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(ultipft Choice Questions

Situational
The following information pertain to questions I and 2:

Havana Village Association is planning another Riverboat Extravaganza. The


Extravaganza committee has assembled the following expected costs for the
event:
Dinner (per person) ... P7
Favors and program (per person) ... 3
Band ... 1,500
Tickets and advertising ... 700
Riverboat rental ... 4,800
Floorshow and strolling entertainers ... 1,000

The committee members would like to charge P30 per person for the evening's
activities.

The break-even point for the Extravaganza (in terms of the number of
persons that must attend) is
a. 300 persons.
b. 350 persons.
c. 450 persons.
d. 400 persons.

Assume that only 250 persons attended the Extravaganza last year. If the
same number attends this year, what price per ticket must be charged to
break even?
a. P45
b. P40
P43.50
C. P42

d. Supporting Analysis/Computation:

(1) Answer: D

Sales Variable expenses + Fixed expense + Profits


P30Q PIOQ + P8,000 + PO
P20Q P8, 000
Q P8, 000 = P20 per person
Q V perjQt6vl or. at P30 per person. 112, 000
3/h :'
(2) Answer: D

Variable cost per person (P7 + P3) NO


Fixed cost per person (P8,000 _ 250 persons) 32
Ticket price per person to break even pv
Situational
The following information pertain to questions 3 through 5:

Omega Enterprises sells two products, Model E100 and F900. Monthly sales
and the contribution margin ratios for the two products, follow:

Product
Model E100 Model F900 Total
Sales P700,000 P300,000 P1,000,000
Contribution margin ratio 60% 70% ?

The company's fixed expenses total P598,500 per month.

3. What is the company's total contribution margin ratio?


a. 60%
b. 63%
c. 70%
d. 65%

4. What is the company's total net operating income?


a. P630,000
b. P 31,500
c. P210,000
d. P420,000

5. The break-even point for the company based on the current sales mix's
a. P900,000.
b. P950,000.
c. P1,000,000.
d. P1,050,000.

3A-8
Cost-Volume-Profit Relatfauhips
S ipporriag Aaa(ysWComptsrtio.s:

(3) Answer: B
Model E100 Model P900 Total Company
Amount % Amount % Amount
Sales P700.000 100 P300,000 100 P1,000,000 lo)
Less variable
expenses 28A 000 40 90.0QQ - 70, 3"
Contribution margin P420, 000 60 P210,000 70 610.000 6)

(4) Answer: B
Model E100 Model F900 Total Compam
Amount % Amount % Amount 'c
Sales P700,000 100 P300, 000 100 P1,000.000 100
Less variable
expenses _,j8 0Q 40 90,000 30 170, 400 J
Contribution margin P420.000 60 P210, 000 70 630.000 63
Less fixed expenses 198's oo
Net operating
income P 31.500

0630,000 +P1,000,000 - 63%

(5) Answer: B

Break-even point in total peso Fixed expenses


sales Overall CM ratio
P598,500
0.63
f2ja in sales

The following information pertain to questions 6 through 9:

Hoopie Company sells a single product. The company's sales and ewer cs for a
recent month follow:
Total Per Unit
Sales P600.000 P40
Less variable expenses 4 0.044 _2j
Contribution margin 180,000 Lu
Lees fixed expenses t SQm
Net operating in ome E, -3

3A-9
t Intl i-.H

6. What is the monthly break-even point in units sold?


a. 12.000 units
h. 12,500 units
c. 15,200 units
d. 11,000 units

7. 1fow many units would have to be sold each month to earn a minimum
target profit of P 18,000?
a. 14,500
b. 12,000
c. 14,000
d. 14,700

8. What is the company's margin of safety in percentage terms?


a. 15%
b. 20%
c. 25%
d. 16.7%

9. If monthly sales increase by P80,000 and there is no change in fixed


expenses, by how much would you expect monthly net operating income
to increase?
a. P20,000
b. P24,500
C. P24,000
d. P42,000

Supporting
Analysis/Computation:

(6) Answer: B

Sale
= Variable expenses + Fixed expenses + Profits
s = P28Q + P150, 000 + PO
P40Q = P150,000
P150, 000 + P12 per unit
P12Q J2 QQMpjyt, or at P40 per unit, P500.000

3A-1o
L ost-volume-Profit Relatieinshilj

(7) Answer: C

!nits sold to attain target profit Fixed expenses r Target profit


Unit contribution
margin P150,000 +
P18,000
P12 per unit
(8) Answer: D
Margin of safety in pesos = Total sales - Break-even sales
P600,000-P500,000 = P100,000

Margin of safety in percentage terms:


Margin of safety in pesos
Units sold to attain target
profit Total sales
P100,000
P600,000
,.7N (rounded)

(9) Answer: C
The CM ratio is 30%

Expected total contribution margin: P680, 000 x 30% P204, 000


Present total contribution margin: P600,000 x 30% /801X/0
Incremental contribution margin 4,,QQQ
Alternative solution:
P80, 000 incremental sales x 30% CM ratio = P24, 000
Since in this case the company's fixed expenses will not change,
monthly net operating income will increase by the amount of
the increased contribution margin, P24,000.

Sitntonal
The following information pertain to questions 10 through 12:

Fluffy Inc.'s income statement for the year 2006 on production and sales of
200,000 units is as follows:
Revenues P2,600,000
Cost of goods sold 1.600.000
Gross margin 1,000,000
Marketing and distribution costs 1.l AM
Operating income (loss) U159.00)

?4_11
Unit 3-A
Fluffy's fixed manufacturing costs were P500,000, and variable marketing
distribution costs were P4 per unit.

10. What is Fluffy's variable manufacturing costs per unit in 2006?


a. P5.50
b. P4.00
c. P5.75
d. P9.00

11. What is Fluffy's fixed marketing and distribution costs in 2006?


a. P550,000
b. P800,000
c. P350,000
d. P500,000
12. The break-even point for the year 2006 in units is
a. 242,858
55,555
68,965
142,857

Supportltea Analysis/Co pupt ;

(10) Answer:A

Cost of goods sold


Fixed manufacturing costs P1,600,000
500.000
Variable manufacturing costs (.100.000
Variable mans facturing
PS 5 costs per unit = P1,100, 000 + 200, 000 =

(11) Answer: C

I
Total marketing and distribution costs P1,150, 000
Variable marketing and distribution 8 0 0
costs P 35Q.f1QQ
Fixed manufacturing and distribution
costs

31A-12
Cost- Volume-Profit Relationships

(12) Answer: A
Fixed manufacturing marketing & distribution
Great-even
costs point in units =
Contribution margin per unit
P850,000
P3.50
242.858

13. Cost-volume-profit analysis is a technique available to management to


understand better the interrelationships of several factors which affect a
i frm's profit. As with many such techniques, the accountant
oversimplifies the real world by making assumptions. Which of the
following is not a major assumption underlying cost-volume-profit
analysis?
a. All costs incurred by a firm can be separated into their fixed and
variable components.
b. The product selling price per unit is constant at all volume levels.
C. Operating efficiency and employee productivity are constant at all
volume levels.
d. For multiproduct situations the sales mix can vary at all volume
levels. (CMA adapted)

Answer: D

14. Region Company sells a product for P35 per unit, and the variable
production and sales costs are P21 per unit. If Region Company adopts a
40 Percent increase in selling price of its product, how much can unit
sales decline before total profits decline?
a. 40 percent. C. 57 percent.
b. 50 pavent, d. 100 percent.

Answer: B
Sxp *rdnt Awttlyslvl wwwMtbw:
h Te contribution margin was P14 (P35 - P21) without this price increa+e and e by
volume could deelln
P28 (P35 x 1.4 - P21) with the increase. Thus, sales
50 percent before profits would fall below profit level without sales increase-

Mr-13
Unit 3-A

Situational
The following data apply to items 15 through 19.

The MABES Company uses a profit-volume graph similar to the one shown
below to represent the cost/volume/profit relationships of its operations. The
vertical ty-axis) is the profit in pesos and the horizontal (x-axis) is the volume in
units. The diagonal line is the contribution margin line.

Profit
in P

Volume
in units

15. Point A on the profit-volume graph represents


a. the point where fixed costs equal sales.
b. the point where fixed costs equal variable costs.
c. a volume level of zero units.
d. the point where total costs equal total sales.

16. The vertical distance from the dotted line to the contribution margin line
denoted as B on the profit-volume graph represents
a. the total contribution margin.
b. the contribution margin per unit.
c. the contribution margin rate.
d. total sales.
Cost-Volume-Profit Relationships

IfMAtil;S Company's fixed costs were to increase,


It. the contribution margin line would shift upward parallel to the
present line.
h. the contribution margin line would shift downward parallel to the
present line.
C. the slope of the contribution margin line would be more pronounced
(steeper).
d. the slope of the contribution margin line would he less pronounced
(halter).

1 8. If MARI'.S Company's variable costs per unit were to increase but its unit
selling price stays constant,
a. the contribution margin line would shift upward parallel to the
present line.
h. the contribution margin line would shift downward parallel to the
present line.
C. the slope of the contribution margin line would be more pronounced
(steeper).
d the slope of the contribution margin line would be less pronounced
Mauer).

19. It' MARES Company decided to increase its unit selling price to offset
exactly the increase in the variable cost per unit,
a. the contribution margin line would shift upward parallel to the
present line.
h. the contribution margin line would shift downward parallel to the
present line.
e the slope of the contribution margin line would be more pronounced
(steeper).
d. the contribution margin line would coincide with the present
contribution margin line.

Swppnrting Analysis computation:

(1 5) Answer: D
- sales equals total costs
The paint where the company has costs.
no profit
or contrihunun margin equals fired
Unit 3-A

(16) Answer: A
in the problem :.s a ,
The line referred to ontributi',n line. As
volume
increases, the total contribution margin increased. The
distance
labeled B represents total contribution margin.

(17) Answer: B
will cause the loss to be greater at
An increase in fixed costs
zero volume
and it will take a larger volume to breakeven. The
slope ojthe contribution margin line, however, will not
change.

(18) Answer: D
will re.sult in
An increase in the variable costs with no change in sales
a decrease
in the contribution and cause the line to slope more to the
right.

(19) Answer: D
There would be no change in the contribution margin per unit; thus,
no change in the contribution margin line.

20. A semivariable cost:


a. increases and decreases directly and proportionately with changes
in volume.
b. changes in response to a change in volume, but not proportionately.
c.
increases if volume increases but remains constant if volume
decreases.
d.
changes inversely in response to a change in volume.
Answer: B
21.

Which of the following is an example of a fixed cost for an airline? a.


b. Depreciation on the corporate headquarters. Fuel costs.
C.
d. Income taxes expenses.
Passengers' meals.
Answer: A
22.
Mah expects
on million, a s total
and
na contribution sales of P30 million, a margin of safety of PIO
rate of 40% Which of the following estimated
istent with this information?
3A-16

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