BM1915

NAME: DATE: SCORE:

QUIZ
I. MULTIPLE CHOICE
Encircle the letter of the correct answer.
1. From which one of the following is the break-even point NOT determinable?
a. Using a mathematical equation
b. Using contribution margin
c. Using high-low method
d. Deriving it from a CVP graph
2. Which statement describes a fixed cost?
a. It varies in total at every level of activity.
b. The amount per unit varies depending on the activity level.
c. Its total varies proportionally to the level of activity.
d. It remains the same per unit regardless of activity level.
3. A company incurred an increase in its level of activity. What are the effects of this increase in unit costs
for variable and fixed costs?
a. A decrease in variable cost per unit and a constant fixed cost per unit
b. Both variable and fixed cost per unit increase
c. Increase in fixed cost per unit and a constant variable cost per unit
d. A constant variable cost and a decrease in fixed cost per unit
4. Which of the following is an assumption of CVP analysis?
a. Sales in units remain constant.
b. All costs are variable.
c. The change in the beginning and ending inventories is reflected in the analysis.
d. The behavior costs and revenues are linear within the relevant range.
5. Which of the following is CORRECT concerning contribution margin?
a. It is calculated by subtracting product variable costs from sales.
b. It equals sales revenue minus total variable costs.
c. It is calculated by subtracting total manufacturing costs from sales revenue.
d. It excludes selling costs from its calculation.

II. PROBLEM SOLVING

Read and analyze the following problem. Write your answer on the space provided or on a separate
sheet of paper. Show your computations. (10 items x 5 points)
1. Warriors Baseball Company makes baseballs that sell for P12.00 per unit. Current annual production
and sales are 980,392 baseballs.
Variable cost per unit:
Direct materials P4.00
Direct labor 3.50
Manufacturing overhead 1.00
Sales commission 0.50
Fixed costs:
Manufacturing overhead P1,200,000
Administrative costs 300,000

Required:
a. Contribution margin ratio
b. Break-even point in number of baseballs
c. Break-even point in pesos
d. Margin of safety in number of baseballs
e. Margin of safety in pesos
f. Desired sales in number of baseballs if the company wants to earn P420,000 in profit
g. Desired sales in pesos if the company wants to earn P420,000 in profit

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 BM1915

2. Salvatore Tire Company manufactures tires for bicycles. The tires sell for P72 and variable cost per tire
is P54. The monthly fixed cost is P480,000. The company is currently selling 40,000 tires monthly. The
contribution margin income statement of Salvatore is shown below:

Sales P2,880,000
Variable Costs 2,160,000
Contribution Margin 720,000
Fixed Costs 480,000
Profit P240,000

Required:
a. Degree of operating leverage
b. If the company can increase sales volume by 15% above the current level, what is the percentage
change in profit? Indicate if increase or decrease.
c. What is the increase (decrease) in profit?

Rubric for scoring:

Performance Indicators Points
Correct accounts and amounts used 3
Computed final amounts are correct/balanced 2
Total 5

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