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QUIZ
I. MULTIPLE CHOICE
Encircle the letter of the correct answer.
1. From which one of the following is the break-even point NOT determinable? C
a. Using a mathematical equation
b. Using contribution margin
c. Using high-low method
d. Deriving it from a CVP graph
Required:
a. Contribution margin ratio = P3 / P12 = 0.25 * 100 =25%
b. Break-even point in number of baseballs = Total fixed cost per unit
Cm per unit
1,500,000
3
= 500,000 units
c. Break-even point in pesos = Total Fixed Cost CM ratio
CM ratio
1,500,000
25%
= P6,000,00.00
d. Margin of safety in number of baseballs = Sales in units – BEP in units
980,000 – 500,000
= 480,392 units
e. Margin of safety in pesos = Sales in pesos – BEP in pesos
(P12* 980,392) – P6,000,000
11, 764,704 – 6,000,000
= P5,764,704.00
f. Desired sales in number of baseballs if the company wants to earn P420,000 in profit
1,500,000 + 420,000
3
= 640,000 units
g. Desired sales in pesos if the company wants to earn P420,000 in profit
1,400,392
25%
= P5,601,568.00
2. Salvatore Tire Company manufactures tires for bicycles. The tires sell for P72 and variable cost per tire is P54.
The monthly fixed cost is P480,000. The company is currently selling 40,000 tires monthly. The contribution
margin income statement of Salvatore is shown below:
Sales P2,880,000
Variable Costs 2,160,000
Contribution Margin 720,000
Fixed Costs 480,000
Profit P240,000
Required:
a. Degree of operating leverage = Total Contribution Margin
Profit
720,000
240,000
=3
b. If the company can increase sales volume by 15% above the current level, what is the percentage change in
profit? Indicate if increase or decrease.
15% x3
= 45%