?

(ultipft Choice Questions

Situational
The following information pertain to questions I and 2:

Havana Village Association is planning another Riverboat Extravaganza. The

Extravaganza committee has assembled the following expected costs for the
event:
Dinner (per person) ... P7
Favors and program (per person) ... 3
Band ... 1,500
Tickets and advertising ... 700
Riverboat rental ... 4,800
Floorshow and strolling entertainers ... 1,000

The committee members would like to charge P30 per person for the evening's
activities.

The break-even point for the Extravaganza (in terms of the number of
persons that must attend) is
a. 300 persons.
b. 350 persons.
c. 450 persons.
d. 400 persons.

Assume that only 250 persons attended the Extravaganza last year. If
the same number attends this year, what price per ticket must be
charged to break even?
a. P45
b. P40
P43.50
C. P42

d. Supporting Analysis/Computation:

(1) Answer: D
Sales Variable expenses + Fixed expense +
Profits P30Q PIOQ + P8,000 + PO
P20Q P8, 000
Q P8, 000 = P20 per person
Q V perjQt6vl or. at P30 per person. 112, 000
3/h :'
 (2) Answer: D

Variable cost per person (P7 + P3) NO

Fixed cost per person (P8,000 _ 250 persons) 32
Ticket price per person to break even pv
Situational
The following information pertain to questions 3 through 5:

Omega Enterprises sells two products, Model E100 and F900. Monthly sales
and the contribution margin ratios for the two products, follow:

Product
Model E100 Model F900
Total
Sales P700,000 P300,000 P1,000,000
Contribution margin ratio 60% 70% ?

The company's fixed expenses total P598,500 per month.

3. What is the company's total contribution margin

ratio? a. 60%
b. 63%
c. 70%
d. 65%

4. What is the company's total net operating

income? a. P630,000
b. P 31,500
c. P210,000
d. P420,000

5. The break-even point for the company based on the current sales
mix's a. P900,000.
b. P950,000.
c. P1,000,000.
d. P1,050,000.

3A-8
S ipporriag
Aaa(ysWCom
 ptsrtio.s:
Cost-Volume-Profit Relatfauhips
(3) Answer: B
Model E100
Amount %
Sales P700.000 100 Model P900 Total
Less variable
Company Amount % Amount
expenses 28A 000 40 P300,000 100 P1,000,000 lo)
Contribution margin P420, 000 60
90.0QQ - 70, 3"
(4) Answer: B P210,000 70 610.000 6)
Model E100
Amount %
Sales P700,000 100 Model F900 Total
Less variable
Compam Amount %
expenses _,j8 0Q 40
Amount 'c P300, 000 100
Contribution margin P420.000 60
P1,000.000 100
Less fixed expenses
Net operating
income 90,000 30 170, 400 J
P210, 000 70 630.000 63
0630,000 +P1,000,000 - 63% 198's oo

P 31.500
(5) Answer: B

Break-even point in total peso

sales

Fixed expenses
Overall CM ratio
P598,500
0.63
f2ja in sales

The following information pertain to questions 6 through 9:

Hoopie Company sells a single product. The company's sales and ewer cs for a
recent month follow:
Total Per Unit
Sales P600.000 P40
Less variable expenses 4 0.044 _2j
Contribution margin 180,000 Lu
Lees fixed expenses t SQm
Net operating in ome E, -3

3A-9
t Intl i-.H

6. What is the monthly break-even point in units sold?

a. 12.000 units
h. 12,500 units
c. 15,200 units
d. 11,000 units

7. 1fow many units would have to be sold each month to earn a minimum
target profit of P 18,000?
a. 14,500
b. 12,000
c. 14,000
d. 14,700

8. What is the company's margin of safety in percentage terms?

a. 15%
b. 20%
c. 25%
d. 16.7%

9. If monthly sales increase by P80,000 and there is no change in fixed

expenses, by how much would expect monthly net operating income
you to increase?
a. P20,000
b. P24,500
C. P24,000
d. P42,000

Supporting
Analysis/Computation:

(6) Answer: B

Sale
s = Variable expenses + Fixed expenses + Profits
P40Q = P28Q + P150, 000 + PO
= P150,000
P12Q P150, 000 + P12 per unit
J2 QQMpjyt, or at P40 per unit, P500.000

3A-1o
(7) Answer: C
 L ost-volume-Profit Relatieinshilj
!nits sold to attain target
profit

Fixed expenses r Target

profit Unit contribution
margin P150,000 +
(8) Answer: D P18,000
P12 per unit
Margin of safety in pesos = Total sales - Break-even sales
P600,000-P500,000 = P100,000

Margin of safety in percentage terms:

Margin of safety in pesos
Units sold to attain
target profit Total sales
P100,000
P600,000
,.7N (rounded)

(9) Answer: C
The CM ratio is 30%

Expected total contribution margin: P680, 000 x 30% P204, 000

Present total contribution margin: P600,000 x 30% /801X/0
Incremental contribution margin 4,,QQQ
Alternative solution:
P80, 000 incremental sales x 30% CM ratio = P24, 000
Since in this case the company's fixed expenses will not change,
monthly net operating income will increase by the amount of
the increased contribution margin, P24,000.

Sitntonal
The following information pertain to questions 10 through 12:

Fluffy Inc.'s income statement for the year 2006 on production and sales of
200,000 units is as follows:
Revenues P2,600,000
Cost of goods sold 1.600.000
Gross margin 1,000,000
Marketing and distribution costs 1.l AM
Operating income (loss) U159.00)

?4_11
Unit 3-A
Fluffy's fixed manufacturing costs were P500,000, and variable marketing
distribution costs were P4 per unit.

10. What is Fluffy's variable manufacturing costs per unit in

2006? a. P5.50
b. P4.00
c. P5.75
d. P9.00

11. What is Fluffy's fixed marketing and distribution costs in

2006? a. P550,000
b. P800,000
c. P350,000
d. P500,000
12. The break-even point for the year 2006 in units
is a. 242,858
55,555
68,965
142,857

Supportltea Analysis/Co pupt ;

(10) Answer:A

Cost of goods sold

Fixed manufacturing costs P1,600,000
Variable manufacturing costs 500.000
(.100.000
Variable mans facturing
PS 5 costs per unit = P1,100, 000 + 200, 000 =

(11) Answer: C

I
Total marketing and distribution costs P1,150, 000

Variable marketing and distribution

costs 8 0 0
P 35Q.f1QQ
Fixed manufacturing and distribution
costs

31A-12
 Cost- Volume-Profit Relationships

(12) Answer: A
Fixed manufacturing marketing & distribution
Gcorsetas t-even point in units =
Contribution margin per unit
P850,000
P3.50
242.858

13. Cost-volume-profit analysis is a technique available to management to

understand better the interrelationships of several factors which affect
a i frm's profit. As with many such techniques, the accountant
oversimplifies the real world by making assumptions. Which of
the following is not a major assumption underlying cost-volume-
profit analysis?
a. All costs incurred by a firm can be separated into their fixed
and variable components.
b. The product selling price per unit is constant at all volume levels.
C. Operating efficiency and employee productivity are constant at all
volume levels.
d. For multiproduct situations the sales mix can vary at all volume
levels. (CMA
adapted)

Answer: D

14. Region Company sells a product for P35 per unit, and the
variable production and sales costs are P21 per unit. If Region
Company adopts a 40 Percent increase in selling price of its product,
how much can unit sales decline before total profits decline?
a. 40 percent. C. 57 percent.
b. 50 pavent, d. 100 percent.

Answer: B
Sxp *rdnt Awttlyslvl wwwMtbw:
h Te contribution margin was P14 (P35 - P21) without this price increa+e ande by
volume could deelln
P28 (P35 x 1.4 - P21) with the increase. Thus, sales
50 percent before profits would fall below profit level without sales increase-

Mr-13
Unit 3-A

Situational
The following data apply to items 15 through 19.

The MABES Company uses a profit-volume graph similar to the one shown
below to represent the cost/volume/profit relationships of its operations. The
vertical ty-axis) is the profit in pesos and the horizontal (x-axis) is the volume in
units. The diagonal line is the contribution margin line.

Profit
in P

Volume
in units

15. Point A on the profit-volume graph represents

a. the point where fixed costs equal sales.
b. the point where fixed costs equal variable costs.
c. a volume level of zero units.
d. the point where total costs equal total sales.

16. The vertical distance from the dotted line to the contribution margin
line denoted as B on the profit-volume graph represents
a. the total contribution margin.
b. the contribution margin per unit.
c. the contribution margin rate.
d. total sales.
 Cost-Volume-Profit Relationships

IfMAtil•;S Company's fixed costs were to increase,

It. the contribution margin line would shift upward parallel to the
present line.
h. the contribution margin line would shift downward parallel to
the present line.
C. the slope of the contribution margin line would be more
pronounced (steeper).
d. the slope of the contribution margin line would he less pronounced
(halter).

1 8. If MARI'.S Company's variable costs per unit were to increase but its unit
selling price stays constant,
a. the contribution margin line would shift upward parallel to the
present line.
h. the contribution margin line would shift downward parallel to
the present line.
C. the slope of the contribution margin line would be more
pronounced (steeper).
d• the slope of the contribution margin line would be less pronounced
Mauer).

19. It' MARES Company decided to increase its unit selling price to offset
exactly the increase in the variable cost per unit,
a. the contribution margin line would shift upward parallel to the
present line.
h. the contribution margin line would shift downward parallel to the
present line.
e• the slope of the contribution margin line would be more pronounced
(steeper).
d. the contribution margin line would coincide with the present
contribution margin line.

Swppnrting Analysis computation:

(1 5) Answer: D
- sales equals total costs
The paint where the company has cnoosts.profit
or contrihunun margin equals fired
 Unit 3-A

(16) Answer: A
in the problem :.s a ,
The line referred to ontributi',n line. As
volume
increases, the total contribution margin increased. The
distance
labeled B represents total contribution margin.

(17) Answer: B
will cause the loss to be greater at
An increase
zero volume in fixed costs
and it will take a larger volume to breakeven.
The slope ojthe contribution margin line, however, will
not change.

(18) Answer: D
will re.sult
An increase in the variable costs with no change in sales
in a decrease
in the contribution and cause the line to slope more
to the
right.

(19) Answer: D
There would be no change in the contribution margin per unit; thus,
no change in the contribution margin line.
20. A semivariable cost:
a. increases and decreases directly and proportionately with changes
in volume.
b. changes in response to a change in volume, but not proportionately.
c.
increases if volume increases but remains constant if volume
d. decreases.
changes inversely in response to a change in volume.
Answer: B
21. 21.

Which of the following is an example of a fixed cost for an airline? a.

b. Depreciation on the corporate headquarters. Fuel costs.
C.
d. Income taxes
expenses. Passengers'
meals.

Answer: A
22.
Mah expects
on million, a total
s and
na contribution sales of P30 million, a margin of safety of
PIO rate of 40%• Which of the following
estimated
istent with this information?
3A-16