Quiz on CVP Analysis

1. A variable cost varies with the

a. Number of units manufactured
b. Level of some activity
c. Number of units sold
d. Selling price of the product

2. Stockton Inc.’s average cost per unit is the same at all levels of volume.
Which of the following is true?
a. The company must have only variable costs.
b. The company must have only fixed costs.
c. The company must have some fixed costs and some variable costs.
d. The company’s cost structure cannot be determined from this
information.

3. Identifying cost drivers

a. is not necessary with regression analysis
b. is an important part of cost management
c. is the same as identifying cost pools
d. is useful only with step-variable costs

4. Which cost is LEAST likely to be direct to a particular product?

a. salaries of salespeople who sell all of the company’s products
b. advertising of the product
c. license fees paid to the designer of the product
d. cost of materials used to make the product

5. Breakeven analysis assumes that over the relevant range total

a. Revenues are linear
b. Costs are unchanged
c. Variable costs are nonlinear
d. Fixed costs are nonlinear

6. True or False:
a. A shift in sales mix towards less profitable products will cause the
overall breakeven point to fall.
b. One way to compute breakeven point is to divide total sales by the
cost margin ratio.
c. Once the breakeven point has been reached, net income will increase
by the unit contribution margin for each additional unit sold.

7. The contribution margin ratio always increases when

a. Breakeven point decreases
b. Breakeven point increases
c. Variable cost as a percentage of net sales increases
d. Variable cost as a percentage of net sales decreases
8. Working on a CVP analysis, the accountant is unsure of the exact results
and/or assumptions under which to operate. What can the accountant do
to help management in this decision?
a. Nothing, It is not the responsibility of the accountant to be concerned
with the ambiguity of the results and/or assumptions.
b. Ascertain the probabilities of various outcomes and work with
management in understanding those probabilities in reference to the
decision.
c. Calculate the probabilities of various outcomes and make the decision
of the company.
d. Use a random table to generate a decision model and make the
decision for the company.

9. A company’s breakeven point in sales pesos may be affected by equal

percentage increases in both selling price and variable costs per unit
(assume all other factors are constant within the relevant range). The
equal percentage changes in selling price and variable cost per unit will
cause the breakeven point in sales pesos to
a. Decrease by less than the percentage increase in selling price
b. Decrease by more than the percentage increase in selling price
c. Increase by the percentage change in variable cost per unit
d. Remain unchanged

10. Which of the following decreases per unit contribution margin the most
for a company currently earning a profit
a. 10% increase in fixed costs
b. 10% increase in variable cost per unit
c. 10% increase in fixed cost per unit
d. 10% decrease in selling price

11. The indifference point is the level of volume at which a company

a. earns the same profit under different operating schemes
b. earns no profit
c. earns its target profit
d. any of the above

12. Critical to CVP analysis in a multiproduct company is that

a. The products be complementary
b. The products be sold to the same kinds of customers
c. The sales mix is relatively constant
d. All products have about the same contribution margin percentage

1. Technobus Corp. would like to market a new product at a selling price of

Php15 per unit. Fixed costs for this product are Php1 million for less than
500,000 units of output, and Php1.5 million for 500,000 or more units of
output. The contribution margin percentage is 20%. How many units of
this product must be sold to earn a target operating income of Php1
million?
2. Fiyero Diamonds Inc. is contemplating marketing a new product. Fixed
costs will be Php800,000 for production of 75,000 units or less and
Php1,200,000 if production exceeds 75,000 units. The variable cost ratio
is 60% for the first 75,000 units; however, contribution margin
percentage will increase to 50% for units in excess of 75,000. If the
product is expected to sell for Php25 per unit, how many units must
Fiyero sell to breakeven?

3. Miucci Co. sells 50,000 units of shoelaces. These were taken from the
company’s records:
Accounts receivable Php129,000
Days sales outstanding 15 days
Contribution margin ratio 49%
Profit for the period Php485,040
The ending receivable balance is the average balance over the year.
Assume a 360-day year. All sales are on credit. Determine the company’s
break-even revenue.

4. A retail company determines its selling price by marking up variable costs

60%. In addition, the company uses frequent selling price markdowns to
stimulate sales. If markdowns average 10%, what is the company’s
contribution margin ratio?

5. Product A, with 60% variable cost percentage, accounts for 75% of a

company’s total sales revenue. Product B, with 85% variable cost
percentage, accounts for 25% of revenues. What is the breakeven point
given fixed costs of Php150,000?

6. Machine A has fixed costs of Php450,000 and a variable cost of Php20.

Machine B has fixed costs of Php600,000 and a variable cost of Php14.
What is the indifference point in units?

7. Last year, the contribution margin ratio of Red Towels Inc. was 30%. This
year, fixed costs are expected to be Php120,000, same as last year’s, and
sales are forecasted at Php550,000, a 10% increase over last year’s. What
must be the contribution margin ratio for the company to increase income
by Php15,000 in the coming year?

8. Wheels Corp. employs 45 sales personnel to market its sedan cars. The
average car sells for Php690,000 and a 6% commission is paid to the
salesperson. It is considering changing the scheme to a commission
arrangement that would pay each person a package of Php30,000 plus a
commission of 2% of the sales made by the person. The amount of total
monthly car sales at which Wheels Corp. would be indifferent as to which
plan to select is _________.
1. A
2. A
3. B
4. A
5. A
6. FFT
7. D
8. B
9. D
10. D
11. A
12. C

1. 833,334 units
2. 96,000 units
3. Php2,106,122
4. 30.6%
5. Php444,444
6. 25,000 units
7. 30%
8. Php33,750,000 – 33,810,000