I : / 40

II : / 20
LAST NAME, FIRST NAME : _________________________________________ A. Net income would increase. III : /9
B. The break-even point would increase. Bonus : 1/1
COURSE : _______________________________________________________
C. The contribution margin would increase. TOTAL : / 70
D. The contribution margin would decrease.
I. MULTIPLE CHOICE QUESTIONS (1pt each)
E. More than one of the above events would occur.
1. CVP analysis can be used to study the effect of:
A. changes in selling prices on a company's profitability. 7. Assuming no change in sales volume, an increase in a firm's per-unit contribution margin would:
B. changes in variable costs on a company's profitability. A. increase net income.
C. changes in fixed costs on a company's profitability. B. decrease net income.
D. changes in product sales mix on a company's profitability. C. have no effect on net income.
E. all of the above. D. increase fixed costs.
E. decrease fixed costs.
2. The break-even point is that level of activity where:
A. total revenue equals total cost. 8. A company that desires to lower its break-even point should strive to:
B. variable cost equals fixed cost. A. decrease selling prices.
C. total contribution margin equals the sum of variable cost plus fixed cost. B. reduce variable costs.
D. sales revenue equals total variable cost. C. increase fixed costs.
E. profit is greater than zero. D. sell more units.
E. pursue more than one of the above actions.
3. The unit contribution margin is calculated as the difference between:
A. selling price and fixed cost per unit. 9. A company has fixed costs of P900 and a per-unit contribution margin of P3. Which of the following
B. selling price and variable cost per unit. statements is (are) true?
C. selling price and product cost per unit. A. Each unit "contributes" P3 toward covering the fixed costs of P900.
D. fixed cost per unit and variable cost per unit. B. The situation described is not possible and there must be an error.
E. fixed cost per unit and product cost per unit. C. Once the break-even point is reached, the company will make money at the rate of P3 per unit.
D. The firm will definitely lose money in this situation.
4. Which of the following would produce the largest increase in the contribution margin per unit? E. Statements "A" and "C" are true.
A. A 7% increase in selling price.
B. A 15% decrease in selling price. 10. Sanderson sells a single product for P50 that has a variable cost of P30. Fixed costs amount to P5 per
C. A 14% increase in variable cost. unit when anticipated sales targets are met. If the company sells one unit in excess of its break-even volume,
D. A 17% decrease in fixed cost. the bottom-line profit will be:
E. A 23% increase in the number of units sold. A. P15.
B. P20.
5. Which of the following would take place if a company were able to reduce its variable cost per unit? C. P50.
Contribution Break-even D. an amount that cannot be derived based on the information presented.
Margin Point E. an amount other than those in choices "A," "B," and "C" but one that can be derived based on the
A. Increase Increase information presented.
B. Increase Decrease
C. Decrease Increase 11. At a volume of 15,000 units, Boston reported sales revenues of P600,000, variable costs of P225,000,
D. Decrease Decrease and fixed costs of P120,000. The company's contribution margin per unit is:
E. Increase No effect A. P17.
B. P25.
6. Which of the following would take place if a company experienced an increase in fixed costs? C. P47.
D. P55.

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 E. an amount other than those above. 17. Orion recently reported sales revenues of P800,000, a total contribution margin of P300,000, and
fixed costs of P180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must
12. A recent income statement of Banks Corporation reported the following data: have been:
Sales revenue P8,000,000 A. P12. B. P32.
Variable costs 5,000,000 C. P50. D. P92.
Fixed costs 2,200,000 E. an amount other than those above.
If these data are based on the sale of 20,000 units, the contribution margin per unit would be:
A. P40. B. P150. 18. Strand has a break-even point of 120,000 units. If the firm's sole product sells for P40 and fixed costs
C. P290. D. P360. total P480,000, the variable cost per unit must be:
E. an amount other than those above. A. P4. B. P36.
C. P44. D. an amount that cannot be derived based on the information presented.
13. A recent income statement of Fox Corporation reported the following data: E. an amount other than those in choices "A," "B," and "C" but one that can be derived based on the
Sales revenue P3,600,000 information presented.
Variable costs 1,600,000
Fixed costs 1,000,000 19. Ribco Co., makes and sells only one product. The unit contribution margin is P6 and the break-even
If these data are based on the sale of 10,000 units, the break-even point would be: point in unit sales is 24,000. The company's fixed costs are:
A. 2,000 units. B. 2,778 units. A. P4,000. B. P14,400.
C. 3,600 units. D. 5,000 units. C. P40,000. D. P144,000.
E. an amount other than those above. E. an amount other than those above.

14. A recent income statement of Yale Corporation reported the following data: 20. The contribution-margin ratio is:
Sales revenue P2,500,000 A. the difference between the selling price and the variable cost per unit.
Variable costs 1,500,000 B. fixed cost per unit divided by variable cost per unit.
Fixed costs 800,000 C. variable cost per unit divided by the selling price.
If these data are based on the sale of 5,000 units, the break-even sales would be: D. unit contribution margin divided by the selling price.
A. P2,000,000. B. P2,206,000. E. unit contribution margin divided by fixed cost per unit.
C. P2,500,000. D. P10,000,000.
E. an amount other than those above. 21. At a volume level of 500,000 units, Sullivan reported the following information:
Sales price P60
15. Lawton, Inc., sells a single product for P12. Variable costs are P8 per unit and fixed costs total Variable cost per unit 20
P360,000 at a volume level of 60,000 units. Assuming that fixed costs do not change, Lawton's break-even Fixed cost per unit 4
point would be:
A. 30,000 units. B. 45,000 units. The company's contribution-margin ratio is:
C. 90,000 units. D. negative because the company loses P2 on every unit sold. A. 0.33. B. 0.40.
E. a positive amount other than those given above. C. 0.60. D. 0.67.
E. an amount other than those above.
16. Green, Inc., sells a single product for P20. Variable costs are P8 per unit and fixed costs total
P120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's break-even sales 22. Which of the following expressions can be used to calculate the break-even point with the
would be: contribution-margin ratio (CMR)?
A. P160,000. B. P200,000. A. CMR ÷ fixed costs. B. CMR x fixed costs.
C. P300,000. D. P480,000. C. Fixed costs ÷ CMR. D. (Fixed costs + variable costs) x CMR.
E. an amount other than those above. E. (Sales revenue - variable costs) ÷ CMR.

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Use the following to answer questions 23-30: D. by the area diagonally to the left of the break-even point.
E. in some other area not mentioned above.

29. At a given sales volume, the vertical distance between the fixed cost line and the total cost line
represents:
A. fixed cost. B. variable cost. C. profit or loss at that volume.
D. semivariable cost. E. the safety margin.

30. Assume that the firm whose cost structure is depicted in the figure expects to produce a profit for the
upcoming accounting period. The profit would be shown on the graph by the letter:
A. D B. E. C. F. D. G E. H

31. Wright Enterprises, which produces various goods, has limited processing hours at its manufacturing
plant. The following data apply to product no. 607:
Sales price per unit: P9.60
Variable cost per unit: P6.20
Process time per unit: 4 hours
Management is now studying whether to devote the firm's limited hours to product no. 607 or to other
products. What key dollar amount should management focus on when determining no. 607's "value" to the
23. Line A is the:
firm and deciding the best course of action to follow?
A. total revenue line. B. fixed cost line. C. variable cost line.
A. P0.85. B. P2.40. C. P3.40.
D. total cost line. E. profit line.
D. P6.20. E. P9.60.
24. Line C represents the level of:
32. Smith Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following
A. fixed cost. B. variable cost. C. semivariable cost.
information:
D. total cost. E. mixed cost.
Product X Product Y
Required labor time per unit (hours) 2 3
25. The slope of line A is equal to the:
Maximum demand (units) 6,000 8,000
A. fixed cost per unit B. selling price per unit. C. profit per unit.
Contribution margin per unit P5.00 P6.00
D. semivariable cost per unit. E. unit contribution margin.
Contribution margin per labor hour P2.50 P2.00
If Smith follows proper managerial accounting practices, which of the following production schedules should
26. The slope of line B is equal to the:
the company set?
A. fixed cost per unit. B. selling price per unit. C. variable cost per unit.
Product X Product Y
D. profit per unit. E. unit contribution margin.
A. 0 units 8,000 units
B. 1,500 units 8,000 units
27. The vertical distance between the total cost line and the total revenue line represents:
C. 6,000 units 0 units
A. fixed cost. B. variable cost. C. profit or loss at that volume.
D. 6,000 units 5,000 units
D. semivariable cost. E. the safety margin.
E. 6,000 units 8,000 units
28. Assume that the firm whose cost structure is depicted in the figure expects to produce a loss for the
33. Bush Manufacturing has 31,000 labor hours available for producing M and N. Consider the following
upcoming period. The loss would be shown on the graph:
information:
A. by the area immediately above the break-even point.
Product M Product N
B. by the area immediately below the total cost line.
Required labor time per unit (hours) 2 3
C. by the area diagonally to the right of the break-even point.
Maximum demand (units) 6,500 8,000

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 Contribution margin per unit P5.00 P5.70 I.The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing
Contribution margin per labor hour P2.50 P1.90 system.
II.The concept of relevant costs and benefits must be modified for use with an activity-based costing system.
If Bush follows proper managerial accounting practices in terms of setting a production schedule, how III.Generally speaking, the decision maker can better associate relevant costs with the activities that drive them
much contribution margin would the company expect to generate? under an activity-based costing system than under a conventional product-costing system.
A. P31,450. B. P63,100. C. P66,700. Which of the above statements is (are) true?
D. P78,100. E. None of the above. A. I only. B. II only. C. III only.
D. I and II. E. II and III.
Use the following to answer questions 34-35:
Johnson Company makes two products: Carpet Kleen and Floor Deodorizer. Operating information from the 39. When using a graphical solution to a linear programming problem, the optimal solution will lie in an
previous year follows. area commonly known as the:
Carpet Kleen Floor Deodorizer A. region of maximization. B. feasible region. C. objective region.
Units produced and sold 5,000 4,000 D. constraint region. E. curvilinear region.
Machine hours used 5,000 2,000
Sales price per unit P7 P10 40. Prudential Corporation manufactures two products: X and Y. The company has 4,000 hours of machine
Variable cost per unit P4 P8 time available and can sell no more than 800 units of product X. Other pertinent data follow.
Product X Product Y
Fixed costs of P20,000 per year are presently allocated equally between both products. If the product mix Selling price P8.00 P19.00
were to change, total fixed costs would remain the same. Variable cost 3.00 5.00
34. The contribution margin per machine hour for Floor Deodorizer is: Fixed cost 3.50 6.25
A. P0.25. B. P2.00. C. P4.00. Machine time per unit 2 hours 3 hours
D. P5.00. E. P20.00.
Which of the following is Prudential's objective function?
35. Assuming there is unlimited demand for both products and Johnson has 10,000 machine hours A. Maximize Z = 2X + 3Y. B. Maximize Z = 8X + 19Y.
available, how many units of each product should be produced and sold? C. Maximize Z = 5X + 14Y. D. Maximize Z = 1.50X + 7.75Y.
Carpet Kleen Floor Deodorizer E. Minimize Z = 6.50X + 11.25Y.
A. 0 units 0 units
B. 0 units 20,000 units
C. 5,000 units 10,000 units II. PROBLEM SOLVING (2pts each)
D. 8,000 units 4,000 units
E. 10,000 units 0 units 1. Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's
annual fixed costs are P48,000. The sales price averages P9, and it costs the company P3 to make and deliver
36. A technique that is useful in exploring what would happen if a key decision prediction or assumption each pizza.
proved wrong is termed:
A. sensitivity analysis. B. uncertainty analysis. C. project analysis. D. Required:
linear programming. E. the theory of constraints. A. How many pizzas must Vince's sell to break even?

37. Which of the following characteristics would best explain the use of probabilities and expected values
in a decision analysis?
A. Limited resources. B. Uncertainty. C. Inflation.
D. Multiple products and services. E. Production bottlenecks. B. How many pizzas must the company sell to earn a target net profit of P54,000?

38. Consider the following statements about relevant costing and activity-based costing:

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C. If budgeted sales total 9,900 pizzas, how much is the company's safety margin? III. Relevant Decision Factors (1pt each)

The following costs relate to a variety of decision settings:

D. Vince's assistant manager, an accounting major, has suggested that the firm should try to increase Cost Decision
the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms. 1 Allocated corporate overhead Closing a money-losing department
2 Cost of an old car Vehicle replacement
3 Direct materials Make or buy a product
4 Salary of marketing manager Project discontinuance; manager to be
2. Seventh Heaven takes tourists on helicopter tours of Hawaii. Each tourist buys a P150 ticket; the transferred elsewhere in the firm
variable costs average P60 per person. Seventh Heaven has annual fixed costs of P702,000. 5 Home theater installation Purchase of a new home
6 Unavoidable fixed overhead Plant closure
Required: 7 Research expenditures incurred last year, Product introduction to marketplace
A. How many tours must the company conduct in a month to break even? related to new product
8 P4 million advertising program Whether to promote product A or B with the P4
million program
9 Manufactured cost of existing inventory Whether to discard the goods or sell them to a
B. Compute the sales revenue needed to produce a target net profit of P36,000 per month. third-world country

Required:
Consider each of the nine costs listed and determine whether it is relevant or irrelevant to the
C. Calculate the contribution margin ratio. decision cited. If the cost is irrelevant, briefly explain why.

3. Thompson Company is considering the development of two products: no. 65 or no. 66. Manufacturing cost
information follows.
No. 65 No. 66
Annual fixed costs P220,000 P340,000
Variable cost per unit 33 25
Regardless of which product is introduced, the anticipated selling price will be P50 and the company will pay a
10% sales commission on gross dollar sales. Thompson will not carry an inventory of these items.

Required:
A. What is the break-even sales volume (in dollars) on product no. 66?

B. Which of the two products will be more profitable at a sales level of 25,000 units?

C. At what unit-volume level will the profit/loss on product no. 65 equal the profit/loss on product no.
66?

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