1.

Assume there is an increase in advertising expenditures and all other CVP parameters remain
constant. This change will:
a. increase variable costs
b. reduce operating income
c. increase selling price
d. reduce contribution margin
2. Which of the following items is not an assumption of CVP analysis?
a. When graphed, total costs curve upward.
b. The unit-selling price is known and constant.
c. Total costs can be divided into a fixed component and a component that is variable with
respect to the level of output.
d. All revenues and costs can be added and compared without taking into account the time
value of money.
3. ABC's variable costs are 60% of total revenue. If fixed costs are P300,000, what is the break-even
sales volume?
a. 750,000
b. 120,000
c. 500,00
d. 180,000
4. In a company with low operating leverage:
a. there is a higher possibility of net loss than a higher-leveraged firm
b. fixed costs are high and variable costs are low
c. less risk is assumed than in a highly leveraged firm
d. large changes in sales volume result in small changes in net income
5. Company A has a lower variable cost per unit and higher total fixed costs than Company B. The
selling prices of their products are the same. Sales fluctuate considerably for both companies.
Therefore
a. Company A earns more profit than Company B
b. Company A has a lower contribution margin percentage than Company B
c. Company A has a lower break-even point than Company B
d. Company A is more risky than Company B
6. The most likely strategy to reduce the breakeven point would be to
a. decrease both the fixed costs and the contribution margin
b. increase both the fixed costs and contribution margin
c. decrease the fixed costs and increase the contribution margin
d. increase the fixed costs and decrease the contribution margin
7. To determine the effect of income tax on a decision, managers should evaluate:
a. contribution margin
b. target operating income
c. selling price
d. target net income
 8. If fixed costs are P300, 000, the unit selling price is P25, and the unit variable costs are P20, what
is the break-even sales (units) if the variable costs are decreased by P2?
a. 42,857 units
b. 17,143 units
c. 100,000 units
d. 60,000 units
9. Most operating decisions of management focus on a narrow range of activity called the:
a. strategic level of production
b. optimal level of production
c. relevant range of production
d. tactical operating level of production
10. If the sales mix shifts toward higher contribution margin products, the break-even point
a. it is impossible to tell without more information
b. decreases
c. increases
d. remains constant
11. The difference between the current sales revenue and the sales at the break-even point is called
the:
a. margin of safety
b. price factor
c. operating leverage
d. contribution margin
12. Stephanies Bridal Shoppe sells wedding dresses. The average selling price of each dress is
P1,000, variable costs are P400, and fixed costs are P90,000. What is the Bridal Shoppe's
operating income when 200 dresses are sold?
a. 200,000
b. 80,000
c. 100,000
d. 30,000

SOLUTION:
200(P1,000) - 200(P400) - P90,000 = P30,000
13. If a company would like to increase its degree of operating leverage it should:
a. increase its inventories relative to its receivables
b. increase its fixed costs relative to its variable costs
c. increase its variable costs relative to its fixed costs
d. increase its receivables relative to its inventories
14. The contribution income statement:
a. can be used to predict future profits at different levels of activity
b. is allowed for external reporting to shareholders
c. reports gross margin
d. categorizes costs as either direct or indirect
 15. If fixed costs are P200,000 and the unit contribution margin is P20, what amount of units must
be sold in order to have a zero profit?
a. 25,000
b. 20,000
c. 200,000
d. 10,000
16. A revenue driver is defined as:
a. any factor that affects revenues
b. any factor that affects costs and revenues
c. only factors that can influence a change in demand
d. only factors that can influence a change in selling price
17. In a CVP graph, the area between the total cost line and the total revenue line represents total
a. fixed costs
b. contribution margin
c. profit
d. variable costs
18. Kaisers Kraft Korner sells a single product. 7,000 units were sold resulting in P70,000 of sales
revenue, P28,000 of variable costs, and P12,000 of fixed costs.

Breakeven point in units is:

a. 3,000 units
b. 5,000 units
c. 2,000 units
d. None of these answers are correct.

SOLUTION:

P10X - P4X - P12,000 = 0; X = 2,000 units

19. Selling price is P100, unit variable cost is P68, and fixed costs are P400,000. Unit sales required
to earn a P120,000 profit are
a. 16,250
b. 7,647
c. 5,200
d. 13,700
20. Breakeven analysis assumes that over the relevant range
a. unit variable costs are unchanged
b. total costs are unchanged
c. Total fixed costs are nonlinear.
d. unit revenues are nonlinear
 21. Selling price is P40, unit variable cost is P24, and fixed costs are P400,000. Unit sales required to
break even are
a. 10,000
b. 16,667
c. 25,000
d. 12,500
22. Northenscold Company sells several products. Information of average revenue and costs is as
follows:

Selling price per unit P20.00

Variable costs per unit:

Direct material P4.00

Direct manufacturing labor P1.60

Manufacturing overhead P0.40

Selling costs P2.00

Annual fixed cost P96,000

The number of units that Northenscolds must sell each year to break even is:

a. indeterminable
b. 12,000 units
c. 16,000 units
d. 8,000 units

SOLUTION:

P20X - P8X - P96,000 = 0; X = 8,000 units

23. If unit outputs exceed the breakeven point:

a. there is a profit
b. total sales revenue exceeds total costs
c. there is a loss
d. Both total sales and revenue exceeds total costs and there is a profit.
24. In calculating the breakeven point for a multi-product company, which of the following
assumptions are commonly made?
I. Sales volume equals production volume.
II. Variable costs are constant per unit
III. A given sales mix is maintained for all volume changes.
a. I, II and III
b. I and III
c. I and II
d. II and III
25. Which of the following is not an example of a cost that varies in total as the number of units
produced changes?
a. Insurance premiums on factory building
b. Wages of assembly worker
c. Electricity per KWH to operate factory equipment
d. Direct materials cost
26. Selling price is P100, unit variable cost is P68, and fixed costs are P400,000. Unit sales required
to earn a P120,000 profit are
a. 7,647
b. 13,700
c. 16,250
d. 5,200
27. In multiproduct situations, when sales mix shifts toward the product with the highest
contribution margin then:
a. total contribution margin will decrease
b. breakeven quantity will increase
c. total revenues will decrease
d. operating income will increase
28. If fixed costs are P200,000 and the unit contribution margin is P20, what amount of units must
be sold in order to have a zero profit?
a. 20,000
b. 10,000
c. 25,000
d. 200,000
29. If all goes according to plan except that total fixed costs rise,
a. income will be lower than expected
b. total sales will be lower than expected
c. income will be higher than expected
d. total contribution margin will be lower than expected
30. How many units would have to be sold to yield a target operating income of P22,000, assuming
variable costs are P15 per unit, total fixed costs are P2,000, and the unit selling price is P20?
a. 4,000 units
b. 4,400 units
c. 4,800 units
d. 3,600 units
SOLUTION:

(P2,000 + P22,000) / (P20 - P15) = 4,800 units

31. Stan Enterprises has fixed costs of P120,000. At a sales volume of P400,000, return on sales is
10%; at a P600,000 volume, return on sales is 20%. What is the break-even volume?
a. 210,000
b. 300,000
c. An amount that cannot be determined without more information
d. 160,000
32. The margin of safety is
a. the ratio of contribution margin to variable cost
b. the profit currently earned in excess of the target profit
c. the difference between contribution margin currently earned and contribution margin at
break even
d. the difference between current sales and sales at break-even
33. When fixed costs are P100,000 and variable costs are 20% of the selling price, then breakeven
sales are:
a. 100,000
b. 125,000
c. 500,000
d. indeterminable

SOLUTION:

P100,000 / (1- 0.20) = P125,000 in BE sales

34. Ruben intends to sell his customers a special round-trip airline ticket package. He is able to
purchase the package from the airline carrier for P150 each. The round-trip tickets will be sold
for P200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed
costs include P5,000 in advertising costs.

For every P25,000 of ticket packages sold, operating income will increase by:

a. 6,250
b. 18,750
c. an indeterminable amount
d. 12,500

SOLUTION:

P25,000 x [(P200 - P150 / P200)] = P6,250