MANAGEMENT ADVISORY SERVICES HILARIO TAN

THEORY
Cost Behavior 7. Costs that increase as the volume of activity decreases within the relevant range are
1 Which of the following statements is false? A. Average costs per unit. C. Total fixed costs.
A. At zero production level, fixed costs is also zero. B. Average variable costs per unit. D. Total variable costs.
B. At zero production level, fixed costs are positive.
C. At zero production level, variable costs are usually zero. 8. When production levels are expected to increase within a relevant range and a flexible budget
D. At zero production level, total costs equal total fixed costs. is used. What effect would be anticipated with respect to each of the following costs?
A. B. C. D.
2. Variable costs are all costs Fixed Costs per Unit Increase Increase Decrease Decrease
A. Of manufacturing incurred to produce units of output. Variable Costs per Unit Increase No change No change Decrease
B. That are associated with marketing, shipping, warehousing, and billing activities.
C. That fluctuate in total in response to small changes in the rate of utilization of capacity. 9. Weaknesses of the high-low method include all of the following except
D. That do not change in total for a given period and relevant range but become A. the mathematical calculations are relatively complex.
progressively smaller on a per unit basis as volume increases. B. the high and low activity levels may not be representative.
C. only two observations are used to develop the cost function.
3. NTQ, Inc.’s net sales in 1996 were 15% below the 1995 level. NTQ’s semi-variable costs D. the method does not detect if the cost behavior is nonlinear.
would
A. Increase in total and increase as a percentage of net sales. 10. The scatter diagram method of cost estimation
B. Increase in total, but decrease as a percentage of net sales. A. requires the use of judgment
C. Decrease in total, but increase as a percentage of net sales. B. uses the least-squares method
D. Decrease in total and decrease as a percentage of net sales. C. is influenced by extreme observations
D. is superior to other methods in its ability to distinguish between discretionary and
4. RST’s average cost per unit is the same at all levels of volume. Which of the following is true? committed fixed costs
A. RST must have only fixed costs.
B. RST must have only variable costs. 11. Regression analysis is superior to other cost behavior techniques because it
C. RST must have some fixed costs and some variable costs. A. Examines only one variable. C. Produces measures of probable error.
D. RST’s cost structure cannot be determined from this information. B. Is not a sampling technique. D. Proves a cause and effect relationship.
5. Which of the following decision-making tools would NOT be useful in determining the slope
and intercept of a mixed cost? 12. The number of variables used in simple regression analysis is:
A. high-low method C. linear programming A. one C. three
B. least-squares method D. scatter diagrams B. two D. more than three
6. A cost that bears an observable and known relationship to a quantifiable activity base is a(n)
A. Engineered cost. C. Indirect cost. 13. The first to be undertaken in a simple regression analysis approach is
B. Fixed cost. D. Target cost.
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A. To calculate the coefficient correlation.

B. To find the standard error of estimate. 19. As an accountant, the most useful information you can get from break-even chart is the
C. To make the least squares computation. A. Volume or output level at which the enterprise breaks even.
D. To plot two variables in a scatter diagram. B. Amount of sales revenue needed to cover enterprise fixed costs.
C. Amount of sales revenue needed to cover enterprise variable costs.
14. If the coefficient of correlation between two variables is zero, how might a scatter diagram of D. Relationship among revenues, variable costs, and fixed costs at various levels of activity.
these variables appear?
A. Random points. 20. In a cost-volume-profit graph
B. A least squares line that slopes up to the right. A. the total revenue line crosses the horizontal axis at the breakeven point.
C. A least squares line that slopes down to the right. B. an increase in unit variable costs would decrease the slope of the total cost line.
D. Under this condition a scatter diagram could not be plotted on a graph. C. an increase in the unit selling price would shift the breakeven point in units to the left.
D. an increase in the unit selling price would shift the breakeven point in units to the right.
15. Cost-volume-profit analysis is most important for the determination of the E. beyond the breakeven sales volume, profits are maximized at the sales volume where
A. Volume of operation necessary to break-even. total revenues equal total costs.
B. Sales revenue necessary to equal variable costs.
C. Variable revenues necessary to equal fixed costs. 21. In a cost-volume-profit graph, the slope of the total revenue curve represents
D. Relationship between revenues and costs at various levels of operations. A. total contribution margin D. the selling price per unit.
B. total revenues. E. the variable cost per unit
16. The relevant range is C. the contribution margin per unit
A. a relatively wide range of sales where all costs remain the same
B. a relatively wide range of sales where total variable costs remain the same 22. In a profit-volume graph, the slope of the profit curve represents
C. a relatively narrow range of production where total variable costs remain the same A. the contribution margin per unit D. total contribution margin
D. a relatively wide span of production where total fixed costs are expected to remain the B. the selling price per unit E. total revenues.
same C. the variable cost per unit
23. If a company’s variable costs are 70% of sales, which formula represents the computation of
17. Which of the following assumptions does NOT pertain to cost-volume-profit analysis? dollar sales that will yield a profit equal to 10% of the contribution margin when S equals sales
A. Inventories are constant in dollars for the period and FC equals total fixed costs from the period?
B. The total revenues function is linear. A. S = FC  0.2 C. S = 0.2  FC
C. All costs are classified as fixed or variable B. S = FC  0.27 D. S = 0.27  FC
D. The units produced will equal the units sold
E. Sales mix may vary during the related period 24. Cost-volume-profit analysis is a key factor in many decisions, including choice of product lines,
pricing of products, marketing strategy, and utilization of productive facilities. A calculation
18. The sum of the costs necessary to effect a one-unit increase in the activity level is a(n) used in CVP analysis is the break-even point. Once the break-even point has been reached
A. Incremental cost. C. Marginal cost. operating income will increase by the
B. Margin of safety. D. Opportunity cost. A. Fixed cost per unit for each additional unit sold.
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B. Sales price per unit for each additional unit sold.

C. Gross margin per unit for each additional unit sold. 29. A company increased the selling price of its product from $1.00 to $1.10 a unit when total fixed
D. Contribution margin per unit for each additional unit sold. costs increased from $400,000 to $480,000 and variable cost per unit remained unchanged.
How will these changes affect the breakeven point?
25. When used in cost-volume-profit analysis, sensitivity analysis A. The breakeven point in units will be increased.
A. Determines the most profitable mix of products to be sold. B. The breakeven point in units will be decreased.
B. Allows the decision maker to introduce probabilities in the evaluation of decision C. The breakeven point in units will remain unchanged.
alternatives. D. The effect cannot be determined from the information given.
C. Is limited because in cost-volume-profit analysis, costs are not separated into fixed and
variable components. 30. According to CVP analysis, a company could never incur a loss that exceeded its total
D. Is done through various possible scenarios and computes the impact on profit of various A. contribution margin. C. fixed costs.
predictions of future events. B. costs. D. variable costs.

26. At its present level of operations, a small manufacturing firm has total variable costs equal to 31. Two companies produce and sell the same product in a competitive industry. Thus, the selling
75 percent of sales and total fixed costs equal to 15 percent of sales. Based on variable price of the product for each company is the same. Company 1 has a contribution margin ratio
costing, if sales change by $1.00, income will change by of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs
A. $0.10. 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is
B. $0.25. 30% greater than that of Company 1. By comparison, Company 1 will have the <List A>
C. $0.75. breakeven point in terms of dollar sales volume and will have the <List B> dollar profit potential
D. can't be determined from the information given. once the indifference point in dollar sales volume is exceeded.
A. B. C. D.
27. A company’s breakeven point in sales dollars may be affected by equal percentage increases List A Lower Lower Higher Higher
in both selling price and variable costs per unit (assume all other factors are constant within List B Lesser Greater Lesser Greater
the relevant range.) The equal percentage changes in selling price and variable cost per unit
will cause the breakeven point in sales dollars to 32. Which of the following is a true statement about sales mix?
A. Remain unchanged. A. Profits will remain constant with an increase in total dollars of sales if the total sales in
B. Increase by the percentage change in variable cost per unit. units remains constant.
C. Decrease by less than the percentage increase in selling price. B. Profits will remain constant with a decrease in total dollars of sales if the sales mix also
D. Decrease by more than the percentage increase in the selling price. remains constant.
C. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell
28. The most likely strategy to reduce the breakeven point would be to more of the high contribution margin product.
A. Increase both the fixed costs and the contribution margin. D. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell
B. Decrease both the fixed cost and the contribution margin. more of the lower contribution margin product.
C. Increase the fixed costs and decrease the contribution margin.
D. Decrease the fixed costs and increase the contribution margin.
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33. Saints Co. sells three chemicals: Simpol, Plutex, and Coplex. Simpol is the most profitable Indirect materials $16 per direct labor hour
product while Coplex is the least profitable. Which one of the following events will definitely If July production is expected to be 1,000 units requiring 1,500 direct labor hours, estimated
decrease the firm’s overall B.E.P. for the upcoming accounting period? manufacturing overhead costs would be
A. A decrease in Coplex’s selling price. A. $10,366 C. $99,000
B. An increase in Simpol raw materials cost. B. $76,300 D. $109,300
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. 3. Bradley Co. budgets its total production costs at $220,000 for 75,000 units of output and
$275,000 for 100,000 units of output. Since additional facilities are needed to produce 100,000
34. A very high degree of operating leverage indicates a firm units, fixed costs are budgeted at 20% more than for 75,000 units. What is Bradley's budgeted
A. has high fixed costs fixed cost at 100,000 units?
B. has a high net income A. 16,500 C. 156,000
C. has high variable costs B. 66,000 D. 165,000
D. is operating close to its breakeven point

4. Matias Corporation wishes to market a new product for P12.00 a unit. Fixed costs to
manufacture this product are P800,000 for less than 500,000 units and P1,200,000 for
35. Love Corp. is operationally a highly leveraged company, that is, it has high fixed costs and low 500,000 or more units. Contribution margin is 20%. How many units must be sold to realize a
variable costs. As such, small changes in sales volume result in net income from this product of P500,000?
A. Large changes in net income. C. No change in net income. A. 433,333 C. 666,667
B. Negligible change in net income. D. Proportionate change in net income. B. 500,000 D. 708,333

PROBLEMS High-low method

Cost equation 5. The Austin Manufacturing Company wants to develop a cost estimating equation for its
1. Smart Company is relocating its facilities. The company estimates that it will take three trucks monthly cost of electricity. It has the following data:
to move office contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is Month Cost of Electricity Direct Labor Hours
the expected cost to move 800 miles? January $6,750 1,500
A. $1,000 C. $2,400 April 7,500 1,700
B. $1,200 D. $3,600 July 8,500 2,000
October 7,250 1,600
2. The following cost functions were developed for manufacturing overhead costs: Using the high-low method, what is the best equation?
Manufacturing Overhead Cost Cost Function A. Y = $750 + $3.50X D. Y = $1,500 + $5.00X
Electricity $100 + $20 per direct labor hour B. Y = $750 + $5.00X E. Y = $2,000 + $3.50X
Maintenance $200 + $30 per direct labor hour C. Y = $1,500 + $3.50X
Supervisors’ salaries $10,000 per month

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6. Total production costs of prior periods for a company are listed as follows. Assume that the Contribution margin income statement
same cost behavior patterns can be extended linearly over the range of 3,000 to 35,000 units 9. A retail company determines its selling price by marking up variable costs 60%. In addition,
and that the cost driver for each cost is the number of units produced. the company uses frequent selling price markdowns to stimulate sales. If the markdowns
Production in units per month 3,000 9,000 16,000 35,000 average 10%, what is the company’s contribution margin ratio?
Cost X $23,700 $52,680 $86,490 $178,260 A. 27.5% C. 37.5%
Cost Y 47,280 141,840 252,160 551,600 B. 30.6% D. 41.7%
What is the average cost per unit at a production level of 8,000 units for cost X?
A. $4.83 C. $5.98
B. $5.85 D. $7.90
Breakeven analysis
10. Ultra Vogue Co. sells 50,000 units of “yo” a top-of-the-line garden sprinkler. These were taken
Regression analysis from the company’s records:
7. Y = P575,000 + P8.50X represents the behavior of maintenance costs (Y) as a function of Accounts receivable, P129,000. Contribution margin ratio, 49%.
machine hours (X). Thirty (30) monthly observations were used to develop the foregoing Days sales outstanding, 15 days. Profit for the period was P485,040.
regression equation. The related coefficient of determination was 0.90. If 2,500 machine The ending receivables balance is the average balance during the year. Assume a 360-day
hours are worked in one month, the related point estimate of total variable maintenance costs year. All sales are on credit. Determine the company’s break-even revenue.
would be A. P1,032,000 C. P2,106,122
A. P19,125 C. P23,000 B. P1,517,040 D. P3,096,000
B. P21,250 D. P25,250
11. Tonykinn Company is contemplating of marketing a new product. Fixed costs will be $800,000
8. Sago Co. uses regression analysis to develop a model for predicting overhead costs. Two for production of 75,000 units or less and $1,200,000 if production exceeds 75,000 units The
different cost drivers (machine hours and direct materials weight) are under consideration as variable cost ratio is 60% for the first 75,000. Contribution margin percentage will increase to
the independent variable. Relevant data were run on a computer using one of the standard 50% for units in excess of 75,000. If the product is expected to sell for $25 per unit, how many
regression programs, with the following results: units must Tonykinn sell to breakeven?
Coefficient A. 80,000 C. 111,000
Machine hours Direct materials weight B. 96,000 D. 120,000
Y intercept 2,500 4,600
B 5.00 2.60 12. A company manufactures a single product. Estimated cost data regarding this product and
R2 0.70 0.50 other information for the product and the company are as follows:
What regression equation should be used? Sales price per unit $40
A. Y = 2,500 + 3.5X C. Y = 4,600 +1.3X Total variable production cost per unit $22
B. Y = 2,500 + 5.0X D. Y = 4,600 + 2.6X Sales commission (on sales) 5%
Fixed costs and expenses

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Manufacturing overhead $5,598,720 Net operating loss (40,000)

General and administrative $3,732,480 How many additional units should have been sold in order for the company to break even in
Effective income tax rate 40% 1992?
The number of units the company must sell in the coming year in order to reach its breakeven A. 8,000 C. 16,000
point is B. 12,800 D. 32,000
A. 388,800 units C. 583,200 units 17. Scottso Enterprises has fixed costs of $120,000. At a sales volume of $400,000, return on
B. 518,400 units D. 972,000 units sales is 10%. At a $600,000 volume, return on sales is 20%. What is the break-even volume?
A. $160,000 C. $300,000
Profit planning B. $210,000 D. $420,000
13. Merchandisers, Inc. sells Product O to retailers for P200. The unit variable cost is P40 with a
selling commission of 10%. Fixed manufacturing costs total P1,000,000 per month while fixed 18. Nette & Co. has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000,
selling and administrative costs total P420,000. The income tax rate is 30%. The target sales and an operating loss of P20,000. By how much would Nette need to increase its sales in
if after tax income is P123,200 would be order to achieve a target operating income of 10% of sales?
A. 10,950 units. C. 13,750 units. A. P400,000 C. P500,000
B. 11,400 units. D. 15,640 units. B. P462,000 D. P800,000

14. NCB, Inc. manufactures computer tables. It has an investment of P1,750,000 in assets and 19. Sari-Sari Grocery is currently open only on Monday to Saturday. It is considering opening on
expects a 25% return on investment. Its total fixed production costs for 2,000 units is Sundays. The annual incremental costs of Sunday opening is estimated at P124,800. Its
P550,000 plus an additional P150,000 for selling and administrative expenses. The variable gross margin is 20%. It estimates that 60% of Sunday sales to customers would be on other
cost to manufacture is P1,500 per table. The selling price per table should be days if its stores were not open on Sundays. The Sunday sales that would be necessary for
A. P1,850.00 C. P2,531.25 Sari-sari to attain the same weekly operating income is
B. P2,068.75 D. P2,725.00 A. P19,500. C. P29,250.
B. P20,000. D. P30,000.
15. Story Manufacturing incurs annual fixed costs of $250,000 in producing and selling "Tales."
Estimated unit sales for 2001 are 125,000. An after-tax income of $75,000 is desired by 20. ABC Company breaks even at $300,000 sales and earns $30,000 at $350,000 sales. Which
management. The company projects its income tax rate at 40 percent. What is the maximum of the following is true?
amount that Story can expend for variable costs per unit and still meet its profit objective if the A. Fixed costs are $20,000.
sales price per unit is estimated at $6? B. The selling price per unit is $3.
A. $3.00 C. $3.59 C. Contribution margin is 60% of sales.
B. $3.37 D. $3.70 D. Profit at sales of $400,000 would be $80,000.

Incremental analysis Sensitivity analysis

16. A company is concerned about its operating performance, as summarized below: 21. A product has a selling price of P5 and variable cost of P3.50 per unit. The effect of a P0.50
Sales ($12.50 per unit) $300,000 per unit increase in cost is to increase the break-even level of activity by
Variable costs 180,000 A. P1.50 per unit. C. 33-1/3%
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B. 14.3% D. 50% P120. At a volume of 80,000 kits, RPS 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
22. A company has sales of $500,000, variable costs of $300,000, and pretax profit of $150,000. increased by P1,200,000 over 1996. Assuming the volume and other costs are unchanged,
If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left what should be the 1997 price be if RPS is to make the same P200,000 profit before income
variable cost per unit unchanged, what would be the new breakeven point in sales dollars? taxes?
A. $88,000 C. $110,000 A. P120. C. P150.
B. $100,000 D. $125,000 B. P135. D. P240.

23. Singsing, Inc. manufactures and sells key rings embossed with college names and slogans. 26. Lindsay Company reported the following results from sales of 5,000 units of Product A for
Last year, the key rings sold for P75 each, and the variable costs to manufacture them were June:
P22.50 per unit. The company needed to sell 20,000 key rings to break-even. The net Sales $200,000
income last year was P50,400. The company expects the following for the coming year: Variable costs (120,000)
 The selling price of the key rings will be P90. Fixed costs (60,000)
 Variable manufacturing costs per unit will increase by one-third. Operating income $ 20,000
 Fixed costs will increase by 10%. Assume that Lindsay increases the selling price of Product A by 10 percent in July. How many
 The income tax rate will remain unchanged. units of Product A would have to be sold in July to generate an operating income of $20,000?
For the company to break-even the coming year, the company should sell A. 4,000 C. 4,500
A. 2,600 units. C. 21,250 units. B. 4,300 D. 5,000
B. 19,250 units. D. 21,600 units.
27. CGW Corporation sells Product T at a unit price of P5 deriving annual gross sales of P50,000.
24. Austin Manufacturing, which is subject to a 40% income tax rate, had the following operating The variable cost to produce T is P4.50 per unit and total fixed costs is P10,000. If it increases
data for the period just ended. T’s unit price to P8, a decrease of sales to only 4,000 units would result. The effect of the
Selling price per unit $ 60 price increase on CGW’s net income from the sales of Product T will be a:
Variable cost per unit 22 A. No effect. C. P9,000 increase.
Fixed costs 504,000 B. P4,000 increase. B. P18,000 decrease.
Management plans to improve the quality of its sole product by: (1) replacing a component that 28. Planners have determined that sales will increase by 25% next year, and that the profit margin
costs $3.50 with a higher-grade unit that costs $5.50 and (2) acquiring a $180,000 packing will remain at 15% of sales. Which of the following statements is correct?
machine. Austin will depreciate the machine over a 10-year life with no estimated salvage A. Profit will grow by 25%.
value by the straight-line method of depreciation. If the company wants to earn after-tax B. The profit margin will grow by 15%.
income of $172,800 in the upcoming period, it must sell C. Profit will grow proportionately faster than sales.
A. 19,300 units. C. 22,500 units. D. Ten percent of the increase in sales will become net income.
B. 21,316 units. D. 23,800 units. 29. LXQ Turo Turo stores are open for 15 hours a day (from 6:00 a.m. to 9:00 p.m.). It sells
packaged meals at a price of P40 per meal. Variable cost per meal is P30 while total fixed
costs for operation of all the stores amounted to 200,000 monthly. It is thinking to reduce its
25. During 1996, RPS Corporation supplied hospitals with a comprehensive diagnostic kit for
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store hours to only 12 hours a day as this would reduce fixed costs (utilities and wages) by A. P10,980 C. P17,990
P60,000 a month. It is expected that the reduced store hours would result in loss of 1,500 B. P13,000 D. P18,000
packed meals monthly sales. The reduction in store hours would result in
A. No change in monthly operating income. 32. For the same Hennessy Co., in the immediately preceding number, what is the additional
B. A prospective decrease in monthly operating income. volume required after the price cut to get the same contribution margin before the price cut?
C. A prospective increase in monthly operating income of P45,000. Round off to the nearest whole unit.
D. A prospective increase in monthly operating income of P60,000. A. 409 units C. 704 units
B. 500 units D. 1,000 units
30. The Machan Manufacturing Company’s year-end income statement is as follows:
Sales (20,000 units) $360,000 Multiple products
Variable costs 220,000 33. A company with $280,000 of fixed costs has the following data:
Contribution margin $140,000 Product A Product B
Fixed costs 105,000 Sales price per unit $5 $6
Net income $ 35,000 Variable costs per unit $3 $5
Management is unhappy with the results and plans to make some changes for next year. Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of
If management implements a new marketing program, fixed costs are expected to increase by product B at the breakeven point?
$19,200 and variable costs to increase by $1 per unit. Unit sales are expected to increase by A. $200,000 C. $280,000
15 percent. What is the effect on income? B. $240,000 D. $840,000
A. no change D. increase of $14,800
B. increase of $1,800 E. decrease of $21,200 Questions 34 and 35 are based on the following information.
C. increase of $13,800 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 $49,500. The unit contribution margins for X and
Questions 31 and 32 are based on the following information. Y are $2.50 and $1.20, respectively.
The marketing department of Hennessy Co. proposed a price cut on its leading brand, a product
called “Henry.” From the accounting records these are available: 34. Considering the company as a whole, the number of composite units to break even is
Price per unit P 92.00 A. 1,650 C. 8,250
Discount to customers 10% B. 4,500 D. 22,500
Direct cost per unit P 52.60 35. If the company had a profit of $22,000, the unit sales must have been
Variable operating expense per unit P 5.60 A. B. C. D.
Proposed price cut per unit P 10.00 Product X 5,000 13,000 23,800 32,500
Estimated sales volume before price cut 1,220 pcs. Product Y 12,500 32,500 59,500 13,000
31. How much is the estimated contribution margin that will be lost due to price cut, assuming the Point of Indifference
same pre-price cut sales volume? 36. Wheels Corp. employs 45 sales personnel to market its sedan cars. The average car sells for
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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 Comprehensive
a commission of 2% of the sales made by the person. The amount of total monthly car sales Questions 40 through 42 are based on the following information.
at which Wheels Corp. would be indifferent (answer may be rounded off) as to which plan to Almo Company manufactures and sells adjustable canopies that attach to motor homes and
select is trailers. The market covers both new unit purchasers as well as replacement canopies. Almo
A. P22,500,000 C. P36,500,000 developed its business plan based on the assumption that canopies would sell at a price of $400
B. P33,750,000 D. P45,000,000 each. The variable costs for each canopy were projected at $200, and the annual fixed costs were
budgeted at $100,000. Almo's after-tax profit objective was $240,000; the company's effective tax
37. Two companies are expected to have annual sales of 1,000,000 decks of playing cards next rate is 40%.
year. Estimates for next year are presented below: While Almo's sales usually rise during the second quarter, the May financial statements reported
Company 1 Company 2 that sales were not meeting expectations. For the first 5 months of the year, only 350 units had
Selling price per deck $ 3.00 $3.00 been sold at the established price, with variable costs as planned, and it was clear that the after-tax
Cost of paper deck 0.62 0.65 profit projection would not be reached unless some actions were taken. Almo's president assigned
Printing ink per deck 0.13 0.15 a management committee to analyze the situation and develop an alternative course of action. The
Labor per deck 0.75 1.25 following was presented to the president.
Variable overhead per deck 0.30 0.35 Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced
Fixed costs $960,000 $252,000 sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit
Given these data, which of the following responses is correct? costs will stay as budgeted.
(In units) A. B. C. D. 40. Assuming no changes were made to the selling price or cost structure, how many units must
Breakeven point for Co. 1 533,334 533,334 800,000 800,000 Almo sell to break even?
Breakeven point for Co. 2 105,000 105,000 420,000 420,000 A. 167 C. 500
Volume at which profits of Co. 1 and B. 250 D. 1,700
Co. 2 are equal 1,000,000 1,180,000 1,000,000 1,180,000 41. Assuming no changes were made to the selling price or cost structure, how many units must
Almo sell to achieve its after-tax profit objective?
Margin of safety A. 1,250 C. 2,000
38. Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of B. 1,700 D. 2,500
$80,000. What is Cott’s fixed cost?
A. $16,000 C. $80,000 42. If management decides to reduce the selling price by $40, what will Almo's after-tax profit be?
B. $24,000 D. $96,000 A. $157,200 C. $241,200
B. $160,800 D. $301,200
39. Bell Company has a 25% margin of safety. Its before-tax return on sales is 6%, and its tax ANSWER KEY
rate is 40%. Assuming that current sales are $120,000, what is Bell’s total fixed costs.
Theory Problems
A. $21,600 C. $84,000
B. $36,000 D. $60,000 1. A 21. D 1. D 21. D 41. D

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MANAGEMENT ADVISORY SERVICES HILARIO TAN

2. C 22. A 2. D 22. A 42. C

3. C 23. B 3. D 23. B
4. B 24. D 4. D 24. C
5. C 25. D 5. C 25. B
6. A 26. B 6. C 26. A
7. A 27. A 7. B 27. C
8. C 28. D 8. B 28. A
9. A 29. D 9. B 29. C
10. A 30. B 10. C 30. E
11. D 31. A 11. C 31. A
12. B 32. D 12. C 32. C
13. C 33. D 13. B 33. B
14. A 34. D 14. B 34. B
15. D 35. A 15. A 35. B
16. D 16. A 36. B
17. E 17. C 37. D
18. C 18. A 38. B
19. D 19. D 39. A
20. C 20. C 40. C

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