MANAGEMENT ADVISORY SERVICES HILARIO TAN

THEORY A. high-low method C. linear programming

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

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A. Examines only one variable. C. Produces measures of probable error. C. a relatively narrow range of production where total variable costs remain the same
B. Is not a sampling technique. D. Proves a cause and effect relationship. D. a relatively wide span of production where total fixed costs are expected to remain the
same

12. The number of variables used in simple regression analysis is: 17. Which of the following assumptions does NOT pertain to cost-volume-profit analysis?
A. one C. three A. Inventories are constant
B. two D. more than three B. The total revenues function is linear.
C. All costs are classified as fixed or variable
13. The first to be undertaken in a simple regression analysis approach is D. The units produced will equal the units sold
A. To calculate the coefficient correlation. E. Sales mix may vary during the related period
B. To find the standard error of estimate.
C. To make the least squares computation. 18. The sum of the costs necessary to effect a one-unit increase in the activity level is a(n)
D. To plot two variables in a scatter diagram. A. Incremental cost. C. Marginal cost.
B. Margin of safety. D. Opportunity cost.
14. If the coefficient of correlation between two variables is zero, how might a scatter diagram of
these variables appear? 19. As an accountant, the most useful information you can get from break-even chart is the
A. Random points. A. Volume or output level at which the enterprise breaks even.
B. A least squares line that slopes up to the right. B. Amount of sales revenue needed to cover enterprise fixed costs.
C. A least squares line that slopes down to the right. C. Amount of sales revenue needed to cover enterprise variable costs.
D. Under this condition a scatter diagram could not be plotted on a graph. D. Relationship among revenues, variable costs, and fixed costs at various levels of activity.

15. Cost-volume-profit analysis is most important for the determination of the
A. Volume of operation necessary to break-even.
B. Sales revenue necessary to equal variable costs.
C. Variable revenues necessary to equal fixed costs.
D. Relationship between revenues and costs at various levels of operations.
16. The relevant range is
A. a relatively wide range of sales where all costs remain the same
B. a relatively wide range of sales where total variable costs remain the same
20. In a cost-volume-profit graph
A. the total revenue line crosses the horizontal axis at the breakeven point.
B. an increase in unit variable costs would decrease the slope of the total cost line.
C. an increase in the unit selling price would shift the breakeven point in units to the left.
D. an increase in the unit selling price would shift the breakeven point in units to the right.
E. beyond the breakeven sales volume, profits are maximized at the sales volume where
total revenues equal total costs.
21. In a cost-volume-profit graph, the slope of the total revenue curve represents

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A. total contribution margin D. the selling price per unit. predictions of future events.
B. total revenues. E. the variable cost per unit
C. the contribution margin per unit 26. At its present level of operations, a small manufacturing firm has total variable costs equal to
75 percent of sales and total fixed costs equal to 15 percent of sales. Based on variable
22. In a profit-volume graph, the slope of the profit curve represents costing, if sales change by $1.00, income will change by
A. the contribution margin per unit D. total contribution margin A. $0.10.
B. the selling price per unit E. total revenues. B. $0.25.
C. the variable cost per unit C. $0.75.
23. If a company’s variable costs are 70% of sales, which formula represents the computation of D. can't be determined from the information given.
dollar sales that will yield a profit equal to 10% of the contribution margin when S equals sales
in dollars for the period and FC equals total fixed costs from the period? 27. A company’s breakeven point in sales dollars may be affected by equal percentage increases
A. S = FC ÷ 0.2 C. S = 0.2 ÷ FC in both selling price and variable costs per unit (assume all other factors are constant within
B. S = FC ÷ 0.27 D. S = 0.27 ÷ FC the relevant range.) The equal percentage changes in selling price and variable cost per unit
will cause the breakeven point in sales dollars to
24. Cost-volume-profit analysis is a key factor in many decisions, including choice of product lines, A. Remain unchanged.
pricing of products, marketing strategy, and utilization of productive facilities. A calculation B. Increase by the percentage change in variable cost per unit.
used in CVP analysis is the break-even point. Once the break-even point has been reached C. Decrease by less than the percentage increase in selling price.
operating income will increase by the D. Decrease by more than the percentage increase in the selling price.
A. Fixed cost per unit for each additional unit sold.
B. Sales price per unit for each additional unit sold. 28. The most likely strategy to reduce the breakeven point would be to
C. Gross margin per unit for each additional unit sold. A. Increase both the fixed costs and the contribution margin.
D. Contribution margin per unit for each additional unit sold. B. Decrease both the fixed cost and the contribution margin.
C. Increase the fixed costs and decrease the contribution margin.
25. When used in cost-volume-profit analysis, sensitivity analysis D. Decrease the fixed costs and increase the contribution margin.
A. Determines the most profitable mix of products to be sold.
B. Allows the decision maker to introduce probabilities in the evaluation of decision 29. A company increased the selling price of its product from $1.00 to $1.10 a unit when total fixed
alternatives. costs increased from $400,000 to $480,000 and variable cost per unit remained unchanged.
C. Is limited because in cost-volume-profit analysis, costs are not separated into fixed and How will these changes affect the breakeven point?
variable components. A. The breakeven point in units will be increased.
D. Is done through various possible scenarios and computes the impact on profit of various B. The breakeven point in units will be decreased.

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C. The breakeven point in units will remain unchanged. decrease the firm’s overall B.E.P. for the upcoming accounting period?
D. The effect cannot be determined from the information given. A. A decrease in Coplex’s selling price.
B. An increase in Simpol raw materials cost.
30. According to CVP analysis, a company could never incur a loss that exceeded its total C. An increase in the overall market of Plutex.
A. contribution margin. C. fixed costs. D. An increase in anticipated sales of Simpol relative to the sales of Plutex and Coplex.
B. costs. D. variable costs.
34. A very high degree of operating leverage indicates a firm
31. Two companies produce and sell the same product in a competitive industry. Thus, the selling A. has high fixed costs
price of the product for each company is the same. Company 1 has a contribution margin ratio B. has a high net income
of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs C. has high variable costs
40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is D. is operating close to its breakeven point
30% greater than that of Company 1. By comparison, Company 1 will have the <List A>
breakeven point in terms of dollar sales volume and will have the <List B> dollar profit potential
once the indifference point in dollar sales volume is exceeded.
A. B. C. D. 35. Love Corp. is operationally a highly leveraged company, that is, it has high fixed costs and low
List A Lower Lower Higher Higher variable costs. As such, small changes in sales volume result in
List B Lesser Greater Lesser Greater A. Large changes in net income. C. No change in net income.
B. Negligible change in net income. D. Proportionate change in net income.
32. Which of the following is a true statement about sales mix?
A. Profits will remain constant with an increase in total dollars of sales if the total sales in PROBLEMS
units remains constant. Cost equation
B. Profits will remain constant with a decrease in total dollars of sales if the sales mix also 1. Smart Company is relocating its facilities. The company estimates that it will take three trucks
remains constant. to move office contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is
C. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell the expected cost to move 800 miles?
more of the high contribution margin product. A. $1,000 C. $2,400
D. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell B. $1,200 D. $3,600
more of the lower contribution margin product.
2. The following cost functions were developed for manufacturing overhead costs:
33. Saints Co. sells three chemicals: Simpol, Plutex, and Coplex. Simpol is the most profitable Manufacturing Overhead Cost Cost Function
product while Coplex is the least profitable. Which one of the following events will definitely Electricity $100 + $20 per direct labor hour

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Maintenance $200 + $30 per direct labor hour October 7,250 1,600
Supervisors’ salaries $10,000 per month Using the high-low method, what is the best equation?
Indirect materials $16 per direct labor hour A. Y = $750 + $3.50X D. Y = $1,500 + $5.00X
If July production is expected to be 1,000 units requiring 1,500 direct labor hours, estimated B. Y = $750 + $5.00X E. Y = $2,000 + $3.50X
manufacturing overhead costs would be C. Y = $1,500 + $3.50X
A. $10,366 C. $99,000
B. $76,300 D. $109,300 6. Total production costs of prior periods for a company are listed as follows. Assume that the
same cost behavior patterns can be extended linearly over the range of 3,000 to 35,000 units
3. Bradley Co. budgets its total production costs at $220,000 for 75,000 units of output and and that the cost driver for each cost is the number of units produced.
$275,000 for 100,000 units of output. Since additional facilities are needed to produce 100,000 Production in units per month 3,000 9,000 16,000 35,000
units, fixed costs are budgeted at 20% more than for 75,000 units. What is Bradley's budgeted Cost X $23,700 $52,680 $86,490 $178,260
fixed cost at 100,000 units? Cost Y 47,280 141,840 252,160 551,600
A. 16,500 C. 156,000 What is the average cost per unit at a production level of 8,000 units for cost X?
B. 66,000 D. 165,000 A. $4.83 C. $5.98
B. $5.85 D. $7.90
4. Matias Corporation wishes to market a new product for P12.00 a unit. Fixed costs to
manufacture this product are P800,000 for less than 500,000 units and P1,200,000 for
500,000 or more units. Contribution margin is 20%. How many units must be sold to realize a Regression analysis
net income from this product of P500,000? 7. Y = P575,000 + P8.50X represents the behavior of maintenance costs (Y) as a function of
A. 433,333 C. 666,667 machine hours (X). Thirty (30) monthly observations were used to develop the foregoing
B. 500,000 D. 708,333 regression equation. The related coefficient of determination was 0.90. If 2,500 machine
hours are worked in one month, the related point estimate of total variable maintenance costs
High-low method would be
5. The Austin Manufacturing Company wants to develop a cost estimating equation for its A. P19,125 C. P23,000
monthly cost of electricity. It has the following data: B. P21,250 D. P25,250
Month Cost of Electricity Direct Labor Hours
January $6,750 1,500 8. Sago Co. uses regression analysis to develop a model for predicting overhead costs. Two
April 7,500 1,700 different cost drivers (machine hours and direct materials weight) are under consideration as
July 8,500 2,000 the independent variable. Relevant data were run on a computer using one of the standard

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regression programs, with the following results: 11. Tonykinn Company is contemplating of marketing a new product. Fixed costs will be $800,000
Coefficient for production of 75,000 units or less and $1,200,000 if production exceeds 75,000 units The
Machine hours Direct materials weight variable cost ratio is 60% for the first 75,000. Contribution margin percentage will increase to
Y intercept 2,500 4,600 50% for units in excess of 75,000. If the product is expected to sell for $25 per unit, how many
B 5.00 2.60 units must Tonykinn sell to breakeven?
R2 0.70 0.50 A. 80,000 C. 111,000
What regression equation should be used? B. 96,000 D. 120,000
A. Y = 2,500 + 3.5X C. Y = 4,600 +1.3X
B. Y = 2,500 + 5.0X D. Y = 4,600 + 2.6X 12. A company manufactures a single product. Estimated cost data regarding this product and
other information for the product and the company are as follows:
Contribution margin income statement Sales price per unit $40
9. A retail company determines its selling price by marking up variable costs 60%. In addition, Total variable production cost per unit $22
the company uses frequent selling price markdowns to stimulate sales. If the markdowns Sales commission (on sales) 5%
average 10%, what is the company’s contribution margin ratio? Fixed costs and expenses
A. 27.5% C. 37.5% Manufacturing overhead $5,598,720
B. 30.6% D. 41.7% General and administrative $3,732,480
Effective income tax rate 40%
The number of units the company must sell in the coming year in order to reach its breakeven
point is
A. 388,800 units C. 583,200 units
Breakeven analysis B. 518,400 units D. 972,000 units
10. Ultra Vogue Co. sells 50,000 units of “yo” a top-of-the-line garden sprinkler. These were taken
from the company’s records: Profit planning
Accounts receivable, P129,000. Contribution margin ratio, 49%. 13. Merchandisers, Inc. sells Product O to retailers for P200. The unit variable cost is P40 with a
Days sales outstanding, 15 days. Profit for the period was P485,040. selling commission of 10%. Fixed manufacturing costs total P1,000,000 per month while fixed
selling and administrative costs total P420,000. The income tax rate is 30%. The target sales
The ending receivables balance is the average balance during the year. Assume a 360-day
if after tax income is P123,200 would be
year. All sales are on credit. Determine the company’s break-even revenue.
A. 10,950 units. C. 13,750 units.
A. P1,032,000 C. P2,106,122
B. 11,400 units. D. 15,640 units.
B. P1,517,040 D. P3,096,000

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14. NCB, Inc. manufactures computer tables. It has an investment of P1,750,000 in assets and and an operating loss of P20,000. By how much would Nette need to increase its sales in
expects a 25% return on investment. Its total fixed production costs for 2,000 units is order to achieve a target operating income of 10% of sales?
P550,000 plus an additional P150,000 for selling and administrative expenses. The variable A. P400,000 C. P500,000
cost to manufacture is P1,500 per table. The selling price per table should be B. P462,000 D. P800,000
A. P1,850.00 C. P2,531.25
B. P2,068.75 D. P2,725.00 19. Sari-Sari Grocery is currently open only on Monday to Saturday. It is considering opening on
Sundays. The annual incremental costs of Sunday opening is estimated at P124,800. Its
15. Story Manufacturing incurs annual fixed costs of $250,000 in producing and selling "Tales." gross margin is 20%. It estimates that 60% of Sunday sales to customers would be on other
Estimated unit sales for 2001 are 125,000. An after-tax income of $75,000 is desired by days if its stores were not open on Sundays. The Sunday sales that would be necessary for
management. The company projects its income tax rate at 40 percent. What is the maximum Sari-sari to attain the same weekly operating income is
amount that Story can expend for variable costs per unit and still meet its profit objective if the A. P19,500. C. P29,250.
sales price per unit is estimated at $6? B. P20,000. D. P30,000.
A. $3.00 C. $3.59
B. $3.37 D. $3.70 20. ABC Company breaks even at $300,000 sales and earns $30,000 at $350,000 sales. Which
of the following is true?
Incremental analysis A. Fixed costs are $20,000.
16. A company is concerned about its operating performance, as summarized below: B. The selling price per unit is $3.
Sales ($12.50 per unit) $300,000 C. Contribution margin is 60% of sales.
Variable costs 180,000 D. Profit at sales of $400,000 would be $80,000.
Net operating loss (40,000)
How many additional units should have been sold in order for the company to break even in Sensitivity analysis
1992? 21. A product has a selling price of P5 and variable cost of P3.50 per unit. The effect of a P0.50
A. 8,000 C. 16,000 per unit increase in cost is to increase the break-even level of activity by
B. 12,800 D. 32,000 A. P1.50 per unit. C. 33-1/3%
17. Scottso Enterprises has fixed costs of $120,000. At a sales volume of $400,000, return on B. 14.3% D. 50%
sales is 10%. At a $600,000 volume, return on sales is 20%. What is the break-even volume?
A. $160,000 C. $300,000 22. A company has sales of $500,000, variable costs of $300,000, and pretax profit of $150,000.
B. $210,000 D. $420,000 If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left
variable cost per unit unchanged, what would be the new breakeven point in sales dollars?
18. Nette & Co. has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000, A. $88,000 C. $110,000

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B. $100,000 D. $125,000 income taxes of P200,000. Due to an adverse legal decision, RPS’s 1997 liability insurance
increased by P1,200,000 over 1996. Assuming the volume and other costs are unchanged,
23. Singsing, Inc. manufactures and sells key rings embossed with college names and slogans. what should be the 1997 price be if RPS is to make the same P200,000 profit before income
Last year, the key rings sold for P75 each, and the variable costs to manufacture them were taxes?
P22.50 per unit. The company needed to sell 20,000 key rings to break-even. The net income A. P120. C. P150.
last year was P50,400. The company expects the following for the coming year: B. P135. D. P240.
⮚ The selling price of the key rings will be P90.
⮚ Variable manufacturing costs per unit will increase by one-third. 26. Lindsay Company reported the following results from sales of 5,000 units of Product A for
⮚ Fixed costs will increase by 10%. June:
⮚ The income tax rate will remain unchanged. Sales $200,000
For the company to break-even the coming year, the company should sell Variable costs (120,000)
A. 2,600 units. C. 21,250 units. Fixed costs (60,000)
B. 19,250 units. D. 21,600 units. Operating income $ 20,000 
Assume that Lindsay increases the selling price of Product A by 10 percent in July. How many
24. Austin Manufacturing, which is subject to a 40% income tax rate, had the following operating units of Product A would have to be sold in July to generate an operating income of $20,000?
data for the period just ended. A. 4,000 C. 4,500
Selling price per unit $ 60 B. 4,300 D. 5,000
Variable cost per unit 22
Fixed costs 504,000 27. CGW Corporation sells Product T at a unit price of P5 deriving annual gross sales of P50,000.
Management plans to improve the quality of its sole product by: (1) replacing a component that The variable cost to produce T is P4.50 per unit and total fixed costs is P10,000. If it increases
costs $3.50 with a higher-grade unit that costs $5.50 and (2) acquiring a $180,000 packing T’s unit price to P8, a decrease of sales to only 4,000 units would result. The effect of the
machine. Austin will depreciate the machine over a 10-year life with no estimated salvage price increase on CGW’s net income from the sales of Product T will be a:
value by the straight-line method of depreciation. If the company wants to earn after-tax A. No effect. C. P9,000 increase.
income of $172,800 in the upcoming period, it must sell B. P4,000 increase. B. P18,000 decrease.
A. 19,300 units. C. 22,500 units.
28. Planners have determined that sales will increase by 25% next year, and that the profit margin
B. 21,316 units. D. 23,800 units.
will remain at 15% of sales. Which of the following statements is correct?
A. Profit will grow by 25%.
B. The profit margin will grow by 15%.
25. During 1996, RPS Corporation supplied hospitals with a comprehensive diagnostic kit for
C. Profit will grow proportionately faster than sales.
P120. At a volume of 80,000 kits, RPS has fixed cost of P1,000,000 and a profit before
D. Ten percent of the increase in sales will become net income.

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29. LXQ Turo Turo stores are open for 15 hours a day (from 6:00 a.m. to 9:00 p.m.). It sells Direct cost per unit P 52.60
packaged meals at a price of P40 per meal. Variable cost per meal is P30 while total fixed Variable operating expense per unit P 5.60
costs for operation of all the stores amounted to 200,000 monthly. It is thinking to reduce its Proposed price cut per unit P 10.00
store hours to only 12 hours a day as this would reduce fixed costs (utilities and wages) by Estimated sales volume before price cut 1,220 pcs.
P60,000 a month. It is expected that the reduced store hours would result in loss of 1,500
packed meals monthly sales. The reduction in store hours would result in 31. How much is the estimated contribution margin that will be lost due to price cut, assuming the
A. No change in monthly operating income. same pre-price cut sales volume?
B. A prospective decrease in monthly operating income. A. P10,980 C. P17,990
C. A prospective increase in monthly operating income of P45,000. B. P13,000 D. P18,000
D. A prospective increase in monthly operating income of P60,000.
32. For the same Hennessy Co., in the immediately preceding number, what is the additional
30. The Machan Manufacturing Company’s year-end income statement is as follows: volume required after the price cut to get the same contribution margin before the price cut?
Sales (20,000 units) $360,000 Round off to the nearest whole unit.
Variable costs 220,000 A. 409 units C. 704 units
Contribution margin $140,000 B. 500 units D. 1,000 units
Fixed costs 105,000
Net income $ 35,000 Multiple products
Management is unhappy with the results and plans to make some changes for next year. 33. A company with $280,000 of fixed costs has the following data:
If management implements a new marketing program, fixed costs are expected to increase by Product A Product B
$19,200 and variable costs to increase by $1 per unit. Unit sales are expected to increase by Sales price per unit $5 $6
15 percent. What is the effect on income? Variable costs per unit $3 $5
A. no change D. increase of $14,800 Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of
B. increase of $1,800 E. decrease of $21,200 product B at the breakeven point?
C. increase of $13,800 A. $200,000 C. $280,000
B. $240,000 D. $840,000
Questions 31 and 32 are based on the following information.
The marketing department of Hennessy Co. proposed a price cut on its leading brand, a product Questions 34 and 35 are based on the following information.
called “Henry.” From the accounting records these are available: A company sells two products, X and Y. The sales mix consists of a composite unit of two units of
Price per unit P 92.00 X for every five units of Y (2:5). Fixed costs are $49,500. The unit contribution margins for X and
Discount to customers 10% Y are $2.50 and $1.20, respectively.

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(In units) A. B. C. D.
34. Considering the company as a whole, the number of composite units to break even is Breakeven point for Co. 1 533,334 533,334 800,000 800,000
A. 1,650 C. 8,250 Breakeven point for Co. 2 105,000 105,000 420,000 420,000
B. 4,500 D. 22,500 Volume at which profits of Co. 1 and
35. If the company had a profit of $22,000, the unit sales must have been Co. 2 are equal 1,000,000 1,180,000 1,000,000 1,180,000
A. B. C. D.
Product X 5,000 13,000 23,800 32,500 Margin of safety
Product Y 12,500 32,500 59,500 13,000 38. Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of
$80,000. What is Cott’s fixed cost?
Point of Indifference A. $16,000 C. $80,000
36. Wheels Corp. employs 45 sales personnel to market its sedan cars. The average car sells for B. $24,000 D. $96,000
P690,000 and a 6% commission is paid to the sales person. It is considering changing the
scheme to a commission arrangement that would pay each person a package of P30,000 plus 39. Bell Company has a 25% margin of safety. Its before-tax return on sales is 6%, and its tax
a commission of 2% of the sales made by the person. The amount of total monthly car sales rate is 40%. Assuming that current sales are $120,000, what is Bell’s total fixed costs.
at which Wheels Corp. would be indifferent (answer may be rounded off) as to which plan to A. $21,600 C. $84,000
select is B. $36,000 D. $60,000
A. P22,500,000 C. P36,500,000
B. P33,750,000 D. P45,000,000 Comprehensive
Questions 40 through 42 are based on the following information.
37. Two companies are expected to have annual sales of 1,000,000 decks of playing cards next Almo Company manufactures and sells adjustable canopies that attach to motor homes and
year. Estimates for next year are presented below: trailers. The market covers both new unit purchasers as well as replacement canopies. Almo
Company 1 Company 2 developed its business plan based on the assumption that canopies would sell at a price of $400
Selling price per deck $ 3.00 $3.00 each. The variable costs for each canopy were projected at $200, and the annual fixed costs were
Cost of paper deck 0.62 0.65 budgeted at $100,000. Almo's after-tax profit objective was $240,000; the company's effective tax
Printing ink per deck 0.13 0.15 rate is 40%.
Labor per deck 0.75 1.25 While Almo's sales usually rise during the second quarter, the May financial statements reported
Variable overhead per deck 0.30 0.35 that sales were not meeting expectations. For the first 5 months of the year, only 350 units had
Fixed costs $960,000 $252,000 been sold at the established price, with variable costs as planned, and it was clear that the after-tax
Given these data, which of the following responses is correct? profit projection would not be reached unless some actions were taken. Almo's president assigned
a management committee to analyze the situation and develop an alternative course of action. The

MSQ-01 – COST BEHAVIOR & COST-VOLUME-PROFIT ANALYSIS Page 10 of 11

MANAGEMENT ADVISORY SERVICES HILARIO TAN

following was presented to the president. 11. D 31. A 11. C 31. A

Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced 12. B 32. D 12. C 32. C
sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit 13. C 33. D 13. B 33. B
costs will stay as budgeted. 14. A 34. D 14. B 34. B
40. Assuming no changes were made to the selling price or cost structure, how many units must 15. D 35. A 15. A 35. B
Almo sell to break even? 16. D 16. A 36. B
A. 167 C. 500 17. E 17. C 37. D
B. 250 D. 1,700 18. C 18. A 38. B
41. Assuming no changes were made to the selling price or cost structure, how many units must 19. D 19. D 39. A
Almo sell to achieve its after-tax profit objective? 20. C 20. C 40. C
A. 1,250 C. 2,000
B. 1,700 D. 2,500

42. If management decides to reduce the selling price by $40, what will Almo's after-tax profit be?
A. $157,200 C. $241,200
B. $160,800 D. $301,200
ANSWER KEY
Theory Problems
1. A 21. D 1. D 21. D 41. D
2. C 22. A 2. D 22. A 42. C
3. C 23. B 3. D 23. B
4. B 24. D 4. D 24. C
5. C 25. D 5. C 25. B
6. A 26. B 6. C 26. A
7. A 27. A 7. B 27. C
8. C 28. D 8. B 28. A
9. A 29. D 9. B 29. C
10. A 30. B 10. C 30. E

MSQ-01 – COST BEHAVIOR & COST-VOLUME-PROFIT ANALYSIS Page 11 of 11