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Cost-Volume-Profit Analysis
13. The Ship Company is planning to produce two products, Alt and Tude. Ship is planning to sell
100,000 units of Alt at P4 a unit and 200,000 units of Tude at P3 a unit. Variable costs are
70% of sales for Alt and 80% of sales for Tude. In order to realize a total profit of P160,000,
what must the total fixed costs be?
A. P80,000
C. P240,000
B. P90,000
D. P600,000
14. Glow Co. wants to sell a product at a gross margin of 20%. The cost of the product is P2.00.
The selling price should be
A. P1.60
C. P2.40
B. P2.10
D. P2.50
15. The following relates to Gloria Corporation, which produced and sold 50,000 units during a
recent accounting period:
Sales
P850,000
Fixed manufacturing costs
210,000
Variable manufacturing costs
140,000
Fixed selling and administrative expense
300,000
Variable selling and administrative expense
45,000
Income tax rate
40%
For the next accounting period, if production and sales are expected to be 40,000 units, the
company should anticipate a contribution margin per unit of
A. P1.00
C. P3.10
B. P13.30
D. P7.30
16. Madden, Company has projected its income before taxes for next year as shown below.
Madden is subject to a 40% income tax rate.
Sales (160,000 units)
P8,000,000
Cost of sales
Variable costs
P 2,000,000
Fixed costs
3,000,000
5,000,000
Income before taxes
P 3,000,000
Maddens net assets are P36,000,000. The peso sales that must be achieved for Madden to
earn a 10 percent after tax return on assets would be
A. P8,800,000
C. P12,000,000
B. P16,000,000
D. P6,880,000
May 9, 2004

Pre-week Quizzer

17. The following data relate to Homer Company which sells a single product:
Unit selling price
P 20.00
Purchase cost per unit
11.00
Sales commission, 10% of selling price
2.00
Monthly fixed costs
P80,000
The firms salespersons would like to change their compensation from a 10 percent
commission to a 5 percent commission plus P20,000 per month in salary. They now receive
only commission.
The change in compensation plan should change the monthly breakeven point by
A. 1,071 Increase
C. 1,538 Increase
B. 1,071 Decrease
D. 1,538 Decrease
18. Brunei Corp. is developing a new product, surge protectors for high-voltage electrical flows.
The cost information for the product are: Direct materials, P3.25 per unit; Direct labor, P4.00
per unit; Distribution, P0.75 per unit. The company will also be absorbing P120,000 of
additional fixed costs associated with this new product. A corporate fixed charge of P20,000
currently absorbed by other products will be allocated to this new product.
How many surge protectors (rounded to the nearest hundred) must Brunei sell at a selling
price of P14 per unit to increase after-tax income by P30,000? (effective income tax rate is
40%)
A. 10,700
C. 20,000
B. 12,100
D. 28,300
19. A manufacturer produces a product that sells for P10 per unit. Variable costs per unit are P6
and total fixed costs are P12,000. At this selling price, the company earns a profit equal to
10% of total peso sales. By reducing its selling price to P9 per unit, the manufacturer can
increase its unit sales volume by 25%. Assume that there are no taxes and that total fixed
costs and variable costs per unit remain unchanged. If the selling price were reduced to P9
per unit, the profit would be
A. P3,000
C. P5,000
B. P4,000
D. P6,000
20. Last year, the marginal contribution rate of Lamesa Company was 30%. This year, fixed costs
are expected to be P120,000, the same as last year, and sales are forecasted at P550,000 a
10% increase over last year. For the company to increase income by P15,000 in the coming
year, the marginal contribution margin rate must be
A. 20%
C. 40%
B. 30%
D. 70%
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21. Wilson Co. prepared the following preliminary forecast concerning product G for next year
assuming no expenditure for advertising:
Selling price per unit
P
10
Units sales
100,000
Variable costs
P600,000
Fixed costs
P300,000
Based on a market study in December of this year, Wilson estimated that it could increase the
unit selling price by 15% and increase the unit sales volume by 10% if P100,000 were spent
on advertising. Assuming that Wilson incorporates these changes in its forecast, what should
be the operating income from product G?
A. P175,000
C. P205,000
B. P190,000
D. P365,000
22. Shoes, Unlimited operates a chain of shoe stores around the country. The stores carry many
styles of shoes that are all sold at the same price. To encourage sales personnel to be
aggressive in their sales efforts, the company pays a substantial sales commission on each
pair of shoes sold. Sales personnel also receive a small basic salary.
The following cost and revenue data relate to Store 21 and are typical of the companys many
sales outlets:
Selling price
P 800
Variable expenses:
Invoice costs
P360
Sales commission
140
500
Fixed expenses per year:
Rent
P1,600,000
Advertising
3,000,000
Salaries
1,400,000
Total
P6,000,000
The company is considering paying the store manager a P60 commission on each pair of
shoes sold in excess of break-even point. If this change were made, what will be the stores
before tax profit or loss assuming 23,500 pairs of shoes are sold in a year?
A. P(360,000)
C. P840,000
B. P2,930,000
D. P1,330,000

May 9, 2004

Pre-week Quizzer

23. BE&H Co. is considering dropping a product. Variable costs are $6.00 per unit. Fixed
overhead costs, exclusive of depreciation, have been allocated at a rate of $3.50 per unit and
will continue whether or not production ceases. Depreciation on the equipment is P20,000 a
year. If production is stopped, the equipment can be sold for P18,000, if production continues,
however, it will be useless at the end of 1 year and will have no salvage value. The selling
price is P10 a unit. Ignoring taxes, the minimum units to be sold in the current year to break
even on a cash flow basis is
A. 4,500 units
C. 1,800 units
B. 5,000 units
D. 36,000 units
Questions 24 through 28 are based on the Statement of Income of Davao, Inc. which represents
the operating results for the current fiscal year ending December 31. Davao had sales of 1,800
tons of product during the current year. The manufacturing capacity of Davaos facilities is 3,000
tons of product. Consider each questions situation separately.
Sales
Variable costs
Manufacturing
Selling costs
Total variable costs
Contribution margin
Fixed costs
Manufacturing
Selling
Administration
Total fixed costs
Net income before income taxes
Income taxes (40%)
Net income after income taxes

P900,000
P315,000
180,000
495,000
P405,000
P 90,000
112,500
45,000
247,500
P157,500
(63,000)
P 94,500

24. The breakeven volume in tons of product for the year is

A. 420
C. 1,100
B. 495
D. 550
25. 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 next year, the after-tax net income that Davao can expect
for the next year is
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A. P135,000
B. P283,500

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C. P110,25
D. P184,500

26. Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton.
Assume that all of Davaos costs would be at the same levels and rates as last year. What net
income after taxes would Davao make if it took this order and rejected some business from
regular customers so as not to exceed capacity?
A. P297,500
C. P252,000
B. P211,500
D. P256,500

B. 273.33

Pre-week Quizzer
D. 1,545

28. Without prejudice to preceding questions, assume that Davao estimates that the per ton
selling price will decline 10% next year. Variable costs will increase P40 per ton and the fixed
costs will not change. What sales volume in pesos will be required to earn an after-tax net
income of P94,500 next year?
A. P1,140,000
C. P825,000
B. P1,500,000
D. P1,350,000

27. Without prejudice to your answers to previous questions, and assume that Davao plans to
market its product in an new territory. Davao estimates that an advertising and promotion
program costing P61,500 annually would need to be undertaken for the next two or three
years. In addition , a P25 per ton sales commission over and above the current commission to
the sales force in the new territory would be required. How many tons would have to be sold
in the new territory to maintain Davaos current after-tax income of P94,500?
A. 307.5
C. 1,095

May 9, 2004

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