THEORIES:

1. To which function of management is CVP analysis most applicable?

A. Planning C. Directing
B. Organizing D. Controlling

2. The systematic examination of the relationships among selling prices, volume of sales and production, costs, and
profits is termed:
A. contribution margin analysis C. budgetary analysis
B. cost-volume-profit analysis D. gross profit analysis

3. The term contribution margin is best defined as the:

A. difference between fixed costs and variable costs.
B. difference between revenue and fixed costs.
C. amount available to cover fixed costs and profit.
D. amount available to cover variable costs.

4. 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 product in a manner that maximizes the contribution margin.
D. Keeping fixed costs to an absolute minimum.

5. Cost-volume-profit analysis cannot be used if which of the following occurs?

A. Costs cannot be properly classified into fixed and variable costs.
B. The per unit variable costs change.
C. The total fixed costs change.
D. Per unit sales prices change.

6. 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.
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.

7. Which of the factors is (are) involved in studying cost-volume-profit relationships?

A. Levels of production C. Fixed costs
B. Variable costs D. All of these

8. At the breakeven point, fixed cost is always

A. Less than the contribution margin C. More than the contribution margin
B. Equal to the contribution margin. D. More than the variable cost

9. At the 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

10. 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 at which average total revenue exceeds average marginal cost.
D. The point at which marginal cost and marginal revenue are equal.

11. 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.

12. 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. In a multi-product organization, the sales mix varies over time.
C. The behavior of total revenue is curvilinear.
D. he relevant range is not a consideration.

13. Which of the following assumptions is closely relevant to cost-volume-profit analysis?

A. for multiple product analysis, the sales mix is not important
B. inventory levels remain unchanged
C. total fixed costs and unit variable costs can be identified and remain constant over the relevant range
D. B and C

14. Advocates of cost-volume-profit analysis argue that:

A. Fixed costs are irrelevant for decision making.
B. Fixed costs are mandatory for CVP decision making.
C. Differentiation between the patterns of variable costs and fixed costs is critical.
D. Fixed costs are necessary to calculate inventory valuations.

15. With respect to fixed costs, C-V-P analysis assumes total fixed costs
A. per unit remains constant as volume changes
B. remain constant from one period to the next
C. vary directly with volume
D. remain constant across changes in volume

16. The CVP model assumes that over the relevant range of activity:
A. only revenues are linear. C. unit variable cost is not constant.
B. total fixed cost changes. D. revenues and total costs are linear.

17. Which of the following is not a limiting factor of Cost-Volume-Profit analysis?

A. The process assumes a linear relationship among the variables.
B. The process assumes variable costs per unit are available.
C. Efficiency is assumed to be constant.
D. Inventory levels are assumed to not change.

18. Cost-volume-profit analysis is a technique available to management to understand better the interrelationships of
several factors that affect a firm's profit. As with many such techniques, the accountant oversimplifies the real world by
making assumptions. Which of the following is not a major assumption underlying CVP analysis?
A. All costs incurred by a firm can be separated into their fixed and variable components.
B. The product’s selling price per unit is constant at all volume levels within a relevant range.
C. Operating efficiency and employee productivity is constant at all volume levels.
D. For multi-product situations, the sales mix can vary at different volume levels.
19. Pines Company has a higher degree of operating leverage than Tagaytay Company. Which of the following is true?
A. Pines has higher variable expense.
B. Pines is more profitable than Tagaytay Company’s.
C. Pines is more risky than Tagaytay is.
D. Pines' profits are less sensitive to percentage changes in sales.

20. As projected net income increases the

A. degree of operating leverage declines. C. break-even point goes down.
B. margin of safety stays constant. D. contribution margin ratio goes up.

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 she need to achieve to begin making a profit if she sells the estimated number of plants
per month?
A. P7.51 C. P5.00
B. P7.50 D. P2.50

2. 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. P25,000 C. P10,000
B. P15,000 D. P12,000

3. 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

4. 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 selling commission of 10% of the selling price is paid on each unit sold.
The contribution margin per unit is:
A. P24. C. P30.
B. P36. D. P54

5. The following economic data were provided by the corporate planning staff of Heaven, Inc.:

Sales volume 30,000 units

Sales price per unit P30
Unit variable costs:
Variable manufacturingP13
Other variable costs 8
Unit variable costs P21
Unit contribution margin P 8

Fixed costs:
Manufacturing P150,000
Other fixed costs P 50,000
Total fixed costs P200,000

The management is considering installing a new, automated manufacturing process that will increase fixed costs by
P50,000 and reduce variable manufacturing cost by P3 per unit. The 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 required to achieve the target profit?
A. 6,667 unit increase C. 3,333 unit decrease
B. 5,667 unit decrease D. 4,333 unit decrease

6. In planning its operations for next year based on a sales forecast of P6,000,000, Herran, Inc. prepared the following
estimated costs and expenses:

Variable Fixed
Direct materials P1,600,000
Direct labor 1,400,000
Factory overhead 600,000 P 900,000
Selling expenses 240,000 360,000
Administrative expenses 60,000 140,000
P3,900,000 P1,400,000

What would be the amount of peso sales at the breakeven point?

A. P2,250,000. C. P4,000,000.
B. P3,500,000. D. P5,300,000.

7. The following information pertains to Hennin Corporation for the year ending December 31, 2006:
Budgeted sales P1,000,000
Breakeven sales 700,000
Budgeted contribution margin 600,000
Cashflow breakeven 200,000

The margin of safety for the Hennin Corporation is:

A. P300,000 C. P500,000
B. P400,000 D. P800,000

8. The following are projections about the two products of Dorine Company, baubles and trinkets, for the coming year:
Assuming that the customers purchase composite units of four baubles and three trinkets, the breakeven output for the two
products would be

The following are projections about the two products of Dorine Company, baubles and trinkets, for the coming year:
Baubles Trinkets
Units Amount Units Amount Total
Sales 10,000 P10,000 7,500 P10,000 P20,000
Costs
 Fixed P 2,000 P 5,600 P 7,600
Variable 6,000 3,000 9,000
P 8,000 P 8,600 P16,600
Income before taxes P 2,000 P 1,400 P 3,400
Assuming that the customers purchase composite units of four baubles and three trinkets, the breakeven output
for the two products would be
A. B. C. D.
Baubles 6,909 6,909 5,000 5,000
Trinkets 6,909 5,182 8,000 6,000

9. The sales mix for Dial Enterprise is as follows:

Product A: 12 units @ P5.25 sales price; P4.85 variable cost per unit.
Product B: 10 units @ P7.50 sales price; P6.95 variable cost per unit.
Product C: 6 units @ P12.25 sales price; P10.35 variable cost per unit.

Dial Enterprise's fixed costs are P75,950.

What are the composite break-even point?

A. 98,000 C. 3,500
B. 2,000 D. 4,000

10. Alexandra Co. provides two products, Velvet and Cotton. Velvet accounts for 60 percent of total sales. The variable
costs as a percentage of selling prices are 60% for Velvet and 85% for Cotton. Total fixed costs are P225,000.

If fixed costs will increase by 30 percent, what amount of peso sales would be necessary to generate an operating profit of
P48,000?
A. P1,350,000 C. P1,135,000
B. P 486,425 D. P 910,000