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CVP Analysis 2
CVP Analysis 2
COST-VOLUME-PROFIT ANALYSIS
Breakeven Point
5. Scrambled Brain Company has fixed costs of P90,000. At a sales volume of
P300,000, return on
sales is 10%; at a P500,000 volume, return on sales is 22%. What is the break-even
volume?
A. P120,000
C. P225,000*
B. P200,000
D. P450,000
6. Bush Electronics, Inc. had the following sales results for 2004:
TV sets
CD player
Peso sales component ratio
0.30
0.30
Contribution margin ratio
0.40
0.40
Bush Electronics, Inc. had fixed costs of P2,400,000.
The break-even sales in pesos for Bush Electronics, Inc. are:
TV sets
CD player
A.
P1,800,000
P1,800,000
B
P1,800,000
P1,800,000
C.
P1,500,000
P1,500,000
D.
P1,531,915
P1,531,915
Radios
0.40
0.60
Radios
P3,600,000
P1,600,000
P2,000,000
P2,042,553
7. Glareless Company manufactures and sells sunglasses. Price and cost data are as
follows:
Selling price per pair of sunglasses
P25.00
Variable costs per pair of sunglasses:
Raw materials
P11.00
Direct labor
5.00
Manufacturing overhead
2.50
Selling expenses
1.30
Total variable costs per unit
P19.80
Annual fixed costs:
Manufacturing overhead
P192,000
Selling and administrative
276,000
Total fixed costs
P468,000
Forecasted annual sales volume (120,000 pairs)
P3,000,000
Income tax rate
40%
Glareless Company estimates that its direct labor costs will increase 8 percent
next year. How
many units will Glareless have to sell next year to reach breakeven?
A. 97,500 units
C. 83,572 units
B. 101,740 units
D. 86,250 units
May 2005
Preweek Quizzer
Preweek Quizzer
11. Gorilla, Co. provides two products, M and W. M accounts for 60 percent of total
sales, variable cost
as a percentage of selling price are 60% for M and 85% for W. Total fixed costs are
P225,000. If
fixed costs will increase by 30 percent, what amount of peso sales would be
necessary to generate
an operating profit of P48,000?
A. P1,350,000
C. P1,135,000
B. P486,425
D. P910,000
12. Mount Park, Inc. had the following economic information for the year 2002:
Sales(50,000 units @ P20)
P1,000,000
Variable manufacturing costs
400,000
Fixed costs
250,000
Income tax rate
40 percent
Mount Park budgets its 2003 sales at 60,000 units or P1,200,000. The company
anticipates
increased competition; hence, an additional P75,000 advertising costs is budgeted
in order to
maintain its sales target for 2003.
What is the amount of peso sales needed for 2003 in order to equal the after-tax
income in 2002?
A. P1,125,000
C. P1,187,500
B. P1,325,000
D. P1,387,500
13. Larz Company produces a single product. It sold 25,000 units last year with the
following results:
Sales
P625,000
Variable costs
P375,000
Fixed costs
150,000
525,000
Net income before taxes
P100,000
Income taxes
40,000
Net income
P 60,000
In an attempt to improve its product in the coming year, Larz is considering
replacing a component
part in its product that has a cost of P2.50 with a new and better part costing
P4.50 per unit. A new
machine will also be needed to increase plant capacity. The machine would cost
P18,000 with a
useful life of 6 years and no salvage value. The company uses straight-line
depreciation on all
plant assets.
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 costs?
A. P27.00
C. P32.50
B. P25.00
D. P28.33
May 2005
Page 2 of 7
MANAGEMENT ADVISORY SERVICES
Preweek Quizzer
Point of Indifference
14. Ravine Ski Company recently expanded its manufacturing capacity to allow it to
produce up to
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
either product this year. Because the models are very similar, Ravine Ski will
produce only one of
the two models. The information below was compiled by the accounting department.
Mountaineering
Touring
Selling price per unit
P880.00
P800.00
Variable costs per unit
P528.00
P528.00
Fixed costs will total P3,696,000 if the mountaineering model is produced but will
be only
P3,168,000 if the touring model is produced. Ravine Ski is subject to a 40% income
tax rate.
The total sales revenue at which Ravine Ski Company would make the same profit or
loss
regardless of the ski model it decided to produce is
A. P8,800,000
C. P9,240,000
B. P4,224,000
D. P6,864,000
15. Valley of Fire Corporation has one department that produces three replacement
parts for the
company. However, only one part can be produced in any month because of the
adjustments that
must be made to the equipment. The department can produce up to 15,000 units of any
one of the
three parts in each month. The company expresses the monthly after tax
cost/volume/profit
relationships for each part using an equation method. The format of the equations
and the
equation for each replacement part are given below:
(ATR) X ((SP – VC) x (U) – FC)
ATR = after-tax rate
VC = variable cost
FC = fixed costs
SP = selling price
U = units
Part
Part Equations
AL45
.6 ((P4.00 – P1.25) (U) – P33,400)
BT65
.6 ((P4.05 – P2.55) (U) – P15,000)
GM17
.6 ((P4.10 - P2.00) (U) - P22,365)
The production and unit sales volume level at which Valley will be indifferent as
to whether Part
BT62 or GM17 is produced is
A. 7,365
C. 10,380
B. 4,092
D. 12,275
May 2005
Page 3 of 7
MANAGEMENT ADVISORY SERVICES
16. BM Motors, Inc. employs 40 sales personnel to market its line of luxury
automobiles. The average
car sells for P1,200,000 and a 6% commission is paid to the salesperson. BM Motors
is
considering a change to a commission arrangement that would pay each salesperson a
salary of
P24,000 per month plus a commission of 2% of the sales made by that salesperson.
The amount of total car sales at which BM Motors would be indifferent as to which
plan to select is
A. P22,500,000
C. P24,000,000
B. P30,000,000
D. P12,000,000
17. Zapatero, Inc. operates a chain of shoe stores around the country. The stores
carry many styles of
shoes that are all sold at the same price. To encourage sales personnel to be
aggressive in their
sales efforts, the company pays a substantial sales commission on each pair of
shoes sold. Sales
personnel also receive a small basic salary.
The following cost and revenue data relate to Store 9 and are typical of the
company’s many sales
outlets:
Selling price
P800
Variable expenses:
Invoice costs
P360
Sales commission
140
P500
Fixed expenses per year:
Rent
P1,600,000
Advertising
3,000,000
Salaries
1,400,000
Total
P6,000,000
The company is considering eliminating sales commissions entirely in its stores and
increasing
fixed salaries by P2,142,000 annually.
If this change is made, what will be the number of pairs of shoes to be sold by
Store 9 to be
indifferent to commission basis?
A. 25,300
C. 18,505
B. 15,300
D. 21,000
Sensitivity Analysis
18. If fixed costs increase while variable cost per unit remains constant, the
contribution margin will be
A. lower
C. unchanged
B. higher
D. unpredictable
May 2005
Preweek Quizzer
19. Firm D and Firm S are competitors within the same industry. Firm D produces its
product using
large amounts of direct labor. Firm S has replaced direct labor with investment in
machinery.
Projected sales for both firms are fifteen percent less than in the prior year.
Which statement
regarding projected profits is true?
A. Firm D will lose more profit than Firm S.
B. Firm S will lose more profit than Firm D.
C. Firm D and Firm S will lose the same amount of profit.
D. Neither Firm D nor Firm S will lose profit.
20. Last month, Zamora Company had an income of P0.75 per unit with sales of 60,000
units. During
the current month when the unit sales are expected to be only 45,000, there is a
loss of P1.25 per
unit. Both the variable cost per unit and total fixed costs remain constant. The
fixed costs
amounted to
A. P80,000
C. P247,500
B. P360,000
D. P210,000
21. The Liberal Marketing Co., is expecting an increase of fixed costs by P78,750
upon moving their
place of business to the downtown area. Likewise it is anticipating that the
selling price per unit
and the variable expenses will not change. At present, the sales volume necessary
to breakeven is
P750,000 but with the expected increase in fixed costs, the sales volume necessary
to breakeven
would go up to P975,000. Based on these projections, what were the total fixed
costs before the
increase of P78,750?
A. P341,250
C. P183,750
B. P262,500
D. P300,000
22. Machan Co.’s year-end income statement is as follows:
Sales (20,000 units)
P360,000
Variable costs
220,000
Contribution margin
P140,000
Fixed costs
105,000
Net income
P 35,000
Management is unhappy with the results and plans to make some changes for next
year. If
management implements a new marketing program, fixed costs are expected to increase
by
P19,200 and variable costs to increase by P1 per unit. Unit sales are expected to
increase by 15
percent. What is the effect on income if the foregoing changes are implemented?
Page 4 of 7
MANAGEMENT ADVISORY SERVICES
A. Decrease of P21,200
B. Increase of P1,800
B. P90,000
Preweek Quizzer
D. P360,000
Page 5 of 7
MANAGEMENT ADVISORY SERVICES
Preweek Quizzer
Other
18,048
.
P262,800
P453,000
The only personnel directly employed by the Pediatrics Department are supervising
nurses, 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:
Annual Patient Days
Aides
Nurses
Supervising Nurses
10,000 – 14,000
21
11
4
14,001 – 17,000
22
12
4
17,001 – 23,725
22
13
4
23,726 – 25,550
25
14
5
25,551 – 27,375
26
14
5
27,376 – 29,200
29
16
6
The staffing levels above represent full-time equivalents, and it should be assumed
that the Pediatrics
Department always employs only the minimum number of required full-time equivalent
personnel.
Annual salaries for each class of employee follow: supervising nurses, P18,000;
nurses, P13,000; and
aides, P5,000. Salary expense for the year ended June 30 for supervising nurses,
nurses, and aides
was P72,000, P169,000, and P110,000, respectively.
The Pediatrics Department operated at 100% capacity during 111 days of the past
year. It is estimated
that during 90 of these capacity days, the demand average 17 patients more than
capacity and even
went as high as 20 patients more on some days. The hospital has an additional 20
beds available for
rent for the coming fiscal year.
28. The variable expense per patient day is
A. P15.08
B. P12.50
C. P15.00
D. P50.00
C. P50.00
D. P52.00
30. How many patient days are necessary to cover fixed costs for bed capacity and
for supervisory
nurses?
A. 9,500
C. 12,500
B. 11,500
D. 10,500
31. The number of patient days needed to cover total costs is
A. 14,200
C. 15,820
Page 6 of 7
MANAGEMENT ADVISORY SERVICES
B. 15,200
32. If the Pediatrics Department rented an additional 20 beds and all other factors
remain the same as
in the past year, what would be the increase in revenue?
A. P99,450
C. P105,450
B. P87,750
D. P89,750
33. Continuing to consider the 20 additional rented beds, the increase in total
variable cost applied per
patient day is
A. P22,935
C. P22,965
B. P22,950
D. P23,935
34. What is the increased fixed cost applied for bed capacity, given the increased
number of beds?
A. P151,000
C. P147,000
B. P173,950
D. P152,000
Questions 35 thru 37 are based on the following information.
Ms. Casserole started a pizza restaurant in 1998. For this purpose a building was
rented for P400 per
month. Two women were hired to work full time at the restaurant and six college
students were hired to
work 30 hours per week delivering pizza. This level of employment has been
consistent. An outside
accountant was hired for tax and bookkeeping purposes, for which Ms. Casserole pays
P300 per
month. The necessary restaurant equipment and delivery cars were purchased with
cash. Ms.
Casserole has noticed that expenses for utilities and supplies have been rather
constant. Ms.
Casserole increased her business between 1998 and 2001. Profits have more than
doubled since
1998. Ms. Casserole does not understand why profits have increased faster than
volume.
A projected income statement for the year ended December 31, 2002, prepared by the
accountant, is
shown below:
May 2005
Sales
Cost of food sold
Wages & fringe benefits:
Restaurant help
Delivery help
Rent
Accounting services
Depreciation:
Delivery equipment
Restaurant equipment
Utilities
Supplies
Net income before taxes
Income taxes (40%)
Net income
Note: The average pizza sells for P2.50.
Preweek Quizzer
P95,000
P28,500
8,150
17,300
4,800
3,600
5,000
3,000
2,325
1,200
73,875
P21,125
8,450
P12,675
Page 7 of 7