Strategic Cost Management

Midterm Quiz No. 1

University of Negros Occidental - Recoletos

Name____________________________________________ Date_________________
Year and Section___________________________________

(For Q1 to Q6) Bisikleta Corporation has just increased its manufacturing capacity to enable it to introduce new
models of bicycles, which it could not produce in the past due to capacity constraints.

For the coming period, Bisikleta is planning to start the production of a new model, which could either be the
Pambundok Bike or Pangkarera Bike.

A recently, concluded feasibility study on the two models showed the following results:

Pambundok Pangkarera

Selling Price P4,400 P4,000

Variable costs P2,640 P2,640

Total fixed costs:

If only Pambundok is produced P3,696,000

If only Pangkarera is produced 3,168,000

Projected sales per year: Between 4,500 to 6,500 of either model

Q1. What is the peso breakeven point of Pambundok Bike? (3pts)

Q2. What is the peso breakeven point of Pangkarera Bike? (3pts)

Q3. Total peso sales at which Bisikleta would make the same profit or loss regardless of the bike model it decided to
produce. (3pts)

Q4. If projected sales is guaranteed at 6,000 units of either model, which model should the Company produced and
why? (3pts)

Q5. If projected sales is guaranteed at 6,000 units of either model and the company made the right decision as to
which model to product, the margin safety from the chosen model would be? (3pts)

Q6. If Bisikleta desires to earn profit of 25% of sales, which model should the Company produce and why? (3pts)

(For Q7 – Q10) The owners of Kelsey’s Daily Mart have been looking for ways to improve sales at the store. One of
the proposals is to have a weekly raffle with a total prize of P10,000 per week. For every P50 worth of goods
purchased, the customer shall receive a numbered ticket for the raffle. The variable cost to print and distribute the
tickets has been estimated at five pesos (P5.00). Promotions and other fixed costs in connection with the raffle,
likewise, have been estimated at P15,000 per week.
The current weekly operating results of Kelsey are given below:

Sales P1,000,000

Variable costs 700,000

Fixed costs for the week 120,000

Q7. What is the sales revenue required to breakeven without the raffle? (3pts)

Q8. What is the sales revenue required to breakeven with the raffle? (3pts)

Q9. If the raffle can increase sales by 50% per week, profit will increase or decrease? And as to what amount? (3pts)

Q10. If the Company’s objective in conducting the weekly raffle is to double its present profit, how much sales must
be generated to attain this profit objective? (3pts)

(Q11 – Q20) Oslo Company prepared the following contribution format income statement based on a sales volume
of P1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales P20,000

Variable expenses 12,000

Contribution Margin 8,000

Fixed expenses 6,000

Net operating income P 2,000

Q11. What is the contribution margin per unit? (2pts)

Q12. What is the contribution margin ratio? (2pts)

Q13. What is the variable expense ratio? (2pts)

Q14. If the sales increase to 1,001 units, what would be the increase in net operating income?

Q15. If the sales decline to 900 units, what should be the net operating income?

Q16. If the selling price increases by P2 per unit and the sales volume decreases by 100 units, what would be the net
operating income?

Q17. If the variable cost per unit increases by P1, spending on advertising increases by P1,500, and unit sales
increase by 250 units, what would be the net operating income?

Q18. What is the break-even point in unit sales?

Q19. What is the break-event point in peso sales

Q20. How many units must be sold to achieve the target profit of P5,000?