ACCO 205 STRATEGIC COST MANAGEMENT

CHAPTER 4: COST VOLUME PROFIT ANALYSIS

THEORIES (1 point each)

1. Statement 1: Equation method involves using algebraic equations to calculate the

breakeven point.
Statement 2: The Break-Even Chart is also called a Profit Volume Graph.
A. Both Statements are correct
B. Statement 1 is incorrect; statement 2 is correct.
C. Statement 1 is correct; Statement 2 is incorrect.
D. Both statements are incorrect

2. What is the horizontal axis of the breakeven chart typically measured in?
A. Currency
B. Units sold or produced.
C. Sales revenue
D. Fixed costs

3. All are example of tools in CVP analysis EXCEPT:

A. Break Even Analysis

B. Margin of Safety
C. Degree of Financial Leverage
D. Degree of Operating Leverage

4. Statement 1: Sales mix is the relative combination of products that compose a company’s
total sales.
Statement 2: Margin of safety is the amount by which actual sales may be reduced
without incurring a loss.

A. Only statement 1 is correct.

B. Only statement 2 is correct.
C. Both statements are correct.
D. Both statements are incorrect.

5. Statement 1: In using the CVP equation, if the VC/u has been increased, its effect on net
income would be increased as well.
Statement 2: In using the CVP equation, if the units sold have been increased, its effect
on net income would be increased as well.

A. All statements are correct.

B. Only statement 1 is incorrect.
C. Only statement 2 is incorrect.
 D. All statements are incorrect.

6. CVP analysis requires costs to be categorized as:

A. fixed, mixed, or variable

B. either fixed or variable
C. standard or actual
D. none of the above

7. Statement 1: One of the assumptions in CVP analysis is that the only cost driver is the
volume of units produced.
Statement 2: Sales mix is applicable if there is multi-product.

A. Only statement 1 is correct.

B. Only statement 2 is correct.
C. Both statements are incorrect.
D. Both statements are correct.

8. In breakeven point:

A. breakeven analysis shows breakeven point after interest charges

B. total sales will just cover total cost
C. profit or loss is equal to 1
D. both a and b

9. The break-even point occurs when revenue equals to:

A. Investment
B. Expense
C. Cost
D. Profit

10. Break-Even Point (units)

A. BE (units) = FC / (selling price per unit * variable cost per unit)

B. BE (units) = FC * (selling price per unit - variable cost per unit)
C. BE (units) = FC / (selling price per unit + variable cost per unit)
D. BE (units) = FC / (selling price per unit - variable cost per unit)
PROBLEMS (2 points each)

1. 1Z Company sells a single product with a contribution margin of P15 per unit and fixed
costs of P96,600 and sales for the current year of P150,000. The selling price is P25. How
much is the company’s breakeven point in units?
Answer: 6,440 units

Solution:
BEP Units = Total Fixed costs / Contribution Margin per unit
BEP Units = P96,600 / P15
BEP Units = 6,440 units

2. BSA Company has one product with a selling price per unit of P250, the unit variable
cost is P65, and the total monthly fixed costs are P350,000. How much is the company’s
contribution margin ratio?
Answer: 0.74 or 74%

Solution:
CMR = Contribution Margin per unit / Selling Price per unit
CMR = P185 / P250
CMR = 0.74 or 74%

CMu = Selling Price per unit - Variable Cost per unit

CMu = P250 - P65
CMu = P185

3. Thumbs Up Company sells a banana loaf product with a selling price of P115 per unit. It
shows that the variable expenses are P15 per unit with a total fixed cost of P2,000. The
company produced 50 pcs of the product. Calculate the margin of safety in units.
Answer: 30 units

Solution:
BEP Units = Total Fixed costs / Contribution Margin per unit
BEP Units = P2,000 / P115
BEP Units = 20 units

MOS Units = Total Sales in Units - BEP Units

MOS Units = 50 - 20
MOS Units = 30 units
4. The Francesco Company produces spaghetti sauce that is used in restaurants. The fixed
costs total P1,329,050. The selling price per 64 oz. can of sauce is P12.40. The variable
cost per can is P4.80. What is the break-even point in number of cans?
Answer: 174,875 units

Solution:
BEP Units = Fixed Costs / (Selling price per unit - Variable cost per unit)
BEP Units = 1,329,050 / (12.40 - 4.80)
BEP Units = 1,329,050 / 7.60
BEP Units = 174,875 units

5. Hatdawg Products manufactures meat and canned foods. The company plans to
manufacture 1,230,000 hotdogs to be sold at P0.36. The fixed costs are estimated to be
P109,900. Variable costs are P0.08 per unit. How many hotdogs must be sold for
Hatdawg Products to break even?
Answer: 392,500 units

Solution:
BEP Units = Fixed Costs / (Selling price per unit - Variable cost per unit)
BEP Units = 109,900 / (0.36 - 0.08)
BEP Units = 109,900 / 0.28
BEP Units = 392,500 units