She Rae Palma

Question and Answers

MAS 1

1
 For questions 1-4
Andeng’s Jeans shop sells world class jeans. The cost of each jeans is comprised
of the following: Selling price of $1,500 and variable (flexible) costs of 500.
Total fixed (capacity-related) costs for Bridal Shoppe are $100,000.

1. What is the contribution margin per dress?

A. 1000
B. 1200
C. 1400
D. 1500
2. What is Andeng’s Jeans shop total profit when 300 jeans are sold?
A. 200 000
B. 250 000
C. 300 000
D. 350 000
3. How many jeans must Andeng’s Jeans shop sell to reach the breakeven point?
A. 120
B. 115
C. 105
D. 100
4. How many jeans must Andeng’s Jeans shop sell to yield a profit of $50,000?
A. 200 000
B. 250 000
C. 300 000
D. 350 000

For questions 5-7

Malla Company sells products. Information of average revenue and costs are as follows:

Selling price per unit $20.00

Variable costs per unit:
Direct materials $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs $2.00
Annual fixed costs $96,000

5. Calculate the contribution margin per unit.

A. 12
B. 13
2
 C. 14
D. 15
6. How many units of Malla products must be sold each year to break even.
A. 5 000
B. 6 000
C. 7 000
D. 8 000
7. Calculate the number of units Malla must sell to yield a profit of $144,000.
A. 15 000
B. 20 000
C. 25 000
D. 30 000
8. If contribution margin percentage is 30%, selling price is $5000, then
contribution margin per unit will be

A. $1000
B. $1,200
C. $1,500
D. $1,300

9. Which of the following statements is false?

A. At zero production level, fixed costs are positive.

B. At zero production level, fixed costs is also zero.
C. At zero production level, variable costs are usually zero.
D. At zero production level, total costs equal total fixed costs.

10. Variable costs are all costs

A. Of manufacturing incurred to produce units of output.

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.

3
 D. That do not change in total for a given period and relevant range but
become progressively smaller on a per unit basis as volume increases.

11.Sami 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.
12. 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
13. Love Corp. is operationally a highly leveraged company, that is, it has high fixed

costs and low variable costs. As such, small changes in sales volume result in

A. Large changes in net income. C. No change in net income.

B. Negligible change in net income. D. Proportionate change in net income.
14-16. Carol pillows for $100. The unit variable cost per pillow is $50 plus a selling
commission of 10%. Fixed manufacturing costs total $1,250 per month, while
fixed selling and administrative costs total $2,500.

14.What is the contribution margin per pillow?

A. 30
B. 35
C. 40
D. 45

15.What is the breakeven point in pillow?

A. 90
B. 91
C. 93
4
 D. 94

16. How many pillow must be sold to earn a targeted profit of $7,500?
A. 282
B. 283
C. 284
D.285
17. All are elements of CVP analysis except
A. relevant costs
B. unit variable cost
C. total fixed costs
D. volume ore number of units

18. Curvilinear CVP relationships can be analyzed linearly by considering only

A. variable costs
B. mixed costs
C. relevant costs
D. relevant range of activities

D. Within relevan range of period, CVP relationships are assumed to be linear.

18. Which is not true at break-even?

A. sales equals to costs
B. Gross Profit equals to zero
C. Profit equals to zero
D. Fixed costs equals contribution margin

19. Excess of sales price over the related variable costs, contributing to the recovery of
the fixed expenses.
A. Gross Profit
B. Contribution Margin
C. Gross Margin
D. Margin of Safety

20. Break-Even point is where:

A. total revenue equals total costs
B. total revenue is greater than total costs
C. total revenue is less than total costs
D. total revenue either be greater or less than total costs

21. Cost-volume profit analysis assumes that over a relevant range

5
A. Fixed costs are nonlinear
B. variable costs are non linear
C. Selling prices are unchanged
D. total costs are unchanged

22. Cost-volume profit analysis assumes that over the relevant range total
A. Revenues are linear
B. costs are unchanged
C. Variable costs are nonlinear
D. Fixed costs are nonlinear

23. Break-even analysis assumes that over the relevant range

A. Selling prices are unchanged
B. Variable costs are nonlinear
C. total costs are unchanged
D. Fixed costs are nonlinear

24. At break-even point fixed costs is always

A. less than contribution margin
B. Equal to contribution margin
C. More than variable costs
D. More than contribution margin

25. Contribution margin is the excess of revenues over

A. variable costs
B. fixed costs
C. Cost of goods sold
D. All costs

26. Total unit costs are

A. relevant for cost-volume-profit analysis
B. Independent of the cost system used to generate them
C. Irrelevant in marginal analysis
D. Needed for determining product contribution

27. To reduce the break-even point, company may

A. Decrease both contribution margin and fixed costs.
B. Increase both Fixed costs and contribution margin
C. Decrease Fixed costs and increase contribution margin
D. Increase the fixed costs and decrease the contribution margin
6
28. Which of the following describes the behavior of the fixed costs per unit?
A. Decreases with increasing production
B. Decreases with decreasing production
C. Remains constant with increasing production

A. It decreases with an increasing production

For items 28-35

The Lade & Bach Company produces office chairs. The price of the chairs is $99.75 and
the variable cost per chair is $49.75. The following fixed costs are incurred:

Depreciation of plant and $20,000

equipment per year

Property taxes per year 12,000

Manager's salary and fringe 5,200

benefits per month

28. What is the breakeven point in number of chairs?

A. 1 666 B. 1 777 C. 1 888 D. 1 999

29. What is the revenue at the breakeven point?

A. 188 328 B. 189 328 C. 190 328 D. 191 328

30. What is the income at the breakeven point?

A. 0 B. 132 322 C. 134 457 D. 413 422

31. Estimate the profit when 1,500 chairs are produced in a year.

A. (19 400) B. 19 400 C. 20 000 D. (20 000)

32. How many chairs must be sold for the company to make $75,000 in a year?

7
A. 3 388 B. 4 388 C. 4 488 D. 4 588

A.

33. What is a business doing at the breakeven point?

A. Making a profit

B. Making a loss

C. Making neither a profit or a loss

D. Making both a profit and a loss

34. At the breakeven point...

A. Fixed costs - Variable costs = Sales revenue

B. Fixed costs + Variable costs = Sales revenue

C. Fixed costs x Variable costs = Sales revenue

D. Fixed costs/Variable costs = Sales revue

35. If the variable cost of an item is £10 and its selling price is £25, what is the
contribution?

A. £35

B. -£15

C. Don't know

D. £15

36. Carrying on from question 3 now. Fixed costs are £60,000. Calculate the breakeven
point

A. £5,000

B. £4,000

C. £6,000

D. Don't know
8
37. Why is it important for businesses to know the breakeven points of their products?

A. It isn't important

B. So they can use the information when preparing financial statements

C. It can be used in the process of planning

D. Because its an important calculation in accounting

38. Total unit costs are

A. relevant for cost-volume-profit analysis
B. Independent of the cost system used to generate them
C. Irrelevant in marginal analysis
D. Needed for determining product contribution

39. To reduce the break-even point, company may

A. Decrease both contribution margin and fixed costs.
B. Increase both Fixed costs and contribution margin
C. Decrease Fixed costs and increase contribution margin
D. Increase the fixed costs and decrease the contribution margin

40. Which of the following describes the behavior of the fixed costs per unit?
A. Decreases with increasing production
B. Decreases with decreasing production
C. Remains constant with increasing production

9
10
1. A. 1000
Revenues – Flexible Costs = CM
$1500 - $500 = $1000

2. B. $250 000
Revenues – Flexible Costs – Capacity-Related Costs = Total Profit
300 ($1,500) – 200($500) - $100,000 = $250,000

3. D. 100
X = Capacity-Related Costs/Contribution Margin
X = $100,000/$1000
X = 100 jeans

4. B. 150 jeans
Total Revenues – Total Costs = Total Profit
$1,500X - $500X - $100,000 = $50,000
$1000X = $150,000
X = $150,000/$1000
X = 150 jeans

5. A. 12
$20 - $4 - $1.60 - $0.40 - $2 = $12

6. D. 8 000
20X - 8X - 96,000 = 0; X = 8,000 units

7. B. 20 000
20X – 8X – 96,000 = $144,000; X = 20,000 units
8. C. 1 500

Contribution Margin Per Unit = Contribution Margin Percentage x Selling price

5 000 (.30) = 1500

9. B. At zero production level, fixed costs is also zero. Is false for fixed costs will
remain constant regardless of the movement of the production level.
10. A. For variable costs refers to cost incurred in manufacturing a product.
11. D. An increase in anticipated sales of Simpol relative to the sales of Plutex and
Coplex.
12. D. is operating close to its breakeven point
13. A. Large changes in net income.
14. C. CM per pillow = $100 - $50 - 0.1($100) = $40
11
15.D. 94
N = Breakeven in pillows
$100N - $50N - $10N - $1,250 - $2,500 = 0
$40N - $3,750 = 0
N = $3,750 / $40 = 93.75 pillows
Breakeven Point = 94 pillows
16.A. 282
N = Pillows to be sold
$100N - $50N - $10N - $1,250 - $2,500 = $7,500
$40N = $11,250
N = $11,250 / $40 = 281.25 pillows
To achieve target profit: Must sell 282 pillows
17.A. Relevant costs is not an element of CVP analysis
18.B. at break-even point company can still earn profit.
19.A. Contributing Margin
20.A. break-even point is the point wherein there is neither nor loss or revenue is
equal to the costs.

21.C. Sales price is assumed to be constant within the relevant range. Variable and
fixed costs are assumed to be linear that makes choices A and B wrong. Choice D
is wrong for total cost change as on account of total variable costs.
22.A. Linearity of costs and revenues is one of the basic assumptions of in CVP
analysis.
23.Within the relevant range, variable costs and fixed costs are linear and total costs
change due to the change in variable costs.
24.B. At break-even point, total fixed costs equal to contribution margin. This is so
because if fixed costs and contribution are at the same amount, there is no profit
or loss.
25.D.We combine all the costs and deduct it to the revenue to get contribution
margin
26.A. Total unit costs are irrelevant in marginal analysis
27.B. Break-even point is fixed costs over contribution margin.
28.QBEP = FC/(R - VC) = 94400/50 = 1,888 chairs. C.
29.Revenue at the break-even point = 99.75(1888) = $188,328. A.
30.Income at the break-even point = $0.A
31.Profit at 1,500 chairs = 50(1500) - 94400 = -$19,400, which is a net loss .B
32.Number of chairs = (SP + FC)/(R - VC) = (94400 + 75000)/50 = 3,388 chairs. A.
33.C. Making neither a profit or a loss

34.B. This is fundamental to your understanding of breakeven. Think back to

Nathan. When he sold 125 cakes he made £75.00 of sales (125 x 60p). This was

12
 the same as his total variable costs £25 (125 x 20p) and this fixed costs of £50. So
he didn't make a profit or a loss.
35.D. Contribution is the accounting term we use for Selling price - variable costs. It
forms the bottom section of all breakeven point calcuations
36.B. So the formula to calculate breakeven is: Fixed costs divided by Contribution
per unit.
So in this question you need to divide £60,000 by £15
37.C. If a business knows the breakeven point for a particular product is 10,000 units
it does not want to sell 10,000 units, it has to sell more so that it will make a
profit. So at the planning stage they can come up with strategies to achieve this
objective.
38. A. Total unit costs are irrelevant in marginal analysis
39.A. Break-even point is fixed costs over contribution margin
40.A. It decreases with an increasing production

13