Cost Volume Profit Analysis

Cost-Volume-Profit Analysis
MODULE 4 7. Which of the factors is (are) involved in studying cost-volume-profit relationships?

COST-VOLUME-PROFIT ANALYSIS A. Levels of production C. Fixed costs
B. Variable costs D. All of these Bobadilla
THEORIES:
1. To which function of management is CVP analysis most applicable? 8. At the breakeven point, fixed cost is always
A. Planning C. Directing A. Less than the contribution margin C. More than the contribution margin
B. Organizing D. Controlling Bobadilla B. Equal to the contribution margin. D. More than the variable cost Bobadilla
2. The systematic examination of the relationships among selling prices, volume of sales and 9. At the break-even point:
production, costs, and profits is termed: A. net income will increase by the unit contribution margin for each additional item sold
A. contribution margin analysis C. budgetary analysis above break-even.
B. cost-volume-profit analysis D. gross profit analysis Bobadilla B. the total contribution margin changes from negative to positive
C. fixed costs are greater than contribution margin
3. The term contribution margin is best defined as the: D. the contribution margin ratio begins to increase Bobadilla
A. difference between fixed costs and variable costs.
B. difference between revenue and fixed costs. 10. In cost-volume-profit analysis, the greatest profit will be earned at
C. amount available to cover fixed costs and profit. A. One hundred percent at normal productive capacity.
D. amount available to cover variable costs. Bobadilla B. The production point with the lowest marginal cost.
C. The production point at which average total revenue exceeds average marginal cost.
4. Cost-volume-profit analysis allows management to determine the relative profitability of a D. The point at which marginal cost and marginal revenue are equal. Bobadilla
product by
A. Highlighting potential bottlenecks in the production process. 11. Which of the following is not an assumption underlying C-V-P analysis?
B. Determining the contribution margin per unit and projected profits at various levels of A. The behavior of total revenue is linear.
production. B. Unit variable expenses remain unchanged as activity varies.
C. Assigning costs to a product in a manner that maximizes the contribution margin. C. Inventory levels at the beginning and end of the period are the same.
D. Keeping fixed costs to an absolute minimum. Bobadilla D. The number of units produced exceeds the number of units sold. Bobadilla
5. Cost-volume-profit analysis cannot be used if which of the following occurs? 12. Which of the following assumptions is inherent to C-V-P analysis?
A. Costs cannot be properly classified into fixed and variable costs. A. In manufacturing firms, the beginning and ending inventory levels are the same.
B. The per unit variable costs change. B. In a multi-product organization, the sales mix varies over time.
C. The total fixed costs change. C. The behavior of total revenue is curvilinear.
D. Per unit sales prices change. Bobadilla D. he relevant range is not a consideration. Bobadilla
6. The most useful information derived from a breakeven chart is the 13. Which of the following assumptions is closely relevant to cost-volume-profit analysis?
A. Amount of sales revenue needed to cover enterprise variable costs. A. for multiple product analysis, the sales mix is not important
B. Amount of sales revenue needed to cover enterprise fixed costs. B. inventory levels remain unchanged
C. Relationship among revenues, variable costs, and fixed costs at various levels of activity. C. total fixed costs and unit variable costs can be identified and remain constant over the
D. Volume or output level at which the enterprise breaks even. Bobadilla relevant range
D. B and C Bobadilla
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20. As projected net income increases the
14. Advocates of cost-volume-profit analysis argue that: A. degree of operating leverage declines. C. break-even point goes down. Bobadilla
A. Fixed costs are irrelevant for decision making. B. margin of safety stays constant. D. contribution margin ratio goes up.
B. Fixed costs are mandatory for CVP decision making.
C. Differentiation between the patterns of variable costs and fixed costs is critical. 21. Given the following notations, what is the breakeven sales level in units?
D. Fixed costs are necessary to calculate inventory valuations. Bobadilla SP = selling price per unit
FC = total fixed cost
15. With respect to fixed costs, C-V-P analysis assumes total fixed costs VC = variable cost per unit
A. per unit remains constant as volume changes A. SP / (FC/VC) C. VC/(SP – FC)
B. remain constant from one period to the next B. FC/(VC/SP) D. FC/(SP – VC) Bobadilla
C. vary directly with volume
D. remain constant across changes in volume Bobadilla 22. A company increased the selling price for its product from P1.00 to P1.10 a unit when total
fixed costs increased from P400,000 to P480,000 and variable cost per unit remained
16. The CVP model assumes that over the relevant range of activity: unchanged. How would these changes affect the breakeven point?
A. only revenues are linear. C. unit variable cost is not constant. Bobadilla A. The breakeven point in units would be increased.
B. total fixed cost changes. D. revenues and total costs are linear. B. The breakeven point in units would be decreased.
C. The breakeven point in units would remain unchanged.
17. Which of the following is not a limiting factor of Cost-Volume-Profit analysis? D. The effect cannot be determined from the information given. Bobadilla
A. The process assumes a linear relationship among the variables.
B. The process assumes variable costs per unit are available. 23. On January 1, 2007, Incremental Company increased its direct labor wage rates. All other
C. Efficiency is assumed to be constant. budgeted costs and revenues were unchanged. How did this increase affect Incremental
D. Inventory levels are assumed to not change. Bobadilla Company’s budgeted break-even point and budgeted margin of safety?
Bobadilla A. B. C. D.
18. Cost-volume-profit analysis is a technique available to management to understand better the Budgeted Break-even Point Increase Increase Decrease Decrease
interrelationships of several factors that affect a firm's profit. As with many such techniques, Expected Margin of Safety Increase Decrease Decrease Increase
the accountant oversimplifies the real world by making assumptions. Which of the following is
not a major assumption underlying CVP analysis? 24. As the variable cost increases but the selling price remains constant, the
A. All costs incurred by a firm can be separated into their fixed and variable components. A. Degree of operating leverage declines C. Breakeven point goes down Bobadilla
B. The product’s selling price per unit is constant at all volume levels within a relevant range. B. Margin of safety stays constant D. Contribution margin ratio goes up
C. Operating efficiency and employee productivity is constant at all volume levels.
D. For multi-product situations, the sales mix can vary at different volume levels. Bobadilla 25. A very high degree of operating leverage (DOL) indicates that a firm:
A. has high fixed costs. C. has high variable costs. Bobadilla
19. Pines Company has a higher degree of operating leverage than Tagaytay Company. Which of B. has a high net income. D. is operating close to its breakeven point.
the following is true?
A. Pines has higher variable expense. 26. With the aid of computer software, managers can vary assumptions regarding selling prices,
B. Pines is more profitable than Tagaytay Company’s. costs, and volume and can immediately see the effects of each change on the break-even
C. Pines is more risky than Tagaytay is. point and profit. Such an analysis is called
D. Pines' profits are less sensitive to percentage changes in sales. Bobadilla A. “What if” or sensitivity analysis. C. Computer aided analysis.
B. Vary the data analysis. D. Data gathering. Bobadilla
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27. If a company raises its target peso profit, its 32. On a cost-volume-profit chart (break-even graph), where are the total fixed costs shown?
A. break-even point rises. A. As the point where the sales line intersects the vertical axis (pesos)
B. fixed costs increase. B. As the point where the sales line crosses the total cost line
C. required total contribution margin increases. C. As the point where the sales line crosses the horizontal axis (volume)
D. selling price rises. Bobadilla D. As the point where the total cost line intersects the vertical axis (pesos) Bobadilla
28. Broadway Company sells three products: A, B and C. Product A's unit contribution margin is 33. When using conventional cost-volume-profit analysis, some assumptions about costs and
higher than Product B's which is higher than Products C's. Which one of the following events sales prices are made. Which of the following is one of those assumptions?
is most likely to increase the company's overall break-even point? A. The contribution margin will change as volume increases
A. The installation of new automated equipment and subsequent lay-off of factory workers. B. The variable cost per unit will decrease as volume increases
B. A decrease in Product C's selling price. C. The sales price per unit will remain constant as volume increases
C. An increase in the overall market demand for Product B. D. Fixed cost per unit will remain the same as volume increases Bobadilla
D. A change in the relative market demand for the products, with the increase favoring
Product A relative to Product B and Product C. Bobadilla 34. Classifying a cost as fixed or variable depends on how it behaves
A. per unit, as the volume of activity changes.
29. Which of the following is not a benefit of using sensitivity analysis? B. in total, as the volume of activity changes.
A. More people can see the impact of their ideas on the project. C. both A and B are correct.
B. The use of a spreadsheet program increases the accuracy of the projections. D. none of the above. Bobadilla
C. What will happen is not known in advance so a variety of options can be explored prior to
making a decision. 35. A fixed cost is the same percentage of sales in three different months. Which of the following
D. A well-written spreadsheet will allow for a variety of questions to be answered in a is true?
minimal amount of time. Bobadilla A. The company had the same sales in each of those months.
B. The cost is both fixed and variable.
30. A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area of Profitability". Which of C. The company is operating at its break-even point.
the following best explains the difference between the two points on the graph? D. The company is achieving its target level of profit. Bobadilla
A. The area of loss represents the difference between Sales and Variable Cost.
B. The area of loss begins with the concept that fixed costs have to be recovered prior to 36. Per-unit variable cost
sales contributing to profit. A. remains constant within the relevant range.
C. The area of profit represents the difference between Sales and Variable Cost. B. increases as volume increases within the relevant range.
D. The area of profit begins with the concept that no company would have any level of sales C. decreases as volume increases within the relevant range.
below the break-even point. Bobadilla D. decreases if volume increases beyond the relevant range. Bobadilla
31. Which of the following best describes the impact of selling more units? 37. In planning product mix for maximum profit, CVP analysis would stimulate sales of the product
A. The increase in sales volume increases total variable cost. by increasing the:
B. The increase in sales volume means an increase in total fixed cost. A. sales price C. contribution margin
C. The increase in sales increases contribution margin, causing net income to decrease. B. variable cost per unit D. emphasis on customer priority Bobadilla
D. The increase in sales increases contribution margin per unit causing the break-even point
to decrease. Bobadilla 38. A relatively low margin of safety ratio for a product is usually an indication that the product:
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A. is losing money A. the break-even point. C. total variable costs.
B. has a high contribution margin B. contribution margin. D. unit selling price. Bobadilla
C. is riskier than higher margin of safety products
D. is less risky than higher margin of safety products Bobadilla 47. The most likely strategy to reduce the breakeven point would be to
A. Increase both the fixed costs and the contribution margin.
39. Within the relevant range, total revenues and total costs B. Decrease both the fixed costs and the contribution margin.
A. increase, but at a decreasing rate. C. remain constant. C. Decrease the fixed costs and increase the contribution margin.
B. decrease. D. can be graphed as straight lines. Bobadilla D. Increase the fixed costs and decrease the contribution margin. Bobadilla
40. An assumption in a CVP analysis is that a change in costs is caused by a change in 48. The break-even point in total sales decreases when:
A. unit direct material cost C. sales commission per unit Bobadilla A. variable cost increases and sales remain unchanged
B. the number of units D. efficiency due to learning curve effect B. variable cost increases and sales increase
C. fixed cost increases
41. In CVP analysis, when the number of units changes, which one of the following will remain the D. fixed cost decreases Bobadilla
same?
A. Total sales revenues C. Total fixed costs 49. Which of the following best describes the impact of an increase in fixed cost?
B. Total variable costs D. Total contribution margin Bobadilla A. The increase in fixed cost will result in an increase in selling more units.
B. The increase in fixed cost will cause an increase in variable cost.
42. As fixed costs for a firm rise, all other things held constant, the breakeven point will C. The increase in fixed cost causes net income to decrease and the break-even point to
A. be unchanged C. increase decrease.
B. not be affected by fixed costs D. decrease Bobadilla D. The increase in fixed cost causes net income to decrease and the break-even point to
increase. Bobadilla
43. Which of the following would not affect the breakeven point?
A. Number of units sold. C. Total fixed costs. 50. A company’s breakeven point in peso sales may be affected by equal percentage increases in
B. Variable cost per unit. D. Sales price per unit. Bobadilla both selling price and variable cost per unit (assume all other factors are equal within the
relevant range). The equal percentage changes in selling price and variable cost per unit will
44. The margin of safety is a key concept of CVP analysis. The margin of safety is cause the breakeven point in peso sales to
A. The contribution margin rate. A. Decrease by less than the percentage increase in selling price.
B. The difference between budgeted contribution margin and actual contribution margin. B. Decrease by more than the percentage increase in the selling price.
C. The difference between budgeted contribution margin and breakeven contribution margin C. Increase by less than the percentage increase in selling price.
D. The difference between budgeted sales and breakeven sales. Bobadilla D. Remain unchanged. Bobadilla
45. A technique for determining what would happen in a decision analysis if a key prediction or 51. If the fixed costs attendant to a product increase while variable costs and sales price remains
assumption proves to be wrong is called: constant, what will happen to contribution margin (CM) and breakeven point (BEP)?
A. CVP analysis. C. Post-audit analysis. Bobadilla Bobadilla A. B. C. D.
B. Sensitivity analysis. D. Contribution-margin variation analysis. CM Increase Decrease Unchanged Unchanged
BEP Decrease Increase Increase Unchanged
46. An increase in the unit variable cost will generally cause an increase in all of the following
except 52. Which of the following will decrease the breakeven point? Bobadilla
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Decrease in Selling Price Increase in Direct Labor Increase in Fixed Cost 57. Which of the following decreases per-unit contribution margin the most for a company that is
A. YES YES YES currently earning a profit?
B. YES NO YES A. A 10% decrease in selling price. C. A 10% increase in fixed costs. Bobadilla
C. NO NO YES B. A 10% increase in variable cost per unit. D. A 10% increase in fixed cost per unit.
D. NO NO NO
58. If variable cost as a percentage of sales increases, the
53. Which of the following is an incorrect statement? A. contribution margin percentage increases.
A. The contribution income statement that is prepared for internal users is better than the B. selling price increases.
traditional income statement as a management tool to predict the results of increases or C. break-even point in pesos increases.
decreases in sales volume, variable costs, and fixed costs. D. fixed costs decrease. Bobadilla
B. The greater the proportion of fixed costs in a firm's cost structure, the smaller will be the
impact on profit from a given percentage change in sales revenue. 59. Introducing income taxes into cost-volume-profit analysis
C. In an economic recession, the highly automated company with high fixed costs will be A. raises the break-even point.
less able to adapt to lower consumer demand than will a firm with a more labor-intensive B. lowers the break-even point.
production process. C. increases unit sales needed to earn a particular target profit.
D. A major difference between income statements prepared under the traditional format and D. decreases the contribution margin percentage. Bobadilla
those prepared under the contribution format is that expenses under the traditional format
are shown by function, while the expenses shown under the contribution format are 60. If a company is earning a profit, its fixed costs
shown by function and cost behavior. Bobadilla A. are less than total contribution margin.
B. are equal to total contribution margin.
54. If a company is operating at a loss, C. are greater than total variable costs.
A. fixed costs are greater than sales. D. can be greater than or less than total contribution margin. Bobadilla
B. selling price is lower than the variable cost per unit.
C. selling price is less than the average total cost per unit. 61. A cost-volume-profit graph reflects relationships
D. fixed cost per unit is greater than variable cost per unit. Bobadilla A. that are expected to hold over the relevant range.
B. of results over the past few years.
55. As volume increases, average cost per unit C. that the company's managers would like to have happen.
A. increases. D. likely to prevail for the industry. Bobadilla
B. decreases.
C. remains constant. 62. The following diagram is a cost-volume-profit graph for a manufacturing company.
D. increases in proportion to the change in volume. Bobadilla
E
56. If all goes according to plan except that unit variable cost falls,
A. total contribution margin will be lower than expected. P
B. the contribution margin percentage will be lower than expected. C
C. profit will be higher than expected. D
D. per-unit contribution margin will be lower than expected. Bobadilla
A
B
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68. In order for the break-even computation to be meaningful to management, sales mix should be
O computed using the
Volume A. expected mix C. most desirable mix
The difference between line AB and line AC (area BAC) is the B. least desirable mix D. traditional mix Bobadilla
A. contribution ratio. C. total variable cost.
B. contribution margin per unit. D. total fixed cost. Bobadilla 69. Which of the following is a true statement about sales mix?
A. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell
63. Select the answer that best describes the labeled item on the diagram. more of the high contribution margin product.
A. Area CDE represents the area of net loss. B. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell
B. Line AC graphs total fixed costs. more of the lower contribution margin product.
C. Point D represents the point at which the contribution margin per unit increases. C. Profits will remain constant with an increase in total peso of sales if the total sales in units
D. Line AC graphs total costs. Bobadilla remains constant.
D. Profits will remain constant with a decrease in total peso of sales if the sales mix also
64. In a cost-volume-profit graph remains constant. Bobadilla
A. the total revenue line crosses the horizontal axis at the breakeven point. Bobadilla
B. beyond the breakeven sales volume, profits are maximized at the sales volume where
total revenues equal total costs. PROBLEMS:
C. an increase in unit variable costs would decrease the slope of the total cost line. 1. Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the
D. an increase in the unit selling price would shift the breakeven point in units to the left. following monthly costs:
Variable costs P 7,500
65. An increase in the income tax rate Fixed costs 15,000
A. raises the break-even point. What sales price per plant does she need to achieve to begin making a profit if she sells the
B. lowers the break-even point. estimated number of plants per month?
C. decreases sales required to earn a particular after-tax profit. A. P7.51 C. P5.00
D. increases sales required to earn a particular after-tax profit. Bobadilla B. P7.50 D. P2.50 Bobadilla
66. If the sales mix shifts toward higher contribution margin products, the break-even point 2. An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost
A. decreases. of P30 per unit, and total fixed costs of P80,000. If the company sells 500 additional units, by
B. increases. how much will its profit increase?
C. remains constant. A. P25,000 C. P10,000
D. it is impossible to tell without more information. Bobadilla B. P15,000 D. P12,000 Bobadilla
67. Target costing is 3. The Red Lions Brotherhood is planning its annual Riverboat Extravaganza. The Extravaganza
A. a substitute for CVP analysis. committee has assembled the following expected costs for the event:
B. used by companies that cannot classify their costs by behavior. Dinner per person P 70
C. inappropriate if a company has already established a target profit. Programs and souvenir per person 30
D. used in decisions to offer a new product or enter a new market. Bobadilla Orchestra 15,000
Tickets and advertising 7,000
Riverboat rental 48,000
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Floor show and strolling entertainment 10,000
The committee members would like to charge P300 per person for the evening’s activities. 9. The sales price per unit will increase from P32 to P40. The variable cost per unit will remain at
Assume that only 250 persons are expected to attend the extravaganza, what ticket price must P24, and the fixed costs will remain unchanged at P400,000. How many fewer units must be
be charged to breakeven? sold to break-even at the new sales price of P40 per unit?
A. P420 C. P320 A. 25,000 C. 10,000
B. P350 D. P390 Bobadilla B. 2,500 D. 12,500 Bobadilla
4. Consider the following: 10. The Hard Company sells widgets. The company breaks even at an annual sales volume of
Fixed expenses P78,000 80,000 units. At an annual sales volume of 100,000 units the company reports a profit of
Unit contribution margin 12 P220,000. The annual fixed costs for the Hard Company are:
Target net profit 42,000 A. P 880,000 C. P 800,000
How many unit sales are required to earn the target net profit? B. P1,100,000 D. P1,000,000 Bobadilla
A. 15,000 units C. 12,800 units
B. 10,000 units D. 20,000 units Bobadilla 11. Albatross Company has fixed costs of P90,300. At a sales volume of P360,000, return on
sales is 10%; at a P600,000 volume, return on sales is 20%. What is the break-even volume?
5. Carribean Company produces a product that sells for P60. The variable manufacturing costs A. P225,000 C. P301,000
are P30 per unit. The fixed manufacturing cost is P10 per unit based on the current level of B. P258,000 D. P240,000 Bobadilla
activity, and fixed selling and administrative costs are P8 per unit. A selling commission of
10% of the selling price is paid on each unit sold. 12. An entity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling
The contribution margin per unit is: 40,000 units in the coming year. If the entity pays income taxes on its income at a rate of
A. P24. C. P30. 40%, what sales price must the firm use to obtain an after-tax profit of P24,000 on the 40,000
B. P36. D. P54. Bobadilla units?
A. P11.60 C. P12.00
6. Seal Yard Ornaments sells lawn ornaments for P15 each. Seal's contribution margin ratio is B. P11.36 D. P12.50 Bobadilla
40%. Fixed costs are P32,000. Should fixed costs increase 30%, how many additional units
will Seal have to produce and sell in order to generate the same net profit as under the current 13. The following is the Lux Corporation's contribution format income statement for last month:
conditions? Sales P2,000,000
A. 1,600. C. 6,933. Less variable expenses 1,400,000
B. 5,333. D. 1,067. Bobadilla Contribution margin 600,000
Less fixed expenses 360,000
7. At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed Net income P 240,000
expenses were P50,000. The profit from the 5,001st unit would be? The company has no beginning or ending inventories. A total of 40,000 units were produced
A. P10 C. P15 and sold last month. What is the company's degree of operating leverage?
B. P50 D. P12 Bobadilla A. 0.12 C. 2.50
B. 0.40 D. 3.30 Bobadilla
8. Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on
this relationship, what is its projected profit at P1,200,000 sales? 14. Delmar Company has the opportunity to increase its annual sales by P125,000 by selling to a
A. P 50,000 C. P150,000 new, riskier group of customers. The uncollectible expense is expected to be 10%, and
B. P200,000 D. P400,000 Bobadilla collection costs will be 10%. The company’s manufacturing and selling expenses are 70% of
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sales, and its effective tax rate is 40%. If Delmar were to accept this opportunity, the
company’s after tax profits would increase by 20. The following economic data were provided by the corporate planning staff of Heaven, Inc.:
A. P 7,500 C. P12,500 Sales volume 30,000 units
B. P 6,000 D. P15,000 Bobadilla Sales price per unit P30
Unit variable costs:
15. In 2006 Lucia Company had a net loss of P8,000. The company sells one product with a Variable manufacturing P13
selling price of P80 and a variable cost per unit of P60. In 2007, the company would like to Other variable costs 8
earn a before-tax profit of P40,000. How many additional units must the company sell in 2007 Unit variable costs P21
than it sold in 2006? Assume that the tax rate is 40 percent. Unit contribution margin P 8
A. 1,600 C. 2,000
B. 2,400 D. 5,400 Bobadilla Fixed costs:
Manufacturing P150,000
16. Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of Other fixed costs P 50,000
P120,000, and an operating loss of P20,000. How much increase in sales would Bulusan Total fixed costs P200,000
need to make in order to achieve a target operating income of 10% of sales? The management is considering installing a new, automated manufacturing process that will
A. P400,000 C. P500,000 increase fixed costs by P50,000 and reduce variable manufacturing cost by P3 per unit. The
B. P462,000 D. P800,000 Bobadilla management set a target a profit of P70,000 before and after the acquisition of the automated
machine. After installation of the automated machine, what will be the change in the units
17. The following data apply to Diva Corporation for the year 2006: required to achieve the target profit?
Total variable cost per unit P3.50 A. 6,667 unit increase C. 3,333 unit decrease
Contribution margin/sales 30% B. 5,667 unit decrease D. 4,333 unit decrease Bobadilla
Breakeven sales (present volume) P1,000,000
Diva wants to sell an additional 50,000 units at the same selling price and contribution margin 21. In planning its operations for next year based on a sales forecast of P6,000,000, Herran, Inc.
per unit. By how much can fixed costs increase to generate a gross margin equal to 10% of prepared the following estimated costs and expenses:
the sales value of the additional 50,000 units to be sold? Variable Fixed
A. P 50,000 C. P 67,500 Direct materials P1,600,000
B. P 57,500 D. P125,000 Bobadilla Direct labor 1,400,000
Factory overhead 600,000 P 900,000
18. Marsman Company had a margin of safety ratio of 20%, variable costs of 60% of sales, fixed Selling expenses 240,000 360,000
costs of P240,000, a break-even point of P600,000, and an operating income of P60,000 for Administrative expenses 60,000 140,000
the current year. What are the current year's sales? P3,900,000 P1,400,000
A. P 500,000 C. P 750,000 What would be the amount of peso sales at the breakeven point?
B. P 600,000 D. P 900,000 Bobadilla A. P2,250,000. C. P4,000,000.
B. P3,500,000. D. P5,300,000. Bobadilla
19. Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the variable
costs are 60% of the selling price. What would be the amount of sales if Regal is to realize a 22. The Expressive Company currently has fixed cost of P770,500. This cost is expected to
profit of 10% of sales? increase by P103,500 if the company expands its production facilities. Currently, it sells its
A. P700,000 C. P525,000 product for P47. The product has a variable cost per unit of P24. How many more units must
B. P472,500 D. P420,000 Bobadilla the company sell to break even, at the current sales price per unit, than it did to break even
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prior to the increase in fixed cost? Net sales P400,000
A. 3,500 C. 4,500 Contribution margin 160,000
B. 4,000 D. 6,000 Bobadilla Margin of safety 40,000
What is Mercado’s breakeven point in 2007?
23. The Tanker Company estimated the following data for the coming year: A. P360,000 C. P320,000
Fixed manufacturing costs P565,000 B. P288,000 D. P 80,000 Bobadilla
Variable production costs per peso of sales
Materials P 0.125 27. Marquez Co. manufactures a single product. For 2006, the company had sales of P90,000,
Direct labor 0.150 variable costs of P50,000, and fixed costs of P30,000. Marquez expects its cost structure and
Variable overhead 0.075 sales price per unit to remain the same in 2007; however total sales are expected to jump by
Variable selling costs per peso of sales 0.150 20%. If the 2007 projections are realized, net income in 2007 should exceed net income in
Tanker estimates its sales for the coming year to be P2,000,000. 2006 by
A. 100% C. 20%
The expected cost of goods sold for the coming year is B. 80% D. 50% Bobadilla
A. P1,265,000 C. P1,565,000
B. P1,115,000 D. P 700,000 Bobadilla 28. Below is the income statement for Harpo Co. for 2006:
Sales P400,000
24. At a sales volume level of 2,250 units, Baluarte Company’s contribution margin is one and one- Variable costs ( 125,000)
half of the fixed costs of P36,000. Contribution margin is 30% How much peso sales should Contribution margin P275,000
the Baluarte Company sell to earn 10 percent of sales? Fixed costs ( 200,000)
A. P270,000 C. P360,000 Profit before tax P 75,000
B. P180,000 D. P540,000 Bobadilla Assuming that the fixed costs are expected to remain at P200,000 for 2007, and the sales
price per unit and variable cost per unit are also expected to remain constant, how much profit
25. The Alpine Company’s year-end income statement is as follows: before tax will be produced if the company anticipates 2007 sales rising to 130% of the 2006
Sales (20,000 units) P360,000 level?
Variable costs 220,000 A. P 97,500 C. P195,000
Contribution margin P140,000 B. P157,500 D. P180,000 Bobadilla
Fixed costs 105,000
Net income P 35,000 29. Almos Corporation produces a product that sells for P10 per unit. The variable cost per unit is
Alpine’s management is unhappy with the results and plans to make some changes for next P6 and total fixed costs are P12,000. At this selling price, the company earns a profit equal to
year. If management implements a new marketing program, fixed costs are expected to 10% of total peso sales. By reducing its selling price to P9 per unit, the manufacturer can
increase by P19,200 and variable costs to increase by P1 per unit. Unit sales are expected to increase its unit sales volume by 25%. Assume that there are no taxes and that total fixed
increase by 15 percent. costs and variable cost per unit remain unchanged. If the selling price were reduced to P9 per
unit, the company’s profit would have been
What is the effect on income if the foregoing changes are implemented? A. P3,000. C. P5,000.
A. decrease of P21,200 C. increase of P 1,800 B. P4,000. D. P6,000. Bobadilla
B. increase of P13,800 D. increase of P14,800 Bobadilla
30. Information concerning the 2007 financial projections of the Silver Company is as follows:
26. Mercado, Inc. had the following economic data for 2007: Net sales of P3,000,000.
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Fixed costs of P800,000. 35. A firm has fixed costs of P200,000 and variable cost per unit of P6. It plans to sell 40,000
P0.65 increase in cost of sales for each peso increase in net sales. units in the coming year. If the firm pays income taxes on its income at a rate of 40%, what
What is the projected cost of sales for 2007? sales price must the firm use to obtain an after-tax profit of P24,000?
A. P 950,000 C. P1,050,000 A. P11.60 C. P11.36
B. P2,750,000 D. P1,850,000 Bobadilla B. P12.00 D. P12.50 Bobadilla
31. The Childless Company sells widgets. The company breaks even at an annual sales volume
of 75,000 units. 36. Below is the income statement for Blender Co. for 2007:
Sales P400,000
Actual annual sales volume was 100,000 units, and the company reported a profit of Variable costs (125,000)
P200,000. The annual fixed costs for the Childless Company are Contribution margin P275,000
A. P800,000 C. P200,000 Fixed costs ( 200,000)
B. P600,000 D. P150,000 Bobadilla Profit before tax P 75,000
What is the degree of operating leverage for Blender Company for 2007?
32. The costs to produce 24,000 units at 70% capacity are: A. 3.67 C. 5.33
Direct materials P36,000 B. 1.45 D. 1.67 Bobadilla
Direct labor 54,000
Factory overhead, all fixed 29,000 37. Food Factory, Inc. sells loose biscuits for P5 per unit. The fixed costs are P210,000 and the
Selling expense (35% variable, 65% fixed) 24,000 variable costs are 45% of the selling price. What would be the amount of sales if Food
What unit price would the company have to charge to make P2,250 on a sale of 1,500 Factory, Inc. were to realize a profit of 15% of sales?
additional units that would be shipped out of the normal market area? A. P700,000 C. P525,000
A. P5.10 C. P4.10 B. P472,500 D. P420,000 Bobadilla
B. P5.60 D. P5.00 Bobadilla
38. The Opposition Sales Corporation is expecting an increase of fixed costs by P78,750 upon
33. The Mandarin Company's product mix includes P720,000 in sale of X and P640,000 in sale of moving their place of business to the downtown area. The company anticipates that the
Y. X's contribution margin is 60% and Y's is 40% of sales. Fixed costs amount to P505,881. selling price per unit and the variable expenses will not change. At present, the sales volume
Y's sale at breakeven point should amount to necessary to breakeven is P750,000 but with the expected increase in fixed costs, the sales
A. P640,000 C. P529,490 volume necessary to breakeven would go up to P975,000.
B. P720,000 D. P470,590 Bobadilla
Based on these projections, what were the total fixed costs before the increase of P78,750?
34. Levi’s Company has revenues of P500,000, variable costs of P300,000, and pretax profit of A. P341,250 C. P183,750
P150,000. Had the company increased the sales price per unit by 10%, reduced fixed costs B. P262,500 D. P300,000 Bobadilla
by 20%, and left variable cost per unit unchanged, what would the new breakeven point in
pesos have been? 39. At 40,000 units of sales, Benevolent Corporation had an operating loss of P3.00 per unit.
A. P 88,000 C. P100,000 When sales were 70,000 units, the company had a profit of P1.20 per unit. The number of
B. P 80,000 D. P125,000 Bobadilla units to breakeven is
A. 35,000 C. 45,000
B. 52,500 D. 57,647 Bobadilla
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40. The following information pertains to Hennin Corporation for the year ending December 31, 43. Menor Company sells two products with the following per unit data:
2006: Standard Deluxe
Budgeted sales P1,000,000 Selling price/unit P75 P120
Breakeven sales 700,000 Variable costs/unit 45 60
Budgeted contribution margin 600,000 Contribution margin/unit P30 P 60
Cashflow breakeven 200,000 Sales mix 3 2
The margin of safety for the Hennin Corporation is: If fixed costs are P630,000, the number of standard and deluxe units that Menor must sell to
A. P300,000 C. P500,000 break even is Bobadilla
B. P400,000 D. P800,000 Bobadilla A. 1,800 standard and 1,200 deluxe. C. 9,000 standard and 6,000 deluxe.
B. 3,600 standard and 2,400 deluxe. D. 21,000 standard and 14,000 deluxe.
41. Balboa, Inc. had the following economic information for the year 2006:
Sales (50,000 units @ P20) P1,000,000 44. The following are projections about the two products of Dorine Company, baubles and trinkets,
Variable manufacturing costs 400,000 for the coming year:
Fixed costs 250,000 Baubles Trinkets
Income tax rate 40 percent Units Amount Units Amount Total
Balboa, Inc. budgets its 2007 sales at 60,000 units or P1,200,000. The company anticipates Sales 10,000 P10,000 7,500 P10,000 P20,000
an increased competition; hence, an additional P75,000 advertising costs is budgeted in order Costs
to maintain its sales target for 2007. Fixed P 2,000 P 5,600 P 7,600
Variable 6,000 3,000 9,000
What is the amount of peso sales needed for 2007 in order to equal the after-tax income in P 8,000 P 8,600 P16,600
2006? Income before taxes P 2,000 P 1,400 P 3,400
A. P1,125,000 C. P1,325,000 Assuming that the customers purchase composite units of four baubles and three trinkets, the
B. P1,187,500 D. P1,387,500 Bobadilla breakeven output for the two products would be
Bobadilla A. B. C. D.
42. Mauresmo Company developed the following information for the year ended December 31,
Baubles 6,909 6,909 5,000 5,000
2007:
Trinkets 6,909 5,182 8,000 6,000
Product A Product B Total
Units Sold 4,000 6,000 10,000
45. The sales mix for Dial Enterprise is as follows:
Product A: 12 units @ P5.25 sales price; P4.85 variable cost per unit.
Sales P12,000 P27,000 P39,000
Product B: 10 units @ P7.50 sales price; P6.95 variable cost per unit.
Variable costs 6,000 15,000 21,000
Product C: 6 units @ P12.25 sales price; P10.35 variable cost per unit.
Contribution margin P 6,000 P12,000 18,000
Fixed costs 12,600
Dial Enterprise's fixed costs are P75,950.
Net income P 5,400
If the sales mix changes to 5,000 units of Product A and 5,000 units of Product B, the effect on What are the composite break-even point?
the company’s break-even point would be A. 98,000 C. 3,500
A. to increase it by 200 units. C. to increase it by 1,200 units. B. 2,000 D. 4,000 Bobadilla
B. to decrease it by 200 units. D. no change. Bobadilla
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46. Alexandra Co. provides two products, Velvet and Cotton. Velvet accounts for 60 percent of A. P 72,000 C. P 80,000
total sales. The variable costs as a percentage of selling prices are 60% for Velvet and 85% B. P288,000 D. P320,000 Bobadilla
for Cotton. Total fixed costs are P225,000.
51. Glareless Company manufactures and sells sunglasses. The price and cost data are as
If fixed costs will increase by 30 percent, what amount of peso sales would be necessary to follows:
generate an operating profit of P48,000? Selling price per pair of Sunglasses P25.00
A. P1,350,000 C. P1,135,000 Variable costs per pair of sunglasses:
B. P 486,425 D. P 910,000 Bobadilla Raw materials P11.00
Direct labor 5.00
47. Last month, Zamora Company had an income of P0.75 per unit with sales of 60,000 units. Manufacturing overhead 2.50
During the current month when the unit sales are expected to be only 45,000, there is a loss of Selling expenses 1.30
P1.25 per unit. Both the variable cost per unit and total fixed costs remain constant. Total variable costs per unit P19.80
Annual fixed costs:
The fixed costs amounted to Manufacturing overhead P192,000
A. P 80,000 C. P360,000 Selling and administrative 276,000
B. P247,500 D. P210,000 Bobadilla Total fixed costs P468,000
Forecasted annual sales volume (120,000 pairs) P3,000,000
48. Bytes Company is a retailer of video disks. The projected after-tax income for the current year Income tax rate 40%
is P120,000 based on a sales volume of 200,000 video disks. Bytes has been selling the Glareless Company estimates that its direct labor costs will increase 8 percent next year. How
disks at P16 each. The variable costs consist of the P10 per unit purchase price of the disks many units will Glareless have to sell next year to reach breakeven?
and a handling cost of P2 per disk. Bytes’ annual fixed costs are P600,000, and Bytes is A. 97,500 units C. 101,740 units
subject to a 40% income tax rate. Management is planning for the coming year when it B. 83,572 units D. 86,250 units Bobadilla
expects that the unit purchase price of the video disks will increase 30%.
52. Santos Company is planning its advertising campaign for next year and has prepared the
Bytes Company’s breakeven point for the current year in number of video disks is following budget data based on a zero advertising expenditure:
A. 100,000 units C. 50,000 units Normal plant capacity 200,000 units
B. 150,000 units D. 60,000 units Bobadilla Sales 150,000 units
Selling price P25 per unit
49. Alonzo Corporation had sales of P120,000 for the month of May. It has a margin of safety Variable manufacturing costs P15 per unit
ratio of 25 percent, and an after-tax return on sales of 6 percent. The company assumes its Fixed manufacturing costs P800,000
sales being constant every month. If the tax rate is 40 percent, how much is the annual fixed Fixed selling costs P700,000
cost? An advertising agency claims that an aggressive advertising campaign would enable Santos to
A. P 36,000 C. P 90,000 increase its unit sales by 20%. What is the maximum amount that Santos Company can pay
B. P432,000 D. P360,000 Bobadilla for advertising and have an operating profit of P200,000 next year?
A. P100,000 C. P300,000
50. Cultured Company is a manufacturer of its only one product line. It had sales of P400,000 for B. P200,000 D. P550,000 Bobadilla
2007 with a contribution margin ratio of 20 percent. Its margin of safety ratio was 10 percent.
53. Adventurous Co. is considering dropping a product. Variable costs are P60.00 per unit. Fixed
What are the company’s fixed costs? overhead costs, exclusive of depreciation, have been allocated at a rate of P3.50 per unit and
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will continue whether or not production ceases. Depreciation on the equipment is P60,000 a Plastic Frames Glass Frames
year. If production is stopped, the equipment can be sold for P270,000, if production Sales price P10.00 P15.00
continues, however, it will be useless at the end of 1 year and will have no salvage value. The Direct materials ( 2.00) ( 3.00)
selling price is P100 a unit. Ignoring taxes, the minimum number of units to be sold in the Direct labor ( 3.00) ( 5.00)
current year to break even on a cash flow basis is Fixed overhead ( 3.00) ( 2.75)
A. 1,500 units. C. 8,250 units. Net income per unit P 2.00 P 4.25
B. 6,750 units. D. 9,750 units Bobadilla Budgeted unit sales 100,000 300,000
The budgeted unit sales equal the current unit demand, and total fixed overhead for the year
54. Pansipit Company had a 25 percent margin of safety. Its after-tax return on sales is 6 percent. is budgeted at P975,000. Assume that the company plans to maintain the same proportional
The company’s income is subject to tax rate of 40 percent. If fixed costs amount to P320,000, mix.
how much peso sales did Pansipit make for the year?
A. P1,066,667 C. P1,280,000 The total number of units that MultiFrame needs to produce and sell in order to break even is
B. P1,000,000 D. P 800,000 Bobadilla A. 150,000 units C. 153,947 units
B. 100,000 units D. 300,000 units Bobadilla
55. The management of Mesa Company has performed cost studies and has projected the
following annual costs based on 60,000 units of production and sales: 58. During 2006, St. Paul Lab supplied hospitals with a comprehensive diagnostic kit for P120. At
Total Annual Costs Percent of Variable Portion of Total Annual Costs a volume of 80,000 kits, St. Paul had fixed costs of P1,000,000 and operating income before
Direct material P600,000 100 income taxes of P200,000. Because of an adverse legal decision, St. Paul’s 2007 liability
Direct labor 720,000 80 insurance increased by P1,200,000 over 2006. Assuming the volume and other costs are
Mfg. Overhead 400,000 50 unchanged, what should the 2007 price be if St. Paul is to make the same P200,000 operating
Selling costs 192,500 25 income before income taxes?
What selling price will yield a 15 percent profit from sales of 60,000 units? A. P120 C. P150
A. P41.67 C. P27.30 B. P135 D. P240 Bobadilla
59. The following data relate to Herbert Company which sells a single product:
56. The following data relate to Harvester Company which sells a single product: Unit selling price P 20.00
Unit selling price P 80.00 Purchase cost per unit 11.00
Purchase cost per unit 55.00 Sales commission, 10% of selling price 2.00
Sales commission 15 % of selling price 12.00 Monthly fixed costs P80,000
Monthly fixed costs P180,000 The firm’s salespersons would like to change their compensation from a 10 percent
The firm’s two salespersons would like to change their compensation from a 15 percent commission to a 5 percent commission plus P20,000 per month in salary. Currently, they only
commission to a 7.5 percent commission plus P15,000 each per month in fixed salary. receive commissions as their compensation.
Currently, they only receive commissions as their compensation.
The change in compensation plan should change the monthly breakeven point by
At what sales volume in units would the two cost structures be indifferent? A. 1,071 Increase C. 1,538 Increase
A. 2,500 units C. 4,000 units B. 1,071 Decrease D. 1,538 Decrease Bobadilla
B. 3,000 units D. 5,000 units Bobadilla
60. The manager of Naughty Food Company reviewed the following data:
57. MultiFrame Company has the following revenue and cost budgets for the two products it sells: Fruits Meat Canned Products
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Contribution margin ratio 40% 50% 40% B. P 8.25 D. P 9.75 Bobadilla
Sales mix in pesos 20% 30% 50%
Fixed costs, P1,290,000 per month. 64. During the month of June, Armani Corporation produced 12,000 units and sold them for P20
The breakeven sales for each month is per unit. Total fixed costs for the period were P154,000, and the operating profit was P26,000.
A. P1,677,000 C. P4,500,000 The variable cost per unit for June was
B. P3,000,000 D. P6,000,000 Bobadilla A. P4.50 C. P6.00
61. The Oregano Watch Company manufactures a line of ladies’ watches which are sold through
discount houses. Each watch is sold for P1,500; the fixed costs are P3,600,000 for 30,000 65. Stone Company plans to sell 400,000 laundry hangers. The fixed costs are P600,000, and the
watches or less; variable cost is P900 per watch. variable cost is 60% of the selling price. If the company wants to realize a profit of P120,000,
the selling price of each laundry hanger must be
What is Oregano’s degree of operating leverage at sales of 12,000 watches? A. P2.50 C. P4.50
A. 2.0X C. 0.5X B. P3.75 D. P5.00 Bobadilla
B. 5.0X D. 0.2X Bobadilla
66. The unit contribution margin of Product A is P20 and of Product B is P16. If six units of
62. Duke, Inc. owns and operates a chain of food centers. The management is considering Product A and eight units of Product B can be produced per machine hour, the contribution
installing machines that will make popcorn on the premises. These machines are available in margin of the products per machine hour is Bobadilla
two different sizes with the following details: A. Product A, P160; Product B, P96 C. Product A, P3.33; Product B, P2.00
Economy Regular B. Product A, P120; Product B, P128 D. Product A, P32.00; Product B, P30.00
Annual capacity 20,000 50,000
Costs: Annual machine rental P60,000.00 P82,500.00 67. The Bittersweet Company is a wholesale distributor of candy. The company services various
Popcorn cost per box 3.90 3.90 grocery, convenience, and drug stores in Metro Manila. Small, but steady growth in sales, has
Cost of each box 0.80 0.80 been achieved by the company over the past few years while candy prices have been
Other variable cost per box 6.60 4.20 increasing. The company is formulating its plans for the coming fiscal year. Presented below
The level of output in boxes at which the Economy and the Regular would earn the same profit are the data used to project the current year’s after-tax net income of P110,400.
(loss) is Average selling price P4.00 per box
A. 20,000 boxes C. 15,000 boxes Average variable costs
B. 9,375 boxes D. 12,500 boxes Bobadilla Cost of candy P2.00 per box
Selling expenses 0.40 per box
63. The Harper Corporation manufactures and sells T-shirts imprinted with college names and Total P2.40 per box
slogans. Last year, the shirts sold for P7.50 each, and the variable cost to manufacture them
was P2.25 per unit. The company needed to sell 20,000 shirts to break even. The net income Annual fixed costs:
last year was P5,040. Harper’s expectations for the coming year include the following: Selling P 169,000
1. The sales price of the T-shirts will be P9 Administrative 280,000
2. Variable cost to manufacture will increase by one-third Total P 440,000
3. Fixed costs will increase by 10% Expected annual sales volume (390,000 boxes) P1,560,000
4. The income tax rate of 40% will be unchanged The manufacturers of candies have announced that they will increase prices of their products
The selling price that would maintain the same contribution margin rate as last year is an average of 15% in the coming year due to increases in raw material (sugar, cocoa,
A. P 9.00 C. P10.00 peanuts, etc.) and labor costs. Bittersweet Company expects that all other costs will remain at
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the same rates or levels as the current year. Bittersweet is subject to 40 percent tax rate. Round estimates that 75 percent of its Sunday sales to customers would be made on other
days if the store were not open on Sundays.
If net income after taxes would remain the same after the cost of candy increases but no
increase in the sales price is made, how many boxes of candy must Bittersweet sell? The one-day volume of Sunday sales that would be necessary for Round to attain the same
A. 480,000 C. 400,000 weekly operating as the current six-day week is
B. 27,600 D. 29,300 Bobadilla A. P2,400 C. P9,600
B. P3,200 D. P9,984 Bobadilla
68. Larz Company produces a single product. It sold 25,000 units last year with the following
results: 71. Ailu Company has the following operating data for its manufacturing operations:
Sales P625,000 Unit selling price P 250
Variable costs P375,000 Unit variable cost 100
Fixed costs 150,000 525,000 Total fixed costs 840,000
Net income before taxes P100,000 The company’s decision to increase the wages of hourly workers will increase the unit variable
Income taxes 40,000 cost by 10 percent. Increases in the salaries of factory supervisors and property taxes for the
Net income P 60,000 factory will increase fixed costs by 4 percent. If sales price is held constant, the next break-
In an attempt to improve its product in the coming year, Larz is considering replacing a even point for Ailu Company will be
component part in its product that has a cost of P2.50 with a new and better quality costing A. Increased by 640 units. C. Decreased by 640 units.
P4.50 per unit. A new machine will also be needed to increase plant capacity. The machine B. Increased by 400 units. D. Increased by 800 units. Bobadilla
would cost P18,000 with a useful life of 6 years and no salvage value. The company uses
straight-line depreciation method on all plant assets. 72. Solar Company sells two products, Biggs and Boggs. Last year, Solar Company sold 12,000
units of Biggs and 24,000 units of Boggs.
If Larz wishes to maintain the same contribution margin ratio after implementing the changes,
what selling price per unit of product must it charge next year to cover the increased material Related data for last year are:
costs? Product Unit Selling Price Unit Variable Cost Unit Contribution Margin
A. P27.00 C. P25.00 Biggs P120 P80 P40
B. P32.50 D. P28.33 Bobadilla Boggs 80 60 20
Assuming that last year’s fixed costs totaled P910,000, what was Solar Company’s composite
69. BM Motors, Inc. employs 40 sales personnel to market its line of economy automobiles. The break-even point?
average car sells for P1,200,000 and a 6% commission is paid to the salesperson. BM Motors A. 34,125 C. 11,375
is considering a change to a commission arrangement that would pay each salesperson a B. 27,302 D. 9,101 Bobadilla
salary of P24,000 per month plus a commission of 2% of the sales made by that salesperson.
73. River and Co., maker of quality pipes, has experienced a steady growth in sales for the past
The amount of total car sales at which the two expense structures would be indifferent is five years. However, increase in competition has led River Co. to believe that an aggressive
A. P22,500,000 C. P30,000,000 advertising campaign will be necessary next year to maintain the company’s present growth.
B. P24,000,000 D. P12,000,000 Bobadilla
To prepare for next year’s advertising campaign, the company’s accountant has prepared and
70. Round Company is a grocery store that is currently open only Monday through Saturday. presented the management with data for the current year, 2006, as presented below:
Round Company is considering opening on Sundays. The annual incremental costs of Cost Schedule
Sunday openings are estimated at P31,200. Round’s gross margin on sales is 25 percent. Variable costs:
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Direct labor P 80.00/pipe Total P396,000
Direct materials 32.50/pipe The company is considering changing the compensation plan for sales personnel. If the
Variable overhead 25.00/pipe organization increases the commission to 10% of revenues and reduces salaries by P80,000,
Total variable costs P137.50/pipe what revenues must the organization have to raise in order to earn the same net income as
Fixed costs: last year?
Manufacturing P 250,000 A. P1,600,000 C. P1,350,000
Selling 400,000 B. P1,150,000 D. P1,630,000 Bobadilla
Administrative 700,000
Total fixed costs P1,350,000 76. Tactless Manufacturing Company produces two products for which the following data have
been tabulated. Fixed manufacturing cost is applied at a rate of P1.00 per machine hour.
Selling price, per pipe P 250.00 Per Unit XY-7 BD-4
Expected sales, 2007 (20,000 units) P5,000,000 Selling price P4.00 P3.00
Tax rate: 40% Variable manufacturing cost P2.00 P1.50
The company has set the sales target for 2007 at a level of P5,500,000 (or 22,000 pipes). Fixed manufacturing cost P0.75 P0.20
Variable selling cost P1.00 P1.00
If an additional P112,500 have to be spent for advertising in 2007, what is the required sales The sales manager has had a P160,000 increase in the budget allotment for advertising and
level in pesos to equal 2006’s after-tax income? wants to apply the money to the most profitable product. The products are not substitutes for
A. P4,750,000 C. P5,250,000 one another in the eyes of the company’s customers.
B. P5,750,000 D. P4,250,000 Bobadilla
The manager may devote the entire P160,000 to increased advertising for either XY-7 or BD-
74. Adobe Company sold 100,000 units of its product at P20 per unit. Variable costs were P14 4.
per unit, consisting of manufacturing costs of P11 and selling costs of P3. Fixed costs, which
were incurred uniformly throughout the year, amounted to P792,000 (manufacturing costs of Suppose Tactless has only 100,000 machine hours that can be made available to produce
P500,000 and selling expenses of P292,000). There had been no beginning or ending additional units of XY-7 and BD-4. If the potential increase in sales units for either product
inventories. resulting from advertising is far in excess of this production capacity, which product should be
advertised and what is the estimated increase in contribution margin earned? Bobadilla
If labor costs comprise of 50 percent variable costs and 20 percent f fixed costs, a 10 percent A. Product XY-7 should be produced, yielding a contribution margin of P75,000.
increase in wages and salaries would increase the number of units required to break even to B. Product XY-7 should be produced, yielding a contribution margin of P133,333.
A. 152,423 C. 143,875 C. Product BD-4 should be produced, yielding a contribution margin of P187,500.
B. 175,617 D. 129,938 Bobadilla D. Product BD-4 should be produced, yielding a contribution margin of P250,000.
75. Mellow, Inc. sells its single product for P40 per unit. Mellow purchases the product for P20. 77. Drape Corp. would like to market a new product at a selling price of P15 per unit. Fixed costs
The salespeople receive a salary plus a commission of 5% of sales. Last year the for this product are P1,000,000 for less than 500,000 units of output and P1,500,000 for
corporation’s net income was P100,800. The corporation is subject to 30% income tax rate. 500,000 or more units of output. The contribution margin percentage is 35%. How many units
The fixed costs of the company are: of this product must be sold to earn a target operating income of P1 million?
Advertising P124,000 A. 366,667 C. 476,190
Rent 60,000 B. 380,952 D. 256,410 Bobadilla
Salaries 180,000
Other fixed costs 32,000
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78. Care Company sold 100,000 units of its product at P20 per unit. Variable costs are P14 per 80. The total variable costs per unit for the large and small discs, respectively, are
unit, consisting of manufacturing costs of P11 and selling costs of P3. Fixed costs, which are A. P10.20 and P8.60. C. P 9.10 and P5.30.
incurred uniformly throughout the year, amount to P792,000 (manufacturing costs of P500,000 B. P14.40 and P8.40. D. P11.80 and P6.60. Bobadilla
and selling costs of P292,000). There were no beginning or ending inventories.
81. If the material costs for large and small discs are P8.50 and P5.10, respectively, and the
If labor costs are 50% of variable costs and 20% of fixed costs, a 10% increase in wages and normal production capacity is 100,000-unit level, what is the breakeven point?
salaries would increase the number of units required to breakeven (in fraction form) to A. 91,611. C. 79,816.
A. 807,840/5.3. C. 807,840/14.7. B. 87,216. D. 82,412. Bobadilla
B. 831,600/5.78. D. 831,600/14.28. Bobadilla
Questions 82 through 86 are based on the Statement of Income of Davao, Inc. which represents
Question Nos. 79 through 81 are based on the following: the operating results for the current fiscal year ending December 31. Davao had sales of 1,800
Metal Industries, Inc. operates its production department only when orders are received for one tons of product during the current year. The manufacturing capacity of Davao’s facilities is 3,000
or both of its two products, two sizes of metal discs. The manufacturing process begins with the tons of product. Consider each question’s situation separately.
cutting of doughnut-shaped rings from rectangular strips of sheet metal; these rings are then Sales P900,000
pressed into discs. The sheets of metal, each 4 feet long and weighing 32 ounces, are purchased Variable costs
P13.60 per running foot. The department has been operating at a loss for the past year as shown Manufacturing P315,000
below. Selling costs 180,000
Sales for the year P1,720,000 Total variable costs P495,000
Less: expenses 1,772,000 Contribution margin P405,000
Net loss for the department P 52,000 Fixed costs
Manufacturing P 90,000
The following information is available. Selling 112,500
Administration 45,000
Ten thousand 4-foot pieces of metal yielded 40,000 large discs, each weighing 4 ounces and Total fixed costs P247,500
selling for P29, and 40,000 small discs, each weighing 2.4 ounces and selling for P14. Net income before income taxes P157,500
Income taxes (40%) (63,000)
The corporation has been producing at less than “normal capacity” and has had no spoilage in the Net income after income taxes P 94,500
cutting step of the process. The skeletons remaining after the rings have been cut are sold for
scrap at P8.00 per pound. 82. The breakeven volume in tons of product for the year is
A. 420 C. 1,100
The variable conversion cost of each large disc is 80% of the disc’s direct material cost, and B. 495 D. 550 Bobadilla
variable conversion cost of each small disc is 75% of the disc’s direct material cost. Variable
conversion costs are the sum of direct labor and variable overhead. 83. If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs
Fixed costs were P860,000. stay at the same levels and amounts next year, the after-tax income that Davao can expect for
next year is
79. The net cost per ounce of material is A. P135,000 C. P110,250
A. P2.00 C. P1.70 B. P283,500 D. P184,500 Bobadilla
113
84. Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton.
Assume that all of Davao’s costs would be at the same levels and rates as last year. What net 88. The total sales revenue at which Anilao Ski Company would make the same profit or loss
income after taxes would Davao make if it took this order and rejected some business from regardless of the ski model it decided to produce is
regular customers so as not to exceed capacity? A. P880,000 C. P924,000
A. P297,500 C. P211,500 B. P422,400 D. P686,400 Bobadilla
B. P252,000 D. P256,500 Bobadilla
89. How much would the variable cost per unit of the touring model have to change before it had
85. Without prejudice to your answers to previous questions, and assume that Davao plans to the same breakeven point in units as the mountaineering model?
market its product in a new territory. Davao estimates that an advertising and promotion A. P2.68/unit increase C. P5.03/unit decrease
program costing P61,500 annually would need to be undertaken for the next two or three B. P4.53/unit increase D. P2.97/unit decrease Bobadilla
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 90. If the variable cost per unit of touring skis decreases by 10%, and the total fixed cost of touring
in the new territory to maintain Davao’s current after-tax income of P94,500? skis increases by 10%, the new breakeven point will be
A. 307.5 C. 273.3 A. 10,730 pairs
B. 1,095.0 D. 1,545.0 Bobadilla B. 13,007 pairs
C. 12,812 pairs Bobadilla
86. Without prejudice to preceding questions, assume that Davao estimates that the per ton D. Unchanged from 11,648 pairs because the cost changes are equal and offsetting
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 income 91. If the Anilao Ski Company sales department could guarantee the annual sale of 12,000 skis of
of P94,500 next year? either model, Anilao would
A. P1,140,000 C. P1,500,000 A. Produce touring skis because they have a lower fixed cost.
B. P 825,000 D. P1,350,000 Bobadilla B. Produce only mountaineering skis because they a lower breakeven point.
C. Produce mountaineering skis because they are more profitable.
Question Nos. 87 through 91 are based on the following: D. Be indifferent as to which model is sold because each model has the same variable cost
Anilao Ski Company recently expanded its manufacturing capacity to allow it to product up to per unit. Bobadilla
15,000 pairs of cross-country skis of either the mountaineering model or the touring model. The
sales department assures management that it can sell between 9,000 and 13,000 pairs (units) of Question Nos. 92 through 96 are based on the following:
either product this year. Because the models are very similar, Anilao Ski will produce only one of Pullman Company is a small but growing manufacturer of telecommunications equipment. The
the two models. The following data were compiled by the accounting department. company has no sales force of its own; rather, it relies completely on independent sales agents to
Mountaineering Touring market its products. These agents are paid a commission of 15% of selling price for all items sold.
Selling price per unit P88.00 80.00
Variable cost per unit 52.80 2.80 Maui Soliman, Pullman’s controller, has just prepared the company’s budgeted income statement
Fixed costs will total P369,600 if the mountaineering model is produced but will be only P316,800 if for next year. The statement follows:
the touring model is produced. Anilao Ski Company is subject to a 40% income tax rate.
Pullman Company
87. If Anilao Ski Company desires an after-tax net income of P24,000, how many pairs of touring Budgeted Income Statement
model skis will the company have to sell? For the Year Ended December 31
A. 13,118 C. 13,853 Sales P16,000,000
B. 12,529 D. 4,460 Bobadilla Manufacturing costs:
114
Variable P7,200,000 Total P2,400,000
Fixed overhead 2,340,000 9,540,000
Gross margin 6,460,000 “Super,” replied Kim. “And I note that the P2,400,000 is just what we’re paying the agents under
Selling and administrative costs: the old 15% commission rate.”
Commissions to agents 2,400,000
Fixed marketing costs* 120,000 “It’s even better than that,” explained Maui. “We can actually save P75,000 a year because that’s
Fixed administrative costs 1,800,000 4,320,000 what we’re having to pay the auditing firm now to check out the agents’ reports. So our overall
Net operating income 2,140,000 administrative costs would be less.”
Less fixed interest cost 540,000
Income before income taxes 1,600,000 “Pull all of these number together and we’ll show them to the executive committee tomorrow,” said
Less income tax (30%) 480,000 Kim. “With the approval of the committee, we can move on the matter immediately.”
Net income P1,120,000
*Primarily depreciation on storage facilities 92. What is the breakeven point in pesos for next year assuming that the agents’ commission rate
remains unchanged at 15%?
As Maui handed the statement to Kim Viceroy, Pullman’s president, she commented, “I went ahead A. P10,650,000 C. P 9,000,000
and used the agents’ 15% commission rate in completing these statements, but we’ve just learned B. P12,000,000 D. P10,750,000 Bobadilla
that they refuse to handle our products next year unless we increase the commission rate to 20%.”
93. What is the breakeven point in pesos for next year assuming that the agents’ commission rate
“That’s the last straw,” Kim replied angrily. “Those agents have been demanding more and more, is increased to 20%?
and this time they’ve gone too far. How can they possibly defend a 20% commission rate?” A. P13,171,000 C. P13,714,286
B. P15,000,000 D. P12,750,000 Bobadilla
“They claim that after paying for advertising, travel, and the other costs of promotion, there’s
nothing left over for profit,” replied Maui. 94. What is the breakeven point in pesos for next if the company employs its own sales force?
A. P15,000,000 C. P13,090,909
“I say it’s just plain robbery,” retorted Kim. “And I also say it’s time we dumped those guys and got B. P12,954,545 D. P15,157,895 Bobadilla
our own sales force. Can you get your people to work up some cost figures for us to look at?”
95. Assume that Pullman Company decides to continue selling through agents and pays the 20%
“We’ve already worked them up,” said Maui. “Several companies we know about pay a 7.5% commission rate. The volume of sales that would be required to generate the same net
commission to their own salespeople, along with a small salary. Of course, we would have to income as contained in the budgeted income statement for next year would be:
handle all promotion costs, too. We figure our fixed costs would increase by P2,400,000 per year, A. P18,285,714 C. P19,225,000
but that would be more than offset by the P3,200,000 (20% x P16,000,000) that we would avoid on B. P18,368,421 D. P20,414,714 Bobadilla
agents’ commissions.”
96. The volume of sales at which net income would be equal regardless of whether Pullman
The breakdown of the P2,400,000 cost figure follows: Company sells through agents at a 20% commission rate or employs its own sales force:
Salaries: A. P11,625,000 C. P19,200,000
Sales manager P 100,000 B. P12,000,000 D. P18,600,000 Bobadilla
Salespersons 600,000
Travel and entertainment 400,000 Question Nos. 97 through 102 are based on the following information:
Advertising 1,300,000
115
San Carlos operates a general hospital but rents space and beds to separate entities for
specialized treatment such as pediatrics, maternity, psychiatric, etc. San Carlos charges each Annual salaries for each class of employee follow: supervising nurses, P180,000; nurses,
separate entity for common services to its patients like meals and laundry and for all administrative P130,000; and aides, P50,000. Salary expense for the year ended June 30 for supervising nurses,
services such as billings, collections, etc. All uncollectible accounts are charged directly to the nurses, and aides was P720,000, P1,560,000, and P1,100,000, respectively.
entity. Space and bed rentals are fixed for the year.
The Pediatrics Department operated at 100% capacity during 111 days of the past year. It is
For the entire year ended June 30, the Pediatrics Department at San Carlos Hospital charged each estimated that during 90 of these capacity days, the demand average 17 patients more than
patient an average of P650 per day, had a capacity of 60 beds, operated 24 hours per day for 365 capacity and even went as high as 20 patients more on some days. The hospital has an additional
days, and had revenue of P10,676,250. 20 beds available for rent for the coming fiscal year.
Expenses charged by the hospital to the Pediatrics Department for the year ended June 30 were: 97. The contribution margin per patient day is
Basis of Allocation A. P400.00 C. P500.00
Patient Days Bed Capacity B. P450.00 D. P525.00 Bobadilla
Dietary P 328,500
Janitorial P 118,400 98. How many patient days are necessary to cover fixed costs for bed capacity and for
Laundry 197,100 supervisory nurses?
Lab, other than direct charges to patients A. 9,500 C. 10,250
410,625 B. 9,820 D. 12,000 Bobadilla
Pharmacy 410,625
Repairs and maintenance 65,700 66,045 99. The number of patient days needed to cover total costs is
General administrative services 1,218,780 A. 14,780 C. 15,820
Rent 2,546,710 B. 15,140 D. 16,080 Bobadilla
Billings and collections 689,850
Bad debt expense 246,375 100.If the Pediatrics Department rented an additional 20 beds and all other factors remain the
Others 114,975 240,315 same as in the past year, what would be the increase in revenue?
Total P2,463,750 P4,190,250 A. P 994,500 C. P1,054,500
The only personnel directly employed by the Pediatrics Department are supervising nurses, B. P 877,500 D. P 897,500 Bobadilla
nurses, and aides. The hospital has minimum personnel requirements based on total annual
patient days. Hospital requirements beginning at the minimum, expected level of operation follow: 101.Continuing to consider the 20 additional rented beds, the increase in total variable cost applied
Annual Patient Days Aides Nurses Supervising Nurses per patient day is
10,000 – 14,000 21 11 4 A. P229,350 C. P229,650
14,001 – 17,000 22 12 4 B. P229,500 D. P239,350 Bobadilla
17,001 – 23,725 22 13 4
23,726 – 25,550 25 14 5 102.What is the increase in fixed cost applied for bed capacity, given the increase in number of
25,551 – 27,375 26 14 5 beds?
27,376 – 29,200 29 16 6 A. P1,396,667 C. P1,470,000
The staffing levels above represent full-time equivalents, and it should be assumed that the B. P1,187,238 D. P1,520,000 Bobadilla
Pediatrics Department always employs only the minimum number of required full-time equivalent
personnel. Question Nos. 103 – 105 are based on the following:
116
Ms. Sharkey started a pizza restaurant in 2003. For this purpose a building was rented for P40,000
per month. Two women were hired to work full time at the restaurant and six college students were Question Nos. 106 through 109 are based on the following information:
hired to work 30 hours per week delivering pizza. This level of employment has been consistent. Timex Sporting Goods Company, a wholesale supply company, engages independent sales
An outside accountant was hired for tax and bookkeeping purposes, for which Ms. Sharkey pays agents to market the company’s products throughout the country. These agents currently receive
P30,000 per month. The necessary restaurant equipment and delivery cars were purchased with a commission of 20 percent of sales, but they are demanding an increase to 25 percent of sales
cash. Ms. Sharkey has noticed that expenses for utilities and supplies have been rather constant. made during the year ending December 31, 2007. The controller already prepared the 2007
Ms. Sharkey increased her business between 2003 and 2006. Profits have more than doubled budget before learning of the agents’ demand for an increase in commission. The budgeted 2007
since 2003. Ms. Sharkey does not understand why profits have increased faster than volume. income statement is shown below. Assume that cost of goods sold is 100 percent variable cost.
Sales P10,000,000
A projected income statement for the year ended December 31, 2007, prepared by the accountant, Cost of goods sold 6,000,000
is shown below: Gross margin P 4,000,000
Sales P9,500,000 Selling and administrative
Cost of food sold P2,850,000 Commissions P2,000,000
Wages & fringe benefits: Other expenses (fixed) 100,000 2,100,000
Restaurant help 815,000 Income before taxes P 1,900,000
Delivery help 1,730,000 Income tax (30%) 570,000
Rent 480,000 Net income P 1,330,000
Accounting services 360,000 Timex’s management is considering the possibility of employing full-time sales personnel. Three
Depreciation: individuals would be required, at an estimated annual salary of P30,000 each, plus commissions
Delivery equipment 500,000 of 5 percent of sales. In addition, a sales manager would be employed at a fixed annual salary of
Restaurant equipment 300,000 P160,000. All other fixed costs, as well as the variable cost percentages, would remain the same
Utilities 232,500 as the estimates in the 2007 budgeted income statement.
Supplies 120,000 7,387,500
Net income before taxes P2,112,500 106.How much is the estimated break-even point in peso sales for the year ending December 31,
Income taxes (40%) 845,000 2007, based on the budgeted income statement prepared by the controller?
Net income P1,267,500 A. P500,000 C. P250,000
Note: The average pizza sells for P250. B. P400,000 D. P125,000 Bobadilla
103.What is the tax shield on the noncash fixed costs? 107.How much is the estimated break-even point in peso sales for the year ending December 31,
A. P320,000 C. P149,500 2007, if the company employs its own sales personnel?
B. P340,000 D. P540,000 Bobadilla A. P 542,857 C. P 875,000
B. P 742,857 D. P1,000,000 Bobadilla
104.What is the breakeven point in number of pizzas that must be sold?
A. 25,929 C. 23,569 108.How much volume in peso sales would be required for the year ending December 31, 2007, to
B. 18,150 D. 42,114 Bobadilla yield the same net income as projected in the budgeted income statement, if Timex continues
to use the independent sales agents and agrees to their demand for a 25 percent sales
105.What is the cash flow breakeven point in number of pizzas that must be sold? commission?
A. 19,529 C. 12,990 A. P 8,000,000 C. P10,000,000
B. 21,284 D. 10,773 Bobadilla B. P 9,533,333 D. P13,333,333 Bobadilla
117
A. P14.00 C. P22.00
109.How much is the estimated volume in peso sales that would generate an identical net income B. P15.25 D. P24.00 Bobadilla
for the year ending December 31, 2007, regardless of whether Timex employs its own sales
personnel or continues to use the independent sales agents and pays them a 25 percent Question Nos. 114 through 118 are based on the following:
commission? Bolton Company’s income statement for last month is given below:
A. P1,000,000 C. P1,500,000 Sales (15,000 units @ P30) P450,000
B. P1,250,000 D. P1,800,000 Bobadilla Less variable expenses 315,000
Contribution margin 135,000
Question Nos. 110 through 113 are based on the following data: Less fixed expenses 90,000
Step Company produces toys and other items for use in beach and resort areas. A small, inflatable Net income P 45,000
toy has come onto the market that the company is anxious to produce and sell. Enough capacity The industry in which Bolton Company operates is quite sensitive to cyclical movements in
exists in the company’s plant to produce 16,000 units of the toy each month. Variable costs to the economy. Thus, profits vary considerably from year to year according to general economic
manufacture and sell one unit would be P12.50, and fixed costs associated with the toy would total conditions. The company has a large amount of unused capacity and is studying ways of improving
P350,000 per month. profits.
The company’s Marketing Department predicts that demand for the new toy will exceed the 16,000 A new equipment has come onto the market that would allow Bolton Company to automate a
units that the company is able to produce. Additional manufacturing space can be rented from portion of its operations. Variable costs would be reduced by P9 per unit. However, fixed costs
another company at a fixed cost of P10,000 per month. Variable costs in the rented facility would would increase to a total of P225,000 each month.
total P14 per unit, due to somewhat less efficient operations than in the main plant. The new toy
will sell for P30 per unit. 114.How much income for the month would the company earn if the new equipment is purchased?
A. P45,000 C. P60,000
110.The breakeven units for the new toy would be: B. P30,000 D. P75,000 Bobadilla
A. 20,000 C. 21,000
B. 18,000 D. 22,500 Bobadilla 115.How many units are required as increase or decrease in breakeven point if the new equipment
is purchased?
111.How many units should the company need to sell in order to earn a before-tax profit of A. Zero C. 3,200 units
P150,000? B. 2,500 units D. 4,000 units Bobadilla
A. 9,143 C. 31,875
B. 30,375 D. 35,000 Bobadilla 116.The degree of operating leverage during the month where the new equipment is used is:
A. 3.0 times C. 6.0 times
112.If the sales manager receives a bonus of P1.00 for each unit sold in excess of the break-- B. 4.5 times D. 9.0 times Bobadilla
even point, how many units must be sold each month to earn a return of 25% on the monthly
investment in fixed costs? 117.Refer to the original data. Rather than purchase a new equipment, the president is thinking
A. 23,344 C. 29,833 about changing the company’s marketing method. Under the new method, sales would
B. 27,000 D. 30,000 Bobadilla increase by 20% each month and net income would increase by one third. Fixed costs could
be slashed to only P48,000 per month. Compute the break even point for the company after
113.Assuming that Step Company will just rent a manufacturing space for a month in order to the change in marketing method.
produce special order for 8,000 toys. What is the acceptable minimum selling price to Step A. 8,000 units C. 9,000 units
Company for the special sale? B. 12,500 units D. 10,000 units Bobadilla
118
121.The company is considering paying the store manager of Davao sales outlet an incentive
118.Assuming that during the month following the month new equipment has been started in use, commission of P75 per pair of shoes (in addition to the salesperson’s commission). If this
the unit sales increased by 4,500 units. The variable expenses per unit and the monthly fixed change is made, what will be the new breakeven in pairs of shoes?
costs as affected by the acquisition of the new equipment are expected to remain constant. A. 26,667 C. 20,000
B. 16,000 D. 22,000 Bobadilla
What is the expected profit of the company for that month?
A. P 81,000 C. P 85,500 122.Instead of paying the manager a straight P75 per pair of shoes commission on all pairs of
B. P126,000 D. P 45,000 Bobadilla shoes sold, the company is considering paying the store manager P50 commission on each
pair of shoes sold in excess of the breakeven point. If this change is made, what will be the
Question Nos. 119 through 124 are based on the following: sales outlet’s net income or loss if 25,000 pairs of shoes are sold?
Zapatero Corporation operates a chain of shoe stores around the country. The stores carry many A. P 250,000 C. P1,500,000
styles of shoes that are all sold at the same price. To encourage sales personnel to be aggressive B. P 900,000 D. P1,250,000 Bobadilla
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. 123.If the company would pay the manager P50 commission on each pair of shoes sold in excess
of the breakeven point, how many pairs of shoes are required to earn P900,000 profit?
The following cost and revenue data relate to Davao sales outlet and are typical of the company’s A. 23,600 C. 25,000
many sales outlets: B. 23,000 D. 27,500 Bobadilla
Selling price P800
Variable expenses: 124.The company is considering eliminating sales commissions entirely in its stores and increasing
Invoice costs P360 fixed salaries by P2,142,000 annually.
Sales commission 140
P500 If this change is made, what will be the number of pairs of shoes to be sold by Davao outlet to
be indifferent to commission basis?
Fixed expenses per year: A. 25,300 C. 21,000
Rent P1,600,000 B. 15,300 D. 18,505 Bobadilla
Advertising 3,000,000
Salaries 1,400,000 The following information should be used to answer Question Nos. 125 through 131.
Total P6,000,000 Due to erratic sales of its sole product a high capacity battery for laptop computers, Salcedo
Company has been experiencing difficulty for some time. The company’s income statement for the
119.How many units are required for the company’s Davao sales outlet to breakeven? most recent month is given below:
A. 12,000 pairs C. 20,000 pairs Sales (19,500 units @ P300) P5,850,000
B. 17,143 pairs D. 22,000 pairs Bobadilla Less variable expenses 4,095,000
Contribution margin 1,755,000
120.If 18,000 pairs of shoes are sold in a year, what would be Davao sales outlet’s net income? Less fixed expenses 1,800,000
A. P 600,000 C. P 500,000 Net loss P (45,000)
B. P(600,000) D. P(500,000) Bobadilla
125.The break even in peso sales for Salcedo Company is:
A. P6,000,000 C. P5,852,756
B. P2,571,429 D. P7,500,000 Bobadilla
119
Almo Company manufactures and sells adjustable canopies that attach to motor homes and
126.The president believes that a P160,000 increase in the monthly advertising budget, combined trailers. The market covers new unit purchases as well as replacement canopies. Almo developed
with an intensified effort by the sales staff, will result in an P800,000 increase in monthly sales. its 2007 business plan based on the assumption that canopies would sell at a price of P400 each.
If the president is right, what will be the effect on the company’s monthly net income or loss? The variable costs for each canopy were projected at P200, and the annual fixed costs were
A. P120,000 increase C. P120,000 decrease budgeted at P100,000. Almo’s after–tax profit objective was P240,000; the company’s effective tax
B. P 80,000 increase D. P 80,000 decrease Bobadilla rate is 40 percent.
127.Refer to the original data. The sales manager is convinced that a 10% reduction in the selling While Almo’s sales usually rise during the second quarter, the May financial statements reported
price, combined with an increase of P600,000 in the monthly advertising budget, will cause that sales were not meeting expectations. For the first five months of the year, only 350 units
unit sales to double. What will the new profit or loss if these changes are adopted? had been sold at the established price, with variable costs as planned, and it was clear that the
A. P 60,000 C. P 45,000 2007 after-tax profit projection would not be reached unless some actions were taken. Almo’s
B. P(60,000) D. P(45,000) Bobadilla president assigned a management committee to analyze the situation and develop several
alternative courses of action. The following mutually exclusive alternatives, labeled A, B, and C,
128.Refer to the original data. The Marketing Department thinks that a fancy new package for the were presented to the president.
laptop computer battery would help sales. The new package would increase packaging costs
by P7.50 per unit. Assuming no other changes, how many units would have to be sold each Reduce the sales price by P40. The sales organization forecast that with the significantly reduced
month to earn a profit of P97,500? sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit
A. 21,818 C. 25,450 costs will stay as budgeted.
B. 23,000 D. 28,000 Bobadilla
Lower the variable costs per unit by P25 through the use of less expensive materials and slightly
129.Refer to the original data. By automating certain operations, the company could reduce modified manufacturing techniques. The sales price will also be reduced by P30, and sales of
variable costs by P3 per unit. However, fixed costs would increase by P72,000 each month. 2,200 units for the remainder of the year are forecast.
How would the breakeven point in units change if the company automated the operations? Cut fixed costs by P10,000, and lower the sales price by 5 percent. Variable costs per unit will be
A. 1,000 units increase C. 3,000 units increase unchanged. Sales of 2,000 units are expected for the remainder of the year.
B. 1,000 units decrease D. 3,000 units decrease Bobadilla
132.Assuming no changes were made to the selling price or cost structure, how many units must
130.At what level of production would the automation of the production process be indifferent to the Almo sell to break even?
present process? A. 167 C. 500
A. 18,000 C. 24,000 B. 250 D. 1,700 Bobadilla
B. 21,000 D. 28,000 Bobadilla
133.Assuming no changes were made to the selling price or cost structure, how many units must
131.Which of the two methods (the present or the automated) has higher income at the level of Almo sell to achieve its after-tax profit objective?
sales of 26,000 units? A. 1,250 C. 2,000
A. Manual, P60,000 C. Manual, P240,000 B. 1,700 D. 2,500 Bobadilla
B. Automated, P60,000 D. Automated, P240,000 Bobadilla
134.If management decides to reduce the selling price by P40, what will Almo's after-tax profit be?
Question Nos. 132 – 134 are based on the following: A. P157,200 C. P241,200
B. P160,800 D. P301,200 Bobadilla
120
135.If the management can reduce the variable cost per unit by P25 through the use of less
expensive materials and slightly modified manufacturing techniques, with the sales price
reduced by P30, and sales of 2,200 units for the remainder of the year are forecast, the
amount of expected income for the year was:
A. P239,400 C. P241,200
B. P204,000 D. P399,000 Bobadilla
136.How much would be the expected income for the year if the management cut fixed costs by
P10,000, and lower the sales price by 5 percent, with variable costs per unit unchanged and
sales of 2,000 units are expected for the remainder of the year?
A. P239,400 C. P241,200
B. P204,000 D. P399,000 Bobadilla
137.If the sales price is reduced by 6.25 percent starting June 1, an analysis indicates that 2,500
unit sales can be made if the company has to spent for additional advertising. What is the
maximum amount of advertising cost that the company can spend and still the profit objective
is achieved?
A. P35,000 C. P15,000
B. P22,500 D. P 7,500 Bobadilla
121

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MODULE 4 7. Which of the factors is (are) involved in studying cost-volume-profit relationships?

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