Cost-Volume-Profit Relationslt r,}

56. The company's overall contribution margin ratio fur the sales mix
expected is
a. 40%. C. 50%.
h. 45%. d. 60%.

Supporting Anah'sis/C'ornputation:

(55) Answer: B
Oak Chestnut fatal
CM per unit P'4 I' 60
x .Sales mix x 5 xI
Weighted ('M PIP-'V + P 60 P/SO
Breakeven Sakes P135.000
(combs nets)

P300,ooo

(56) Answer: B

1 ota! Weighted CM
Total Weighted Sales - Weighted CM rate

P180
' f4un - 45%,
57. H olt Company's variable costs are 70% of sales. At a P300,000 sales
level, the degree of operating leverage is 10. If sales increase by P60,000,
the degree of operating leverage will be
A. 12. C. 6.
b. 10. d. 4.

Answer D
Supporting 4nelysla/C'ornputatlon:
Present
10 _ 90.000 _
90.000 - F('
IOF(' 810.000
FC 8/,000

3A-27
Unit 3-A

Expected:
DOL 360,000 x 3016
(360.000 x 30%) - 81,000
DOL = 108,000 108,000
108, 000 - 81,000 27,000 I
Situational
Use the following information to answer questions 58 through 60:

Given the following income statement for Jeffrey Company for 2006:

Sales (30,000 units) P600,000

Less Operating Expenses:
Variable P390,000
Fixed 140 000 530.000
Net income 0 OQQ

58. The break-even point for 2006 is

a. 26,600 units. C. P460,000.
b. 17,500 units. d. P400,000.
59. The Company's degree of operating leverage is
a. 3. C. 4.28.
b. 2. d. 8.57.

60. The Company's margin of safety (rounded to the nearest whole percent) is
a. 33%. C. 12%.
b. 50%. d. 67%.

Supporting Analysit/Compuration:

(58) Answer: D
BEP 140,000
20 - 13
20,000 unus or 400.OOQ

(59) Answer:A

DOL = - 210,000 __
210,000 - 140,000

3A-28
 -

Cost-Volume-Profit Relationships

(60) Answer: A
MS
AS - BES
= MS rate
200,000
600.000

61. At a break-even point of 800 units sold, White Company's variable costs
are P800 and its fixed costs are P400. What will the Company's net
income be at a volume of 801 units?
a. P1.50 C. P0.50
b. P 1.00 d. P2.00

Answer: C
Srpporing Anatysi/Cotrcrrtation:

P400 _ =
CM per unit 800

CM per Unit - 0.50

Net income 1 unit x P0.50
= P0.50

62. The break-even volume in units will decrease if there is a(an)

a. decrease in unit selling price.
b. increase in total fixed costs.
c. increase in unit variable costs.
4 none of these

Answer: D

63. A P2 increase in a product's variable cost per unit accompanied by a P2

increase in its selling price per unit will
a. decrease the degree of operating leverage.
b. result in a decrease in the contribution margin.
C. have no effect on the break-even volume.
d. have no effect on the contribution margin ratio.

Answer: C

3A-29
64. Gerber Company is planning to sell 200,000 units of product 0 for P2 a
unit. The contribution margin is 25%. Gerber will break even at this
level of sales. What would be the fixed costs?
a. P 100,000 c. P200,000
b. P160,000 d. P300,000 (AICPA adapted)
Answer: A
Supporting Analysis/C'omputation:
R' is equal to CM
CM - 25% x 400,000
P1 QQQ

65. How may the following be used in calculating the breakeven point in
units?
Contribution
Fixed costs margin per unit
a. Denominator Numerator
b. Denominator Not used
c. Numerator Not used
d. Numerator Denominator (AICPA adapted)

Answer: D

66. The contribution margin decreases when sales volume remains the same
and
A. fixed costs increase.
b. fixed costs decrease.
c. variable cost per unit increases.
d. variable cost per unit decreases. (AICPA adapted)
Answer: C

67. How would the following be used in calculating sales necessary to realize a
projected profit?
Combination
Projected profit margin ratio
a. Denominator Numerator
b. Denominator Not used
c. Numerator Numerator
d. Numerator Denominator (AICPA adaPted)

Answer: D

3A-30
 Cost- Volume-Profit Relationships

68. In using the unit contribution method to calculate a target sales level
expressed in units, which of the following should be subtracted from
fixed costs in the numerator?
a. Predicted operating loss c. Unit contribution margin
b. Predicted operating profit d. Variable costs (AICPA adapted)

Answer- A

69. Korn Company sells two products, as follows:

Per Unit
Sales price Variable
casts
Product Y P120 P 70
Product Z 500 200

Fixed costs total P300,000 annually. The expected sales mix in units is
60% for product Y and 40% for product Z.

How much is Korn's expected breakeven sales in pesos?

a. P300.000 C. P475,000
b. P420.000 d. P544,000 (AICPA adapted)

Answer: D
Supporting Analysis/Computat
ion:
T. Total
Y P300
CM per unit P 50 x 0.4
x Sales mix x 0.6
Weighted CM P,JQ + q el5P
BES = 300,000
150
(120 x 0.6) (500 x 0.4)

300,000
150 10
72 + 200
300,000
055147

U44.000

3A-31
knit 3-A

70.
1'he contribution margin ratio always increases when the
A. breakeven point increases.
h, breakeven point decreases.
c. variable costs as a percentage otf net sales decrease.
d. variable costs as a percentage of net sales increase.(AICPA adapted)
ewsnA
r. C

71. To obtain the breakeven point stated in terms of pesos of sales, total fixed
costs are divided by H hich of the following?
a. Variable cost per unit.
b. Variable cost per unit + sales per unit.
C. Fixed cost per unit.
d. (Sales price per unit - variable cost per unit) + sales price per unit.
(AICPA adapted)
Answer D

72. Breakevcn analysis assumes over the relevant range that

a. total costs are unchanged.
b. selling prices are unchanged.
c. variable costs are nonlinear.
d. fixed costs increase per unit. (AICPA adapted)

Answer: B

73. Kent Co.'s 2007 operating percentages were as follows:

Sales 100%
Cost of sales:
Variable 50%
Fixed 10 60
Gross profit 40
Other operating expenses:
Variable 20
Fixed 15
operating income --%

Kent's 2007 sales totaled P2,000,000. At what 2007 sales level would
Kent break even?
A. P1.900.000 C. P1,250,000
b. p1.666,667 d. P 833,333

3A-32
 Cost-Volume-Profit Relationships
Answer: B
Supporting AnalyslsComputation:

500,000
BES=
30%
74. Information concerning Nabel Corporation's Product A is as follows:

Sales PA4Q
Variable costs P240.000
Fixed costs P 40.000

Assuming that Nabel increased sales of Product A by 20%, what should

the net income from Product A be?
a. P20,000 C. P32,000
b. P24,000 d. P80,000 (AICPA adapted)

Answer: C
Supporting Analysis/Computation:
Sales P360,000
Variable costs 288,000
Contribution margin P 72,000
Fixed costs 40.000
Net income P

siftations
The following information pertains to questions 75 through 77:

Sandy Tan is a distributor of brass picture frames. For 2006, she plans to
are
purchase for P30 each and sell them for P45 each. Sandy's fixed costs
expected to be P240,000. Sandy's only other costs will be variable costs of P60
per shipment for preparing the invoice and delivery documents, organizing the
delivery, and following up for collecting accounts receivable. The P60 cost will
be incurred each time Sandy ships an order of picture frames, regardless of the
number of frames in the order.

75. Suppose Sandy sells 40,000 picture frames in 1,000 shipments in 2006,
what is the Sandy's operating income for 2006?
a. P300,000
b. P420,000

3A-33
 C 1'2.10,01X1
d. p.f ~0,111X)

SupposeSandy sells 40,000 picture fames in 800 shipments in 2006,

what is the Sandy's operating income For 2006?
a 1140,0(X)
h. 11325'(0)
c. 1121 1 ,0(X)
d. N 12.0(X)

Suppose Sandy anticipates making 500 shipments in 2006. How many

picture trarnes must Sandy sell to break even in 2006?
;r. 1 8.000
h. 12.000
c 1 4,000
d. 1 0,000

Supporting Anal,sWC ompatation:

(75)
Operating
income
Answer:

Revenues -
A
C Cost o Quaiitrtn of
prc tore xpichre frames

Cost of NI11111pel.
shipment x sIrrpnr ns -Fixed costs

(P45 x 40,000) - (P30 (40,000) -- (P60 x 1,000) - P240.000

=1!. QQQQQ
P1,800,000 - P 1, 200, 000 - P60, 000 - P240, 000

(76) Answer: D
Operating
income ` Revenues Cost f Quantity of 1 -
I,w,u ' x picture J
C

C Cost ofVrrnrber r,/1

- Fixed costs
shipment x spiprnc'nr.c J
(P45 x 40, 000) - (P30 x 40,000) - (P60 x 800) - P240, 000
 Cost-Volume-Profit Relationships
(77) Answer: A
Denote the number of picture frames sold by Q, then
P45Q - P30Q - (500 x P60) - P240, 000 = 0
P/SQ = P30, 000 + P240, 000 = P270,000
Q = P270,000 _ P15 = J&000 picture frames

Situational
The following information pertains to questions 78 through 80:

Super Men's Clothing's revenues and cost data for 2006 are:

Revenues P 500,000
Cost of goods sold (40% of sales) 200,000
Gross margin P 300,000
Operating costs:
Salaries fixed P150,000
Sales commissions (10% of sales) 50,000
Depreciation of equipment and fixtures 12,000
Store rent (P4,000 per month) 48,000
Other operating costs 50,000 310,000
Operating income (loss) E-UQQ_)

Mr. Super, the owner of the store, is unhappy with the operating results. An
analysis of other operating costs reveals that it includes P40,000 variable costs,
which vary with sales volume, and P10,000 (fixed) costs.

78. What is the contribution margin of Super Men's Clothing?

a. P300,000
b. P260,000
c. P210,000
d. P200,000

79, What is the contribution margin percentage?

a. 42%
b. 60%
c. 52%
d. 40%

3A-35
Unit 3-A

O.
Mr. Super estimates that he can increase revenues by 20% by incurring
additional advertising costs of P10,000. As a result, how much would
Super Men's Clothing's operating income be?
a. P32.000
h. P22,000
C. P40.000
d. P50.000

Swpportina AnalysWComputation:

(78) Answer: C
Revenues P500,000
Deduct variable costs:
Cost of goods sold P200,000
Sales commissions 50,000
Other operating costs 40.000 2,00.000
Contribution margin P210,QQQ

(79) Answer: A

Contribution margin percentage P210,000

P500,000
(80) Answer: B

Incremental revenue (20% x P300,000) = P100,000

Incremental contribution margin (42% x P100,000) P42,000
Incremental fixed costs (advertising)
Incremental operating income 10000
E12,QQ

IfMr. Super spends P10.000 more on adsertising, the operating

!Ross will
increase by P32,000, converting an operating loss of P10,000 to
an operatiryr income of P22,000.

Proof
Revenues (120% x P500.000)
Cost of goods sold (40% of salesi Pte' O(V
Gross margin 24 .1X10
Operating costs. 360.000
Salaries and wages
Sales commissions (10% of sales) P150, 000
Depreciation of equipment andfutures 60.000
Store rent 1Z000
Advertising 48.000
10,000