THEORIES: 1 CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS ‘To which function of management is CVP analysis most applicable? A. Planning BL Organizing C. Directing D. Controlling The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed: A. contribution margin analysis B. cost-volume-profit analysis C. budgetary analysis D. gross profit analysis The term contribution margin is best defined as the: A. difference between fixed costs and variable costs. difference between revenue and fixed costs. C. amountavailable to cover fixed costs and profit. D. amount available to cover variable costs. s Cost-volume-profit analysis allows management to determine the relative profitability of a product by A. highlighting potential bottlenecks in the production process. B. determining the contribution margin per unit and projected profits at various levels of production, C. assigning costs to a produet in a manner that maximnzes the contribution margin. D._ keeping fixed costs to an absolute minimum. Firms with a high degree of operating leverage: A. will have a more significant shift in income as sales volume changes B. have lower fixed costs C. have low contribution margin ratios D. are less dependent on volume to add profits The most useful information derived from a breakeven chart is the A. amount of sales revenue needed to cover enterprise variable costs. B, amount of sales revenue needed to cover enterprise fixed costs. 298. Ss 10. 11. 12 C. relationship among revenues, variable costs, and fixed costs at various levels of activity. | D. volume or output level at which the enterprise breaks even. In multiproduct situations, when sales mix shifts toward the product with the highest contribution margin, then: A. total revenues will decrease B. breakeven quantity will decrease C. total contribution margin will decrease D. operating income will decrease At the breakeven point, fixed cost is always less than the contribution margin equal to the contribution margin, more than the contribution margin more than the variable cost gOe> Atthe break-even point: A. net income will increase by the unit contribution margin for each additional item sold above break-even. B. the total contribution margin changes from negative to positive C._ fixed costs are greater than contribution margin D._ the contribution margin ratio begins to increase In cost-volume- profit analysis, the greatest profit will be earned at A. one hundred percent at normal productive capacity. B. the production point with the lowest marginal cost. C. the production point al which average total revenue exceeds average marginal cost. D. the point at which marginal cost and marginal revenue are equal. Which of the following is not an assumption underlying C-V-P analysis? A. The behavior of total revenue is linear, B. Unit variable expenses remain unchanged as activity varies. C. Inventory levels at the beginning and end of the period are the same D, The number of units produced exceeds the number of units sold, Which of the following assumptions is inherent to C-V-P analysis? A. In manufacturing firms, the beginning and ending inventory levels are the same. B. Ina multi-product organization, the sales mix varies over time. C. The behavior of total revenue is curvilinear. D. The relevant range is not a consideration. 30PROBLEMS: 1, Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the following monthly costs Variable costs P 7,500 Fixed costs 15,000 What sales price per plant does it need to begin making a profit if it sells the estimated number of plants per month? A. P751 C. P5.00 B. P7.50 D. P250 EL Nadal Manufacturing has the following product information available: “Sales price P75 per unit Variable costs P25 per unit Before-tax profit 180,000 If E] Nadal has calculated that it needs to sell 20,000 units in order to earn an after-tax target profit of P126,000, what were its fixed costs? A, RP 54,000 Cc. P 820,000 B. P1,180,000 D. P 874,000 ‘An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30 per unit, and total fixed costs of P80,000. If the company sells 500 additional units, by how much will its profit increase? A. 25,000 c. P10,000 B. P15,000 D. P12,000 Cielo's Hotdog Stand sells hotdogs for P25 each. The variable costs per hotdog are P10, Ciclo’s fixed costs are currently P8,000 per month. Cielo’s is considering expanding his business to three hotdog stands which will increase fixed costs per month by P12,000 If Cielo does expand his business to three stands, how many additional hotdogs will need to be sold per year in order to break even? A. 800 C. 9,600 B. 600 D. 7,200 The Red Lions Brotherhood is planning its annual Riverboat Extravaganza. The Extravaganza commuttee has assembled the following expected costs for the event: 39P # Dinner per person 2 gon x Programs and souvenir per Pe sea Orchestra ; sam Tickets and advertising zm Riverboat rental — ; Floor show and strolling entertainmen ico The committee members would like to charge P300 per person for the evening’ activities. ‘Assiume that only 250 persons are expected to attend the extravaganza, what yen? ticket price must be charged to breakeven? A. P420 & peo B. P3650 D. Ps Consider the following: Fixed expenses P78,000 Unit contribution margin 12 Target net profit 42,000 How many unit sales are required to earn the target net profit? A. 15,000 units C. 12,800 units B. 10,000 units D. 20,000 units Based on the following, compute the amount of sales: Profit margin before tax based on sales 8 percent Margin of safety ratio 20 percent Fixed costs 1,200,000 Variable cost of goods sold 25 percent Variable selling and administrative expense? A. P2,026,667 C. P6,080,000 B. P3,750,000 D. 4,750,000 Carribean Company produces a product that sells for P60. ‘The variable manufacturing costs are P30 per unit. The fixed manufacturing cost is P10 per unit based on the current level of activity, and fixed selling and administrative costs are P8 per unit. A we i and admi each unit aaa selling commission of 10% of the selling price is paid on The contribution margin per unit is: "24. A ee C. P30. 4010. Ti. 13. 14. 1. 16. Seal Yard Ornaments sells lawn ornaments for P15 each. Seal’s contribution margin ratio is 40%, Fixed costs are P32,000, Should fixed costs increase by 30%, how many additional units will Seal have to produce and sell without affecting the current amount of profit? A. 1,600. C. 6.933, B. 5,333, D. 1,067. Ata break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses were P50,000. The profit from the 5,001st unit would be? A. P10 c Pb B. P50 D. P12 Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on this relationship, what is its projected profit at P1,200,000 sales? A. P 50,000 C. P150,000 B. 200,000 D. P400,000 ‘The Hard Company sells widgets. The company breaks even af an annual sales volume of 80,000 units. At an annual sales volume of 100,000 units the company reports a profit of P220,000. The annual fixed costs for the Hard Company are: A. P 880,000 C. P. 800,000 B. 1,100,000 D. 1,000,000 Tamarine Company earned P50,000 on sales of P400,000. It earned P70,000 on sales of P450,000. The amount of total fixed costs for Tamarine Company is: A. PO C. P110,000 B. P 50,000 D. P180,000 Albatross Company has fixed costs of P90,300, Ata sales volume of P360,000, return on sales is 10%; at a P600,000 volume, return on sales is 20%. What is the break-even volume? A. 225,000 CC. P301,000 B. P256,000 D. 240,000 Anentity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000 units in the coming year. If the entity pays income taxes on its income at a rate of 40%, what sales price must the firm use to obtain an after-tax profit of P24,000 on the 40,000 units? A. P1160 C. Pi2.00 B. P1136 D. P1250 ‘The following is the Lux Corporation's contribution format income statement for Tast month: Sales 2,000,000 41