BEP AND CVP ANALYSIS MS.

NAPAROTA

1. All of the following statements related to the use of break-even analysis are true except:

a. a change in fixed costs changes the break-even point but not the contribution margin figure.
b. a combined change in fixed and variable costs in the same direction causes a sharp change in the break-even point.
c. a change in fixed costs changes the contribution margin figure but not the break-even point.
d. a change in per-unit variable costs changes the contribution margin ratio.
e. a change in sales price changes the break-even point.

2. The costing method that lends itself most readily to the preparation of break-even analysis is:

a. weighted average costing

b. absorption costing
c. first-in, first-out costing
d. semivariable costing
e. direct costing

3. The break-even volume in units is found by dividing fixed expenses by the:

a. unit gross profit

b. total variable expenses
c. unit net profit
d. contribution margin ratio
e. unit contribution margin

4. A major assumption concerning cost and revenue behavior that is important to the development of break-even charts is
that:

a. all costs are variable

b. total costs are quadratic
c. costs and revenues are linear
d. the relevant range is greater than sales volume
e. costs will not exceed revenues

5. If the fixed cost attendant to a product increases while the variable cost and sales price remain constant, the
contribution margin and break-even point will:

Contribution Margin Break-Even Point

a. increase increase
b. not change increase
c. not change not change
d. increase decrease
e. decrease increase

6. When referring to the "margin of safety," an accountant would be thinking of:

a. the excess of sales revenue over variable costs

b. the excess of budgeted or actual sales over the contribution margin
c. the excess of budgeted or actual sales revenue over fixed costs
d. the excess of actual sales over budgeted sales
e. none of the above

7. A valid assumption for cost-volume-profit analysis is:

a. an increase in fixed costs will cause the break-even point to rise.

b. demand is constant regardless of price
c. a decrease in variable cost per unit will lower the break-even point
d. variable costs per unit are assumed to remain constant within the range of activity analyzed
e. all of the above are invalid assumptions
8. Based on the cost-volume-profit chart in for a manufacturing company, the correct statement is:

a. line b graphs total fixed costs

b. point c represents the point at which the marginal contribution per unit increases
c. line d graphs total costs
d. area e (between lines b and d) represents the contribution margin
e. area a represents the area of net loss

9. A result from lowering the

break-even point is:
a.an increase in the sales price per unit
b.an increase in the semivariable cost per unit
c.an increase in the variable cost per unit
d.a decrease in the contribution margin per unit
e.an increase in income tax rates

10. If current sales are P1, 000,000 and break-even sales are P600, 000, the margin of safety ratio is:

A. 6% C. 167% E. 40%
B. 60% D. 100%

11. Which of the following statements is true?

a. A shift in sales mix toward less profitable products will cause the over-all break-even point to fall.
b. One way to compute break-even point is to divide total sales by the cost margin ratio.
c. Once the break-even point has been reached, net income will increase by the unit contribution margin for each
additional unit sold.
d. As sales exceed the break-even point, a high contribution margin ratio will result in lower profit, rather than a low
contribution margin ratio.

12. Sats & Co. sells three products: Sim, Plu, and Corp. Sim is the most profitable product while Cop is the least
profitable. Which one of the following events will definitely decrease the firm’s over-all break-even point for the upcoming
accounting period?
a. An increase in the over-all market for Plu.
b. A decrease in Cop’s selling price.
c. An increase in anticipated sales of Sim relative to the sales of Plu and Cop.
d. An increase in Sim’s raw material cost.

13. Cost-volume-profit analysis is a key factor in many decisions including choice of product line, pricing of product,
marketing strategy, and utilization of productive facilities. A calculation used in a CVP analysis is the break-even point.
Once the break-even point has been reached, operating income will increase by the

a. sales price per unit for each additional unit sold.

b. contribution margin per unit for each additional unit sold.
c. fixed cost per unit for each additional unit sold.
d. gross margin per unit for each additional unit sold.
14. To reduce the break-even point, the company may
a. decrease both fixed cost and the contribution margin.
b. increase both fixed cost and the contribution margin.
c. decrease the fixed cost and increase the contribution margin.
d. increase the fixed cost and decrease the contribution margin.

15. If a company is earning a profit, its fixed costs

A. are less than total contribution margin.
B. are equal to total contribution margin.
C. are greater than total variable costs.
D. can be greater than or less than total contribution margin.

PROBLEM

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 most recent month is
given below:
Sales (19,500 units @ P300) P5, 850,000
Less variable expenses 4, 095,000
Contribution margin 1, 755,000
Less fixed expenses 1, 800,000
Net loss P (45,000)

1. The president believes that a P160, 000 increase in the monthly advertising budget, combined with an
intensified effort by the sales staff, will result in an P800, 000 increase in monthly sales. If the president is right,
what will be the effect on the company’s monthly net income or loss?

A. P120,000 increase C. P120,000 decrease

B. P 80,000 increase D. P 80,000 decrease

2. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price,
combined with an increase of P600, 000 in the monthly advertising budget, will cause unit sales to double.
What will the new profit or loss if these changes are adopted?

A. P 60,000 C. P 45,000
B. P(60,000) D. P(45,000)

3. Refer to the original data. The Marketing Department thinks that a fancy new package for the 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 month to earn a profit of P97, 500?

A. 21,818 C. 25,450
B. 23,000 D. 28,000

4. Refer to the original data. By automating certain operations, the company could reduce variable costs by
P30 per unit. However, fixed costs would increase by P720, 000 each month.

How would the breakeven point in units change if the company automated the operations?
A. 1,000 units increase C. 3,000 units increase
B. 1,000 units decrease D. 3,000 units decrease

5. At what level of production would the automation of the production process be indifferent to the present
process?
A. 18,000 C. 24,000
B. 21,000 D. 28,000