Cost-Volume-

MODULE4 7. Whichofthefactorsis(are)involvedinstudyingcost-volume-profitrelationships?
COST-VOLUME-PROFITANALYSIS A. Levelsofproduction C.Fixedcosts
B. Variablecosts D.Allofthese Bobadilla
THEORIES:
1. TowhichfunctionofmanagementisCVPanalysismostapplicable? 8. Atthebreakevenpoint,fixedcostisalways
A. Planning C.Directing A. Lessthanthecontributionmargin C.Morethanthecontributionmargin
B. Organizing D.Controlling Bobadilla B. Equaltothecontributionmargin. D.Morethanthevariablecost Bobadilla
2. Thesystematicexaminationoftherelationshipsamongsellingprices,volumeofsalesand 9. Atthebreak-evenpoint:
production, costs, and profits is termed: A. netincomewillincreasebytheunitcontributionmarginforeachadditionalitemsold above
A. contributionmarginanalysis C.budgetaryanalysis break-even.
B. cost-volume-profitanalysis D.grossprofitanalysis Bobadilla B. thetotalcontributionmarginchangesfromnegativetopositive
C. fixedcostsaregreaterthancontributionmargin
3. Thetermcontributionmarginisbestdefinedasthe: D. thecontributionmarginratiobeginstoincrease Bobadilla
A. differencebetweenfixedcostsandvariablecosts.
B. differencebetweenrevenueandfixedcosts. 10. Incost-volume-profitanalysis,thegreatestprofitwillbeearnedat
C. amountavailabletocoverfixedcostsandprofit. A. Onehundredpercentatnormalproductivecapacity.
D. amountavailabletocovervariablecosts. Bobadilla B. Theproductionpointwiththelowestmarginalcost.
C. Theproductionpointatwhichaveragetotalrevenueexceedsaveragemarginalcost.
4. Cost-volume-profitanalysisallowsmanagementtodeterminetherelativeprofitabilityofa product D. Thepointatwhichmarginalcostandmarginalrevenueareequal. Bobadilla
by
A. Highlightingpotentialbottlenecksintheproductionprocess. 11. WhichofthefollowingisnotanassumptionunderlyingC-V-Panalysis?
B. Determiningthecontributionmarginperunitandprojectedprofitsatvariouslevelsof A. Thebehavioroftotalrevenueislinear.
production. B. Unitvariableexpensesremainunchangedasactivityvaries.
C. Assigningcoststoaproductinamannerthatmaximizesthecontributionmargin. C. Inventorylevelsatthebeginningandendoftheperiodarethesame.
D. Keepingfixedcoststoanabsoluteminimum. Bobadilla D. Thenumberofunitsproducedexceedsthenumberofunitssold. Bobadilla
5. Cost-volume-profitanalysiscannotbeusedifwhichofthefollowingoccurs? 12. WhichofthefollowingassumptionsisinherenttoC-V-Panalysis?
A. Costscannotbeproperlyclassifiedintofixedandvariablecosts. A. Inmanufacturingfirms,thebeginningandendinginventorylevelsarethesame.
B. Theperunitvariablecostschange. B. Inamulti-productorganization,thesalesmixvariesovertime.
C. Thetotalfixedcostschange. C. Thebehavioroftotalrevenueiscurvilinear.
D. Perunitsalespriceschange. Bobadilla D. herelevantrangeisnotaconsideration. Bobadilla
6. Themostusefulinformationderivedfromabreakevenchartisthe 13. Whichofthefollowingassumptionsiscloselyrelevanttocost-volume-profitanalysis?
A. Amountofsalesrevenueneededtocoverenterprisevariablecosts. A. formultipleproductanalysis,thesalesmixisnotimportant
B. Amountofsalesrevenueneededtocoverenterprisefixedcosts. B. inventorylevelsremainunchanged
C. Relationshipamongrevenues,variablecosts,andfixedcostsatvariouslevelsofactivity. C. total fixed costsand unit variable costs can be identifiedand remain constant over the
D. Volumeoroutputlevelatwhichtheenterprisebreakseven. Bobadilla relevant range
D. BandC Bobadilla

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20. Asprojectednetincomeincreasesthe
14. Advocatesofcost-volume-profitanalysisarguethat: A. degreeofoperatingleveragedeclines. C.break-evenpointgoesdown. Bobadilla
A. Fixedcostsareirrelevantfordecisionmaking. B. marginofsafetystaysconstant. D.contributionmarginratiogoesup.
B. FixedcostsaremandatoryforCVPdecisionmaking.
C. Differentiationbetweenthepatternsofvariablecostsandfixedcostsiscritical. 21. Given the following notations, what is the breakeven sales level in units?
D. Fixedcostsarenecessarytocalculateinventoryvaluations. Bobadilla SP=sellingpriceperunit
FC=totalfixedcost
15. Withrespecttofixedcosts,C-V-Panalysisassumestotalfixedcosts VC=variablecostperunit
A. perunitremainsconstantasvolumechanges A. SP/(FC/VC) C.VC/(SP–FC)
B. remainconstantfromoneperiodtothenext B. FC/(VC/SP) D.FC/(SP–VC) Bobadilla
C. varydirectlywithvolume
D. remainconstantacrosschangesinvolume Bobadilla 22. A company increased the selling price for its product from P1.00 to P1.10 a unit when total
fixedcostsincreasedfromP400,000toP480,000andvariablecostperunitremained
16. TheCVPmodelassumesthatovertherelevantrangeofactivity: unchanged.Howwouldthesechangesaffectthebreakevenpoint?
A. onlyrevenuesarelinear. C.unitvariablecostisnotconstant.Bobadilla A. Thebreakevenpointinunitswouldbeincreased.
B. totalfixedcostchanges. D.revenuesandtotalcostsarelinear. B. Thebreakevenpointinunitswouldbedecreased.
C. Thebreakevenpointinunitswouldremainunchanged.
17. WhichofthefollowingisnotalimitingfactorofCost-Volume-Profitanalysis? D. Theeffectcannotbedeterminedfromtheinformationgiven. Bobadilla
A. Theprocessassumesalinearrelationshipamongthevariables.
B. Theprocessassumesvariablecostsperunitareavailable. 23. On January 1, 2007, Incremental Company increased its direct labor wage rates.All other
C. Efficiencyisassumedtobeconstant. budgetedcosts andrevenueswere unchanged.How didthis increaseaffectIncremental
D. Inventorylevelsareassumedtonotchange. Bobadilla Company’sbudgetedbreak-evenpointandbudgetedmarginofsafety?
Bobadilla A. B. C. D.
18. Cost-volume-profit analysis is a technique available to managementto understand better the BudgetedBreak-evenPoint Increase Increase Decrease Decrease
interrelationships ofseveral factorsthataffectafirm'sprofit.Aswithmanysuchtechniques, the ExpectedMarginofSafety Increase Decrease Decrease Increase
accountant oversimplifies the real world by making assumptions.Which of the following is
notamajorassumptionunderlyingCVPanalysis? 24. Asthevariablecostincreasesbutthesellingpriceremainsconstant,the
A. Allcostsincurredbyafirmcanbeseparatedintotheirfixedandvariablecomponents. A. Degreeofoperatingleveragedeclines C.Breakevenpointgoesdown Bobadilla
B. Theproduct’ssellingpriceperunitisconstantatallvolumelevelswithinarelevantrange. B. Marginofsafetystaysconstant D.Contributionmarginratiogoesup
C. Operatingefficiencyandemployeeproductivityisconstantatallvolumelevels.
D. Formulti-productsituations,thesalesmixcanvaryatdifferentvolumelevels. Bobadilla 25. Averyhighdegreeofoperatingleverage(DOL)indicatesthatafirm:
A. hashighfixedcosts. C.hashighvariablecosts. Bobadilla
19. Pines Company has a higher degree of operating leverage than Tagaytay Company. Which B. hasahighnetincome. D.isoperatingclosetoitsbreakevenpoint.
ofthefollowingistrue?
A. Pineshashighervariableexpense. 26. Withtheaidofcomputersoftware,managerscanvaryassumptionsregardingsellingprices, costs,
B. PinesismoreprofitablethanTagaytayCompany’s. and volume and can immediately see the effects of each change on the break-even point
C. PinesismoreriskythanTagaytayis. and profit.Such an analysis is called
D. Pines'profitsarelesssensitivetopercentagechangesinsales. Bobadilla A. “Whatif”orsensitivityanalysis. C.Computeraidedanalysis.
B. Varythedataanalysis. D.Datagathering. Bobadilla

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27. Ifacompanyraisesitstargetpesoprofit,its 32. Onacost-volume-profitchart(break-evengraph),wherearethetotalfixedcostsshown?

A. break-evenpointrises. A. Asthepointwherethesaleslineintersectstheverticalaxis(pesos)
B. fixedcostsincrease. B. Asthepointwherethesaleslinecrossesthetotalcostline
C. requiredtotalcontributionmarginincreases. C. Asthepointwherethesaleslinecrossesthehorizontalaxis(volume)
D. sellingpricerises. Bobadilla D. Asthepointwherethetotalcostlineintersectstheverticalaxis(pesos) Bobadilla
28. BroadwayCompanysellsthreeproducts:A,BandC.ProductA'sunitcontributionmarginis higher 33. Whenusingconventionalcost-volume-profitanalysis,someassumptionsaboutcostsand
than Product B's which is higher than Products C's. Which one of the following events is salespricesaremade.Whichofthefollowingisoneofthoseassumptions?
mostlikelytoincreasethecompany'soverallbreak-evenpoint? A. Thecontributionmarginwillchangeasvolumeincreases
A. Theinstallationofnewautomatedequipmentandsubsequentlay-offoffactoryworkers. B. Thevariablecostperunitwilldecreaseasvolumeincreases
B. AdecreaseinProductC'ssellingprice. C. Thesalespriceperunitwillremainconstantasvolumeincreases
C. AnincreaseintheoverallmarketdemandforProductB. D. Fixedcostperunitwillremainthesameasvolumeincreases Bobadilla
D. Achangeintherelativemarketdemandfortheproducts,withtheincreasefavoring Product A
relative to Product B and Product C. Bobadilla 34. Classifyingacostasfixedorvariabledependsonhowitbehaves
A. perunit,asthevolumeofactivitychanges.
29. Whichofthefollowingisnotabenefitofusingsensitivityanalysis? B. intotal,asthevolumeofactivitychanges.
A. Morepeoplecanseetheimpactoftheirideasontheproject. C. bothAandBarecorrect.
B. Theuseofaspreadsheetprogramincreasestheaccuracyoftheprojections. D. noneoftheabove. Bobadilla
C. What will happen is not known in advance so a variety of options can be explored prior
tomaking a decision.
35. A fixed cost is the same percentage of sales in three different months.Which of the following
D. A well-written spreadsheet will allow for a variety of questions to be answered in a minimal
is true?
amount of time. Bobadilla
A. Thecompanyhadthesamesalesineachofthosemonths.
B. Thecostisbothfixedandvariable.
30. A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area of Profitability". Which
C. Thecompanyisoperatingatitsbreak-evenpoint.
ofthefollowingbestexplainsthedifferencebetweenthetwopointsonthegraph?
D. Thecompanyisachievingitstargetlevelofprofit. Bobadilla
A. TheareaoflossrepresentsthedifferencebetweenSalesandVariableCost.
B. The area of loss begins with the concept that fixed costs have to be recovered prior to
36. Per-unitvariablecost
salescontributingtoprofit.
A. remainsconstantwithintherelevantrange.
C. TheareaofprofitrepresentsthedifferencebetweenSalesandVariableCost.
B. increasesasvolumeincreaseswithintherelevantrange.
D. The areaof profitbegins with theconcept that nocompany would haveany levelof sales
C. decreasesasvolumeincreaseswithintherelevantrange.
below the break-even point. Bobadilla
D. decreasesifvolumeincreasesbeyondtherelevantrange. Bobadilla
31. Whichofthefollowingbestdescribestheimpactofsellingmoreunits?
37. In planning product mix for maximum profit, CVP analysis would stimulate sales of the productby
A. Theincreaseinsalesvolumeincreasestotalvariablecost.
increasing the:
B. Theincreaseinsalesvolumemeansanincreaseintotalfixedcost.
A. salesprice C.contributionmargin
C. Theincreaseinsalesincreasescontributionmargin,causingnetincometodecrease.
B. variablecostperunit D.emphasisoncustomerpriority Bobadilla
D. The increase in sales increases contribution margin per unit causing the break-even pointto
decrease. Bobadilla
38. Arelativelylowmarginofsafetyratioforaproductisusuallyanindicationthattheproduct:

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A. islosingmoney A. thebreak-evenpoint. C.totalvariablecosts.
B. hasahighcontributionmargin B. contributionmargin. D.unitsellingprice. Bobadilla
C. isriskierthanhighermarginofsafetyproducts
D. islessriskythanhighermarginofsafetyproducts Bobadilla 47. Themostlikelystrategytoreducethebreakevenpointwouldbeto
A. Increaseboththefixedcostsandthecontributionmargin.
39. Withintherelevantrange,totalrevenuesandtotalcosts B. Decreaseboththefixedcostsandthecontributionmargin.
A. increase,butatadecreasingrate. C.remainconstant. C. Decreasethefixedcostsandincreasethecontributionmargin.
B. decrease. D.canbegraphedasstraightlines.Bobadilla D. Increasethefixedcostsanddecreasethecontributionmargin. Bobadilla
40. AnassumptioninaCVPanalysisisthatachangeincostsiscausedbyachangein 48. Thebreak-evenpointintotalsalesdecreaseswhen:
A. unitdirectmaterialcost C.salescommissionperunit Bobadilla A. variablecostincreasesandsalesremainunchanged
B. thenumberofunits D.efficiencyduetolearningcurveeffect B. variablecostincreasesandsalesincrease
C. fixedcostincreases
41. In CVP analysis, when the number of units changes, which one of the following will remain the D. fixedcostdecreases Bobadilla
same?
A. Totalsalesrevenues C. Totalfixedcosts 49. Whichofthefollowingbestdescribestheimpactofanincreaseinfixedcost?
B. Totalvariablecosts D. Totalcontributionmargin Bobadilla
A. Theincreaseinfixedcostwillresultinanincreaseinsellingmoreunits.
B. Theincreaseinfixedcostwillcauseanincreaseinvariablecost.
42. Asfixedcostsforafirmrise,allotherthingsheldconstant,thebreakevenpointwill C. The increasein fixedcost causes net income to decreaseand the break-even pointto
A. beunchanged C. increase decrease.
B. notbeaffectedbyfixedcosts D. decrease Bobadilla D. The increasein fixedcost causes net income to decreaseand the break-even pointto
increase. Bobadilla
43. Whichofthefollowingwouldnotaffectthebreakevenpoint?
A. Numberofunitssold. C. Totalfixedcosts. 50. A company’s breakeven point in peso sales may be affected by equal percentage increases in
B. Variablecostperunit. D. Salespriceperunit. Bobadilla bothsellingpriceandvariablecostperunit(assumeallotherfactorsareequalwithinthe
relevantrange).Theequalpercentagechangesinsellingpriceandvariablecostperunitwill cause
44. ThemarginofsafetyisakeyconceptofCVPanalysis.Themarginofsafetyis the breakeven point in peso sales to
A. Thecontributionmarginrate. A. Decreasebylessthanthepercentageincreaseinsellingprice.
B. Thedifferencebetweenbudgetedcontributionmarginandactualcontributionmargin. B. Decreasebymorethanthepercentageincreaseinthesellingprice.
C. Thedifferencebetweenbudgetedcontributionmarginandbreakevencontributionmargin C. Increasebylessthanthepercentageincreaseinsellingprice.
D. Thedifferencebetweenbudgetedsalesandbreakevensales. Bobadilla D. Remainunchanged. Bobadilla
45. A technique for determining what would happen in a decision analysis if a key prediction or 51. If the fixed costs attendantto a product increase while variable costs and sales price remains
assumption proves to be wrong is called: constant, what will happen to contribution margin (CM) and breakeven point (BEP)?
A. CVPanalysis. C.Post-auditanalysis. Bobadilla Bobadilla A. B. C. D.
B. Sensitivityanalysis. D.Contribution-marginvariationanalysis.
CM Increase Decrease Unchanged
Unchanged
46. Anincreasein theunitvariablecostwill generallycauseanincreaseinallofthefollowing except
BEP Decrease Increase Increase Unchanged

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52. Whichofthefollowingwilldecreasethebreakevenpoint?

Bobadilla

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DecreaseinSellingPrice IncreaseinDirectLabor IncreaseinFixedCost 57. Whichofthefollowingdecreasesper-unitcontributionmarginthemostforacompanythatis
A. YES YES YES currentlyearningaprofit?
B. YES NO YES A. A10%decreaseinsellingprice. C.A10%increaseinfixedcosts. Bobadilla
C. NO NO YES B. A10%increaseinvariablecostperunit. D.A10%increaseinfixedcostperunit.
D. NO NO NO
58. Ifvariablecostasapercentageofsalesincreases,the
53. Whichofthefollowingisanincorrectstatement? A. contributionmarginpercentageincreases.
A. The contribution income statement that is prepared for internal users is better than the B. sellingpriceincreases.
traditionalincomestatementasamanagementtooltopredicttheresultsofincreasesor C. break-evenpointinpesosincreases.
decreasesinsalesvolume,variablecosts,andfixedcosts. D. fixedcostsdecrease. Bobadilla
B. Thegreatertheproportionoffixedcostsinafirm'scoststructure,thesmallerwillbethe
impactonprofitfromagivenpercentagechangeinsalesrevenue. 59. Introducingincometaxesintocost-volume-profitanalysis
C. In an economic recession, the highly automated company with high fixed costs will be less A. raisesthebreak-evenpoint.
able to adapttolower consumerdemandthan willa firm with a more labor-intensive B. lowersthebreak-evenpoint.
productionprocess. C. increasesunitsalesneededtoearnaparticulartargetprofit.
D. A major difference between income statements prepared under the traditional format and D. decreasesthecontributionmarginpercentage. Bobadilla
those prepared under the contribution format is that expenses under the traditional formatare
shown by function, while the expenses shown under the contribution format are 60. Ifacompanyisearningaprofit,itsfixedcosts
shownbyfunctionandcostbehavior. Bobadilla A. arelessthantotalcontributionmargin.
B. areequaltototalcontributionmargin.
54. Ifacompanyisoperatingataloss, C. aregreaterthantotalvariablecosts.
A. fixedcostsaregreaterthansales. D. canbegreaterthanorlessthantotalcontributionmargin. Bobadilla
B. sellingpriceislowerthanthevariablecostperunit.
C. sellingpriceislessthantheaveragetotalcostperunit. 61. Acost-volume-profitgraphreflectsrelationships
D. fixedcostperunitisgreaterthanvariablecostperunit. Bobadilla A. thatareexpectedtoholdovertherelevantrange.
B. ofresultsoverthepastfewyears.
55. Asvolumeincreases,averagecostperunit C. thatthecompany'smanagerswouldliketohavehappen.
A. increases. D. likelytoprevailfortheindustry. Bobadilla
B. decreases.
C. remainsconstant. 62. Thefollowingdiagramisacost-volume-profitgraphforamanufacturingcompany.
D. increasesinproportiontothechangeinvolume. Bobadilla E

56. Ifallgoesaccordingtoplanexceptthatunitvariablecostfalls, P
A. totalcontributionmarginwillbelowerthanexpected. C
B. thecontributionmarginpercentagewillbelowerthanexpected. D
C. profitwillbehigherthanexpected.
D. per-unitcontributionmarginwillbelowerthanexpected. Bobadilla A B

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O
A. expectedmix C.mostdesirablemix
Volume
B. leastdesirablemix D.traditionalmix Bobadilla
ThedifferencebetweenlineABandlineAC(areaBAC)isthe
A. contributionratio. C.totalvariablecost.
69. Whichofthefollowingisatruestatementaboutsalesmix?
B. contributionmarginperunit. D.totalfixedcost. Bobadilla
A. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell
more of the high contribution margin product.
63. Selecttheanswerthatbestdescribesthelabeleditemonthediagram.
B. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell
A. AreaCDErepresentstheareaofnetloss.
more ofthe lowercontribution marginproduct.
B. LineACgraphstotalfixedcosts.
C. Profits will remain constant with an increase in total peso of sales if the total sales in units
C. PointDrepresentsthepointatwhichthecontributionmarginperunitincreases.
remains constant.
D. LineACgraphstotalcosts. Bobadilla
D. Profitswill remainconstantwith adecreasein totalpeso ofsales if thesales mixalso
remainsconstant. Bobadilla
64. Inacost-volume-profitgraph
A. thetotalrevenuelinecrossesthehorizontalaxisatthebreakevenpoint. Bobadilla
B. beyondthebreakevensalesvolume,profitsaremaximizedatthesalesvolumewhere total PROBLEMS:
revenues equal total costs. 1
. Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the
C. anincreaseinunitvariablecostswoulddecreasetheslopeofthetotalcostline.
followingmonthlycosts:
D. anincreaseintheunitsellingpricewouldshiftthebreakevenpointinunitstotheleft. Variablecosts P7,500
Fixedcosts 15,000
65. Anincreaseintheincometaxrate Whatsalespriceperplantdoessheneedtoachievetobeginmakingaprofitifshesellsthe estimated
A. raisesthebreak-evenpoint. number of plants per month?
B. lowersthebreak-evenpoint. A.P7.51 C.P5.00
C. decreasessalesrequiredtoearnaparticularafter-taxprofit. B.P7.50 D.P2.50 Bobadilla
D. increasessalesrequiredtoearnaparticularafter-taxprofit. Bobadilla
2
.Anorganization'sbreak-evenpointis4,000unitsatasalespriceofP50perunit,variablecost
66. Ifthesalesmixshiftstowardhighercontributionmarginproducts,thebreak-evenpoint ofP30perunit,andtotalfixedcostsofP80,000.Ifthecompanysells500additionalunits,by how
A. decreases. much will its profit increase?
B. increases. A.P25,000 C.P10,000
C. remainsconstant. B.P15,000 D.P12,000 Bobadilla
D. itisimpossibletotellwithoutmoreinformation. Bobadilla
3
.TheRedLionsBrotherhoodisplanningitsannualRiverboatExtravaganza.TheExtravaganza
67. Targetcostingis committeehasassembledthefollowingexpectedcostsfortheevent:
A. asubstituteforCVPanalysis. Dinnerperperson P 70
B. usedbycompaniesthatcannotclassifytheircostsbybehavior. Programsandsouvenirperperson 30
C. inappropriateifacompanyhasalreadyestablishedatargetprofit. Orchestra 15,000
D. usedindecisionstoofferanewproductorenteranewmarket. Bobadilla Ticketsandadvertising 7,000
Riverboatrental 48,000
68. In order for the break-even computation to be meaningful to management, sales mix should be Floorshowandstrollingentertainment 10,000
computed usingthe ThecommitteememberswouldliketochargeP300perpersonfortheevening’sactivities.

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Assume that only 250 persons are expected to attend the extravaganza, what ticket price must 9
.ThesalespriceperunitwillincreasefromP32toP40.Thevariablecostperunitwillremainat
bechargedtobreakeven? P24,andthefixedcostswillremainunchangedatP400,000.Howmanyfewerunitsmustbe
A.P420 C.P320 soldtobreak-evenatthenewsalespriceofP40perunit?
B.P350 D.P390 Bobadilla A.25,000 C.10,000
B.2,500 D.12,500 Bobadilla
4
. Considerthefollowing:
Fixedexpenses P78,000 10
.The Hard Company sells widgets.The company breaks even at an annual sales volume of
Unitcontributionmargin 12 80,000units.Atanannualsalesvolumeof100,000unitsthecompanyreportsaprofitof
Targetnetprofit 42,000 P220,000.TheannualfixedcostsfortheHardCompanyare:
Howmanyunitsalesarerequiredtoearnthetargetnetprofit? A.P880,000 C.P800,000
A. 15,000units C.12,800units B.P1,100,000 D.P1,000,000 Bobadilla
B. 10,000units D.20,000units Bobadilla
11
.AlbatrossCompanyhasfixedcostsofP90,300.AtasalesvolumeofP360,000,returnon
5
.CarribeanCompanyproducesaproductthatsellsforP60.Thevariablemanufacturingcosts are P30 salesis10%;ataP600,000volume,returnonsalesis20%.Whatisthebreak-evenvolume?
per unit. The fixed manufacturing cost is P10 per unit based on the current level of activity, A.P225,000 C.P301,000
and fixed selling and administrative costs are P8 per unit. A selling commission of 10%of the B.P258,000 D.P240,000 Bobadilla
selling price is paid on each unit sold.
Thecontributionmarginperunitis: 12
.AnentityhasfixedcostsofP200,000andvariablecostsperunitofP6.Itplansonselling
A.P24. C.P30. 40,000unitsinthecomingyear.Iftheentitypaysincometaxesonitsincomeatarateof 40%, what
B.P36. D.P54. Bobadilla sales price must the firm use to obtain an after-tax profit of P24,000 on the 40,000 units?
A.P11.60 C.P12.00
6
.Seal Yard Ornaments sells lawn ornaments for P15 each. Seal's contribution margin ratio is B.P11.36 D.P12.50 Bobadilla
40%.FixedcostsareP32,000.Shouldfixedcostsincrease30%,howmanyadditionalunits will
Seal have to produce and sell in order to generate the same net profit as under the current 13
.The following is the Lux Corporation's contribution format income statement for last month:
conditions? Sales P2,000,000
A.1,600. C.6,933. Lessvariableexpenses 1,400,000
B.5,333. D.1,067. Bobadilla Contributionmargin 600,000
Lessfixedexpenses 360,000
7
.Atabreak-evenpointof5,000unitssold,variableexpenseswereP10,000andfixedexpenses Netincome P240,000
wereP50,000.Theprofitfromthe5,001stunitwouldbe? Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswereproduced
A. P10 C.P15 andsoldlastmonth.Whatisthecompany'sdegreeofoperatingleverage?
B. P50 D.P12 Bobadilla A.0.12 C.2.50
B.0.40 D.3.30 Bobadilla
8
. Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000.Based on
thisrelationship,whatisitsprojectedprofitatP1,200,000sales? 14
.DelmarCompanyhastheopportunitytoincreaseitsannualsalesbyP125,000bysellingtoa
A.P50,000 C.P150,000 new,riskiergroupofcustomers.Theuncollectibleexpenseisexpectedtobe10%,and
B.P200,000 D.P400,000 Bobadilla collection costs will be 10%.The company’s manufacturing and selling expenses are 70% of

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sales,anditseffectivetaxrateis40%. IfDelmarweretoacceptthisopportunity,the
company’s after tax profits would increase by .The following economic data were provided by the corporate planning staff of Heaven, Inc.:
20
A.P7,500 C.P12,500 Sales volume 30,000 units
B.P6,000 D.P15,000 Bobadilla Salespriceperunit P30
Unitvariablecosts:
15
.In2006LuciaCompanyhadanetlossofP8,000.Thecompanysellsoneproductwitha selling Variablemanufacturing P13
price of P80 and a variable cost per unit of P60.In 2007, the company would like to Othervariablecosts 8
earnabefore-taxprofitofP40,000.Howmanyadditionalunitsmustthecompany sellin2007 Unitvariablecosts P21
thanitsoldin2006?Assumethatthetaxrateis40percent. Unitcontributionmargin P8
A.1,600 C.2,000
B.2,400 D.5,400 Bobadilla Fixedcosts:
Manufacturing P150,000
16
.BulusanCompanyhassalesofP400,000withvariablecostsofP300,000,fixedcostsof Otherfixedcosts P50,000
P120,000, and an operating loss of P20,000.How much increase in sales would Bulusan Totalfixedcosts P200,000
needtomakeinordertoachieveatargetoperatingincomeof10%ofsales? Themanagementisconsideringinstallinganew,automatedmanufacturingprocessthatwill
A.P400,000 C.P500,000 increasefixedcostsbyP50,000andreducevariablemanufacturingcostbyP3perunit.The
B.P462,000 D.P800,000 Bobadilla management set a target a profit of P70,000 before and after the acquisition of the automated
machine. After installation of the automated machine, what will be the change in the units
.ThefollowingdataapplytoDivaCorporationfortheyear2006:
17
required to achieve the target profit?
Totalvariablecostperunit P3.50 A. 6,667unitincrease C.3,333unitdecrease
Contributionmargin/sales 30% B. 5,667unitdecrease D.4,333unitdecrease Bobadilla
Breakevensales(presentvolume) P1,000,000
Diva wantsto sellanadditional50,000 unitsat thesame sellingprice andcontributionmargin 21
.InplanningitsoperationsfornextyearbasedonasalesforecastofP6,000,000,Herran,Inc. prepared
perunit.Byhowmuchcanfixedcostsincreasetogenerateagrossmarginequalto10%of the following estimated costs and expenses:
thesalesvalueoftheadditional50,000unitstobesold?
Variable Fixed
A.P50,000 C.P67,500
B.P57,500 D.P125,000 Bobadilla DirectmaterialsP1,600,000
Directlabor 1,400,000
18
.MarsmanCompanyhadamarginofsafetyratioof20%,variablecostsof60%ofsales,fixed Factoryoverhead 600,000 P900,000
costsofP240,000,abreak-evenpointofP600,000,andanoperatingincomeofP60,000for the Sellingexpenses 240,000 360,000
current year.What arethe current year'ssales? Administrativeexpenses 60,000 140,000
A.P500,000 C.P750,000 P3,900,000 P1,400,000
B.P600,000 D.P900,000 Bobadilla What would be the amount of peso sales at the breakeven point?
A.P2,250,000. C.P4,000,000.
19
.Regal,Inc.sellsProductMforP5perunit.ThefixedcostsareP210,000andthevariable B.P3,500,000. D.P5,300,000. Bobadilla
costsare60%ofthesellingprice.WhatwouldbetheamountofsalesifRegalistorealizea
profitof10%ofsales?
22
.TheExpressiveCompanycurrentlyhasfixedcostofP770,500.Thiscostisexpectedto increase
A.P700,000 C.P525,000 by P103,500 if the company expands its production facilities. Currently, it sells its
B.P472,500 D.P420,000 Bobadilla productforP47.TheproducthasavariablecostperunitofP24.Howmanymoreunitsmust

9
 Cost-Volume-
the company sell to break even, at the current sales price per unit, than it did to break even .Mercado,Inc.hadthefollowingeconomicdatafor2007:
26
prior to the increase in fixed cost? Netsales P400,000
A.3,500 C.4,500 Contributionmargin 160,000
B.4,000 D.6,000 Bobadilla Marginofsafety 40,000
WhatisMercado’sbreakevenpointin2007?
.TheTankerCompanyestimatedthefollowingdataforthecomingyear:
23
A.P360,000 C.P320,000
Fixedmanufacturingcosts P565,000 B.P288,000 D.P80,000 Bobadilla
Variableproductioncostsperpesoofsales
Materials P0.125 27
.MarquezCo.manufacturesasingleproduct.For2006,thecompanyhadsalesofP90,000,
Directlabor 0.150 variablecostsofP50,000,andfixedcostsofP30,000.Marquezexpectsitscoststructureand
Variableoverhead 0.075 salespriceperunittoremainthesamein2007;howevertotalsalesareexpectedtojumpby
Variablesellingcostsperpesoofsales 0.150 20%.Ifthe2007projectionsarerealized,netincome in2007shouldexceednetincomein
TankerestimatesitssalesforthecomingyeartobeP2,000,000. 2006by
A.100% C. 20%
Theexpectedcostofgoodssoldforthecomingyearis B. 80% D. 50% Bobadilla

A.P1,265,000 C.P1,565,000
B.P1,115,000 D.P700,000 Bobadilla .BelowistheincomestatementforHarpoCo.for2006:
28

Sales P400,000
24
.At a sales volume level of 2,250 units, Baluarte Company’s contribution margin is one and Variablecosts (125,000)
one-half of the fixed costs of P36,000. Contribution margin is 30% How much peso sales Contributionmargin P275,000
shouldtheBaluarteCompanyselltoearn10percentofsales? Fixedcosts (200,000)
A.P270,000 C.P360,000 Profitbeforetax P75,000
B.P180,000 D.P540,000 Bobadilla Assuming that the fixed costs are expected to remain at P200,000 for 2007, and the sales
price per unit and variable cost per unit are also expected to remain constant, how much profit
.TheAlpineCompany’syear-endincomestatementisasfollows:
25
beforetaxwillbeproducedifthecompanyanticipates2007salesrisingto130%ofthe2006 level?
Sales(20,000units) P360,000 A.P97,500 C.P195,000
Variablecosts 220,000 B.P157,500 D.P180,000 Bobadilla
Contributionmargin P140,000
Fixedcosts 105,000 29
.AlmosCorporationproducesaproductthatsellsforP10perunit.Thevariablecostperunitis
Netincome P35,000 P6andtotal fixedcostsareP12,000.Atthissellingprice,thecompanyearnsaprofitequalto 10% of
Alpine’smanagementisunhappywiththeresultsandplanstomakesomechangesfornext total peso sales.By reducing its selling price to P9 per unit, the manufacturer can increase
year.Ifmanagementimplementsanewmarketingprogram,fixedcostsareexpectedto its unit sales volume by 25%.Assume that there are no taxes and that total fixed costs and
increasebyP19,200andvariablecoststoincreasebyP1perunit.Unitsalesareexpectedto variable cost per unit remain unchanged.If the selling price were reduced to P9 per unit, the
increaseby15percent. company’s profit would have been
A.P3,000. C.P5,000.
Whatistheeffectonincomeiftheforegoingchangesareimplemented? B.P4,000. D.P6,000. Bobadilla
A. decreaseofP21,200 C.increaseofP1,800
B. increaseofP13,800 D.increaseofP14,800 Bobadilla .Informationconcerningthe2007financialprojectionsoftheSilverCompanyisasfollows:
30

10
 Cost-Volume-
Net sales of P3,000,000. 35
.AfirmhasfixedcostsofP200,000andvariablecostperunitofP6.Itplanstosell40,000 units inthe
FixedcostsofP800,000. comingyear.If the firmpays income taxeson itsincome at arate of 40%, what
P0.65increaseincostofsalesforeachpesoincreaseinnetsales. salespricemustthefirmusetoobtainanafter-taxprofitofP24,000?
Whatistheprojectedcostofsalesfor2007? A.P11.60 C.P11.36
A.P950,000 C.P1,050,000 B.P12.00 D.P12.50 Bobadilla
B.P2,750,000 D.P1,850,000 Bobadilla
31
.TheChildlessCompanysellswidgets.Thecompanybreaksevenatanannualsalesvolume of .BelowistheincomestatementforBlenderCo.for2007:
36
75,000 units. Sales P400,000
Variablecosts (125,000)
Actualannualsalesvolumewas100,000units,andthecompanyreportedaprofitof Contributionmargin P275,000
P200,000.TheannualfixedcostsfortheChildlessCompanyare Fixedcosts (200,000)
A.P800,000 C.P200,000 Profitbeforetax P75,000
B.P600,000 D.P150,000 Bobadilla What is the degree of operating leverage for Blender Company for 2007?
A.3.67 C.5.33
.Thecoststoproduce24,000unitsat70%capacityare:
32
B.1.45 D.1.67 Bobadilla
Directmaterials P36,000
Directlabor 54,000 37
.FoodFactory, Inc.sellsloosebiscuitsforP5perunit.ThefixedcostsareP210,000andthe
Factoryoverhead,allfixed 29,000 variablecostsare45%ofthesellingprice.WhatwouldbetheamountofsalesifFood Factory,
Sellingexpense(35%variable,65%fixed) 24,000 Inc. weretorealize aprofit of15%ofsales?
WhatunitpricewouldthecompanyhavetochargetomakeP2,250onasaleof1,500 A.P700,000 C.P525,000
additionalunitsthatwouldbeshippedoutofthenormalmarketarea? B.P472,500 D.P420,000 Bobadilla
A.P5.10 C.P4.10
B.P5.60 D.P5.00 Bobadilla 38
.The Opposition Sales Corporation is expecting an increase of fixed costs by P78,750 upon
movingtheirplaceofbusinesstothedowntownarea.Thecompanyanticipatesthatthe
.TheMandarinCompany'sproductmixincludesP720,000insaleofXandP640,000insaleof
33
sellingpriceperunitandthevariableexpenseswillnotchange.Atpresent,thesalesvolume
Y.X'scontributionmarginis60%andY'sis40%ofsales.FixedcostsamounttoP505,881. Y's sale necessarytobreakevenisP750,000butwiththeexpectedincreaseinfixedcosts,thesales
at breakeven point should amount to volumenecessarytobreakevenwouldgouptoP975,000.
A.P640,000 C.P529,490
B.P720,000 D.P470,590 Bobadilla Based on these projections, what were the total fixed costs before the increase of P78,750?
A.P341,250 C.P183,750
34
.Levi’sCompanyhasrevenuesofP500,000,variablecostsofP300,000,andpretaxprofitof B.P262,500 D.P300,000 Bobadilla
P150,000.Hadthecompanyincreasedthesalespriceperunitby10%,reducedfixedcosts by
20%, and left variable cost per unit unchanged, what would the new breakeven point in 39
.At40,000unitsofsales,BenevolentCorporationhadanoperatinglossofP3.00perunit. When
pesos have been? sales were 70,000 units, the company had a profit of P1.20 per unit.The number of
A.P88,000 C.P100,000 unitstobreakevenis
B.P80,000 D.P125,000 Bobadilla A.35,000 C.45,000
B.52,500 D.57,647 Bobadilla

11
 Cost-Volume-
40
.The followinginformation pertainsto Hennin Corporationfor the year ending December31, 43
.MenorCompanysellstwoproductswiththefollowingperunitdata:
2006: Standard Deluxe
Budgetedsales P1,000,000 Sellingprice/unit P75 P120
Breakevensales 700,000 Variablecosts/unit 45 60
Budgetedcontributionmargin 600,000 Contributionmargin/unit P30 P60
Cashflowbreakeven 200,000 Salesmix 3 2
ThemarginofsafetyfortheHenninCorporationis:
A.P300,000 C.P500,000 IffixedcostsareP630,000,thenumberofstandardanddeluxeunitsthatMenormustsellto break
B.P400,000 D.P800,000 Bobadilla even is Bobadilla
A. 1,800standardand1,200deluxe. C.9,000standardand6,000deluxe.
41
.Balboa,Inc.hadthefollowingeconomicinformationfortheyear2006: B. 3,600standardand2,400deluxe. D.21,000standardand14,000deluxe.
Sales(50,000units@P20) P1,000,000
Variablemanufacturingcosts 400,000
44
.The following are projections about the two products of Dorine Company, baubles and trinkets, for
the coming year:
Fixedcosts 250,000
Incometaxrate 40percent Baubles Trinkets
Balboa,Inc.budgetsits2007salesat60,000unitsorP1,200,000.Thecompanyanticipates Units Amount Units Amount Total
anincreasedcompetition;hence,anadditionalP75,000advertisingcostsis budgetedin order Sales 10,000 P10,000 7,500 P10,000 P20,000
tomaintainitssalestargetfor2007. Costs
Fixed P2,000 P5,600 P7,600
What is the amount of peso sales needed for 2007 in order to equal the after-tax income in Variable 6,000 3,000 9,000
2006? P8,000 P8,600 P16,600
A.P1,125,000 C.P1,325,000 Incomebeforetaxes P2,000 P1,400 P3,400
B.P1,187,500 D.P1,387,500 Bobadilla Assuming that the customers purchase composite units of four baubles and three trinkets,
thebreakeven output for the two products would be
42
.MauresmoCompanydevelopedthefollowinginformationfortheyearendedDecember31, 2007: Bobadilla A. B. C. D.
Baubles 6,909 6,909 5,000 5,000
ProductA ProductB Total Trinkets 6,909 5,182 8,000 6,000
UnitsSold 4,000 6,000 10,000 45
.ThesalesmixforDialEnterpriseisasfollows:
Sales P12,000 P27,000 P39,000 ProductA:12units@P5.25salesprice;P4.85variablecostperunit.
Variablecosts 6,000 15,000 21,000 ProductB:10units@P7.50salesprice;P6.95variablecostperunit.
Contributionmargin P6,000 P12,000 18,000 Product C: 6 units @ P12.25 sales price; P10.35 variable cost per unit.
Fixedcosts 12,600
Netincome P5,400 DialEnterprise'sfixedcostsareP75,950. What
Ifthesalesmixchangesto5,000unitsofProductAand5,000unitsofProductB,theeffecton
thecompany’sbreak-evenpointwouldbe are the composite break-even point?
A. toincreaseitby200units. C. toincreaseitby1,200units. A.98,000 C. 3,500
B. todecreaseitby200units. D. nochange. Bobadilla B. 2,000 D. 4,000 Bobadilla

12
 Cost-Volume-
.Alexandra Co. provides two products, Velvet and Cotton. Velvet accounts for 60 percent of
46
A.P72,000 C.P80,000
totalsales.Thevariablecostsasapercentageofsellingpricesare60%forVelvetand85% for B.P288,000 D.P320,000 Bobadilla
Cotton. Total fixed costs are P225,000.
51
.GlarelessCompanymanufacturesandsellssunglasses.Thepriceandcostdataareas follows:
If fixedcosts willincrease by 30 percent, what amount of peso sales wouldbe necessary to Selling price per pair ofSunglasses
generate an operating profit of P48,000?
A.P1,350,000 C.P1,135,000 P25.00Variable costs per pair of sunglasses:
B.P486,425 D.P910,000 Bobadilla Rawmaterials P11.00
Directlabor 5.00
47
.Lastmonth,ZamoraCompanyhadanincomeofP0.75perunitwithsalesof60,000units. During Manufacturingoverhead 2.50
the current month when the unit sales are expected to be only 45,000, there is a loss of Sellingexpenses 1.30
P1.25perunit.Boththevariablecostperunitandtotalfixedcostsremainconstant. Totalvariablecostsperunit P19.80
Annualfixedcosts:
Thefixedcostsamountedto Manufacturingoverhead P192,000
A.P80,000 C.P360,000 Sellingandadministrative 276,000
B.P247,500 D.P210,000 Bobadilla Totalfixedcosts P468,000
Forecasted annual sales volume (120,000 pairs) P3,000,000
.BytesCompanyisaretailerofvideodisks.Theprojectedafter-taxincomeforthecurrentyear
48
Incometaxrate 40%
isP120,000basedonasalesvolumeof200,000videodisks.Byteshasbeensellingthe Glareless Company estimates that its direct labor costs will increase 8 percent next year.How
disksatP16each.ThevariablecostsconsistoftheP10perunitpurchasepriceofthedisks manyunitswillGlarelesshavetosellnextyeartoreachbreakeven?
andahandlingcostofP2perdisk.Bytes’annualfixedcostsareP600,000,andBytesis A. 97,500units C.101,740units
subjecttoa40%incometaxrate.Managementisplanningforthecomingyearwhenit B. 83,572units D. 86,250units Bobadilla
expectsthattheunitpurchasepriceofthevideodiskswillincrease30%.
52
.SantosCompanyisplanningitsadvertisingcampaignfornextyearandhaspreparedthe
Bytes Company’s breakeven point for the current year in number of video disks is followingbudgetdatabasedonazeroadvertisingexpenditure:
A.100,000 units C. 50,000 units Normalplantcapacity 200,000units
B.150,000units D. 60,000units Bobadilla Sales 150,000units
Sellingprice P25perunit
49
.AlonzoCorporationhadsalesofP120,000forthemonthofMay.Ithasamarginofsafety Variablemanufacturingcosts P15perunit
ratioof25percent,andanafter-taxreturnonsalesof6percent.Thecompanyassumesits Fixedmanufacturingcosts P800,000
salesbeingconstanteverymonth.Ifthetaxrateis40percent,howmuchistheannualfixed cost?
Fixedsellingcosts P700,000
A.P36,000 C.P90,000
An advertising agency claims that an aggressive advertising campaign would enable Santos to
B.P432,000 D.P360,000 Bobadilla
increaseitsunitsalesby20%.WhatisthemaximumamountthatSantosCompanycanpay
foradvertisingandhaveanoperatingprofitofP200,000nextyear?
.CulturedCompanyisamanufacturerofitsonlyoneproductline.IthadsalesofP400,000for
50
2007 A.P100,000 C.P300,000
witha contribution margin ratioof 20percent.Itsmargin of safetyratiowas10 percent. B.P200,000 D.P550,000 Bobadilla
Whatarethecompany’sfixedcosts?
.AdventurousCo.isconsideringdroppingaproduct.VariablecostsareP60.00perunit.Fixed
53

overheadcosts,exclusiveofdepreciation,havebeenallocatedatarateofP3.50perunitand

13
 Cost-Volume-
willcontinuewhetherornotproductionceases.DepreciationontheequipmentisP60,000a
Plastic Frames
year.Ifproductionisstopped,theequipmentcanbesoldforP270,000,ifproduction continues,
however, it will be useless at the end of 1 year and will have no salvage value.The GlassFramesSalesprice P10.00
sellingpriceisP100aunit.Ignoringtaxes,theminimumnumberofunitstobesoldinthe current P15.00
year tobreak evenon acashflow basisis Directmaterials (2.00) (3.00)
A. 1,500units. C.8,250units. Directlabor (3.00) (5.00)
B. 6,750units. D.9,750units Bobadilla Fixedoverhead (3.00) (2.75)
Netincomeperunit P2.00 P4.25
54
.PansipitCompanyhada25percentmarginofsafety.Itsafter-taxreturnonsalesis6percent. Budgeted unit sales 100,000 300,000The
Thecompany’sincomeissubjecttotaxrateof40percent.IffixedcostsamounttoP320,000, budgeted unit sales equal the current unit demand, and total fixed overhead for the year is
howmuchpesosalesdidPansipitmakefortheyear? budgetedat P975,000.Assumethatthe companyplans tomaintainthe sameproportional mix.
A.P1,066,667 C.P1,280,000
B.P1,000,000 D.P800,000 Bobadilla The total number of units that MultiFrame needs to produce and sell in order to break even
isA.150,000 units C.153,947 units
55
.ThemanagementofMesaCompanyhasperformedcoststudiesandhasprojectedthe B.100,000units D.300,000units Bobadilla
followingannualcostsbasedon60,000unitsofproductionandsales:
Total Annual Costs Percent of Variable Portion of Total Annual Costs
58
.During2006,St.PaulLabsuppliedhospitalswithacomprehensivediagnostickitforP120.At
avolumeof80,000kits,St.PaulhadfixedcostsofP1,000,000andoperatingincomebefore income
Direct material P600,000
taxes of P200,000.Because of an adverse legal decision, St. Paul’s 2007 liability insurance
100 increased by P1,200,000 over 2006.Assuming the volume and other costs are unchanged,
Directlabor 720,000 80 what should the 2007 price be if St. Paul is to make the same P200,000 operating
Mfg.Overhead 400,000 50 incomebeforeincometaxes?
Selling costs 192,500 25 A.P120 C.P150
Whatsellingpricewillyielda15percentprofitfromsalesof60,000units? B.P135 D.P240 Bobadilla
A.P41.67 C.P27.30
B.P37.50 D.P35.42 Bobadilla .ThefollowingdatarelatetoHerbertCompanywhichsellsasingleproduct:
59

Unitsellingprice P20.00
.ThefollowingdatarelatetoHarvesterCompanywhichsellsasingleproduct:
56
Purchasecostperunit 11.00
Unitsellingprice P80.00 Salescommission,10%ofsellingprice 2.00
Purchasecostperunit 55.00 Monthlyfixedcosts P80,000
Salescommission15%ofsellingprice 12.00 Thefirm’ssalespersonswouldliketochangetheircompensationfroma10percent
Monthlyfixedcosts P180,000 commission to a 5 percent commission plus P20,000 per month in salary. Currently, they only
Thefirm’stwosalespersonswouldliketochangetheircompensationfroma15percent receive commissions as theircompensation.
commissiontoa7.5percentcommissionplusP15,000eachpermonthinfixedsalary.
Currently,theyonlyreceivecommissionsastheircompensation. Thechangeincompensationplanshouldchangethemonthlybreakevenpointby
A. 1,071Increase C.1,538Increase
Atwhatsalesvolumeinunitswouldthetwocoststructuresbeindifferent? B. 1,071Decrease D.1,538Decrease Bobadilla
A. 2,500units C.4,000units
B. 3,000units D.5,000units Bobadilla .ThemanagerofNaughtyFoodCompanyreviewedthefollowingdata:
60

.MultiFrameCompanyhasthefollowingrevenueandcostbudgetsforthetwoproductsitsells:
57

14
 Cost-Volume-
Fruits Meat CannedProducts The selling price that would maintain the same contribution margin rate as last year is
Contributionmarginratio 40% 50% 40% A.P9.00 C.P10.00
Salesmixinpesos 20% 30% 50% B.P8.25 D.P9.75 Bobadilla
Fixed costs, P1,290,000 per month.
The breakeven sales for each month is .DuringthemonthofJune,ArmaniCorporationproduced12,000unitsandsoldthemforP20 per unit.
64

A.P1,677,000 C.P4,500,000 Total fixed costs for the period were P154,000, and the operating profit was P26,000. The
B.P3,000,000 D.P6,000,000 Bobadilla variable cost per unit for June was
A.P4.50 C.P6.00
.TheOreganoWatchCompanymanufacturesalineofladies’watcheswhicharesoldthrough
61 B.P5.00 D.P7.17 Bobadilla
discount houses.Each watch is sold for P1,500; the fixed costs are P3,600,000 for 30,000
watches orless; variable costisP900 per watch. .StoneCompanyplanstosell400,000laundryhangers.ThefixedcostsareP600,000,andthe
65

variablecostis60%ofthesellingprice.IfthecompanywantstorealizeaprofitofP120,000, the
What is Oregano’s degree of operating leverage at sales of 12,000 watches? sellingprice ofeach laundry hanger mustbe
A.2.0X C.0.5X A.P2.50 C.P4.50
B.5.0X D.0.2X Bobadilla B.P3.75 D.P5.00 Bobadilla

62
.Duke,Inc.ownsandoperatesachainoffoodcenters.Themanagementisconsidering installing .TheunitcontributionmarginofProductAisP20andofProductBisP16.IfsixunitsofProduct
66

machines that willmake popcorn onthe premises.Thesemachines areavailable in two AandeightunitsofProductBcanbeproducedpermachinehour,thecontributionmarginof

different sizes with the following details: theproductspermachinehouris Bobadilla
Economy Regular A. ProductA,P160;ProductB,P96 C.ProductA,P3.33;ProductB,P2.00
Annual capacity 20,000 50,000 B. ProductA,P120;ProductB,P128 D.ProductA,P32.00;ProductB,P30.00
Costs: Annual machine rental P60,000.00 P82,500.00
Popcorncostperbox 3.90 3.90 .TheBittersweetCompanyisawholesaledistributorofcandy.Thecompanyservicesvarious grocery,
67

Costofeachbox 0.80 0.80 convenience, and drug stores in Metro Manila.Small, but steady growth in sales, has
Othervariablecostperbox 6.60 4.20 beenachievedbythecompanyoverthepastfewyearswhilecandypriceshavebeen
increasing.Thecompanyisformulatingitsplansforthecomingfiscalyear.Presentedbelow
The level of output in boxes at which the Economy and the Regular would earn the same profit
arethedatausedtoprojectthecurrentyear’safter-taxnetincomeofP110,400.
(loss) is
Averagesellingprice P4.00perbox
A. 20,000boxes C.15,000boxes
Averagevariablecosts
B. 9,375boxes D.12,500boxes Bobadilla
Costofcandy P2.00perbox
Sellingexpenses 0.40per box
.The Harper Corporation manufactures and sells T-shirts imprinted with college names and
63
Total P2.40perbox
slogans.Lastyear,theshirtssoldforP7.50each,andthevariablecosttomanufacturethem
wasP2.25perunit.Thecompanyneededtosell20,000shirtstobreakeven.Thenetincome
lastyearwasP5,040.Harper’sexpectationsforthecomingyearincludethefollowing: Annualfixedcosts:
1. ThesalespriceoftheT-shirtswillbeP9 Selling P169,000
2. Variablecosttomanufacturewillincreasebyone-third Administrative 280,000
3. Fixedcostswillincreaseby10% Total P440,000
4. Theincometaxrateof40%willbeunchanged Expectedannualsalesvolume(390,000boxes) P1,560,000

15
 Cost-Volume-
The manufacturers of candies have announcedthat they will increase prices of their products 70
.RoundCompanyisagrocerystorethatiscurrentlyopenonlyMondaythroughSaturday.
anaverageof15%inthecomingyearduetoincreasesinrawmaterial(sugar,cocoa, peanuts, RoundCompanyisconsideringopeningonSundays.Theannualincrementalcostsof
etc.) and labor costs.Bittersweet Company expects that all other costs will remain at Sunday openings are estimated at P31,200.Round’s gross margin on sales is 25 percent.
thesameratesorlevelsasthecurrentyear.Bittersweetissubjectto40percenttaxrate. Round estimates that 75 percent of its Sunday sales to customers would be made on other
days if the store were not open on Sundays.
Ifnetincomeaftertaxeswouldremainthesameafterthecostofcandyincreasesbutno
increaseinthesalespriceismade,howmanyboxesofcandymustBittersweetsell? Theone-dayvolumeofSundaysales thatwouldbenecessaryforRoundtoattainthesame weekly
A.480,000 C.400,000 operating asthe current six-dayweek is
B. 27,600 D. 29,300 Bobadilla A.P2,400 C.P9,600
B.P3,200 D.P9,984 Bobadilla
.LarzCompanyproducesasingleproduct.Itsold25,000unitslastyearwiththefollowing results:
68

Sales .AiluCompanyhasthefollowingoperatingdataforitsmanufacturingoperations:
71

P625,000Variable costs P375,000 Unitsellingprice P 250

Fixedcosts 150,000 525,000 Unitvariablecost 100
Netincomebeforetaxes P100,000 Totalfixedcosts 840,000
Incometaxes 40,000 The company’s decision to increase the wages of hourly workers will increase the unit variable
Netincome P60,000 costby10percent.Increasesinthesalariesoffactorysupervisorsandpropertytaxesforthe
Inanattempttoimproveitsproductinthecomingyear,Larzisconsideringreplacinga factorywillincreasefixedcostsby 4percent.Ifsales priceisheldconstant, thenextbreak- even
component part in its product that has a cost of P2.50 with a new and better quality costing point for Ailu Company will be
P4.50perunit.Anewmachinewillalsobeneededtoincreaseplantcapacity.Themachine would A. Increasedby640units. C.Decreasedby640units.
cost P18,000 with a useful life of 6 years and no salvage value.The company uses straight- B. Increasedby400units. D.Increasedby800units. Bobadilla
linedepreciationmethodonallplantassets.
72
.SolarCompanysellstwoproducts,BiggsandBoggs.Lastyear,SolarCompanysold12,000 units of
If Larz wishes to maintain the same contributionmargin ratio after implementingthe changes, Biggs and 24,000 units of Boggs.
whatsellingpriceperunitofproductmustitchargenextyeartocovertheincreasedmaterial costs?
A.P27.00 C.P25.00 Relateddataforlastyearare:
B.P32.50 D.P28.33 Bobadilla Product Unit Selling Price Unit Variable Cost
UnitContributionMarginBiggs P120 P80
.BMMotors,Inc.employs40salespersonneltomarketitslineofeconomyautomobiles.The
69
P40
averagecar sells for P1,200,000anda 6% commissionis paid to the salesperson.BM Motorsis Boggs 80 60 20
considering a change to a commission arrangement that would pay each salesperson a Assuming that last year’s fixed costs totaled P910,000, what was Solar Company’s
salary ofP24,000 per month plusacommission of2%of thesales madeby thatsalesperson. compositebreak-even point?
A.34,125 C.11,375
The amount of total car sales at which the two expense structures would be indifferent B.27,302 D. 9,101 Bobadilla
isA.P22,500,000 C.P30,000,000
B.P24,000,000 D.P12,000,000 Bobadilla 73
.RiverandCo.,makerofquality pipes,hasexperienced asteady growthinsalesforthepast
fiveyears.However,increaseincompetitionhasledRiverCo.tobelievethatanaggressive
advertising campaignwill be necessary next year to maintain the company’s present growth.

16
 Cost-Volume-
To prepare for next year’s advertising campaign, the company’s accountant has prepared Advertising P124,000
andpresented the managementwith data for the current year, 2006, as presented below: Rent 60,000
CostSchedule Salaries 180,000
Variablecosts: Otherfixedcosts 32,000
Directlabor P80.00/pipe
Total P396,000
Directmaterials 32.50/pipe
Thecompanyisconsideringchangingthecompensationplanforsalespersonnel.Ifthe
Variableoverhead 25.00/pipe
organization increases the commission to 10% of revenues and reduces salaries by P80,000,
Totalvariablecosts P137.50/pipe
what revenues must theorganization have toraise inorder toearn thesame net income as
Fixedcosts: last year?
Manufacturing P250,000
A.P1,600,000 C.P1,350,000
Selling 400,000
B.P1,150,000 D.P1,630,000 Bobadilla
Administrative 700,000
Totalfixedcosts P1,350,000
.Tactless Manufacturing Company produces two products for which the following data have
76

beentabulated.FixedmanufacturingcostisappliedatarateofP1.00permachinehour.
Sellingprice,perpipe P 250.00
Per Unit XY-7 BD-4
Expectedsales,2007(20,000units) P5,000,000
Selling price P4.00
Taxrate:40%
Thecompanyhassetthesalestargetfor2007atalevelofP5,500,000(or22,000pipes). P3.00
Variablemanufacturingcost P2.00 P1.50
Fixedmanufacturingcost P0.75 P0.20
IfanadditionalP112,500havetobespentforadvertisingin2007,whatistherequiredsales level
inpesos toequal 2006’s after-tax income? Variable selling cost P1.00 P1.00
A.P4,750,000 C.P5,250,000
B.P5,750,000 D.P4,250,000 Bobadilla ThesalesmanagerhashadaP160,000increaseinthebudgetallotmentforadvertisingand wants
to apply the money to the most profitable product.The products are not substitutes for
.Adobe Company sold 100,000 units of its product at P20 per unit.Variable costs were P14
74 oneanotherintheeyesofthecompany’scustomers.
perunit,consistingofmanufacturingcostsofP11andsellingcostsofP3.Fixedcosts,which
wereincurreduniformlythroughouttheyear,amountedtoP792,000(manufacturingcostsof The manager may devote the entire P160,000to increased advertising for either XY-7 or BD-
P500,000andsellingexpensesofP292,000).Therehadbeennobeginningorending 4.
inventories.
Suppose Tactless has only 100,000 machine hours that can be made available to produce
If labor costs comprise of 50 percent variable costs and 20 percent f fixed costs, a 10 percent additional units of XY-7 and BD-4. If the potential increase in sales units for either product
increase in wages and salaries would increase the number of units required to break even resulting from advertising is far in excess of this production capacity, which product should be
toA.152,423 C.143,875 advertisedandwhatistheestimatedincreaseincontributionmarginearned? Bobadilla
B.175,617 D.129,938 Bobadilla A. ProductXY-7shouldbeproduced,yieldingacontributionmarginofP75,000.
B. ProductXY-7shouldbeproduced,yieldingacontributionmarginofP133,333.
.Mellow, Inc. sellsits single product for P40 per unit.Mellow purchases the product for P20.
75 C. ProductBD-4shouldbeproduced,yieldingacontributionmarginofP187,500.
The salespeoplereceive a salary plus a commissionof 5%of sales.Last year the D. ProductBD-4shouldbeproduced,yieldingacontributionmarginofP250,000.
corporation’snetincomewasP100,800.Thecorporationissubjectto30%incometaxrate. The
fixed costs of the company are: .DrapeCorp.wouldliketomarketanewproductatasellingpriceofP15perunit.Fixedcosts
77

forthisproductareP1,000,000forlessthan500,000unitsofoutputandP1,500,000for

17
 Cost-Volume-
500,000ormoreunitsofoutput.Thecontributionmarginpercentageis35%.Howmanyunits
ofthisproductmustbesoldtoearnatargetoperatingincomeofP1million?

18
 Cost-Volume-
A.366,667 C.476,190 A.P2.00 C.P1.70
B.380,952 D.256,410 Bobadilla B.P1.60 D.P1.80 Bobadilla
78
.CareCompanysold100,000 unitsofitsproduct atP20perunit.VariablecostsareP14per .The total variable costs per unit for the large and small discs, respectively, are
80
unit,consistingofmanufacturingcostsofP11andsellingcostsofP3.Fixedcosts,whichare A.P10.20 and P8.60. C.P9.10andP5.30.
incurred uniformly throughout the year, amount to P792,000 (manufacturing costs of P500,000 B.P14.40andP8.40. D.P11.80andP6.60. Bobadilla
andsellingcostsofP292,000).Therewerenobeginningorendinginventories.
81
.IfthematerialcostsforlargeandsmalldiscsareP8.50andP5.10,respectively,andthe normal
If labor costs are 50% of variable costs and 20% offixed costs, a10% increase in wages and production capacity is 100,000-unit level, what is the breakeven point?
salaries would increase the number of units required to breakeven (in fraction form) to A.91,611. C.79,816.
A.807,840/5.3. C.807,840/14.7. B.87,216. D.82,412. Bobadilla
B.831,600/5.78. D.831,600/14.28. Bobadilla
Questions82through86arebasedontheStatementofIncomeofDavao,Inc.whichrepresents the
QuestionNos.79through81arebasedonthefollowing: operating results for the current fiscal year ending December 31.Davao had sales of 1,800
Metal Industries, Inc. operates itsproduction department only when orders are received for one or tonsofproductduringthecurrentyear.ThemanufacturingcapacityofDavao’sfacilitiesis3,000
bothofitstwoproducts,twosizesofmetaldiscs.Themanufacturingprocessbeginswiththe tonsofproduct.Considereachquestion’ssituationseparately.
cuttingofdoughnut-shapedringsfromrectangularstripsofsheetmetal;theseringsarethen pressed Sales P900,000
into discs.The sheets ofmetal, each4 feetlong andweighing 32 ounces, arepurchased Variablecosts
P13.60perrunningfoot.Thedepartmenthasbeenoperatingatalossforthepastyearasshown below. Manufacturing P315,000
Salesfortheyear P1,720,000 Sellingcosts 180,000
Less:expenses 1,772,000 Totalvariablecosts P495,000
Netlossforthedepartment P52,000 Contributionmargin P405,000
Fixedcosts
Thefollowinginformationisavailable. Manufacturing P90,000
Selling 112,500
Ten thousand4-foot piecesof metalyielded 40,000 large discs,each weighing 4 ounces and Administration 45,000
selling for P29, and 40,000 small discs, each weighing 2.4 ounces and selling for P14. Totalfixedcosts P247,500
Netincomebeforeincometaxes P157,500
The corporation has been producing at less than “normal capacity” and has had no spoilage in the Incometaxes(40%) (63,000)
cutting step of the process.The skeletons remaining after the rings have been cut are sold for Netincomeafterincometaxes P94,500
scrapatP8.00perpound.
82
.ThebreakevenvolumeintonsofproductfortheyearisA.
Thevariableconversioncostofeachlargediscis80%ofthedisc’sdirectmaterialcost,and 420 C.1,100
variableconversioncostofeachsmalldiscis75%ofthedisc’sdirectmaterialcost.Variable B. 495 D. 550 Bobadilla
conversioncostsarethesumofdirectlaborandvariableoverhead.
FixedcostswereP860,000. 83
.Ifthesalesvolumeisestimatedtobe2,100tonsinthenextyear,andifthepricesandcosts stay at the
same levels and amounts next year, the after-tax income that Davao can expect for next year is
.Thenetcostperounceofmaterialis
79
A.P135,000 C.P110,250

19
 Cost-Volume-
B.P283,500 D.P184,500 Bobadilla A.13,118 C.13,853
B.12,529 D. 4,460 Bobadilla
.Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton.
84

Assume that all of Davao’s costs would be at the same levels and rates as last year.What net 88
.ThetotalsalesrevenueatwhichAnilaoSkiCompanywouldmakethesameprofitorloss regardless of
income after taxes would Davao make if it took this order and rejected some business from theskimodel itdecided to produce is
regular customers soas notto exceed capacity? A.P880,000 C.P924,000
A.P297,500 C.P211,500 B.P422,400 D.P686,400 Bobadilla
B.P252,000 D.P256,500 Bobadilla
89
.Howmuchwouldthevariablecostperunitofthetouringmodelhavetochangebeforeithad
85
.Withoutprejudicetoyouranswerstopreviousquestions,andassumethatDavaoplansto thesamebreakevenpointinunitsasthemountaineeringmodel?
marketitsproductinanewterritory.Davaoestimatesthatanadvertisingandpromotion A. P2.68/unitincrease C.P5.03/unitdecrease
program costing P61,500 annually would need to be undertaken for the next two or three B. P4.53/unitincrease D.P2.97/unitdecrease Bobadilla
years.Inaddition,aP25pertonsalescommissionoverandabovethecurrentcommissionto
thesalesforceinthenewterritorywouldberequired.Howmanytonswouldhavetobesold .If the variable cost per unit of touring skis decreases by 10%, and the total fixed cost of touring
90
inthenewterritorytomaintainDavao’scurrentafter-taxincomeofP94,500? skisincreasesby10%,thenewbreakevenpointwillbe
A.307.5 C.273.3 A. 10,730pairs
B.1,095.0 D.1,545.0 Bobadilla B. 13,007pairs
C. 12,812pairs Bobadilla
86
.Withoutprejudicetoprecedingquestions,assumethatDavaoestimatesthattheperton selling D. Unchangedfrom11,648pairsbecausethecostchangesareequalandoffsetting
pricewill decline10% next year.Variable costs willincrease P40per tonand thefixed costs will
not change.What sales volume in pesos will be required to earn an after-tax .If the Anilao Ski Company sales department could guarantee the annual sale of 12,000 skis
91
incomeofP94,500nextyear? ofeithermodel,Anilaowould
A.P1,140,000 C.P1,500,000 A. Producetouringskisbecausetheyhavealowerfixedcost.
B.P825,000 D.P1,350,000 Bobadilla B. Produceonlymountaineeringskisbecausetheyalowerbreakevenpoint.
C. Producemountaineeringskisbecausetheyaremoreprofitable.
QuestionNos.87through91arebasedonthefollowing: D. Beindifferentastowhichmodelissoldbecauseeachmodelhasthesamevariablecost per
AnilaoSkiCompanyrecentlyexpandeditsmanufacturingcapacitytoallowittoproductupto unit. Bobadilla
15,000pairsofcross-countryskisofeitherthemountaineering modelorthetouringmodel.The
salesdepartmentassuresmanagementthatitcansellbetween9,000and13,000pairs(units)of QuestionNos.92through96arebasedonthefollowing:
eitherproductthisyear.Becausethemodelsareverysimilar,AnilaoSkiwillproduceonlyoneof the two
Pullman Company is a small but growing manufacturer of telecommunications equipment.The
models.The following data were compiled by the accounting department.
company has no sales force of its own; rather, it relies completely on independent sales agents to
Mountaineering Touring market its products.These agents are paid a commission of 15% of selling price for all items sold.
Selling price per unit P88.00
80.00 Maui Soliman, Pullman’s controller, has just prepared the company’s budgeted income statement
Variablecostperunit 52.80 2.80 for next year.The statement follows:
Fixed costs will total P369,600 if the mountaineering model is produced but will be only P316,800 if
thetouringmodelisproduced.AnilaoSkiCompanyissubjecttoa40%incometaxrate. Pullman
CompanyBudgeted Income
.IfAnilaoSkiCompanydesiresanafter-taxnetincomeofP24,000,howmanypairsoftouring
87
model Statement
skis will the company have to sell? FortheYearEndedDecember31
20
 Cost-Volume-
Sales P16,000,000 Travelandentertainment 400,000
Manufacturingcosts: Advertising 1,300,000
Variable P7,200,000 Total P2,400,000
Fixedoverhead 2,340,000 9,540,000
Grossmargin 6,460,000 “Super,”repliedKim.“AndInotethattheP2,400,000isjustwhatwe’repayingtheagentsunder
Sellingandadministrativecosts: theold15%commissionrate.”
Commissionstoagents 2,400,000
Fixedmarketingcosts* 120,000 “It’sevenbetterthanthat,”explainedMaui.“WecanactuallysaveP75,000ayearbecausethat’s what
Fixedadministrativecosts 1,800,000 4,320,000 we’re having to pay the auditing firm now to check out the agents’ reports.So our overall
Netoperatingincome 2,140,000 administrative costs would be less.”
Lessfixedinterestcost 540,000
Incomebeforeincometaxes 1,600,000 “Pull all of these number together and we’ll show them to the executive committee tomorrow,” said
Lessincometax(30%) 480,000 Kim.“Withtheapprovalofthecommittee,wecanmoveonthematterimmediately.”
Netincome P1,120,000
*Primarilydepreciationonstoragefacilities
92
.Whatisthebreakeven pointinpesosfornextyearassuming thattheagents’commission rate
remainsunchangedat15%?
As Maui handed the statement to Kim Viceroy, Pullman’s president, she commented, “I went ahead A.P10,650,000 C.P9,000,000
and used the agents’ 15% commission rate in completing these statements, but we’ve just learned B.P12,000,000 D.P10,750,000 Bobadilla
that they refuse to handle our products next year unless we increase the commissionrate to 20%.”
93
.Whatisthebreakeven pointinpesosfornextyearassuming thattheagents’commission rate
“That’sthelaststraw,”Kimrepliedangrily.“Thoseagentshavebeendemandingmoreandmore, isincreasedto20%?
andthistimethey’vegonetoofar.Howcantheypossiblydefenda20%commissionrate?” A.P13,171,000 C.P13,714,286
B.P15,000,000 D.P12,750,000 Bobadilla
“Theyclaimthatafterpayingforadvertising,travel,andtheothercostsofpromotion,there’s
nothing left over for profit,” replied Maui. .What is the breakeven point in pesos for next if the company employs its own sales force?
94

A.P15,000,000 C.P13,090,909
“Isay it’sjust plainrobbery,” retorted Kim.“AndIalso sayit’stime wedumped those guys andgot B.P12,954,545 D.P15,157,895 Bobadilla
ourownsalesforce.Canyougetyourpeopletoworkupsomecostfiguresforustolookat?”
95
.AssumethatPullmanCompanydecidestocontinuesellingthroughagentsandpaysthe20%
“We’vealreadyworkedthemup,”saidMaui.“Severalcompaniesweknowaboutpaya7.5% commissionrate.Thevolumeofsalesthatwouldberequiredtogeneratethesamenet
commissiontotheirownsalespeople,alongwithasmallsalary.Ofcourse,wewouldhaveto handle incomeascontainedinthebudgetedincomestatementfornextyearwouldbe:
allpromotion costs,too.Wefigure ourfixed costs wouldincrease by P2,400,000 per year, but that A.P18,285,714 C.P19,225,000
would be more than offset by the P3,200,000 (20% x P16,000,000) that we would avoid on B.P18,368,421 D.P20,414,714 Bobadilla
agents’commissions.”
96
.ThevolumeofsalesatwhichnetincomewouldbeequalregardlessofwhetherPullman Company sells
The breakdown of the P2,400,000 cost figure follows: through agents at a 20% commission rate or employs its own sales force:
Salaries: A.P11,625,000 C.P19,200,000
Salesmanager P100,000 B.P12,000,000 D.P18,600,000 Bobadilla
Salespersons 600,000

21
 Cost-Volume-
QuestionNos.97through102arebasedonthefollowinginformation: Thestaffinglevelsaboverepresentfull-timeequivalents,anditshouldbeassumedthatthe
SanCarlosoperatesageneralhospitalbutrentsspaceandbedstoseparateentitiesfor PediatricsDepartmentalwaysemploysonlytheminimumnumberofrequiredfull-timeequivalent
specialized treatment such as pediatrics, maternity, psychiatric, etc.San Carlos charges each personnel.
separate entity for common services to its patients like meals and laundry and for all administrative
services such as billings, collections, etc.All uncollectible accounts are charged directly to the Annualsalariesforeachclassofemployeefollow:supervisingnurses,P180,000;nurses,
entity.Space and bedrentals arefixed forthe year. P130,000; and aides, P50,000.Salary expense for the year ended June 30 for supervising nurses,
nurses, and aides was P720,000, P1,560,000,and P1,100,000, respectively.
For the entire year ended June 30, the Pediatrics Department at San Carlos Hospital charged each
patient an average ofP650 per day, hada capacityof 60beds, operated 24 hoursper dayfor 365 ThePediatricsDepartmentoperatedat100%capacityduring111daysofthepastyear.Itis
days, and had revenue of P10,676,250. estimatedthatduring90ofthesecapacitydays,thedemandaverage17patientsmorethan
capacity and even went as high as 20 patients more on some days.The hospital has an
Expenses charged by the hospital to the Pediatrics Department for the year ended June 30 were: additional20bedsavailableforrentforthecomingfiscalyear.
Basis of Allocation
Patient Days Thecontributionmarginperpatientdayis
97
.
BedCapacityDietary A.P400.00 C.P500.00
P328,500 B.P450.00 D.P525.00 Bobadilla
Janitorial P118,400
Laundry 197,100 98
.How many patient days are necessary to cover fixed costs for bed capacity and for supervisory
Lab,otherthandirectchargesto patients
nurses?
410,625
A. 9,500 C.10,250
Pharmacy 410,625 B. 9,820 D.12,000 Bobadilla
Repairsandmaintenance 65,700 66,045
Generaladministrativeservices 1,218,780
Rent 2,546,710
99
. Thenumberofpatientdaysneededtocovertotalcostsis
A.14,780 C.15,820
Billingsandcollections 689,850
B.15,140 D.16,080 Bobadilla
Baddebtexpense 246,375
Others 114,975 240,315
Total P2,463,750 P4,190,250
100
.IfthePediatricsDepartmentrentedanadditional20bedsandallotherfactorsremainthe
TheonlypersonneldirectlyemployedbythePediatricsDepartmentaresupervisingnurses, sameasinthepastyear,whatwouldbetheincreaseinrevenue?
nurses,andaides.Thehospitalhasminimumpersonnelrequirementsbasedontotalannual A.P994,500 C.P1,054,500
patientdays.Hospitalrequirementsbeginningattheminimum, expectedlevelofoperation follow: B.P877,500 D.P897,500 Bobadilla
AnnualPatientDays Aides Nurses SupervisingNurses 101
.Continuing to consider the 20 additional rented beds, the increase in total variable cost applied
10,000–14,000 21 11 4
14,001–17,000 22 12 4 per patient day is
17,001–23,725 22 13 4 A.P229,350 C.P229,650
23,726–25,550 25 14 5 B.P229,500 D.P239,350 Bobadilla
25,551–27,375 26 14 5
27,376–29,200 29 16 6
102
.Whatistheincreaseinfixedcostappliedforbedcapacity,giventheincreaseinnumberof beds?
A.P1,396,667 C.P1,470,000

22
 Cost-Volume-
B.P1,187,238 D.P1,520,000 Bobadilla .Whatisthecashflowbreakevenpointinnumberofpizzasthatmustbesold?
105

A.19,529 C.12,990
QuestionNos.103–105arebasedonthefollowing: B.21,284 D.10,773 Bobadilla
Ms. Sharkey started a pizza restaurant in 2003. For this purpose a building was rented for P40,000per
month.Two women were hired to work full time at the restaurant and six college students were QuestionNos.106through109arebasedonthefollowinginformation:
hiredtowork30hoursperweekdeliveringpizza.Thislevelofemploymenthasbeenconsistent. TimexSportingGoodsCompany,awholesalesupplycompany,engagesindependentsales
Anoutsideaccountantwashiredfortaxandbookkeepingpurposes,forwhichMs.Sharkeypays agentstomarketthecompany’sproductsthroughoutthecountry.Theseagentscurrentlyreceive
P30,000permonth.Thenecessaryrestaurantequipmentanddeliverycarswerepurchasedwith acommission of 20percent of sales, but theyaredemanding anincreaseto25percent of sales
cash.Ms. Sharkey has noticed that expenses forutilities and supplies have been rather constant. madeduringtheyearendingDecember31,2007.Thecontrolleralreadypreparedthe2007 budget
Ms. Sharkey increased her business between 2003 and 2006.Profits have more than doubled before learning ofthe agents’ demand for an increase incommission.The budgeted 2007
since 2003.Ms. Sharkey does not understand why profits have increased faster than volume. incomestatementisshownbelow.Assumethatcostofgoodssoldis100percentvariablecost.
Sales P10,000,000
A projected income statementfor the year ended December31, 2007, preparedby the accountant,is Costofgoodssold 6,000,000
shown below: Grossmargin P4,000,000
Sales P9,500,000 Sellingandadministrative
Costoffoodsold P2,850,000 Commissions P2,000,000
Wages&fringebenefits: Otherexpenses(fixed) 100,000 2,100,000
Restauranthelp 815,000 Incomebeforetaxes P1,900,000
Deliveryhelp 1,730,000 Incometax(30%) 570,000
Rent 480,000 Netincome P1,330,000
Accountingservices 360,000
Depreciation: Timex’smanagementisconsideringthepossibilityofemployingfull-timesalespersonnel.Three
Deliveryequipment 500,000 individualswouldberequired,atanestimatedannualsalaryofP30,000each,pluscommissionsof 5 percent
Restaurantequipment 300,000 of sales.In addition, a sales manager would be employed at a fixed annual salary of
Utilities 232,500 P160,000.Allotherfixedcosts,aswellasthevariablecostpercentages,wouldremainthesame
Supplies 120,000 7,387,500 astheestimatesinthe2007budgetedincomestatement.
Netincomebeforetaxes P2,112,500
Incometaxes(40%) 845,000
106
.Howmuchistheestimatedbreak-evenpointinpesosalesfortheyearendingDecember31,
2007,basedonthebudgetedincomestatementpreparedbythecontroller?
Netincome P1,267,500
A.P500,000 C.P250,000
Note:TheaveragepizzasellsforP250.
B.P400,000 D.P125,000 Bobadilla
.Whatisthetaxshieldonthenoncashfixedcosts?
103
107
.Howmuchistheestimatedbreak-evenpointinpesosalesfortheyearendingDecember31,
A.P320,000 C.P149,500 2007,ifthecompanyemploysitsownsalespersonnel?
B.P340,000 D.P540,000 Bobadilla A.P542,857 C.P875,000
B.P742,857 D.P1,000,000 Bobadilla
.Whatisthebreakevenpointinnumberofpizzasthatmustbesold?
104

A.25,929 C.23,569 108

.How much volume in peso sales would be required for the year ending December 31, 2007, to
B.18,150 D.42,114 Bobadilla yieldthesamenetincomeasprojectedinthebudgetedincomestatement,ifTimexcontinues

23
 Cost-Volume-
tousetheindependentsalesagentsandagreestotheirdemandfora25percentsales
commission? 113
.AssumingthatStepCompanywilljustrentamanufacturingspaceforamonthinorderto
A.P8,000,000 C.P10,000,000 produce special order for 8,000 toys.What is the acceptable minimum selling priceto Step
B.P9,533,333 D.P13,333,333 Bobadilla Companyforthespecialsale?
A.P14.00 C.P22.00
.How much is the estimated volume in peso sales that would generate an identical net income for
109
B.P15.25 D.P24.00 Bobadilla
theyear endingDecember31,2007,regardlessof whetherTimexemploys itsown sales
personnelorcontinuestousetheindependentsalesagentsandpaysthema25percent QuestionNos.114through118arebasedonthefollowing:
commission? BoltonCompany’sincomestatementforlastmonthisgivenbelow:
A.P1,000,000 C.P1,500,000 Sales(15,000units@P30) P450,000
B.P1,250,000 D.P1,800,000 Bobadilla Lessvariableexpenses 315,000
Contributionmargin 135,000
QuestionNos.110through113arebasedonthefollowingdata: Lessfixedexpenses 90,000
Step Company produces toys and other items for use in beach and resort areas. A small, Netincome P45,000
inflatabletoyhascomeontothemarketthatthecompanyisanxioustoproduceandsell.Enoughcapacity The industry in which Bolton Company operates is quite sensitive to cyclical movements in the
exists in the company’s plant to produce 16,000 units of the toy each month. Variable costs to economy.Thus,profitsvaryconsiderablyfromyeartoyearaccordingtogeneraleconomic
manufacture and sell one unit would be P12.50, and fixed costs associated with the toy would total conditions. The company has a large amount of unused capacity and is studying ways of improving
P350,000permonth. profits.
The company’s Marketing Department predicts that demand for the new toy will exceed the 16,000 A new equipment has come onto the market that would allow Bolton Company to automate a
units that the company is able to produce. Additional manufacturing space can be rented from portion of its operations. Variable costs would be reduced by P9 per unit. However, fixed costs
anothercompanyatafixedcostofP10,000permonth.Variablecostsintherentedfacilitywould total would increase toatotal ofP225,000 eachmonth.
P14per unit, due tosomewhat lessefficient operations thaninthemainplant. Thenewtoy
willsellforP30perunit. 114
.Howmuchincomeforthemonthwouldthecompanyearnifthenewequipmentispurchased?
A.P45,000 C.P60,000
.Thebreakevenunitsforthenewtoywouldbe:
110
B.P30,000 D.P75,000 Bobadilla
A.20,000 C.21,000
B.18,000 D.22,500 Bobadilla 115
.How many units are required as increase or decrease in breakeven point if the new equipment
is purchased?
111
.Howmanyunitsshouldthecompanyneedtosellinordertoearnabefore-taxprofitof P150,000? A. Zero C.3,200units
A. 9,143 C.31,875 B. 2,500units D.4,000units Bobadilla
B.30,375 D.35,000 Bobadilla
116
.Thedegreeofoperatingleverageduringthemonthwherethenewequipmentisusedis:
112
.IfthesalesmanagerreceivesabonusofP1.00foreachunitsoldinexcessofthebreak-even A. 3.0times C.6.0times
point,howmanyunitsmustbesoldeachmonthtoearnareturnof25%onthemonthly B. 4.5times D.9.0times Bobadilla
investmentinfixedcosts?
A.23,344 C.29,833 117
.Refer to the original data. Rather than purchase a new equipment, the president is thinking
B.27,000 D.30,000 Bobadilla aboutchangingthecompany’smarketingmethod.Underthenewmethod,saleswould
increaseby20%eachmonthandnetincomewouldincreasebyone-third.Fixedcostscould

24
 Cost-Volume-
beslashedtoonlyP48,000permonth.Computethebreak-evenpointforthecompanyafter the B.P(600,000) D.P(500,000) Bobadilla
change in marketing method.
A. 8,000units C. 9,000units 121
.ThecompanyisconsideringpayingthestoremanagerofDavaosalesoutletanincentive
B. 12,500units D.10,000units Bobadilla commission of P75 per pair of shoes (in addition to the salesperson’s commission).If this
changeismade,whatwillbethenewbreakeveninpairsofshoes?
118
.Assumingthatduringthemonthfollowingthemonthnewequipment hasbeenstartedinuse, the A.26,667 C.20,000
unitsales increased by4,500 units.Thevariable expenses per unitand themonthly fixed costs B.16,000 D.22,000 Bobadilla
as affected by the acquisition of the new equipment are expected to remain constant.
.Instead of paying the manager a straight P75 per pair of shoes commission on all pairs of shoes
122
Whatistheexpectedprofitofthecompanyforthatmonth? sold,thecompanyisconsideringpayingthestoremanagerP50commissiononeachpairof shoes
A.P81,000 C.P85,500 sold in excess of the breakeven point.If this change is made, what will be the sales
B.P126,000 D.P45,000 Bobadilla outlet’snetincomeorlossif25,000pairsofshoesaresold?
A.P250,000 C.P1,500,000
QuestionNos.119through124arebasedonthefollowing: B.P900,000 D.P1,250,000 Bobadilla
ZapateroCorporationoperatesachainofshoestoresaroundthecountry.Thestorescarrymany
stylesofshoesthatareallsoldatthesameprice.Toencouragesalespersonneltobeaggressive in their .If the company would pay the manager P50 commission on each pair of shoes sold in excess of
123
sales efforts, the company pays a substantial sales commission on each pair of shoes sold. thebreakevenpoint,howmanypairsofshoesarerequiredtoearnP900,000profit?
Salespersonnelalsoreceiveasmallbasicsalary. A.23,600 C.25,000
B.23,000 D.27,500 Bobadilla
The following cost and revenue data relate to Davao sales outlet and are typical of the company’s
many sales outlets: .The company is considering eliminating sales commissions entirely in its stores and
124
Sellingprice P800 increasingfixed salaries by P2,142,000 annually.
Variableexpenses:
Invoicecosts P360 If this change is made, what willbe the numberofpairs of shoes to be sold by Davao outlet to
Salescommission 140 be indifferent to commission basis?
P500 A.25,300 C.21,000
B.15,300 D.18,505 Bobadilla
Fixedexpensesperyear:
Rent P1,600,000 ThefollowinginformationshouldbeusedtoanswerQuestionNos.125through131.
Advertising 3,000,000 Due to erratic sales of its sole product - a high-capacity battery for laptop computers, Salcedo
Salaries 1,400,000 Company has been experiencing difficulty for some time. The company’s income statement for the
Total P6,000,000 most recent month is given below:
Sales(19,500units@P300) P5,850,000
.Howmanyunitsarerequiredforthecompany’sDavaosalesoutlettobreakeven?
119
Lessvariableexpenses 4,095,000
A. 12,000pairs C.20,000pairs Contributionmargin 1,755,000
B. 17,143pairs D.22,000pairs Bobadilla Lessfixedexpenses 1,800,000
Netloss P(45,000)
.If18,000pairsofshoesaresoldinayear,whatwouldbeDavaosalesoutlet’snetincome?
120

A.P600,000 C.P500,000 .ThebreakeveninpesosalesforSalcedoCompanyis:

125

25
 Cost-Volume-
A.P6,000,000 C.P5,852,756 QuestionNos.132–134arebasedonthefollowing:
B.P2,571,429 D.P7,500,000 Bobadilla AlmoCompanymanufacturesandsellsadjustablecanopiesthatattachtomotorhomesand
trailers.Themarketcoversnewunitpurchasesaswellasreplacementcanopies.Almodeveloped its 2007
126
.ThepresidentbelievesthataP160,000increaseinthemonthlyadvertisingbudget,combined business plan based on the assumption that canopies would sell at a price of P400 each.
withanintensifiedeffortbythesalesstaff,willresultinan P800,000increasein monthlysales. If the ThevariablecostsforeachcanopywereprojectedatP200,andtheannualfixedcostswere
president is right, what will be the effect on the company’s monthly net income or loss? budgeted at P100,000. Almo’s after–tax profit objective was P240,000; the company’s effective tax
A. P120,000increase C.P120,000decrease rate is 40 percent.
B. P80,000increase D.P80,000decrease Bobadilla
WhileAlmo’ssalesusuallyriseduringthesecondquarter,theMayfinancialstatementsreported
127
.Refertotheoriginaldata.Thesalesmanagerisconvincedthata10%reductionintheselling price, thatsaleswerenotmeetingexpectations.Forthefirstfivemonthsoftheyear,only350unitshad
combined with an increase of P600,000 in the monthly advertising budget, will cause beensoldattheestablishedprice,withvariablecostsasplanned, anditwasclearthatthe2007 after-tax
unitsalestodouble.Whatwillthenewprofitorlossifthesechangesareadopted? profit projection would not be reached unless some actions were taken. Almo’s president
A.P60,000 C.P45,000 assignedamanagementcommitteetoanalyzethesituationanddevelopseveralalternative
B.P(60,000) D.P(45,000) Bobadilla coursesofaction.Thefollowingmutuallyexclusivealternatives,labeledA,B,andC,were
presentedtothepresident.
128
.Refertotheoriginal data.TheMarketingDepartment thinksthatafancynewpackageforthe laptop
computer battery would help sales. The new package would increase packaging costs by Reduce the sales price by P40. The sales organization forecast that with the significantly reduced
P7.50per unit.Assuming noother changes, howmany unitswouldhavetobesoldeach month to salesprice,2,700unitscanbesoldduringtheremainderoftheyear.Totalfixedandvariableunit
earn a profit of P97,500? costswillstayasbudgeted.
A.21,818 C.25,450
B.23,000 D.28,000 Bobadilla LowerthevariablecostsperunitbyP25throughtheuseoflessexpensivematerialsandslightly modified
manufacturing techniques. The sales price will also be reduced by P30, and sales of
.Refer to the original data. By automating certain operations, the company could reduce variable
129
2,200unitsfortheremainderoftheyearareforecast.
costsbyP3perunit.However,fixedcostswouldincreasebyP72,000eachmonth.
CutfixedcostsbyP10,000,andlowerthesalespriceby5percent.Variablecostsperunitwillbe
Howwouldthebreakevenpointinunitschangeifthecompanyautomatedtheoperations? unchanged.Salesof2,000unitsareexpectedfortheremainderoftheyear.
A. 1,000unitsincrease C.3,000unitsincrease
B. 1,000unitsdecrease D.3,000unitsdecrease Bobadilla 132
.Assuming no changes were made to the selling price or cost structure, how many units must
Almoselltobreakeven?
130
.At what level of production would the automation of the production process be indifferent to the A. 167 C. 500
present process? B. 250 D.1,700 Bobadilla
A.18,000 C.24,000
B.21,000 D.28,000 Bobadilla 133
.Assuming no changes were made to the selling price or cost structure, how many units must
Almoselltoachieveitsafter-taxprofitobjective?
.Which of the two methods (the present or the automated) has higher income at the level of salesof
131
A.1,250 C.2,000
26,000 units? B.1,700 D.2,500 Bobadilla
A. Manual,P60,000 C.Manual,P240,000
B. Automated,P60,000 D.Automated,P240,000 Bobadilla .IfmanagementdecidestoreducethesellingpricebyP40,whatwillAlmo'safter-taxprofitbe?
134

A.P157,200 C.P241,200

26
 Cost-Volume-
B.P160,800 D.P301,200 Bobadilla
135
.IfthemanagementcanreducethevariablecostperunitbyP25throughtheuseofless
expensivematerialsandslightlymodifiedmanufacturingtechniques,withthesalesprice
reducedbyP30,andsalesof2,200unitsfortheremainderoftheyearareforecast,the amount
of expected income for the year was:
A.P239,400 C.P241,200
B.P204,000 D.P399,000 Bobadilla
136
.How much would be the expected income for the year if the management cut fixed costs by
P10,000,andlowerthesalespriceby5percent,withvariablecostsperunitunchangedand
salesof2,000unitsareexpectedfortheremainderoftheyear?
A.P239,400 C.P241,200
B.P204,000 D.P399,000 Bobadilla

.If the sales price is reduced by 6.25 percent starting June 1, an analysis indicates that 2,500 unit
137

salescanbemadeifthecompanyhastospentforadditionaladvertising.Whatisthe maximum
amount of advertising cost that the company can spend and still the profit objective is
achieved?
A.P35,000 C.P15,000
B.P22,500 D.P7,500 Bobadilla

27
 1
. Answer:B
ContributionMargin=Fixedcosts
=P15,000

(ContributionMargin/UnitSales)+Variablecostperunit
=DesiredMinimumSalesPrice

(P15,000÷3,000)+(P7,500÷3,000) 7.50
2
. Answer:C
Unit contribution margin(P50 - P30) P20.00
Additionalprofit(500xP20) P10,000

Afterthebreak-evenlevel,theamountofprofitequalstheunitcontributionmarginmultipliedbythenumberofunitssold
inexcessofbreak-evenunits.

Thecandidatesshouldrememberthattheprofitincreasesbytheamountofcontributionmarginbroughtbyadditional units
sold.
3
. Answer:A
Costofdinner P70.00
Favorsandprogram 30.00
Fixedcosts
(15,000+7,000+48,000+10,000)/250 320.00
Costtobecharged P420.00
4
. Answer:B
The number of units required to earn the target profit is equal to the sum of fixed expenses and the target profit divided by the
unit contribution margin. The number of units required to earn the target net profit is:
(P78,000+P42,000)÷P12 10,000
5
. Answer:A
SellingPrice P60
Less:VariableManufacturingCost (30)
10%Commission (6)

UnitContributionMargin P24
6
. Answer:A
Currentbreak-even:
Pesos:(P32,000÷0.40) P80,000
Units:[P32,000÷P6) 5,333
Contributionmarginperunit:P15x0.40 P 6.00

Additional units to cover additional fixed costs:

(P32,000 x 0.3) P6 1,600

Alternativesolution:
Newbreakevenunits(P32,000x1.3)÷P6 6,933
Lesscurrentbreakevenunits 5,333
Increaseinbreakevenunits 1,600
7
. Answer:A
 The amountof contribution marginper unit is constantwithin a relevant range.The amountof profit is increasedby theamount
of unit contribution margin.

Contributionmarginperunit:
fixedcost÷breakevenunitsales50,000÷5,000P10.00
Atbreakevenpoint,theprofitiszero.Therefore,theprofitatalevelof5,001unitswillbeP10whichistheamountof
contributionprovidedbytheunit(oneunit)inexcessofbreakevenpoint.
8
Answer:A
CMR =Fixedcost/Sales
=100,000/800,000=12.50%

Profit =(1,200,000–800,000)0.125 P50,000

The amount of sales that provides profit should be the sales revenues above the break even sales.

Alternativesolution:
Total contribution margin 1,200,000 x 0.125 P150,000
Fixed costs 100,000
Profit P50,000
9
. Answer:A
Currentunitcontributionmargin(P32–P24) P8
Currentbreak-evenunits(P400,000÷P8) 50,000
Newunitcontributionmargin(P40-P24) P16
Newbreak-evenunits(400,000÷16) 25,000
Net decrease in breakeven units
(50,000–25,000) 25,000
10
. Answer:A
CMperunit:220,000/(100,000–80,000) 11.00
Fixedcosts: 80,000x11 P880,000

The contribution margin per unit is linear or constant per unit.

Therefore:TCMUnits=UCM

11
. Answer:B
TCMSales=CMR
ChangeinTCM:(600,000*0.2)–(360,000*0.1) 84,000
CMR:IncreaseinTCM÷IncreaseinSales 84,000 ÷
240,000 35%

Breakevensales90,300÷0.35 258,000
12
. Answer:C
Before-taxprofit24,000÷0.6 40,000
Addfixedcost 200,000
Totalcontributionmargin 240,000

Sellingprice=UVC+UCM
SellingPrice=6+(240,000÷40,000) 12.00
13 . Answer:C
 The company's degree of operating leverage is determined as follows:
Degreeofoperatingleverage=Contributionmargin÷Netincome
Degreeofoperating leverage=P600,000 ÷P240,000=2.50
14
. Answer:A
Increaseinsales 125,000
Lessvariablecostsandexpenses
0.90x125,000 112,500
Additionalprofitbeforetax 12,500
Lessadditionaltax0.40x12,500 5,000
Additionalprofit 7,500

15
. Answer:B
Additionalprofit÷UCM=additionalunitsales
=(40,000+8,000)÷(80-60)
=2,400units
16
. Answer:A
Totalpesosalesrequired120,000÷(0.25–0.1) 800,000*
Lesspriorsales 400,000
Requiredincreaseinsales 400,000

*Pesosalesrequiredtoearnprofitstatedaspercentageofsales(ROS):
S=[FC+(ROSS)]CMR
(CMRS)=[FC+(ROSS)]
(CMRS)-(ROSS)=FC
(CMR–ROS)S=FC

S=FC(CMR–ROS)

17
. Answer:A
Contributionmargin50,000x(5-3.50) 75,000
Less:additionalprofit(250,000x0.10) 25,000
Additionalfixedcosts 50,000

Sellingprice=P3.50÷0.70 P5.00
18 . Answer:C
A shorter calculation of finding the amount of sales is to divide breakeven sales by (1 – MSR)
Sales = P600,000 (1 – 0.2) P750,000

Analternativesolutiontofindsalesistocomputetheprofitmargin.

Profitmargin=Contributionmarginratioxmarginofsafetyratio.
Profitmargin=20%x40% 8%
Sales=Profit÷Profitmargin

Sales(60,000÷0.08) P750,000
19
. Answer:A
Pesosales=FC/(CMR-ROS)
=P210,000/(0.40-0.10) P700,000
 CMR=40%

A long computation of required sales uses the following

equation:S=P210,000+0.10S
0.40

0.40S=P210,000+0.10S
0.40S-0.10S=P210,000
S=P210,000/(0.40– 0.10)
S=P700,000
20
. Answer:C
Currentnumberofunitsrequiredtoearnthetargetnetprofit:
[(P200,000+P70,000)÷P9] 30,000

After the automated machine is placed into service,

the number of units required to earn the target
netprofitwillbe:
((P250,000+P70,000)÷P12) 26,667

Changeinunits:30,000-26,667=3,333decreaseinunitsales
21 . Answer:C
CMR=100%-(3.9÷6.0)=35%
BES=1,400,000÷.35 4,000,000
22 . Answer:C
Newbreak-evenpoint:P874,000÷P23 38,000
Currentbreak-evenpointinunits:P770,500÷P23 33,500
Increaseinunits:38,000-33,500 4,500
Alternativesolution:(P103,500÷P23) 4,500

23 . Answer:A
Theestimatedcostofgoodssold
=P565,000+0.35S*
*Sumofallpercentagesforvariableproductioncosts

=P565,000+(P2,000,000x0.35)
=P1,265,000
24
. Answer:B
Peso sales required to earn 10% of sales;
FC/(CMR–ROS)
=P36,000/(0.30-0.10)
=180,000
25
. Answer:A
Revisedcontributionmargin20,000x1.15x(7-1) 138,000
Fixedcost(105,000+19,200) 124,200
Revisedprofit 13,800
Priorprofit 35,000
Decreaseinprofit 21,200
26
. Answer:A
MarginofSafety=Budgetedsales–Breakevensales
MarginofSafety:P400,000–P40,000 P360,000
27
. Answer:B
DOL at P90,000 sales:
Sales 90,000
Variablecosts 50,000
TotalContributionmargin 40,000
Fixedcosts 30,000
Profit 10,000

DOL=TCM/OP
=40,000/10,000 4times

%increaseinsalesxDOL=%increaseinprofit 4 x
20% = 80%
28
. Answer:B
2006DOL=275,000/75,000 3.67
PercentageIncreaseinprofit,2007=3.67x30% 110%
2007Profit=75,000+(75,000x1.10) P157,500
29
. Answer:A
Pesosales12,000/(0.40–0.1) P40,000
UnitsalesP40,000/10 4,000
Increasedunits4,000x1.25 5,000
Revisedcontributionmargin5,000x(9–6) P15,000
Lessfixedcost 12,000
Revisedprofit P3,000

30
. Answer:B
Projected cost of sales:
P800,000+(P3,000,000x0.65) P2,750,000
31
. Answer:B
UnitCM=ChangeinProfit÷ChangeinSales
=200,000÷(100,000–75,000)
=8

Fixed costs = Breakeven units x UCM

75,000x8=600,000
32
. Answer:B
Unitcost:
Materials(P36,000÷24,000) P1.50
Labor(P54,000÷24,000) 2.25
Variablesellingexpense 0.35
Variableunitcost P4.10
Requiredprofit(2,250÷1,500) 1.50
Requiredminimumsellingprice P5.60
33
. Answer:D
Composite ratio:
X:640,000÷(720,000+640,000) 47.059%
Y:720,000÷(720,000+640,000) 52.941%

Weighted-Average Contribution Margin:

(.52941×.60)+(.47059×.40) 0.505882

Breakeven sales in pesos:

(505,881÷0.505882) P1,000,000

Y’spesosalesatbreakevenP1Mx0.47059 P470,590
34 . Answer:A
Sales(500,000x1.10) 550,000
Variablecost 300,000
Contributionmargin 250,000

CMR=250÷550=45.45%
Originalfixedcosts:
500,000–300,000–150,000=50,000
New fixed cost = 50,000 x 0.80 =
40,000Breakeven sales = 40,000/0.4545 =
P88,000
35
. Answer:B
Before-taxprofit(24,000÷0.6) Add P40,000
fixed costs 200,000
Totalcontributionmargin P240,000

Contributionmarginperunit(P240,000÷40,000) P6.00
Variablecostperunit 6.00
Sellingprice P12.00
36
. Answer:A
DOL=CM/OP
=275,000/75,000
=3.67times
37
. Answer:C
Pesosales:FC÷(CMR-ProfitMargin)
=P210,000÷(0.55-0.15)
=P525,000

CMR=100%-45%=55%
38
. Answer:B
CMR:Change in Fixed Costs ÷ Change in Breakeven Sales
78,750÷(975,000–750,000)
0.35

Fixedcostsbeforeanincreaseof78,750:
750,000x0.35 262,500
 Theincreasein fixedcosts of P78,750equals theincreasein contributionmarginin orderto continueatbreakeven sales.
39
. Answer:D
UCM =(70,000x1.20)+(40,000x3)
70,000–40,000
=P6.80

FC=Units(UCM–profitperunit)
=70,000(6.80–1.20)
=P392,000

BEU=392,000/6.80
=57,647
40
. Answer:A
Marginofsafetyinpesosales=Budgetedsales–Breakevensales
Marginofsafety=P1M–P.7M P300,000
41
. Answer:A
2006Sales 1,000,000
AdvertisingCost(75000÷.6) 125,000
Required2007pesosales 1,125,000
42
. Answer:A
RevisedWACM(0.5x1.50)+(0.5x2) 1.75
OriginalWACM(0.4x1.50)+(0.6x2) 1.80
RevisedBreakevenunits12,600/1.75 7,200
OriginalBreakevenunits12,600/1.80 7,000
Increaseinbreakevenunits 200
43
. Answer:C
WACM=(30x0.6)+(60x0.4) P42
Breakevenunits:630,000/42 15,000

Breakdown:
ProductStandard15,000x0.6 9,000
ProductDeluxe15,000x0.4 6,000

44 . Answer:B
WACM = (4/7 x 0.40)+(3/7 x 0.93 =
P0.62857BE units = 7,600/0.62857 = 12,091
Baubles = 12,091 x 4/7 =
6,909Trinkets=12,091x3/7=5,182
45
. Answer:C
Totalsalesrevenuepercompositesales:
(12xP5.25)+(10xP7.50)+(6xP12.25) P211.50
Totalvariablecostpercompositesales:
(12xP4.85)+(10xP6.95)+(6xP10.35) P189.80
Totalcontributionmarginpercompositesales
(P211.50-P189.80) P21.70
Compositebreakevenpoint
 P75,950÷P21.70 3,500

Note:Totalbreakevenunits:3,500x28=98,000
46
. Answer:C
WACMR=(.6x.4)+(.4x.15) 30%
FixedCosts=225000x1.3 P292,500
Sales(292500+48000)÷.3 P1,135,000
47
. Answer:C
UCM=(60,000x0.75)+(45,000x1.25)
60,000–45,000
=6.75

Fixedcost=(60,000x6.75)-(60,000x0.75) P360,000
48
. Answer:B
BEV=600,000 P150,000
16–12
49
. Answer:B
CMR=BeforeTaxProfitMargin
M/SRatio
=(0.06÷0.6)÷.25
=40%

FC=(120,000x.40)–(120,000x.10)=P36,000
AnnualFC=36,000x12 P432,000
50
. Answer:A
ProfitMargin=20%x10%=2%
Profit=400,000x2%=8,000
FixedCosts=CM-Profit
FixedCosts=(400,000x20%)–8,000 P72,000
51
. Answer:A
RevisedUCM=25–19.80–(5x0.08) P4.80
BEU=468,000/4.80 97,500
52
. Answer:A
TheCompanyprojectedzeroprofitbasedonzeroadvertisingexpenditure.
AdditionalCM(30,000units@10) P300,000
Less:Requiredprofit 200,000
Maximumadvertisingcost P100,000
53
. Answer:B
Cash-flowbreakeven:270,000÷(100-60) 6,750
54
. Answer:A
CMR=Before-taxreturnonsales/MSR
=(0.060.60)0.25 0.40or40%
BES=320,0000.40 P800,000
 Sales=800,0000.75 P1,066,667

55
. Answer:B
The easier calculationof sales value of 60,000 units is to divide the total annual costs by total cost ratio of 85% (100% -15%).
Sales required = P1,912,500/0.85

P2,250,000Unitsellingprice=2,250,000/60,000 P37.50
56
. Answer:D
IndifferencePoint=ChangeinFixedCost÷ChangeinVariableCost
Increase in fixed cost:2 @ 15,000 P30,000
Decreaseinvariablecost(15%-7.5%)80 P6

Indifferencepoint:30,000÷6 5,000units
57
. Answer:A
WACM=(0.25x5)+(0.75x7)
=6.50

BEU=975,000/6.50
=150,000
58
. Answer:B
The additional fixed costs of P1,200,000 should be fully covered by the same amount as additional sales (also additional
contributionmargin)throughanincreaseinsellingprice.

Increasedprice P120+(1.20M/80,000) P135

59
. Answer:A
Breakevenpoint:
Oldpolicy: P80,000/7 11,429
Newpolicy:P100,000/8 12,500
IncreaseinBreakevenpoint 1,071
60
. Answer:B
WACMR = (.4 x .2) + (.5 x.3) + (.4 x.5) = 0.43
BES = 1,290,000 ÷ .43 = P3,000,000
61
. Answer:A
Contributionmargin 12,000x(1,500–900) P7,200,000
Fixedcosts 3,600,000
Operatingprofit P3,600,000

DOL:7.2/3.6=2times
62
. Answer:B
The indifference point refers to the level of sales that would give equal profit or total costs for the two alternatives
11.30x+60,000=8.90x+82,500
2.40x=22,500
x=9,375
63
. Answer:C
 Variable cost ratio = 2.25/7.50 =
30%Variable cost next year = 2.25 x 1.3333 =
3Selling price required = 3/0.30 = P10
64
. Answer:B
TotalFixedCost P154,000
OperatingProfit 26,000P180,00
TotalContributionMargin 0

Sellingprice P20
Contribution margin per unit
(180,000 ÷ 12,000) 15
Unitvariablecost P5
65
. Answer:C
Fixedcosts 600,000
Operatingprofit 120,000
Contributionmargin 720,000

Unitcontributionmargin720,000÷400,000 1.80

Sellingprice(1.80÷0.40) P4.50
66
. Answer:B
Contribution margin per machine hour:Contribution margin per unit x No. of units produced permachine hours
Product A P20 x 6 P120
ProductB P16x8 P128
67
. Answer:A
440,000+(110,400/0.61)= 480,000
4–2.70

Revisedvariablecost:P2.40+(P2.00x0.15) P2.70
68
. Answer:D
VC Ratio 375,00/625,000 = 60%
VC/unit375,000/25,000=P15
NewVC=15+(4.50–2.50)=P17
SP=17/0.6=P28.33
69
. Answer:B
The level of sales that would give equal costs:
0.06S=(40x24,000)+0.02S
0.04S =960,000
S = 24M
70
. Answer:C
Additional fixed cost/week:
31,200/52=600

Additional weekly sales to cover additional fixed cost:

600/0.25 = 2,400
 Total Sunday’s sales (where 2,400 represents 25%):
2,400/0.25 = 9,600

Alternativesolution:
600=0.25x0.25S
600=0.0625S
S=9,600
71
. Answer:A
New BES = 873,600/140 =
6,240New FC = 840,000 x 1.04 =
873,600
NewCM=250–100–
(100x0.10)=140OldBES=840,000/150=
5,600
IncreaseinBEU=6,240–5,600=640
72
. Answer:CComposite
CM = 40 + (2 x 20)
=80

CompositeBE=910,000/80
=11,375
73
. Answer:C
Requirednewsales=2005sales+(P112,500/CMR)
= P5M +(P112,500/0.45)
P5.25M

CMR=(250–137.50)/250 45%
74
. Answer:A
Breakevenunits=807,840÷5.30 152,423
NewCM/unit=20–14.70=5.30
Newvariablecost:(14+(14x.5x0.10)=14.70
NewFC=792,000+(792,000x.20x.10)=807,840
75
. Answer:A
Indifferencepoint=DecreaseinFixedCost
IncreaseinVariableCost
=80,000/0.05
=P1.60M
76
. Answer:D
Processing hours per unit:
XY–7:0.75/1=0.75or45minutesBD–
4:0.20/1=0.20or12minutes

Additional contribution margin using 100,000 hours:

XY–7:100,000/0.75xP1=P133,333
BD–4:100,000/0.20xP0.50=P250,000
77
. Answer: B
Units sold to earn P1M:
(1,000,000+1,000,000)/5.25=380,952
 TheuseofP1Mfixedcostswillrequire380,952unitswhicharewithinthefirstrange.
78
. Answer:A
Fixed costs
=792,000+(792,000x0.20x0.10)
=807,840

UCM=20–14–(14x0.50x0.10)=5.30
Computation=807,840/5.30
79
. Answer:A
Costofone4–footpieceofmetal4x13.60 54.40
Lessproceedsfromsaleofscrap6.4/16x8 3.20
Netcostofone4-footpieceofmetal 51.20

NetcostperounceP51.20÷25.6oz P2.00

Output per one 4-foot piece of metal

Large 4 x 4oz 16.00
Small4x2.4oz 9.60
Scrap 6.40
Totaloz 32.00
80
. Answer:B
Material cost per unit
Large:4xP2x1.8 P14.40
Small2.4xP2x1.75 P8.40
81 . Answer:A
UnitCM
Large:29.00–(8.5x1.8)=13.70
Small:14.00–(5.1x1.75)=5.075

WACM=(13.70+5.075)÷2=9.3875
Breakevenpoint=860,000/9.3875
=91,611
82
. Answer:C
CM/unit405,000÷1,800 225
BEV=247,500÷225 1,100units
83
. Answer:A
OperatingProfit:(2,100x225)–247,500=P225,000
After–taxprofit:225,000x60%=135,000
84
. Answer:C
Contributionmargin
Regularsales1,500x225 337,500
Specialsale1500x175 262,500
TotalContribution 600,000
Fixedcosts 247,500
Taxableincome 352,500
Incometax 141,000
Netincome 211,500
85
. Answer:A
Additional FC/ New Unit CM
61,500÷200=307.5tons
86
. Answer:D
NewSP=500x.90450100%NewVC275+4031570%NewCM13530%
Salesrequired:]
(Fixed costs + Before Tax profit) ÷ CMR
247,500 + (94,500 ÷ 60) P1,350,000
87
. Answer:A
Unitsalesrequired:
(316,800+40,000)÷27.20 =13,118pairs
UnitContributionMargin,Touring:
80.00–52.80 P27.20
88
. Answer:A
Indifferencepointinpesosales:
0.4S–P369,600=0.34S–P316,800
0.06S=52,800
S=P880,000
89
. Answer:D
Breakevensales,Mountaineering:
369,600÷35.20= 10,500
Requiredcontributionmargin–Touring
316,800÷10,500= 30.17
Presentcontributionmargin–Touring 27.20
Requireddecreaseinvariablecostperunit 2.97
90
. Answer:A
Newbreakevenpoint:348,480÷32.48 10,730

NewUCM,Touring:27.20+(52.80x0.1) =32.48
NewFixedcosts:316,800x1.1 =348,480
91
.Answer:C
Theindifferencepointinnumberofpairsis6,600.Inasmuchthattheexpectedlevelis12,000units,itisbettertosell
Mountaineering because ithas highleverage than the touringmodel.Once the indifference point isexceeded, the one
with the higher contribution margin (leverage) has the advantage over the one with the lower contributionmargin.
92
. Answer:B
Fixed Costs:
Overhead 2,340,000
Marketing 120,000
Administrative 1,800,000
Interest 540,000
Total 4,800,000

Contributionmarginratio:
 1-[(7,200,000+2,400,000)/16M]=40%

Breakeven next year with no change in commission:

4,800,000÷0.4=P12,000,000
93
. Answer:C
If the commission rate is increased by 5%, the contribution margin is decreased by 5% or a new contribution margin
ratio of 35%

Breakevensalesnextyear. 4,800,000
/ 0.35 = P13,714,286
94
. Answer:A
Fixedcostunder15%commissionplan 4,800,000
IncreaseinFixedcost 2,400,000
Decreaseinauditfee (75,000)
Increasedfixedcosts 7,125,000

The commission rate of 7.5%, instead of 15% will raise the contribution margin ratio to 47.5% (40% + 7.5%).

Revised breakeven sales 7,125,000 / .475=P15M

95
. Answer:A
Requiredsales,with20%commissionandprofittargetofP1,120,000:
(P4,800,000+1,600,000)÷.35=18,285,714
96
. Answer:D
Thequestionaskedforistheindifferencepoint.Thepesosalesrequiredtoproduceequalincomecanbeeasily calculated by dividing
the net increase in fixed costs by the increase in contribution margin ratio:

Difference in CMR = 35% - 47.5 = 12.5%

Increaseinfixedcosts=2,400,000–75,000 P2,325,000

IndifferencePoint:2,325,000÷0.125 P18.6M

AlternativeSolution:
.355–4,800,000=.475S–7,125,000
.125S =2,325,000
S = P18,6M
97
. Answer:C
Billingchargeperpatientday P650
Variablecostperpatientday 150
Contributionmargin P500

Number of patient days for the year:

P10,676,250/650 16,425

Variable cost per patient day:

P2,463,650÷16,425 P150
98
. Answer:B
Fixedcostsforbedcapacity P4,190,000
 Salary,supervisorynurse 720,000
Total P4,910,000

Number of patient days required to cover fixed costs for bed capacity and salaries of supervisory nurse
4,910,000 ÷ 500 9,820
99
. Answer:B
In solving for the breakevenlevel where there are step fixed costs,the logical approach is to test the validity of the
rangesofactivities.

FirstRange:
Fixedcostsbasedoncapacity4,190,000Salaries:Aides21x50,0001,050,000Nurses11x130,0001,430,000Supervisor
4x180,000720,0003,200,000Total7,390,000
Breakevencalculation:7,390,000÷500 14,780

Thecalculatedbreakevenpointof14,780isinvalidbecausethenumberfallsunderthesecondrangewhereinthe
amountoffixedcoststhathadbeenusedarenotrelevanttothatrange.

SecondRange(Finalcalculation):
Totalfixedcost,lowestrange 7,390,000
Additionalfixedcost:
1aide 50,000
1nurse 130,000
Total 7,570,000
Breakeveninpatientdays:
7,570,000÷500 15,140

100
.Answer:A
Additionalrevenuesif20bedsarerented:
90days@17patientdaysx650 994,500
101
.Answer:B
Increase in variable cost should be calculated based on additional patient days for 90 days at P150 per patient day.17

beds x 90 days x P150 P229,500

102
.Answer:A
Theincreaseinfixedcostbasedonbedcapacity:
P4,190,250÷60x20 P1,396,750
103
.Answer:A
Taxshieldinnoncashexpenses
40%x800,000 =P320,000
104
.Answer:A
Breakeveninnumberofpizzas(traditional)
4,537,500/(250–75) =25,929

Unitssold:P9,500,000/250 =38,000

Unitvariablecost(costoffood)
2,850,000÷38,000 =P75.00
 Fixedcost=7,387,500–2,850,000 P4,537,500
105
.Answer:A
CashFlowBreakeven:
3,417,500÷175 19,529

Totalfixedcost: P4,537,500
Less:Noncashfixedcost (800,000)
Taxshieldonnoncash
Fixedcosts (320,000)
Fixedcashflow P3,417,500
106
.Answer:A
Breakevensalesbasedon20%commission:
P100,000÷0.20 P500,000

Contributionmarginratio:
(10M–8M)÷10M20%
107
.Answer:D
Breakevensalesifthecompanyemploysitsownsalesmen:
(P350,000÷0.35) P1,000,000

Thenewcontributionmarginratiois(20%+15%) 35%

Fixed costs are expected to be P350,000

(100,000+90,000+160,000)

.Answer:D
108

The required peso sales to earn net income of P1,330,000 if the commission is raised to 25%:

(P100,000 + P1,900,000) ÷ 0.15 P13,333,333

109
.Answer:B
Theindifferencepoint,thelevelofsaleswherethealternativeswillhaveequalprofits:
.15S-100,000=.35S–350,000
2S =
250,000S=P1,
250,000
110
.Answer:C
Theproblemillustratesacalculationofbreakevenpointforacompanywithastepvariableandstepfixedcost.

ContributionMarginperUnit:
60,000orless(P30–P12.50) P17.50
Unitsabove60,000(P30–P14.00) P16.00

Totalcontributionmarginfromthefirst
60,000(60,000xP17.50) P280,000

Let X = Number of units above 16,000

0=280,000+16X-360,000
X=80,000÷16
 X=5,000units

Breakevenunits:16,000+5,000 21,000

AlternativeSolution:

Totalfixedcosts P360,000
Less Contribution margin from 60,000 units

280,000Remaining fixed costs to be covered by

additionalunits,eachwithCMofP16 P80,000

Breakevenunits:16,000+(80,000÷16) 21,000
111
.Answer:B
TheunitsthatwillgeneratethedesiredprofitofP150,000forthecompany,contributesP16each.Theseunitsarethe excess of
21,000 units to breakeven.

Unitsalesrequired:
21,000+(150,000÷P16) 30,375
112
.Answer:B
ThebonusplanofP1.00perunitonsalesmadeinexcessofbreakevenpoint(21,000units)willnecessarilydecrease
thecontributionmargintoP15.

The desired profit based on fixed cost:

25% x P360,000 P90,000

Unitsrequired:21,000+(P90,000÷15) 27,000
113
.Answer:B
In determining the minimum selling price for the 8,000 units should consider the increased variable cost per unit and
theadditionalfixedcost.Anycostandlossesonthefirst16,000unitsareirrelevant:
Variablecostperunit P14.00
Additionalfixedcostperunit(10,000÷8,000) 1.25
Minimumsellingprice P15.25
114
.Answer:A
Thenetincomeforthemonthifthenewequipmentisacquired:
Contribution margin based on the present system P135,000
Add increase in contribution margin due to
decrease in variable cost (15,000 x 9)

135,000Increasedcontributionmargin 270,000
LessIncreasedfixedcosts 225,000

Netincome P45,000
115
.Answer:B
Theincreaseinbreakevenpointwouldbe:
(12,500–10,000) 2,500units
Breakeven,present(P90,000÷P9) 10,000units
Breakeven,proposed(P225,000÷P18) 12,500units
116
.Answer:C
 Thedegreeofoperatingleverage(DOL)
duringthemonththatthenew
equipment would be used:(270,000 ÷ 45,000)

6X(PleaseseesolutionforNo.94)
117
.Answer:A
Breakevenunitsifthereisachangeinmarketingmethod:
P48,000÷6 8,000units

Contributionmarginperunit:
(Fixedcost+profit)÷Unitssold

(P48,000+P60,000)÷18,000units P6.00
118
.Answer:B
Thepercentageincreaseinprofitcanbecalculatedbymultiplyingthedegreeofoperatingleverage(DOL)bythe
percentageincreaseinsalesduringthesecondmonth.

The sales increased by 30% (P4,500 ÷ P15,000) and therefore the profit percentage increased by 180% (6 x

30%).Theexpectedprofitduringthenextmonthwouldbe:

P45,000+(P45,000x1.8) P126,000

.Answer:C
119

BreakevenUnits:
FixedCosts÷UnitContributionMargin
P6,000,000÷300 20,000pairs
120
.Answer:B
Contributionmargin(P18,000x300) P5,400,000
LessFixedcosts 6,000,000
Netloss P(600,000)
121
.Answer:A
The breakevenlevel forthe sales outlet is expectedto rise becauseof additional commission,a variable cost item,
andsuchacommissionisbeingpaidforallpairsofshoessold.

Breakeveninpairsofshoes:
6,000,000÷(300–75) 26,667pairs
122
.Answer:D
Though an additional commission is paid on pairs of shoes sold, the breakeven point is not affected and shall remain
at20,000 because the additional commission applies only to number of pairs of shoes sold in excess of breakeven level.

Theprofitcontributionbythe5,000pairsisbasedonreducedcontributionmarginperpair.

Profit:5,000x(300–50) P1,250,000

AlternativeSolution:
Sales(25,000xP800) P20,000,000
Variablecosts(24,000xP500) 12,750,000
 Totalcontributionmargin 7,250,000
Fixedcosts 600,000
Profit P1,250,000
123
.Answer:A
Because the breakeven level is unchanged, the calculation of the number of pairs to earn P900,000 issimple.The
amountofthedesiredprofitwillbecontributedbythenumberofpairsofshoesinexcessofbreakeven,each contributing
P250.

20,000+(P900,000÷250) 23,600pairs
124
.Answer:B
300X–P6,000,000=440X–P8,142,000
140X=P2,142,000
X=15,300pairs
125
.Answer:A
Breakeven peso sales:P1,800,000 ÷ 0.3
P6,000,000CMR = P1,755,000 ÷
P5,850,000 30%
126
.Answer:B
AdditionalcontributionmarginP800,000x0.30 P240,000
Additionalfixedcost 160,000
Increaseinprofit P80,000
127
.Answer:B
Sales39,000xP270 P10,530,000
Variablecost39,000xP210 8,190,000
Contributionmargin 2,340,000
Fixedcost 2,400,000
Netloss P( 60,000)
128
.Answer:B
Originalunitcontributionmargin
(1,755,000÷19,500) P90.00
Lessincreaseinpackagingcost 7.50
NewUnitcontributionmargin P82.50

Unitsalesrequired:
(P1,800,000+P97,500)÷P82.50 23,000
129
.Answer:A
Breakevenunits,Automated
(P1,800,000 + P720,000) ÷ (P90 + P30)
P2,520,000÷90 21,000
Breakevenunits,Present
(P1,800,000÷90) 20,000
Increaseinbreakevenunits 1,000
130
.Answer:C
The computation of the indifference point for the two processes can be determinedby dividing the increase in fixed costsby
the decrease in variable cost per unit because the selling price was unchanged.
 IndifferencePoint:P720,000÷30 24,000
131
.Answer:B
Ifthelevelofsalesishigherthantheindifferencepoint,theonewithhigherleverage,i.e.,higherfixedcostsandlower unit
variable cost, will provide higher income.The automated process has the higher leverage and therefore, it has
higher income:

Differenceinincome:(26,000– 24,000)30 P60,000

132
.Answer:C
Breakeven units = Fixed costs Unit contribution margin
P100,000 (P400 – P200)
500units

133
.Answer:D
Step1:Computebefore-taxprofit:
P240,000(1.0–0.4) P400,000

Unitssalesrequiredtoearnbefore-taxprofit:
(P100,000+P400,0000)P200 2,500units

AlternativeSolution:
Profit=Sales–Variablecosts–Fixedcosts

P400,000=P400X–P200X–P100,000
P500,000=P200X
X=2,500units
134
.Answer:C
Revenue(350xP400)+(2,700xP360) P1,112,000
Variablecosts(3,050xP200) 610,000
Contributionmargin 502,000
Fixedexpenses 100,000
Operatingincome P402,000
Incometax 160,800
Netincome P241,200

135
.Answer:A
Revenue(350xP400)+(2,200xP370) P954,000
Variablecosts(350xP200)+(2,200xP175) 455,000
Contributionmargin 499,000
Fixedexpenses 100,000
Operatingincome 399,000
Incometax 159,600
Netincome P239,400

136
.Answer:B
Revenue(350xP400)+(2,000xP380) P900,000
Variablecosts(2,350xP200) 470,000
Contributionmargin P430,000
Fixedcosts 90,000
Operatingprofit 340,000
 Incometax 136,000
Netincome P204,000
137
.Answer:D
Before tax profit objective (240,000÷0.6) P400,000
Fixed costs 100,000
Totalcontributionmarginrequired 500,000
Less contribution margin made on units sold
January–May(350x200) 70,000
Additional contribution margin still needed P430,000
Additional contribution margin from 2,500 units
(2,500xP175) P437,500
Lessadditionalcontributionmarginrequiredtomeetprofitobjective 430,000
Maximumadvertisingcost P7,500