I. TRUE OR FALSE

1. Cost-volume-profit analysis begins with setting the net income the company desires.

2. CVP analysis is important in profit planning and in such decision as setting selling prices.

3. One of the basic components of CVP analysis is the net income.

4. The CVP income statement is the same as the contribution margin income statement.

5. Contribution margin is the remaining revenue available to recover fixed cost and provide net profit for the company.

6. The contribution margin ratio is sales divided by the contribution margin.

7. Breakeven point in units is computed by dividing the fixed cost with the contribution margin ratio.

8. At breakeven, the contribution margin is equal to the fixed cost hence no profit or loss.

9. In the CVP graph the revenue line and the total cost line will neverintersect.

10. In the mathematical equation method of calculating the breakeven, we can omit the net income and state the formula as breakeven sales is equal to variable cost-plus fixed cost.

11. When the company set a target net income, the amount of sales must be equal to the sum of the variable cost and the fixed cost.

12. The margin of safety allows the company to decrease the sales up to that amount and it will not incur a net loss.

13. Weighted average contribution margin is the relative percentage in which the company sells the multiple products.

14. To compute the breakeven sales when there are multiple products, the sales mix ratio must first be determined.

15. The degree of operating leverage determines how the net income is affected by the change in the sales.

16. The margin of safety is the difference between the actual or budgeted sales and the breakeven sales.

17. Contribution margin may also be computed as sales minus the cost of goods sold.

18. At breakeven contribution margin is equal to the gross profit.

19. The higher the margin of safety percentage the more the company can afford to decrease the sales without resulting to a net loss.

20. The breakeven point may be expressed in units or in peso sales.

21. The variable cost in the CVP income statement may be equated with the cost of goods sold in the traditional income statement.

22. The CVP income statement is presented as Sales - VC-CM-FC = NI

23. CVP analysis is the study of the effect of changes in the cost and volume to the profit.

24. Breakeven is the point where the total sales is equal to the total variable

cost.

25. Sales mix ratio is equal to the product's sales divided by the total sales in a company with multiple products.

26. At breakeven point, total variable cost is equal to the total fixed cost.

27. Weighted average contribution margin is the sum of all the products contribution margin in a company with multiple products.

28. Breakeven sales mix is equal to the total fixed cost divided by the weighted average contribution margin.

29. When the degree of operating leverage is 2, the net income will decrease by P40,000 when the sales decreased by P20,000.

30. When the degree of operating leverage is 1.5, the net income will increase by 30% when the sales increased by 20%..

Multiple choice:

1. Breakeven point in peso sales is equal to

A Fixed cost. CMu

B. Fixed cost-CMR

C. Both A and B

D. Neither A nor B

2. Doy Company is planning to sell 10.000 manual saw for P60 per unit. Fixed cost are

P180,000. The contribution margin ratio is 40%. What should be shown as variable cost in the CVP income statement?

A P60,000

B. P180,000

C. P240,000

D. P360,000

3. Paul Manufacturing Company is planning to sell 500 guitars for P800 per unit. If this

is the breakeven sales and the contribution margin ratio is 35%, what is the total fixed cost?

A. PO

B. P91,000

C. P140,000

D. P260,000

4. The mathematical equation for computing the required sales to achieve the targetnet income is:

A Sales = VC+FC+Target Net Income

B. Sales = ( FC + Target Net Income ) - CMR

C. Sales = (FC+ Target Not Income ) - CMU

D. Only A and B

5. Paul An Company had actual sales of P600,000 when the breakeven sales were

P420,000. What is the margin of safety ratio?

A 25%

B. 30%

C. 43%

D. 70%

6. PAP Company calculates its contribution margin to be less than zero. Which of the

following statements is true?

A Its selling price is less than its variable cost.

B. It will never happen

C. The profits are greater than the total costs.

D. Its fixed costs are less than the variable costs