INTEGRATED REVIEW 2: Management Advisory Services (MAS) #2 | Cost-Volume-Profit Analysis

INTEGRATED REVIEW 2: Management Advisory Services (MAS) #2 | Cost-Volume-Profit Analysis 1. Total unit cost A. needed for determining product information B. irrelevant in marginal analysis C. independent cost system D. relevant for cost-volume-profit analysis (CPAR Reviewer, 2018) 2. The rate or amount that sales may decline before losses are incurred is called: A. residual income rate B. variable sales ratio C. sensitive level of income D. margin of safety (CPAR Reviewer, 2018) 3. In a multi-product company, as the mix of the products being sold changes, the other overall contribution margin ratio will also change. If the shift in mix is toward less profitable products, then the contribution margin ratio will A. rise B. change in direction to break-even point C. not change D. fall (CPAR Reviewer, 2018) 4. For a profitable company, the amount by which sales can decline before losses occur is known as the: A. Variable sales ratio B. Margin of safety C. Sales volume variance D. Marginal income tax (CPAR Reviewer, 2018) 5. To reduce the break-even point, the company may A. decrease both fixed cost and the contribution margin B. increase both fixed cost and the contribution margin C. decrease the fixed cost and increase the contribution margin D. increase the fixed cost and decrease the contribution margin (CPAR Reviewer, 2018) 6. The Childless Company sells widgets. The company breaks even at an annual sales volume of 75,000 units. Actual annual sales volume was 100,000 units, and the company reported a profit of P200,000. The annual fixed costs for the Childless Company are A. P800,000 B. P600,000 C. P200,000 D. P150,000 (Bobadilla, 2011) 7. The costs to produce 24,000 units at 70% capacity are: Direct materials P 36,000 Direct labor 54,000 Factory overhead, all fixed 29,000 Selling expense (35% variable, 65% fixed) 24,000 What unit price would the company have to charge to make P2,250 on a sale of 1,500 additional units that would be shipped out of the normal market area? A. P5.10 B. P5.60 C. P4.10 D. P5.00 (Bobadilla, 2011) 8. XY Company’s product mix includes P720,000 in sale of Product X and P640,000 in sale of Product Y. Product X’s contribution margin is 60 percent and Product Y is 40 percent of sales. Total fixed costs amount to P505,880. Product Y’s sale at breakeven point should amount to: A. P640,000 B. P720,000 C. P529,488 D. P470,600 (Bobadilla, 2011) 9. Levi’s Company has revenues of P500,000, variable costs of P300,000, and pretax profit of P150,000. If the company increases the sales price per unit by 10%, reduces fixed costs by 20%, and leaves variable cost per unit unchanged, what would be the new breakeven point in pesos? A. P88,000 B. P80,000 C. P100,000 D. P125,000 (Bobadilla, 2011) 10. Food From Heaven, Inc. (FFHI) sells loose biscuits for P5 per unit. The fixed costs are 210,000 and the variable costs are P45% of the selling price. What would be the amount of sales if FFHI were to realize a profit of 15% of sales? A. P700,000 B. P472,500 C. P525,000 D. P420,000 (Bobadilla, 2011) ALMODOVAR, Marco Layug (11-20) 21. It involves a systematic examination of the relationships among cost, cost driver, and profit. A. Financial statement analysis B. Cost-volume-profit analysis C. Cost-benefit analysis D. Profit planning (Roque 2016) 22. In CVP analysis, it is assumed that A. All costs are classifiable as either direct of indirect costs B. Cost and revenue relations are predictable and linear over any range of activity C. Selling prices per unit and market conditions remain unchanged D. Total fixed costs are constant over the relevant range, but fixed costs per unit vary directly with the cost driver or volume. (Roque 2016) 23. Management may use CVP analysis to determine the relative profitability of a product by A. determining the unit contribution margin and the projected profits at various levels of production B. Controlling the physical production of the products C. Assigning costs to a product in such a way that the contribution margin is maximized D. Keeping all costs to an absolute minimum (Roque 2016) 24. In a contribution income statement, A. Costs are classified as to function B. Fixed and variable manufacturing costs are combined as one level item C. Fixed costs are shown separately from variable costs D. Fixed manufacturing costs are shown separately from variable manufacturing costs, but fixed and variable operating costs are combined as one line item (Roque 2016) 25. It is the excess of sales price over the related variable cost, contributing to the recovery of fixed expenses A. Gross margin B. Margin of safety C. Contribution Margin D. Gross profit (Roque 2016) For Items #26-28 refer to the problem below: Genevieve Co. and Odessa Co. sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Other data about the two companies are as follows: Genevieve Co. Odessa Co. Fixed Costs P 50,000 P 70,000 Contribution margin ratio 40% 52% 26. The companies’ break-even points are Genevieve Co. Odessa Co. A. P 125,000 P 134,615.38 B. 125,000 units 134,615.38 units C. P 20,000 P 36,400 D. 20,000 units 36,400 units (Roque 2016) 27. The indifference point in terms of peso sales volume where the peso profits of the two companies are equal is A. P 125,000 B. P 134,615.38 C. P 166,666.67 D. P 129,807.69 28. At the indifference point, the companies’ profit amounts to A. 0 B. P 666,666.67 C. P P86,666.67 D. P 16,666.67 (Roque 2016) For Items #29-30 refer to the problem below: Medilab, Inc. is a medical laboratory that perform test for physicians. On the average, fee per test P500, and the variable cost per test is P200. Medilab anticipates performing between 200 to 5000 tests during the month of November. Fixed costs are estimated as follows: Low range activity (0-1999 tests performed) P 300,000 High range of activity ( tests performed) 660,000 The company’s accountant conducted a study involving a comparison of Medilab’s selling price, costs and breakeven point with industry averages. The study showed the following : Low Range of Activity High Range of Activity Compared to industry average Selling price lower the same Variable cost lower Fixed Cost higher the same Break-even point the same 29. What is the break-even point in number of tests at the low activity range? A. 2200 B. 1600 C. 1000 D. 3200 30. How much revenue is required to break-even point at the high range activity level? A. P 1,100,000 B. P 800,000 C. P 500,000 D. P 1,600,000 (Roque 2016) 31. CVP analysis may be used by managers in planning and decision-making, which may involve the following, except A. Choosing the type of product to produce and sell B. Choosing the pricing policy to follow C. Choosing the type of productive facilities to acquire D. Choosing the analytical technique to use (Roque, 2016) 32. The type of costing system that will provide the best information for CVP and BE analyses if inventories are expected to change is A. Process costing B. Job-order costing C. Absorption (full) costing D. Variable (direct) costing (Roque, 2016) 33. The conventional break-even chart adopted by businessmen and accountants does not take for granted that A. Some costs are semi-variable B. Production is not equal to sales C. There is a significant amount of change in inventories D. The sales mix ratio of the products being sold changes within the relevant range (Roque, 2016) 34. It is the level of output or sales at which total revenues equal total costs, that is, the point at which operating income is zero A. Indifference point B. Break-even point C. Sangley point D. Order point (Roque, 2016) 35. Sensitivity analysis, when used in CVP, A. Is done through various possible scenarios and computes the impact on profit of various predictions of future events B. Is done through various possible scenarios and determines the effect of the cost accounting systems used in each scenario C. Allows the decision-maker to introduce probabilities in the evaluation of decision alternatives D. Allows managers to study how total fixed costs vary with cost drivers (Roque, 2016) 36. Dianice Corp. has sales of P300,000, a variable cost ratio of 80% and a margin of safety of P120,000. What is Dianice’s fixed cost? A. P144,000 B. P24,000 C. P60,000 D. P36,000 (Roque, 2016) 37. Jing, Inc. has sales of P500,000, a break-even sales ratio of 60%, and a variable cost ratio of 70%. How much is Jing’s profit? A. P90,000 B. P60,000 C. P150,000 D. Cannot be determined (Roque, 2016) 38. Amado Co. manufactures and sells Product A. During the previous month, 77,500 units of Product A were sold. Total fixed costs amounted to P189,100. Its margin of safety was 15,500 units or P65,875. The variable cost per unit of Product A is A. P1.20 B. P4.25 C. P0.96 D. P2.44 (Roque, 2016) For numbers 39 to 40 refer to the problem below: Consult, Inc. is a domestic corporation that offers, among others, business seminars. These seminars help update the knowledge of corporate officers and employees. Consult, Inc. caters to participants who are sponsored by their employers. At present, the company is very busy preparing for a seminar to be held next month. This is one big event, since this is the company’s first seminar where the resources speaker is a foreign national. Consult, Inc.’s president, Mr. Phensitpa Labok, got the idea for this seminar from a close friend, the president of another company who just came from a business convention in Singapore. According to him, he was so lucky he attended such convention because one of the speakers was Mr. Lum Pyang Shanghai, a business systems expert and author of the internationally known book on Business Systems. The convention, he said, was a big success. Mr. Labok picked up from there. He contacted Mr. Shanghai and inquired about the possibility of the latter’s coming to manila and be the corporation’s guest speaker. Mr. Shanghai accepted the invitation. Consult, Inc., then sent letters’ brochures about the seminar to the officers of the top 1,000 corporations in the Philippines. As of today, Consult, Inc. has received confirmation from 150 sponsored participants. Deadline for payment of the seminar fee is on the first day of the seminar month. The seminar will be held for two (2) days. The seminar fee is P15,000 per participant. Seminarrelated expenses are estimated as follows: Guest speaker’s fee (for 2 days) P 300,000 Accommodations - guest speaker and his accompanying staff 24,000 Plane ticket and other transportation costs - guest speaker and party 60,000 Other fixed costs for the seminar 36,000 Expenses for each participant: Seminar kit 1,000 Hotel accommodations for the duration of the seminar, including meals and snacks 5,000 Other variable costs 2,000 Mr. Labok is very excited. He said that Consult, Inc. will earn a big amount of profit if all confirmed participants will pay and attend the seminar. He also said that even if some of the 150 confirmed participants would back out, the company would not incur a loss. This, according to him, is based on the break-even analysis prepared by the company’s accountant. The accountant, whose favorite subject is Management Advisory Services, showed in his report: (Roque, 2016) 39. A break-even point for the seminar of A. 150 participants B. 60 participants C. 90 participants D. 28 participants 40. If all confirmed 150 participants would pay and attend, the margin of safety would be A. 60 participants B. 60% C. 90% D. 150 participant For items #41-44, refer to the problem below: 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 price 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 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