.

College of the Immaculate Conception

INSTITUTE OF HIGHER STUDIES
Department of Management, Accountancy, Technology, and Entrepreneurial Studies

INSTRUCTIONS: Read each item carefully. Choose the best answer for each number. Write the letter
of your answer in the space provided before each number. Erasures are strictly prohibited.

MSQ1: INTRODUCTION TO MANAGEMENT SCIENCE

Questions 1 through 3 are based on the following information:

Elvin Corporation manufactures and sells T-shirts inspired with college names and slogans. Last year, the shirts sold
for P7.50 each, and the variable expenses was P2.25 per unit. The company needed to sell 20,00 shirts to
breakeven. The net operating income last year was P8,400. Elvin’s expectations for the coming year include the
following:
- The selling price of the t-shirts would be P9.00
- Variable expenses would increase by one-third.
- Fixed expenses will increase by 10%.

____1. The number of t-shirts Elvin Corporation must sell to breakeven in the coming year is:
a. 22,000 b. 17,500 c. 19,250 d. 20,000

m
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____2. Sales for the coming year are expected to exceed last years by 1,000 units. if this occurs, Elvin’s sales

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volume in the coming year will be:
a. 22,600
eH w
b. 21,960 units c. 21,000 units d. 23,400 units

o.
____3. If Elvin wishes to earn P22,500 in net operating income for the coming year, the company’s sales in pesos
rs e
must be:
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a. 217,750 b. P207,000 c. P257,625 d. P229,500

____4. What is the correct series of steps in management science process?

o

a. observation, definition of the problem, model solution, model construction, implementation of

solution and post-implementation review
aC s

b. definition of the problem, model construction, model solution, implementation of solution,

vi re

observation, and post-implementation review

c. observation, definition of the problem, model construction, model solution, implementation of
solution and post-implementation review
y

d. definition of the problem, observation, model solution, model construction, implementation of

ed d

solution and post-implementation review

ar stu

____5. Which of the following statements about cost relationship is not incorrect?
a. Within the relevant range, variable cost per unit varies directly with volume, while fixed cost per
unit remains unchanged for a given period despite fluctuations of volume.
is

b. Within the relevant range, fixed cost per unit varies directly with volume, while variable cost per
unit remains unchanged for a given period despite fluctuations of volume.
Th

c. Within the relevant range, total variable costs may vary inversely with activity, while total fixed
costs remain unchanged for a given period despite fluctuations of volume.
d. Within the relevant range, total variable costs may vary directly with volume, while total fixed costs
remain unchanged for a given period despite fluctuations in volume.
sh

____6. Contribution margin can be defined as:

a. the amount of sales revenue necessary to cover variable expenses.
b. sales revenue minus variable expenses.
c. sales revenue minus fixed expenses.
d. the amount of sales revenue necessary to cover fixed and variable expenses.

____7. Which of the following is true regarding the contribution margin ratio of a single product company?
a. As fixed expenses decrease, the contribution margin ratio increases.
b. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin
per unit.
c. The contribution margin ratio will decline as unit sales decline.
d. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

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 MANAGEMENT SCIENCE page 2

____8. Contribution margin is the excess of revenues over

a. Direct cost.
b. Manufacturing cost.
c. Cost of goods sold.
d. All variable costs.

Escareno Corporation has provided its contribution format income statement for June. The company
produces and sells a single product.
Sales (8,400 units) P764,400
Variable expenses 445,200
Contribution margin 319,200
Fixed expenses 250,900
Net operating income P 68,300
____9. If the company sells 8,200 units, its total contribution margin should be closest to:
a. P301,000 b. P311,600 c. P319,200 d. P66,674

____10. The margin of safety in the Flaherty Company is P24,000. If the company's sales are P120,000 and its
variable expenses are P80,000, its fixed expenses must be:
a. P32,000 b. P24,000 c. P16,000 d. P8,000

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____11. If a company is operating at the break-even point:

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a. its fixed expenses will be equal to its variable expenses.

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b. its contribution margin will be equal to its variable expenses.
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c. its selling price will be equal to its variable expense per unit.
d. its margin of safety will be equal to zero.

o.
rs e
Hopi Corporation expects the following operating results for next year:
ou urc

Sales P400,000
Margin of safety P100,000
Contribution margin ratio 75%
o

____12. What is Hopi expecting total fixed expenses to be next year?

a. P75,000 b. P100,000 c. P200,000 d. P225,000
aC s
vi re

____13. Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are P84,000. If the
company's sales for a month are P738,000, what is the best estimate of the company's net operating
y

income? Assume that the fixed monthly expenses do not change.

a. P4,560 b. P565,440 c. P654,000 d. P88,560
ed d
ar stu

____14. Contribution margin is 30% of sales. Profit is P80,000. Sales are P600,000. Fixed costs are
a. P90,000. b. P100,000. c. P160,000. d. P180,000.

____15. If a company is earning a profit, its fixed costs

is

a. are less than total contribution margin.

b. are equal to total contribution margin.
Th

c. are greater than total variable costs.

d. can be greater than or less than total contribution margin.

____16. Per-unit variable cost

sh

a. remains constant within the relevant range.

b. increases as volume increases within the relevant range.
c. decreases as volume increases within the relevant range.
d. decreases if volume increases beyond the relevant range.

____17. Classifying a cost as fixed or variable depends on how it behaves

a. per unit, as the volume of activity changes.
b. in total, as the volume of activity changes.
c. both a and b are correct.
d. none of the above.

____18. The margin of safety is

a. the profit currently earned in excess of the target profit.
b. the difference between current sales and sales at break-even.
c. the ratio of contribution margin to variable cost.

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 MANAGEMENT SCIENCE page 3

d. the difference between contribution margin currently earned and contribution margin at break
even.

____19. Selling price is P40, unit variable cost is P24, and fixed costs are P400,000. Unit sales required to break even
are
a. 10,000. b. 12,500. c. 16,667. d. 25,000.

____20. ABC's variable costs are 60% of total revenue. If fixed costs are P300,000, what is the break-even sales
volume?
a. P120,000 b. P180,000 c. P750,000 d. P500,000

____21. Acme has sales of P200,000, fixed costs of P100,000, and a profit of P20,000. What is Acme's margin of
safety?
a. P 20,000
b. P 33,333
c. P100,000
d. An amount that cannot be determined without more information.
____22. According to CVP analysis, a company could never incur a loss that exceeded its total
a. variable costs. c. costs.
b. fixed costs. d. contribution margin.

m
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____23. After the level of volume exceeds the break-even point

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a. the contribution margin ratio increases.
eH w
b. the total contribution margin exceeds the total fixed costs.
c. total fixed costs per unit will remain constant.

o.
d. the total contribution margin will turn from negative to positive.
rs e
ou urc

____24. Consider the equation Z = Sales - [(CM/Sales) x (Sales)]. What is Z?

a. net income c. fixed costs
b. variable costs d. contribution margin
o

Below is an income statement for Thompson Company:

aC s

Sales P400,000
vi re

Variable costs (125,000)

Contribution margin P275,000
y

Fixed costs (200,000)

Profit before taxes P 75,000
ed d
ar stu

____25. Based on the cost and revenue structure on the income statement, what was Thompson’s break-even point
in pesos?
a. P200,000 b. P290,909 c. P325,000 d. P300,000
is

____26. Refer to Thompson Company. Assuming that the fixed costs are expected to remain at P200,000 for the
coming year and the sales price per unit and variable costs per unit are also expected to remain constant,
Th

how much profit before taxes will be produced if the company anticipates sales for the coming year rising to
130 percent of the current year’s level?
a. P97,500
b. P195,000
sh

c. P157,500
d. A prediction cannot be made from the information given.

____27. Dodero Company produces a single product which sells for P100 per unit. Fixed expenses total P12,000 per
month, and variable expenses are P60 per unit. The company's sales average 500 units per month. Which of
the following statements is correct?
a. The company's break-even point is P12,000 per month.
b. The fixed expenses remain constant at P24 per unit for any activity level within the relevant range.
c. The company's contribution margin ratio is 40%.
d. Responses A, B, and C are all correct.

____28. The most useful information derived from a breakeven analysis 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.

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 MANAGEMENT SCIENCE page 4

d. volume or output level at which the enterprise breaks even.

____29. 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.
b. P3,500,000.
c. P4,000,000.
d. P5,300,000.

____30. The Expressive Company currently has fixed cost of P770,500. This cost is expected to increase by
P103,500 if the company expands its production facilities. Currently, it sells its product for P47. The product
has a variable cost per unit of P24. How many more units must the company sell to break even, at the
current sales price per unit, than it did to break even prior to the increase in fixed cost?

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a. 3,500 b. 4,000 c. 4,500 d. 6,000

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____31. Which of the following does not refer to planning?
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a. involves setting of both immediate and long range goals for the organization
b. predicting future conditions that are expected to prevail

o.
c. considering the indifferent means or strategies by which the goals set may be achieved
rs e
d. deciding which of the strategies should be used to attain such goals.
ou urc

____32. Mercado, Inc. had the following economic data for 2007:
Net sales P400,000
o

Contribution margin 160,000

Margin of safety 40,000
aC s

What is Mercado’s breakeven point in 2007?

vi re

a. P360,000 b. P288,000 c. P320,000 d. P 80,000

y

____33. Which of the following does not relate to organizing function of management?
a. Subordinating c. Monitoring
ed d

b. Directing d. staffing
ar stu

____34. Statement 1: Management science excludes a logical, systematic approach to problem solving, which
closely parallels what is known as the scientific method for attacking problems.
Statement 2: Problems are not always the result of a crisis that must be reacted to but, instead, frequently
is

involve an anticipatory or planning situation

a. True, False b. True, True c. False, True d. False, False
Th

____35. A physical model that does not have the same physical appearance as the object being modeled is
a. a qualitative model. c. an analog model
sh

b. a mathematical model. d. an iconic model

____36. The volume that results in total revenue being equal to total cost is the
a. profit mix.
b. marginal volume.
c. marginal cost.
d. break-even point.

Good Luck Future CPAs!!!

“This may seem hard now, but it will become easier and easier over time.”
Prepared by: Jherry M.L. Sevilla, CPA

– END –

MSQ1
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