tax 159,600
136 .Answer: B
Revenue (350 x P400) + (2,000 x P380)P 900,000
Variable costs (2,350 x P200) 470,000
Contribution margin P 430,000
Fixed costs 90,000
Operating profit 340,000
Income tax 136,000
137 .Answer: D
Before tax profit objective (240,000 ÷ 0.6) P400,000
Fixed costs 100,000
Total contribution margin required 500,000
Less contribution margin made on units sold
January – May (350 x 200) 70,000
Additional contribution margin still needed P430,000
Additional contribution margin from 2,500 units
(2,500 x P175) P437,500
Less additional contribution margin required to meet profit objective 430,000
Maximum advertising cost P 7,500

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Cost-Volume-Profit Analysis

MODULE 4 C. Relationship among revenues, variable costs, and fixed costs at

64.In a cost-volume-profit graph

Fixed expenses per year: 124

(Contribution Margin/Unit Sales) + Variable cost per unit

(P15,000 ÷ 3,000) + (P7,500 ÷ 3,000) 7.50

Unit Contribution Margin P 24

Additional units to cover additional fixed costs:

Profit = (1,200,000 – 800,000)0.125 P50,000

The contribution margin per unit is linear or constant per unit.

Breakeven sales 90,300 ÷ 0.35 258,000

Selling price = UVC + UCM

*Peso sales required to earn profit stated as percentage of sales (ROS):

Selling price = P3.50 ÷ 0.70 P5.00

An alternative solution to find sales is to compute the profit margin.

Profit margin = Contribution margin ratio x margin of safety ratio.

Sales (60,000 ÷ 0.08) P750,000

A long computation of required sales uses the following equation:

0.40S = P210,000 + 0.10S

After the automated machine is placed into service,

Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales

= P565,000 + (P2,000,000 x 0.35)

% increase in sales x DOL = % increase in profit

Fixed costs = Breakeven units x UCM

Weighted-Average Contribution Margin:

Breakeven sales in pesos:

Y’s peso sales at breakeven P1M x 0.47059 P 470,590

Contribution margin per unit (P240,000 ÷ 40,000) P 6.00

CMR = 100% - 45% = 55%

Fixed costs before an increase of 78,750:

FC = Units(UCM – profit per unit)

Note: Total breakeven units: 3,500 x 28 = 98,000

Fixed cost = (60,000 x 6.75)-(60,000 x 0.75) P360,000

Indifference point: 30,000 ÷ 6 5,000 units

Increased price P120 +(1.20M/80,000) P 135

DOL: 7.2/3.6 = 2 times

Unit contribution margin 720,000 ÷ 400,000 1.80

Selling price (1.80 ÷ 0.40) P4.50

Additional weekly sales to cover additional fixed cost:

Total Sunday’s sales (where 2,400 represents 25%):

CMR = (250 – 137.50)/250 45%

Additional contribution margin using 100,000 hours:

UCM = 20 – 14 –(14 x 0.50 x 0.10)= 5.30

Net cost per ounce P 51.20 ÷ 25.6 oz P2.00

Output per one 4-foot piece of metal

WACM = (13.70 + 5.075) ÷ 2 = 9.3875

Contribution margin ratio:

Breakeven next year with no change in commission:

Breakeven sales next year.

Revised breakeven sales 7,125,000 / .475 = P 15M

Difference in CMR = 35% - 47.5 = 12.5%

Indifference Point: 2,325,000 ÷ 0.125 P18.6M

Number of patient days for the year:

Variable cost per patient day:

Breakeven calculation: 7,390,000 ÷ 500 14,780

Second Range (Final calculation):

17 beds x 90 days x P150P229,500

Units sold: P9,500,000/250 = 38,000

Unit variable cost (cost of food)

Fixed cost = 7,387,500 – 2,850,000 P4,537,500

Total fixed cost: P4,537,500

Contribution margin ratio:

The new contribution margin ratio is (20% + 15%) 35%