This document contains 17 self-test questions about concepts related to cost-volume-profit analysis and break-even point calculation. The questions cover topics such as contribution margin, fixed and variable costs, calculation of break-even point, strategies to reduce break-even point, and the impact of changes in costs, sales price, and sales volume. Suggested answers to each question are also provided.
This document contains 17 self-test questions about concepts related to cost-volume-profit analysis and break-even point calculation. The questions cover topics such as contribution margin, fixed and variable costs, calculation of break-even point, strategies to reduce break-even point, and the impact of changes in costs, sales price, and sales volume. Suggested answers to each question are also provided.
This document contains 17 self-test questions about concepts related to cost-volume-profit analysis and break-even point calculation. The questions cover topics such as contribution margin, fixed and variable costs, calculation of break-even point, strategies to reduce break-even point, and the impact of changes in costs, sales price, and sales volume. Suggested answers to each question are also provided.
1. When volume equals zero units, D a. Fixed cost equals zero c. Net income equals zero b. Total costs equal zero d. Variable cost equals zero 2. The contribution margin will increase when sales volume remains the same and D a. Fixed costs will increase c. Variable costs will increase b. Fixed costs will decrease d. Variable costs will decrease 3. Which of the following would decrease unit contribution margin the most? A a. A 15% decrease in selling price c. A 15% decrease in variable expenses b. A 15% increase in variable expenses d. A 15% increase in fixed expenses 4. Jungkook Company sells its only product for P 60 per unit and incurs the following variable costs per unit: Direct material P 16 Direct labor 12 Manufacturing overhead 7 Total variable manufacturing overhead P 35 Selling expenses 5 Total variable costs P 40 Jungkook’s annual fixed costs are P 880,000. If prime costs increased by 20% and all other values remained the same, what would be Jungkook Company’s contribution margin ratio (to the nearest whole percentage)? C a. 75% c. 24% b. 30% d. 20% 5. The most likely strategy to reduce the breakeven point would be to C a. Increase both the fixed cost and the contribution margin b. Decrease both the fixed costs and the contribution margin c. Decrease the fixed costs and increase the contribution margin d. Increase the fixed costs and decrease the contribution margin 6. In planning its 2023 operations based on a sales forecast of P 6,000,000, Jimin, Inc. prepared the following data: Cost and Expenses Variable Fixed Direct materials P 1,600,000 Direct labor 1,400,000 Factory overhead 600,000 900,000 Selling expenses 240,000 360,000 Administrative expenses 60,000 140,000 P 3,900,000 P 1,400,000 What would be the amount of peso sales at the break-even point? C a. P 2,250,000 c. P 4,000,000 b. P 3,500,000 d. P 5,300,000 7. For the period just ended, V Company generated the following operating results in percentages: Revenues 100% Cost of sales: Variable 50% Fixed 10% Total 60% Gross profit 40% Operating expenses: Variable 20% Fixed 15% Total 35% Net operating income 5% Total sales amounted to P 3 million. How much was the break-even sales? B a. P 1,875,000 c. P 2,850,000 b. P 2,500,000 d. P 3,750,000 8. Once the breakeven point has been reached, operating income will increase by the B a. Gross margin per unit for each additional unit sold b. Contribution margin per unit for each additional unit sold c. Fixed costs per unit for each additional unit sold d. Variable costs per unit for each additional unit sold 9. The following data refer to cost-volume-profit relationship of Jin Company: Break-even point in units 1,000 Variable cost per unit P 250 Total fixed cost P 75,000 How much will be contributed to operating income by the 1,001st unit sold? C a. P 250 c. P 75 b. P 325 d. Zero 10. Which of the following would cause the break-even point to change? D a. Sales increased b. Total production decreased c. Total variable costs increased as a function of higher production d. Fixed costs increased owing to additional equipment in physical plant 11. A company manufactures a single product. Estimated cost data regarding this product and other information for the product and the company are as follows (effective income tax rate: 40%): Sales price per unit P 40 Total variable production cost per unit 22 Sales commission (on sales) per unit 5% Fixed costs and expenses: Manufacturing overhead P 5,598,720 General and administrative P 3,732,480 What number of units must the company sell in the coming year in order to reach its breakeven point? C a. 388,800 units c. 583,200 units b. 518,400 units d. 972,000 units 12. The present break-even sale of J-Hope Company is P 550,000 per year. It is computed that if the fixed cost will go up by P 60,000, the sales required to break-even will also increase to P 700,000, without any change in the selling price per unit and on the variable expenses. How much is the total fixed cost after the increase of P 60,000? C a. P 200,000 c. P 280,000 b. P 220,000 d. P 330,000 13. One of the major assumptions limiting the reliability of breakeven analysis is that C a. Efficiency and productivity will continually increase b. Total variable costs will remain unchanged over the relevant range c. Total fixed costs will remain unchanged over the relevant range d. The cost of production factors varies with changes in technology 14. How much will income change if a company makes an advertising campaign given the following data? Cost of advertising campaign P 25,000 Increase in sales P 60,000 Variable expense as a percentage of sales 42% B a. P 200 increase c. P 15,000 increase b. P 9,800 increase d. P 25,200 increase 15. RM Company sells a product for P 5 per unit. The fixed cost is P 210,000 and the variable cost is 60% of the selling price. What amount of sales is needed to realize a profit of 10% of sales? A a. P 700,000 c. P 472,500 b. P 525,000 d. P 420,000 16. Suga Company prepared the following preliminary forecast concerning Product BTS for 2023: Selling price per unit P 10 Unit sales 100,000 Variable costs P 600,000 Fixed costs P 300,000 Based on a market study, Suga estimates that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if P 100,000 was spent in advertising. Assuming Suga incorporates these changes in its 2022 forecast, what should be the operating income for Product BTS? C a. P 175,000 c. P 205,000 b. P 190,000 d. P 365,000 17. Lisa Corp. aims to earn a 25% return on its P 500,000 investment in equipment used in the manufacture of Product YG. Based on estimated sales of 10,000 units of Product YG, the cost per unit were estimated as follows: Variable manufacturing cost P 25 Fixed selling and administrative cost 10 Fixed manufacturing cost 5 What should be the price of Product YG? C a. P 45.00 c. P 52.50 b. P 50.00 d. P 55.00 18. Rose Company has fixed costs of P 100,000 and breakeven sales of P 800,000. What is its profit at P 1,200,000 sales? A a. P 50,000 c. P 200,000 b. P 150,000 d. P 400,000 19. Jisoo Company sells a product to retailers for P 200. The unit variable cost is P 40 plus a selling commission of 10%. Fixed manufacturing cost totals P 1,000,000 per month, while fixed selling and administrative cost equals P 420,000. The income tax rate is 30%. What will be the required sales to achieve an after-tax profit of P 123,200? D a. 19,950 units c. 15,640 units b. 18,750 units d. 11,400 units 20. Jennie Electronics Company is developing a new product, surge protectors for high-voltage electrical flows. The cost information for this product is as follows: Unit costs Direct materials P 3.25 Direct labor P 4.00 Distribution P 0.75 The company will also be absorbing P 120,000 of additional fixed costs associated with this new product. A corporate fixed charge of P 20,000 currently absorbed by other products will be allocated to this new product. Jennie Electronics’ effective income tax rate is 40%. How many surge protectors (rounded to nearest hundred) must Jennie Electronics sell at a selling price of P 14 per unit to increase after-tax income by P 30,000? (Hint: consider only additional fixed cost) D a. 10,700 units c. 20,000 units b. 12,100 units d. 28,300 units 21. A company has just completed the production of its only product. The product has taken 3 years and P 6,000,000 to develop. The following costs are expected to be incurred on a monthly basis for the normal production level of 1,000,000 pounds of the new product: 1,000,000 lbs. Direct materials P 300,000 Direct labor 1,250,000 Variable factory overhead 450,000 Fixed factory overhead 2,000,000 Variable selling, general and administrative expenses 900,000 Fixed selling, general and administrative expenses 1,500,000 Total P 6,400,000 If sales price per pound is P 5.90, the sales needed to earn P 3,000,000 profit in the first year would be C a. 13,017,000 pounds c. 15,000,000 pounds b. 14,000,000 pounds d. 25,600,000 pounds 22. Nayeon Company, which is subject to 40% tax, had the following operating data for the period just ended: Selling price per unit P 60 Variable cost per unit P 22 Fixed costs P 504,000 Management plans to improve the quality of its only product by way of implementing the following: (1) Replacing a component that costs P 3.50 with a higher-grade unit that costs P 5.50, and (2) Acquiring a P 180,000 packaging machine. Nayeon will depreciate the machine over a 10-year period with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax of P 172,800 in the coming year, how many units must be sold? C a. 10,300 units c. 22,500 units b. 21,316 units d. 27,000 units 23. Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only D a. Fixed and semi-variable costs c. Relevant variable costs b. Relevant fixed costs d. Relevant range of volume 24. Momo Company has developed a new project that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at P 36 per unit, Momo’s management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at P 450,000 for the year, which includes P 60,000 for depreciation on new manufacturing equipment. Momo is subject to a 40% income tax rate. Data associated with each unit of product are presented on the next page: Variable Costs Direct material P 7.00 Direct labor 3.50 Manufacturing overhead 4.00 Total variable manufacturing cost P 14.50 Selling expenses 1.50 Total variable cost P 16.00 Momo Company’s management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least P 75,000 the first year. The unit selling price to achieve this target profit must be at least D a. P 34.60 c. P 37.00 b. P 36.60 d. P 39.00 25. The following data pertain to the two products manufactured by Mina, Inc.: Per Unit Products Selling Price Variable Cost A P 240 P 140 B P 1,000 P 400 Fixed cost totals P 600,000 annually. The expected sales mix in units is 60% for Product A and 40% for Product B. How many units of the two products together must Mina sell to break-even? C a. 857 c. 2,000 b. 1,111 d. 2,459 26. Dahyun, Inc. is planning to produce two products, A and B. Dahyun is planning to sell 100,000 units of A at P 4 a unit and 200,000 units of B at P 3 a unit. Variable cost is 70% of sales for A and 80% of sales for B. In order to realize a total profit of P 160,000, what must the total fixed cost be? A a. P 80,000 c. P 240,000 b. P 90,000 d. P 600,000 27. Sana Company sells Products K, T and V. Sana sells three units of K for each unit of V and two units of T for each unit of K. The contribution margins are P 1 per unit of K, P 1.50 per unit of T, and P 3 per unit of V. Fixed costs are P600,000. How many units of Product K would Sana sell at the break-even point? B a. 40,000 units c. 240,000 units b. 120,000 units d. 400,000 units 28. There are so many assumptions inherent in CVP analysis. Which of the following is not one of these assumptions? D a. Cost and revenues are predictable and are linear over the relevant range b. Variable costs fluctuate proportionately with volume c. Changes in the beginning and ending inventory are insignificant in amount d. Sales mix will change as fixed costs increase beyond the relevant range 29. If the sales mix shifts toward higher contribution margin products, then over-all break-even point generally A a. Decreases c. Remains constant b. Increases d. Is zero 30. K-Pop, Inc. had the following sales results for 2023: TV sets CD player Radios Peso sales component ratio 0.30 0.30 0.40 Contribution margin ratio 0.40 0.40 0.60 K-Pop, Inc. had fixed costs of P 2,400,000. The break-even sales in pesos for K-pop, Inc. are: TV sets CD player Radios TV sets CD player Radios C a. P 1.8 M P 1.8 M P 3.6 M c. P 1.5 M P 1.5 M P2M b. P 1.8 M P 1.8 M P 1.6 M d. P 1,531,915 P 1,531,915 P 2,042,553 31. For a profitable company, the amount by which sales can decline before losses occur is known as the D a. Sales volume variance c. Variable sales ratio b. Hurdle rate d. Margin of safety 32. The margin of safety is a key concept of CVP analysis. The margin of safety is B a. The contribution margin rate b. The difference between budgeted sales and breakeven sales c. The difference between the breakeven point in sales and cash flow breakeven d. The difference between budgeted contribution margin and breakeven contribution margin 33. Tzuyu Company has sales of P 100,000, fixed costs of P 50,000, and a profit of P 10,000. What is Tzuyu Company’s margin of safety? B a. P 10,000 c. P 33,333 b. P 16,667 d. P 83,333 34. Operating leverage is greatest in companies that have B a. Low fixed cost, low unit variable cost c. Low fixed cost, high unit variable cost b. High fixed cost, low unit variable cost d. High fixed cost, high unit variable cost 35. Jihyo Corporation sells sets of encyclopedias. Jihyo sold 4,000 sets last year at P 250 a set. If the variable cost per set was P 175, and the fixed costs for Jihyo were P 100,000, what is the Jihyo’s degree of operating leverage (DOL)? C a. 0.67 c. 1.5 b. 0.75 d. 3.0 36. Chaeyoung Company’s variable costs are 75% of sales. At a sales level of P 400,000, the company’s degree of operating leverage is 8. At this level, fixed costs equal A a. P 87,500 c. P 50,000 b. P 100,000 d. P 75,000 37. A higher degree of operating leverage compared with industry average implies that the firm B a. Has higher variable costs b. Has profits that are more sensitive to changes in sales volume c. Is more profitable d. Is less risky 38. Jeongyeon Company’s variable costs are 70% of sales. At a P 300,000 sales level, the degree of operating leverage is 10. If sales increase by P 60,000, what will be the degree of operating leverage? D a. 12 c. 6 b. 10 d. 4 39. If used in cost-volume-profit analysis, sensitivity analysis C a. Determines the most profitable mix of products to be sold b. Allows the decision maker to use probabilities in the evaluation of decision alternatives c. Is done through various possible scenarios and computes the impact on profit of various predictions of future events d. Is limited because in cost-volume-profit analysis, costs are not separated into fixed and variable components 40. The indifference point is the level of volume at which a company D a. Earns no profit c. Earns large amount of profit b. Earns its target profit d. Earns the same profit under different schemes 41. Machine XX has fixed costs of P 225,000 and a variable cost of P 20. Machine YY has fixed costs of P 300,000 and a variable cost of P 14. What is the indifference point in units? B a. 11,250 c. 21,429 b. 12,500 d. Cannot be determined from given information 42. Twice Motors employs 40 sales personnel to market its line of automobiles. The average car sells for P 1,200,000 and a 6% commission is paid to the salesperson. Twice Motors is considering a change to a scheme that would pay each salesperson a salary of P 24,000 per month plus a 2% commission of the sales made by that salesperson. What is the amount of total car sales at which Twice Motors would be indifferent as to which plan to select? B a. P 30,000,000 c. P 22,500,000 b. P 24,000,000 d. P 12,000,000 43. Blackpink Corporation submitted to you the following condensed income statement: Sales (80% capacity) P 300,000 Variable costs P 180,000 Fixed costs 82,500 262,500 Net income P 37,500 What is the break-even point as a percentage of capacity? B a. 45% c. 67.85% b. 55% d. 68.75%