1. True or False. Indicate T if true and F if false.

1. At break-even point, contribution margin is equal to fixed costs.
2. If contribution margin is greater than fixed cost, a loss occurs.
3. Selling price per unit minus variable costs per unit is contribution margin ratio.
4. Fixed costs divided by the contribution margin per unit is the break-even point in units.
5. To compute variable costs, the number of units is multiplied to variable cost per unit.
6. Cost-volume-profit analysis is the process of determining the best or the better choice between alternatives.
7. A special order can be accepted if the firm will get additional income from accepting the order within its capacity.
8. Optimum product mix refers to the product combination to be produced/bought and sold to maximize operating income.
9. Contribution margin is an indicator whether to retain or drop a product line.
10. Sales budget is necessary to prepare production budgets.
11. Factory overhead budget is done to determine the approximate wages to be paid to the workers and at the same time, identify the number of employee it needs.
12. Differential revenue is the amount of increase or decrease in revenue expected from a course of action as compared with an alternative.
13. Fixed costs change in relation to the changes in the volume of production or sales.
14. In cost-benefit analysis, the decision maker should always choose the alternative where the cost exceeds the benefit.
15. Total cost is equivalent to the sum of variable and fixed costs.
16. In cost-benefit analysis, fixed costs are considered sunk costs.
17. When contribution margin exceeds the fixed costs, profit is achieved.
18. In preparing for the direct materials budget, labor rate per hour should be considered.
19. In closing or retaining a division, contribution margin is one major consideration in the decision making.
20. An acceptable selling price is the one which it exceeds the total cost of manufacturing the product.

2. Problem Solving. Round off up to two decimal points.

1. Deka Corporation currently manufactures 3,000 subassemblies annually for its main product. The costs per unit are as follows:

Direct materials	30.00
Direct labor	80.00
Variable overhead	40.00
Fixed overhead	70.00
Total	220.00

Howard Company has contacted Deka with an offer to sell it 3,000 subassemblies for P180.00 each. P50 of the fixed overhead per unit is unavoidable. Create an incremental analysis for the make or buy decision.

2. The Nutty Co had been producing chocolates. It accepted an order from a client to produce 1,500 boxes at a selling price of P70 per box. The following costs were gathered from the firm:

Variable production costs P30 per box

Variable operating expenses P10 per box

Fixed factory overhead P40,000

Fixed operating expenses P60,000

Another chocolate maker was willing to produce the chocolates at P65 per box.

1. Should Nutty make or buy the products?
2. What should be the cut-off selling price that Nutty can accommodate?

3. The following are gathered for MeMe Inc.

Sales 1,400,000

Variable Costs 560,000

Fixed Costs 800,000

Net Income 40,000

Selling price per unit 30

1. Compute the break-even sales in units and in pesos
2. Compute the sales volume needed for a desired net income of 150,000.

4. Marvel Company has budgeted production for next year as follows:

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Production in units	50,000	48,000	54,000	66,000

Ten pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year totals 10,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. What would budgeted purchases of raw materials in the second quarter be?

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