QUIZ 1

Prepared by: Shirley Olivo

TRUE OR FALSE. Please write TRUE if statement is correct and FALSE if it is incorrect.

1. Cost behavior analysis is the study of how specific level of activitiesrespond to changes in the behavior of costs
within a company. FALSE
2. Cost behavior analysis is important to management in planning business operations and in deciding between
alternative courses of action. TRUE
3. Fixed costs and variable cost may be defined in total or on a per-unit basis. Variable costs in total vary directly
and proportionately with changes in the activity level. Fixed costs per unit varies at every level of activity. TRUE
4. Fixed costs remain the same in total regardless of changes in the activity level. In contrast, fixed costs per unit
vary indirectly with activity. As volume increases, fixed costs per unit decline and vice versa.tRUE
5. The relevant range is the range of activity that a company expects to operate during the year in such a way that
fixed and variable cost are predictable. TRUE
6. The behavior of both fixed and variable costs are non- linear only over a certain range of activity. FALSE
7. Most companies operate within the relevant range. Within this range, it is possible to establish a linear
(straight-line) relationship for both variable and fixed costs. If a relevant range cannot be established, segregation
of costs into fixed and variable becomes extremely difficult. TRUE
8. For CVP analysis, semi-variable costs must be classified into their fixed and variable elements. One approach to
the classification of mixed costs is the high-low method. TRUE
9. Only two of the basic components of cost-volume-profit (CVP) analysis, unit selling prices and variable cost per
unit, relate to unit data. The other component, total fixed costs, is based on varying per-unit amounts. FALSE
10. Degree of operating leverage is the difference between actual or expected sales and sales at the breakeven
point. FALSE
11. Supervisory salaries is usually a Fixed non manufacturing cost if the salary pertains to company lawyer TRUE
12. All indirect costs of a factory operation are product cost. TRUE
13. All period cost are non manufacturing costs. All indirect costs are period cost. FALSE
14. In interpreting the compay’s performance using Margin of Safety across periods, the MOS ratio must be
compared instead of MOS absolute value. TRUE
15. The Degree of Operating Leverage can predict both percentage increase of profit based from percent increase in
sales, but not in peso value. FALSE

STRAIGHT PROBLEM:

Dragon Company enlisted 4 products in its Makati Store, Products A1, A2, A3, and A4. The Store is incurring monthly
rental of 120,000. Assuming that sales mix ratio in units of the 4 products is as follows ---- 4:2:1:2, and the following data
is provided

A1 Selling price P50, VC 30

A2 Selling price P40, VC 20
A3 Selling price P120, VC 50
A4 Selling price P80, VC 25

Product A1 sold in 15,000 units for the month.

Compute for the following

 16. Weighted CMU of all products 33.33
17. Break even point in units of all products 3600.36
18. Break even point in units for A1 1600.16
19. Break even point in units for A2 800.08
20. Break even point in units for A3 400.04
21. Break even point in units for A4 800.08

Nikita Company reported Sales in units of 10,000 in the month of February. Computed Break even point is P220,000.
Variable cost is 15 per unit. And reported sales is just P20,000 higher than the break even point.

22. How much is the fixed cost? 82,500

23. If Nikita were able to sell during March twice the number of units sold in February, what is the Margin of Safety
ratio by March?54.16%
24. What is the Degree of Operating Leverage by March? 1.85

The Company is planning to make an after tax profit of P680,000 from its winery business. Its current required sales in
unit is 8,000 and Fixed cost is at P240,000. Tax rate of 60%.

25. If variable cost is at P100 per unit, how much must be the targeted selling price per unit to achieve the desired
profit? 342.5
26. If the 680,000 is a profit before tax, and variable cost remains at P100 per unit, how much must be the targeted
selling price per unit to achieve the desired profit? 215

MULTIPLE CHOICE:

A company sells two products, Product 1 and Product 2. Three units of Product 1 are sold every two units of
Product 2. Fixed costs is P234, 000 per year.
Product 1 is sold for P40 per unit and the variable costs identified with the production and sale of each unit of
the product amounts to P14. Product 2 is sold for P36 per unit, and the variable costs identified with the
production and sale of the product amounts to P20.
27. The weighted-average unit contribution margin is 22

28. The break-even point in units of Product 1 and 2: product 1 = 6,381.82; product 2 = 4,254.54

29. The weighted average contribution margin ratio is 57.29%

In 2009, the company’s sales was P500, 000. Its fixed costs amounts to P10, 000 per year. In 2010, sales was 20% higher,
while profit was P30, 000 higher than the 2009 figures.

For 2011, the company expects to have sales that is twice as much as the 2009 sales. The expected increase in
production to meet the sales demand in 2011 will not require the company to exceed its normal capacity.

30. What is the company’s contribution margin ratio? 30%

31. How much profit does the company expects to earn in 2011? 290,000

As part of the cost study, a manager has recorded the actual maintenance expenses for six different levels of machine
hours. This cost data is shown below:
Month Machine hours Cost
July 12, 000 22, 000
August 10, 000 21, 000
September 15, 000 25, 400
October 11, 500 20, 000
November 16, 800 27, 200
December 14, 000 24, 000

32. If the manager applies the high-low method, the estimated variable cost per machine hour is: 0.91
33. Using also high-low point method, the estimated annual fixed cost for maintenance expense is: 11,900 or 11880
to 11,912 range

34. Which of the following changes in cost-volume-profit factors will reduce the break-even point?
a. A decreases in total fixed costs
b. A decrease in selling price
c. An increase in unit variable cost
d. An increase in total fixed costs
35. Which of the following will result in raising the break-even point?
a. A decrease in the variable cost per unit
b. A decrease in income tax rates
c. An increase in the variable cost per unit
d. An increase in the contribution margin
36. Strategic Cost management enables the management to steward the company with clarity using economic and
financial data that may not be present in a regular Financial Statement. The controlling function of the
management is one example of how variances and standard costs can be used to manage the business
a. Both statements are true
b. Only statement 1 is true
c. Only statement 2 is true
d. Both statements are false

37. Certified public accountants are expected to follow accounting standards primarily to protect the management’s
interest over the public’s eye. Strategic cost reporting can be used to manage the day to day operations of a
company
a. Both statements are true
b. Only statement 1 is true
c. Only statement 2 is true
d. Both statements are false

38. A good and planned cost structure can bring increased profitability to a company as championed the degree of
operating leverage concept. The exponential growth experienced from bottom line (profit) brought about by the
margin of safety ratio is a good cost structure
a. Both statements are true
b. Only statement 1 is true
c. Only statement 2 is true
d. Both statements are false

39. If a company want to decrease its Break even Point (assuming Selling price and Variable cost wont be changed)
a. It must decrease its Degree of Operating leverage
b. It must increase its Contribution Margin
 c. It must decrease its Variable cost per unit
d. It must increase its desired profit

40. Increasing the Margin of safety will

a. Bring forth higher profit
b. Will decrease the variable cost
c. Will decrease the fixed cost
d. Will have no effect on profit