COST-VOLUME-PROFIT (CVP) ANALYSIS BATCH 2021

MS04 – COST-VOLUME-PROFIT (CVP) ANALYSIS

TOPIC OUTLINE

LECTURE NOTES
BASIC CONCEPTS
Definition
CVP Analysis is a systematic examination of the relationship among costs, cost driver and profit.

Purpose of CVP Analysis

CVP Analysis is generally used in planning and decision making in relation to the relationship
mentioned above. Specifically, it is used in the following:
(a) Type of product to produce and sell (d) Type of productive facilities to acquire
(b) Pricing policy and strategy (e) Profit planning
(c) Marketing strategy

Basic or Inherent Assumptions used in CVP Analysis

(1) All COSTS are categorized as VARIABLE or FIXED (cost classification is based on its behavior).
(2) COST AND REVENUE relationships are PREDICTABLE and LINEAR over a relevant range of activity.
(3) TOTAL VARIABLE COSTS change DIRECTLY with cost driver, but VARIABLE COST PER UNIT is
constant over a RELEVANT RANGE of activity.
(4) TOTAL FIXED COSTS are CONSTANT but FIXED COST PER UNIT changes INVERSELY with cost driver
over a RELEVANT RANGE of activity.

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(5) SELLING PRICES are CONSTANT while REVENUES change PROPORTIONATELY with VOLUME.
(6) PRODUCTION EQUALS SALES, thus there is NO CHANGE in INVENTORY LEVELS.
(7) TECHNOLOGY as well as PRODUCTIVE EFFICIENCY is CONSTANT.
(8) SALES MIX is CONSTANT.
(9) TIME VALUE OF MONEY is IGNORED.

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SOLUTION GUIDE IN ANSWERING CVP ANALYSIS QUESTIONS (CVP INCOME STATEMENT)

PER UNIT PER TOTAL PERCENTAGE
Quantity Sales xx xx 100%
Variable Costs (xx) (xx) (xx)
Contribution Margin xx xx xx
Fixed Costs (xx) (xx)
Operating Income xx xx
Tax Expense (xx)
Net Income xx
KEY REMINDERS FROM THE TEMPLATE:
(1) SALES PER UNIT is referred to as the SELLING PRICE.
(2) QUANTITY extends only up to CONTRIBUTION MARGIN since based on the inherent assumptions,
volume or quantity affects directly variable costs as well as revenue.
(3) PER UNIT COLUMN is up to CONTRIBUTION MARGIN ONLY since these amounts are CONSTANT.
(4) PERCENTAGE COLUMN is up to OPERATING INCOME ONLY since tax expense is a percentage based
on operating income and not sales. Thus, net income percentage is generally not based on sales.
(5) CONTRIBUTION MARGIN PERCENTAGE is CONSTANT provided that selling price and variable cost per
unit is also constant.
BREAKEVEN POINT
The break-even point (BEP) or break-even level represents the sales amount—in either unit
(quantity) or revenue (sales) terms—that is required to cover total costs, consisting of both fixed and
variable costs to the company. Total profit at the break-even point is zero.

Simply stated, the level of sales volume level where total revenues equals total costs, thus profit is
zero. At breakeven point, contribution margin is equal to total fixed costs.
FORMULA:
BREAKEVEN POINT IN UNITS = FC / UCM BREAKEVEN POINT IN PESOS = FC / CMR
LEGEND: (1) FC is total fixed costs; (2) UCM is unit contribution margin; (3) CMR is contribution margin
ratio / percentage.
SENSIVITY ANALYSIS
A.K.A “WHAT IF ANALYSIS”. Sensitivity analysis involves predicting the outcomes of a situation after
considering the effects of the changes in the variables affecting the outcome of the said situation.
OPERATING LEVERAGE (DEGREE OF OPERATING LEVERAGE)
Degree of operating leverage has 2 simple definitions, one of which has a separate formula.
The degree of operating leverage (DOL) is a measure used to evaluate how a company's operating
income changes after a percentage change in its sales
DOL = % CHANGE IN INCOME / % CHANGE IN SALES
The degree of operating leverage also shows the extent to which a company uses fixed costs in its
cost structure.
DOL = CONTRIBUTION MARGIN (CM) / OPERATING INCOME (OI)
MARGIN OF SAFETY
Margin of safety (MOS) is the amount of peso sales or the number of units by which actual or
budgeted sales may be decreased without resulting into a loss.
NOTE: THE LOWER THE MARGIN OF SAFETY THE RISKIER THE BUSINESS IS.

MOS (IN UNITS) = ACTUAL OR BUDGETED UNITS – BREAKEVEN POINT IN UNITS

MOS (IN PESO) = ACTUAL OR BUDGETED SALES – BREAKEVEN SALES
MOS (IN PERCENTAGE) = OPERATING INCOME (OI) / CONTRIBUTION MARGIN (CM)

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POINT OF INDIFFERENCE
Point of indifference (POI) is the point where two alternatives, either of them to be chosen, will
produce the same profit.

POI IN UNITS = CHANGE IN FC / CHANGE IN UCM

POI IN PESOS = CHANGE IN FC / CHANGE IN CMR
MULTIPLE PRODUCTS
In answering CVP questions involving multiple products, always remember the concept of sales mix
since it is heavily used in this topic. SALES MIX is the RELATIVE COMBINATION of products that
compose a company’s total sales. SALES MIX is expressed IN UNITS OR IN PESO SALES.
NOTE: If sales mix shifts toward more profitable products, TOTAL CM and PROFIT will INCREASE while
BREAKEVEN POINT will DECREASE.

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DISCUSSION EXERCISES
STRAIGHT PROBLEMS:
CVP CHART
1. A traditional break even chart is illustrated in Figure below:
REQUIREMENT:
Identify each letter on the chart, using the proper terminology.

CVP RELATIONSHIPS & PROFIT PLANNING; SINGLE PRODUCT

2. Answer the following questions, considering each situation independently. You might not be
able to answer the questions in the order they are asked.
(a) A company earned P200,000 selling 100,000 units at P8 per unit. Its fixed costs are P400,000.
(1) What are variable cost per unit?
(2) What is total contribution margin?
(3) What would income be if sales increased by 5,000 units?

(b) A company has return on sales of 20%, income of P50,000, selling price of P10, and a
contribution margin of 40%.
(1) What are fixed costs?
(2) What are variable costs per units?
(3) What are sales in units?
(4) What are sales in dollars?

(c) A company has return on sales of 15% at sales of P400,000. Its fixed cost are P90,000;
variable costs are P25 per unit.
(1) What are sales in units?
(2) What is contribution margin per unit?
(3) What is income?

3. After reviewing its cost structure (variable costs of P7.50 per unit and monthly fixed costs of
P60,000) and potential market, FRANCE INC. established what it considered to be a reasonable selling
price. The company expected to sell 50,000 units per month and planned its monthly results as
follows.
Sales P500,000
Variable costs 375,000
Contribution margin P125,000
Fixed costs 60,000
Income before taxes P 65,000
Income taxes (at 40%) 26,000

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Net income P 39,000
REQUIREMENTS: Using the preceding information, answer the following questions independently.
A. What selling price did the company establish?
B. What is the contribution margin per unit?
C. What is the break-even point in units?
D. If the company determined that a particular advertising campaign had a high profitability of
increasing sales by 3,000 units, how much could it pay for such a campaign without reducing its
planned profits?
E. If the company wants a P60,000 before-tax profit, how many units must it sell?
F. If the company wants a 10% before-tax return on sales, what level of sales, in dollars, does it need?
G. If the company wants a P45,000 after-tax profit, how many units must it sell?
H. If the company wants an after-tax return on sales of 9%, how many units must it sell?
I. If the company wants an after-tax profit of P45,000 on its expected sales volume of 50,000 units,
what price must it charge?
J. If the company wants a before-tax return on sales of 16% on its expected sales volume of 50,000
units, what price must it charge?
K. The company is considering offering its salespeople a 5% commission on sales. What would the total
sales, in dollars, have to be in order to implement the commission plan and still earn the planned
pre-tax income of P65,000?
4. ITALY CORP. earned P150,000 on sales of P1,000,000. It earned P330,000 on sales of
P1,400,000.
REQUIREMENTS: (a) Find the contribution margin ratio; (b) Find the total fixed costs.
5. GREECE SHOE CORP. produces its famous shoe, the SUPERLITE that sells for P60 per pair.
Operating income for 2011 is as follows:
Sales revenue (P60 per pair) P300,000
Variable cost (P25 per pair) 125,000
Contribution margin 175,000
Fixed cost 100,000
Operating income P75,000
GREECE would like to increase its profitability over the next year by at least 25%. To do so, the
company is considering the following options:
(a) Replace a portion of its variable labor with an automated machining process. This would result
in a 20% decrease in variable cost per unit, but 15% increase in fixed costs. Sales would remain
the same.
(b) Spend P30,000 on a new advertising campaign, which would increase sales by 20%.
(c) Increase both selling price by P10 per unit and variable costs by P7 per unit by using a higher
quality leather material in the production of its shoes. The higher priced shoe would cause
demand to drop by approximately 10%.
(d) Add a second manufacturing facility which would double GREECE’s fixed costs but would
increase sales by 60%.
REQUIREMENT: Evaluate each of the alternatives considered by GREECE. Do any of the options meet
or exceed GREECE’s targeted increase in income of 25%.
DEGREE OF OPERATING LEVERAGE, MARGIN OF SAFETY AND POINT OF INDIFFERENCE
6. One of the products produced by ICELAND CORP is citrus Delight. The selling price per half-
gallon is P4.50, and variable cost of production is P2.70. total fixed costs per year are P316,600.
The company is currently selling 200,000 half –gallons per year.
A. What is the margin of safety in units?
B. What is the degree of operating leverage?
C. If the company can increase sales in units by 30 percent, what percentage increase will it
experience in income? Prove your answer using the income statement approach.
D. If the company increases advertising by P41,200, sales in units will increase by 15 percent.
What will be the new break-even point? The new degree of operating leverage?
7. PORTUGAL INC. sells one of its products, a piece of soft-sided luggage, for P60. Variable cost
per unit is P34, and monthly fixed costs are P60,000. A combination of changes in the way

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PORTUGAL produces and sells this product could reduce per-unit variable cost to P28 but increase
monthly fixed costs to P104,000.
REQUIREMENTS:
1. Determine the monthly break-even points under the two available alternatives.
2. Determine the indifference point of the two alternatives.
CVP RELATIONSHIPS & PROFIT PLANNING; MULTIPLE PRODUCTS
8. FINLAND CORP. produces three models of pen and paper sets, regular, silver and gold. Price
and cost data are as follows.
Regular Silver Gold
Selling price P10 P20 P30
Variable costs 6 8 15
Monthly fixed costs are P200,000.
REQUIREMENTS:
(1) Which model is most profitable per unit sold?
(2) Which model is most profitable per peso sales?
(3) Suppose that the sales mix in units is 40% Regular, 20% Silver, and 40% Gold.
(a) What is the weighted-average unit contribution margin?
(b) What is the break-even point in total units?
(c) How many total units must FINLAND sell to earn P30,000 per month?
(4) Suppose the sales mix in pesos is 30% Regular, 30% Silver, and 40% Gold.
(a) What is the break-even point in total pesos sales?
(b) What amount of sales is necessary to earn P30,000 per month?

9. SPAIN INC. produces and sells two products: A and B in the ratio of 3A to 5B. Selling prices for
A and B are, respectively, P1,200 and P240; respective variable costs are P480 and P160. The
company's fixed costs are P1,800,000 per year.
REQUIREMENT: Compute the volume of sales in units of each product needed to:
(a) break even.
(b) earn P800,000 of income before income taxes.
(c) earn P800,000 of income after income taxes, assuming a 30 percent tax rate.
(d) earn 12 percent on sales revenue in before-tax income.
(e) earn 12 percent on sales revenue in after-tax income, assuming a 30 percent tax rate.

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MULTIPLE CHOICE:THEORIES
1. To which function of management is CVP analysis most applicable?
A. Planning C. Directing
B. Motivating D. Controlling
2. Select the correct statement concerning the cost-
volume-profit graph at right: (M2)
A. The point identified by "B" is the break-even point.
B. Line F is the variable cost line.
C. At point B, profits equal total costs.
D. Line E is the total cost line.
3. Cost-volume-profit analysis is most important for the determination of the
A. Volume of operation necessary to break-even.
B. Sales revenue necessary to equal variable costs.
C. Variable revenues necessary to equal fixed costs.
D. Relationship between revenues and costs at various levels of operations.
4. If a company’s variable costs are 70% of sales, which formula represents the computation of
dollar sales that will yield a profit equal to 10% of the contributionn margin when S equals sales in
dollars for the period and FC equals total fixed costs from the period?
A. S = FC ÷ 0.2 C. S = 0.2 ÷ FC
B. S = FC ÷ 0.27 D. S = 0.27 ÷ FC
5. Which of the following is not an underlying assumption of CVP analysis? (E)
A. Changes in activity are the only factors that affect costs.
B. Cost classifications are reasonably accurate.
C. Beginning inventory is larger than ending inventory.
D. Sales mix is constant.
6. Over the relevant range, total revenues and total costs
A. increase, but at a decreasing rate. C. remain constant.
B. decrease. D. can be graphed as straight lines.
7. A very high degree of operating leverage indicates a firm
A. has high fixed costs
B. has a high net income
C. has high variable costs
D. is operating close to its breakeven point
8. The indifference point is the level of volume at which a company earns (E)
A. no profit.
B. its target profit.
C. the same profit under different operating schemes.
D. Any of the above.
9. Which of the following will result in raising the breakeven point? (E*)
A. A decrease in the variable cost per unit.
B. An increase in the semi-variable cost per unit
C. An increase in the contribution margin per unit.
D. A decrease in income tax rates.

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10. Which of the following statements does not describe the analysis of multiple products? (M2**)
A. The unique number of units for a break-even point depends on the fixed and variable costs and
total sales.
B. A shift from low-margin items to high-margin items can cause operating income to rise even
though total sales may decrease.
C. A shift from high-margin items to low-margin items can cause operating income to fall even
though total sales may increase.
D. There is no unique number of units for a break-even point; the number depends on the sales
mix.

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QUIZZER (DO-IT-YOURSELF DRILL)

THEORIES
1. 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 selling price per unit is constant at all volume levels.
C. Operating efficiency and employee productivity are constant at all volume levels.
D. For multi-product situations, the sales mix can vary at all volume levels.
2. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit,
and F is the fixed expense, then the degree of operating leverage at any level of sales Q is equal to:
A. F/(P-V). C. Q/(P-V).
B. F/[(P-V)/P]. D. [Q(P-V)]/[Q(P-V)-F].
3. Assuming all other things are the same, selling price per unit have_____________ if there was
a decrease in the breakeven point. (E)
A. decreased C. increased first, then decreased
B. increased D. remained the same
4. In a multi-product company, as the mix of the products being sold changes, the overall
contribution margin ratio will also change. If the shift in mix is toward the less profitable products,
then the contribution margin ratio will (M)
A. fall.
B. rise.
C. not change.
D. change in direct proportion to break-even point.
5. In a CVP graph, the area between the total cost line and the total revenue line represents total
A. contribution margin. C. fixed costs.
B. variable costs. D. profit.
6. Which of the following would take place if a company experienced an increase in fixed costs?
A. Net income would increase.
B. The break-even point would increase.
C. The contribution margin would increase.
D. The contribution margin would decrease.
E. More than one of the above events would occur.
7. A manager who wants to determine the percentage impact on net income of a given percentage
change in sales would multiply the percentage increase/decrease in sales revenue by the:
A. contribution margin. D. safety margin.
B. gross margin. E. contribution-margin ratio.
C. operating leverage factor.
8. A company has fixed costs of P900 and a per-unit contribution margin of P3. Which of the
following statements is (are) true?
A. Each unit "contributes" P3 toward covering the fixed costs of P900.
B. The situation described is not possible and there must be an error.
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.
E. Statements "A" and "C" are true.

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9. Saints Co. sells three chemicals: Simpol, Plutex, and Coplex. Simpol is the most profitable
product while Coplex is the least profitable. Which one of the following events will definitely decrease
the firm’s overall B.E.P. for the upcoming accounting period?
A. A decrease in Coplex’s selling price.
B. An increase in Simpol raw materials cost.
C. An increase in the overall market of Plutex.
D. An increase in anticipated sales of Simpol relative to the sales of Plutex and Coplex.
10. In a multiple-product firm, the product that has the highest contribution margin per unit will (E)
A. have the lowest variable costs per unit.
B. have the highest contribution margin ratio.
C. generate the most profit for each unit sold.
D. generate more profit for each P1 of sales than the other products. Barfield

11. Which of the following will decrease the break-even point?

A. B. C. D.
Decrease in fixed cost Yes Yes Yes No
Increase in direct labor cost Yes No No Yes
Increase in selling price Yes Yes No No

12. Which of the following is a true statement about sales mix?

A. Profits will remain constant with an increase in total dollars of sales if the total sales in units
remains constant.
B. Profits will remain constant with a decrease in total dollars of sales if the sales mix also remains
constant.
C. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of
the high contribution margin product.
D. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of
the lower contribution margin product.
13. A shift from low-margin sales to high-margin sales
A. may increase net income, even though there is a decline in total units sold.
B. will always increase net income.
C. will always decrease net income.
D. will always decrease units sold.
14. Which of the following statements is not true?
A. Operating leverage refers to the extent to which a company’s net income reacts to a given
change in sales.
B. Companies that have higher fixed costs relative to variable costs have higher operating
leverage.
C. When a company’s sales revenue is increasing, high operating leverage is good because it
means that profits will increase rapidly.
D. When a company’s sales revenue is decreasing, high operating leverage is good because it
means that profits will decrease at a slower pace than revenues decrease.
15. In evaluating the margin of safety, the
A. break-even point is not relevant.
B. higher the margin of safety ratio, the greater the margin of safety.
C. higher the dollar amount, the lower the margin of safety.
D. higher the margin of safety ratio, the lower the fixed costs.
16. At its present level of operations, a small manufacturing firm has total variable costs equal to 75
percent of sales and total fixed costs equal to 15 percent of sales. Based on variable costing, if sales
change by P1.00, income will change by
A. P0.10. C. P0.75.

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B. P0.25. D. can't be determined from the information given.
17. In calculating the breakeven point for a multiproduct company, which of the following
assumptions are commonly made when variable costing is used? (M1*)
I. Sales volume equals production volume.
II. Variable costs are constant per unit.
III. A given sales mix is maintained for all volume changes.
A. I and II. C. II and III.
B. I and III. D. I, II and III.
18. Which of the following would decrease unit contribution margin the most?
A. A 15% decrease in selling price. C. A 15% decrease in variable expenses.
B. A 15% increase in variable expenses. D. A 15% decrease in fixed expenses.
19. If a company is earning a profit, its fixed costs (E)
A. are less than total contribution margin.
B. are equal to total contribution margin.
C. are greater than total variable costs.
D. can be greater than or less than total contribution margin.
20. Positive net income is shown on a cost-volume-profit chart when the total (E*)
A. variable expense line exceeds the total fixed expense line.
B. expense line exceeds the total sales revenue line.
C. sales revenue line exceeds the total fixed expense line.
D. sales revenue line exceeds the total expense line.

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PROBLEMS
1. FRANCE CORP. sells a single product for P12. Variable costs are P8 per unit and fixed costs total
P360,000 at a volume level of 60,000 units. Assuming that fixed costs do not change, Lawton's
break-even point would be:
A. 30,000 units.
B. 45,000 units.
C. 90,000 units.
D. negative because the company loses P2 on every unit sold.
E. a positive amount other than those given above.
2. GREECE CORP. is a wholesaler that sells a single product. Management has provided the following
cost data for two levels of monthly sales volume. The company sells the product for P127.20 per unit.
Sales volume (units) 5,000 6,000
Cost of sales P419,000 P502,800
Selling and administrative costs P186,500 P202,200
The best estimate of the total contribution margin when 5,300 units are sold is:
A. P230,020 C. P146,810
B. P51,410 D. P32,330
Use the following to answer questions 3-4:
Data concerning ITALY INC. single product appear below:
Selling price per unit P200.00
Variable expense per unit P58.00
Fixed expense per month P407,540
3. The break-even in monthly unit sales is closest to:
A. 2,038 C. 2,870
B. 7,027 D. 3,978
4. The break-even in monthly dollar sales is closest to:
A. P407,600 C. P574,000
B. P1,405,400 D. P795,600
5. SPAIN CORP. manufactures computer tables. It has an investment of P1,750,000 in assets and
expects a 25% return on investment. Its total fixed production costs for 2,000 units is P550,000 plus
an additional P150,000 for selling and administrative expenses. The variable cost to manufacture is
P1,500 per table. The selling price per table should be
A. P1,850.00 C. P2,531.25
B. P2,068.75 D. P2,725.00
6. During 1996, PORTUGAL CORP. supplied hospitals with a comprehensive diagnostic kit for P120.
At a volume of 80,000 kits, PORTUGAL has fixed cost of P1,000,000 and a profit before income taxes
of P200,000. Due to an adverse legal decision, RPS’s 1997 liability insurance increased by
P1,200,000 over 1996. Assuming the volume and other costs are unchanged, what should be the
1997 price be if RPS is to make the same P200,000 profit before income taxes?
A. P120. C. P150.
B. P135. D. P240.
Questions 7 and 8 are based on the following information.
The marketing department of ENGLAND INC. proposed a price cut on its leading brand, a product
called “ENGLEI.” From the accounting records these are available:
Price per unit P 92.00
Discount to customers 10%
Direct cost per unit P 52.60
Variable operating expense per unit P 5.60
Proposed price cut per unit P 10.00

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Estimated sales volume before price cut 1,220 pcs.
7. How much is the estimated contribution margin that will be lost due to price cut, assuming the
same pre-price cut sales volume?
A. P10,980 C. P17,990
B. P13,000 D. P18,000
8. For the same ENGLAND, in the immediately preceding number, what is the additional volume
required after the price cut to get the same contribution margin before the price cut? Round off to
the nearest whole unit.
A. 409 units C. 704 units
B. 500 units D. 1,000 units
9. ICELAND INC. 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. P 80,000 C. P100,000
B. P 88,000 D. P125,000
10. A ceramics manufacturer sold cups last year for P7.50 each. Variable costs of manufacturing were
P2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was P5,040.
This year, the company expects the price per cup to be P9.00; variable manufacturing costs to
increase 33.3%; and fixed costs to increase 10%. How many cups (rounded) does the company need
to sell this year to break even? (M)
A. 17,111 C. 19,250
B. 17,500 D. 25,667
11. Data concerning AMSTERDAM CORP. single product appear below:
Per Unit Percent of Sales
Selling price P200 100%
Variable expenses 40 20%
Contribution margin P160 80%
Fixed expenses are P531,000 per month. The company is currently selling 4,000 units per month. The
marketing manager would like to cut the selling price by P14 and increase the advertising budget by
P35,000 per month. The marketing manager predicts that these two changes would increase monthly
sales by 500 units. What should be the overall effect on the company's monthly net operating income
of this change?
A. decrease of P18,000 C. decrease of P38,000
B. increase of P38,000 D. increase of P58,000
12. FINLAND INC. has sales of P200,000, a contribution margin of 20%, and a margin of safety of
P80,000. What is FINLAND’s fixed cost?
A. P16,000 C. P80,000
B. P24,000 D. P96,000
13. VATICAN INC. makes and sells only one product. The unit contribution margin is P6 and the
break-even point in unit sales is 24,000. The company's fixed costs are:
A. P4,000. D. P144,000.
B. P14,400. E. an amount other than those above.
C. P40,000.
14. BELGIUM CORP. has an operating leverage of 7.3. If the company's sales increase by 3%, its net
operating income should increase by about:
A. 243.3% C. 21.9%
B. 7.3% D. 3.0%

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15. CZECH INC. employs 45 sales personnel to market its sedan cars. The average car sells for
P690,000 and a 6% commission is paid to the sales person. It is considering changing the scheme to
a commission arrangement that would pay each person a package of P30,000 plus a commission of
2% of the sales made by the person. The amount of total monthly car sales at which CZECH would
be indifferent (answer may be rounded off) as to which plan to select is
A. P22,500,000 C. P36,500,000
B. P33,750,000 D. P45,000,000
Questions 16 and 17 are based on the following information.
A company sells two products, X and Y. The sales mix consists of a composite unit of two units of X
for every five units of Y (2:5). Fixed costs are P49,500. The unit contribution margins for X and Y
are P2.50 and P1.20, respectively.
16. Considering the company as a whole, the number of composite units to break even is
A. 1,650 C. 8,250
B. 4,500 D. 22,500
17. If the company had a profit of P22,000, the unit sales must have been
A. B. C. D.
Product X 5,000 13,000 23,800 32,500
Product Y 12,500 32,500 59,500 13,000
Questions 18 and 19 are based on the following information.
The following data was provided by UKRAINE CORP.:
Product A Product B Product C
Sales in dollars P80,000 P120,000 P100,000
Contribution margin ratio 30% 45% 27%
18. The contribution margin ratio for the company as a whole is:
A. 34% C. 35%
B. 65% D. 66.7%
19. If total units sold remain unchanged, but the sales mix shifts more heavily toward Product B, one
would expect the overall contribution margin ratio to:
A. increase C. remain unchanged
B. decrease D. none of these
20. The POLAND CORP. makes three products. The cost data for these three products is as follows:
Product A Product B Product C
Selling price P10 P20 P40
Variable costs 7 12 16
Total annual fixed costs are P840,000. The firm's experience has been that about 20 percent of dollar
sales come from product A, 60 percent from B, and 20 percent from C.
What is the units’ sale of Product C in order to break even?
A. 10,000 C. 40,000
B. 110,000 D. 16,471
21. A retail company determines its selling price by marking up variable costs 60%. In addition, the
company uses frequent selling price markdowns to stimulate sales. If the markdowns average 10%,
what is the company’s contribution margin ratio?
A. 27.5% C. 37.5%
B. 30.6% D. 41.7%

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22. A company manufactures a single product. Estimated cost data regarding this product and other
information for the product and the company are as follows:
Sales price per unit P40
Total variable production cost per unit P22
Sales commission (on sales) 5%
Fixed costs and expenses
Manufacturing overhead P5,598,720
General and administrative P3,732,480
Effective income tax rate 40%
The number of units the company must sell in the coming year in order to reach its breakeven point
is
A. 388,800 units C. 583,200 units
B. 518,400 units D. 972,000 units
23. ROMANIA COMPANY is contemplating of marketing a new product. Fixed costs will be P800,000 for
production of 75,000 units or less and P1,200,000 if production exceeds 75,000 units The variable
cost ratio is 60% for the first 75,000. Contribution margin percentage will increase to 50% for units
in excess of 75,000. If the product is expected to sell for P25 per unit, how many units must
ROMANIA sell to breakeven?
A. 80,000 C. 111,000
B. 96,000 D. 120,000
24. SWEDEN INC. has fixed costs of P120,000. At a sales volume of P400,000, return on sales is 10%.
At a P600,000 volume, return on sales is 20%. What is the break-even volume?
A. P160,000 C. P300,000
B. P210,000 D. P420,000
25. HUNGARY INC. manufactures and sells key rings embossed with college names and slogans. Last
year, the key rings sold for P75 each, and the variable costs to manufacture them were P22.50 per
unit. The company needed to sell 20,000 key rings to break-even. The net income last year was
P50,400. The company expects the following for the coming year:
• The selling price of the key rings will be P90.
• Variable manufacturing costs per unit will increase by one-third.
• Fixed costs will increase by 10%.
• The income tax rate will remain unchanged.
For the company to break-even the coming year, the company should sell
A. 2,600 units. C. 21,250 units.
B. 19,250 units. D. 21,600 units.
26. BELARUS CORP. has a 25% margin of safety. Its before-tax return on sales is 6%, and its tax rate
is 40%. Assuming that current sales are P120,000, what is BELARUS’s total fixed costs.
A. P21,600 C. P84,000
B. P36,000 D. P60,000
27. AUSTRIA CORP. produced and sold 60,000 backpacks during the year just ended at an average price of
P20 per unit. The variable manufacturing costs were P8 per unit, and the variable marketing costs were P4
per unit sold. Fixed costs amounted to P180,000 for manufacturing and P72,000 for marketing. There was
no year-end work-in process inventory. The company's variable manufacturing costs are expected to
increase by 10 percent in the coming year.
What is the selling price per unit that will yield the same contribution-margin ratio in the coming year?
A. P21.40 C. P21.45
B. P21.50 D. P21.33

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28. SERBIA CORP. sells a product for P35 per unit and the variable production and sales costs are P21
per unit. If SERBIA adopts a 40% increase in selling price of its product, how much can unit sales
decline before total profits decline?
A. 40% C. 57%
B. 50% D. 100%

29. The owners of SLOVAKIA SUPERMART 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 P6,000 per week. For every P20
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 one peso (P1.00). Promotions and other
fixed costs in connection with the raffle, likewise, have been estimated at P5,000 per week.
The current weekly operating results of SLOVAKIA are given below:
Sales P600,000
Variable costs 450,000
Fixed costs for the week 80,000
What is the sales revenue required to break even with the raffle?
A. P320,000 C. P600,000
B. P455,000 D. P765,000

30. The company expected to sell 45,000 units next year with the following results:
Sales P900,000
Variable costs 540,000
Contribution margin 360,000
Fixed costs 150,000
Income before taxes 210,000
Income taxes 84,000
Net income P126,000
If the company wants an after-tax return on sales of 15% on its expected volume of 45,000 units,
what price must it charge?
A. 19.96 C. 20.22
B. 20.44 D. 22.22

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