CVP Quiz – BSA 2

Part I: Multiple Choice

1. Cost- volume profit relationships that are curvilinear may be analysed linearly by considering
only
a. Fixed and semi- variable costs
b. Relevant fixed costs
c. Relevant variable costs
d. A relevant range of volume
2. When an organization is operating above the breakeven point, the degree or amount that
revenues may decline before losses are incurred is the
a. Residual income rate
b. Marginal rate of return
c. Margin of safety
d. Target profit
3. Total unit costs are
a. Relevant for cost-volume-profit analysis
b. Independent of the cost system used to generate them
c. Irrelevant in marginal analysis
d. Needed for determining product contribution
4. Which of the following formulas is used to determine the break- even point when using the
contribution margin method?
a. Revenues less operating income equal variable costs plus fixed costs
b. Unit contribution margin times the break- even number of units equals fixed costs
c. Selling price less unit fixed costs equals contribution margin
d. Total fixed costs equal total revenue
5. Which of the following will result in raising the breakeven point?
a. A decrease in the variable costs per unit
b. An increase in the semi- variable costs per unit
c. An increase in the contribution margin per unit
d. A decrease in income tax rates
6. To reduce the break- even point, the company may
a. Decrease both the fixed costs and contribution margin
b. Increase both the fixed costs and the contribution margin
c. Decrease the fixed costs and increase the contribution margin
d. Increase the fixed costs and decrease the contribution margin
7. ABC Company net sales in 2019 were 15% below the 2018 level. ABC’s semi- variable costs
would
a. Increase in total and increase as percentage of net sales
b. Decrease in total and decrease as a percentage of net sales
c. Increase in total, but decrease as a percentage of net sales
d. Decrease in total, but increase as a percentage of net sales
8. The contribution margin ratio always increases when the
a. Breakeven point increases
b. Breakeven point decreases
c. Variable costs as a percentage of net sales decrease
d. Variable costs as a percentage of net sale increase
9. When using the graph method, if nit output exceeds the breakeven point,
 a. Expenses are extremely high relative to revenue
b. There is loss because the total cost line exceeds the total revenue line
c. Totals sales exceed total cost
d. There is profit since total cost line exceeds the total revenue line
10. The most important use of cost-volume- profit graph is to show
a. The breakeven point
b. The cost/margin ratio at various levels of sales activity
c. The relationships among volume, cost, revenues, over wide ranges of activity
d. The determination of cross over point

Part II: Problem

Problem 1. Given the selling price at P120 per unit, contribution margin ratio at 25% and fixed
cost at P250,000, the total variable expenses at the breakeven point would be:
Answer: P750,000

Problem 2: A company produced 500 units of a product and incurred the following costs. Direct
materials, P8,000; direct labor, P10,000; overhead (20% fixed), P45,000. If the sales value of 500
units is P102,000, what is the contribution margin percentage?
Answer: 47%

Problem 3: The following information pertains to Novo Company’s CVP relationships:

Breakeven point in units sold 1,000
Variable cost per unit P 500
Total fixed costs P 150,000
How much will be contributed to profit before income taxes by the 1,001 st unit sold?
Answer: P 150

Problem 4: Peter Company manufactures and sells toys. The following information related to
the operating results for the last quarter:

Stuff toys sold 19,375

Breakeven point in units 15,500
Breakeven point in peso sales P65,875
Total fixed costs P47,275

a. What was Peter’s variable cost per toy?

Answer: P1.20
b. What was the margin of safety ratio for the last quarter of Peter? (round to the nearest
percent)
Answer: 20%

Problem 5: Bagsak Enterprises provided the following data on its costs structure:
Unit sales price P5,000
Variable cost rate P4,200
Fixed expenses P12.8 million
Quantity sold 25,000
Tax rate 40%
 Requirements:
1. Assuming a 10% increase in unit sales price will decrease quantity sold by 20%, what would
be the:
e. Change in profit? Answer: P6.0 millon
f. Percent change in breakeven units? Answer: 6,154 units or 38.46%

Problem 6: MultiFrame Company has the following revenue and costs budgets for the two
products it sells:

Plastic Frames Glass Frames

Sales price P10 P15

Direct materials 2 3
Direct labor 3 5
Fixed overhead 3 2.75
Profit per unit 2 4.25
Budgeted unit sales 100,000 300,000

The budgeted units sales equal the current unit demand, and the total fixed overhead for the
year is budgeted at P975,000. Assume that the company plans to maintain the same
proportional mix. In numerical calculation, MultiFrame rounds to the nearest cent and unit.

1. The total number of units MultiFrame needs to produce and sell to breakeven is?
Answer: 150,000 units
2. The total number of units needed to breakeven if the budgeted direct labor cost were P2 for
plastic frames instead of P3 is?
Answer: 144,444 units
3. The total number of units needed to breakeven if sales were budgeted at P150,000 units of
plastic frames and 300,000 units of glass frames with all other costs remaining constant is?
Answer: 153,947 units

Part III: True or False

1. Cost-volume-profit analysis focuses on the break-even point and the impact of changes in fixed
costs and price. T
2. The break-even point is the point where total costs equal sales revenues. T
3. The term net income is used to mean operating income before income taxes. F
4. To earn a target profit, total costs plus the amount of target profit must equal total sales
revenue. T
5. Units to earn target profit equal total fixed costs plus target profit divided by the contribution
margin ratio. F
6. Sales revenue to earn target profits equals total fixed costs plus target profit divided by the
contribution margin. F
7. Income taxes are generally calculated as a percentage of income. T
8. When using either the equation or the contribution margin approach, the after-tax profit must
be converted to a before tax profit target. T
9. In multiple-product analysis, the break-even units for each product will change as the sales mix
changes. T
10. Increased sales of high contribution margin products increase the break-even point. F