with solution please thank youu

analysis is the breakeven point. Once the breakeven point has been Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing In working on a CVP analysis, the accountant is unsure of the exact results and/or assumptions under which to operate. What can the 126 Chapter 4 M. Multiple Choice 1. a CUP strategy, and use of productive facilities. A calculation used in reached, operating income will increase by the gross margin per unit for each additional unit sold. contribution margin per unit for each additional unit sold. fixed costs per unit for each additional unit sold. variable costs per unit for each additional unit sold. a. b. c. d. (CMA, Adapted) 2. a. c. . accountant do to help management in this CVP decision? Nothing. It is not the responsibility of the accountant to be concerned with the ambiguity of the results and/or assumptions b. Ascertain the probabilities of various outcomes and work with management on understanding those probabilities in reference to the CVP decision. Calculate the probabilities of various outcomes and make the decision for management. d. Use a random number table to generate a decision model and make the decision for management. The margin of safety is a key concept of CVP analysis. The margin of safety is the contribution margin rate. b. the difference between budgeted contribution margin and breakeven contribution margin. the difference between budgeted sales and breakeven sales, d. the difference between the breakeven point in sales and cash flow breakeven. 3. a. C. (CMA, Adapted) 4. One of the major assumptions limiting the reliability of breakeven analysis is that efficiency and productivity will continually increase. b. total variable costs will remain unchanged over the relevant range. a. Cost-Volume-Profit Relationships 127 c. d. S. a. c. d. total fixed costs will remain unchanged over the relevant range the cost of production factors varies with changes in technology. When used in cost-volume-profit analysis, sensitivity analysis determine the most profitable mix of products to be sold. b. allows the decision maker to introduce probabilities in the evaluation of decision alternatives. is done through various possible scenarios and computes the impact on profit of various predictions of future events. is limited because in cost-volume-profit analysis, costs are not separated into fixed and variable components. (CMA, Adapted) Which of the following will result in raising the breakeven point? A decrease in the variable cost per unit b. An increase in the semivariable cost per unit An increase in the contribution margin per unit d. A decrease in income tax rates (CIA, Adapted) 6. a. c. 7. A company's breakeven point in sales pesos may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are constant within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales pesos to decrease by less than the percentage increase in selling price. b. decrease by more than the percentage increase in the selling price. increase by the percentage change in variable cost per unit. d. remain unchanged. (CIA, Adapted) a. C. 8. a. e. Which of the following is a characteristic of a contribution income statement? Fixed and variable expenses are combined as one line. b. Fixed expenses are listed separately from variable expenses. Fixed and variable manufacturing costs are combined as one line item, but fixed operating expenses are shown separately from variable operating expenses. d. Fixed and variable operating expenses are combined as one line item, but fixed manufacturing expenses are shown separately from variable manufacturing expenses. (CIA, Adapted) A 15% decrease in selling price. A 15% increase in variable expenses. A 15% decrease in variable expenses. A 15% decrease in fixed expenses. (CMA, Adapted) Which of the following would decrease unit contribution margin the Mars Enterprises sells three chemicals: X, Y, and Z. X is the one of the following events will definitely decrease the firm's overall company's most profitable product; Z is the least profitable. Which The installation of new computer-controlled machinery and 128 Chapter 4 9. most? a b. c. d. 10. breakeven point for the upcoming accounting period? subsequent layoff of assembly-line workers. b. A decrease in Z's selling price. c. An increase in the overall market for Y. d. An increase in anticipated sales of X relative to sales of Y and Z. (CMA, Adapted) 11. Product A accounts for 75% of a company's total sales revenue and has a variable cost equal to 60% of its selling price. Product B accounts for 25% of total sales revenue and has a variable cost equal to 85% of its selling price. What is the breakeven point given fixed costs of P150,000? P375,000 P500,000 b. P444,444 d. P545,455 a. c. a. 12. Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs of P25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By comparison, Company I will have the breakeven point in terms of peso sales volume and will have the peso profit potential once the indifference point in peso sales volume is exceeded. List A List B Lower Lesser b. Lower Greater Higher Lesser d. Higher Greater a. c. 13. Cost-Volume-Profit Relationships 129 BE&H Manufacturing is considering dropping a product line. ole currently produces a multipurpose woodworking clamp in a simple manufacturing process that uses special equipment. Variable costs amount to P6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to this product at a rate of P3.50 a unit and will continue whether or not production ceases. Depreciation on the special equipment amounts to P20,000 a year. If production of the clamp is stopped the special equipment can be sold for P18,000; if production continues, however, the equipment will be useless for further production at the end of 1 year and will have no salvage value. The clamp has a selling price of P10 a unit. Ignoring tax effects, the minimum number of units that would have to be sold in the current year to break even on a cash flow basis is 4,500 units. b. 5,000 units. 20,000 units. d. 36,000 units. (CMA, Adapted) a. c. Questions 14 and 15 are based on the following information. Delta Company has developed a new project that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at P36 per unit. Delta's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at P450,000 for the year, which includes P60,000 for depreciation on new manufacturing equipment. Data associated with each unit of product are presented below. Delta is subject to a 40% income tax rate. Variable Costs Direct material P 7.00 Direct labor 3.50 Manufacturing overhead 4.00 Total variable manufacturing cost 14.50 Selling expenses 1.50 Total variable cost P16.00 The maximum after-tax profit that can be earned by Delta Company Delta Company's management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least P75,000 the first year. The unit 130 Chapter 4 14. P30,000 b. P50,000. c. from sales of the new product during the next fiscal year is P110,000 d. P66,000. a. (CMA, Adapted) 15. c. selling price to achieve this target profit must be at least P34.60 d. P39.00. a P37.00. b. P36.60. (CMA, Adapted) Questions 16 through 18 are based on the following information. Bethel Electronics Co. is developing a new product, OXO for high-voltage electrical flows. The cost information in the opposite column relates to the product Unit Costs P 3.25 Direct material Direct labor 4.00 Distribution 0.75 The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed charge of P20,000 currently absorbed by other products will be allocated to this new product. 16. a. If the selling price is P14 per unit, the breakeven point in units (rounded to the nearest hundred) for OXO is 8,500 units. b. 10,000 units. 15,000 units. d. 20,000 units. (CMA, Adapted) c. 17. How many OXO (rounded to the nearest hundred) must Bethel Electronics sell at a selling price of P14 per unit to gain P30,000 additional income before taxes? 10,700 units 20,000 units b. 12,100 units d. 25,000 units (CMA, Adapted) a. c. 18. a. c. 19. Cost-Volume-Profit Relationships 131 How many oxo (rounded to the nearest hundred) must Bethel Electronics sell at a selling price of P14 per unit to increase after-tax income by P30,000? Bethel Electronics' effective income tax rate is 40% 10,700 units. b. 12,100 units. 20,000 units. d. 28,300 units. (CMA, Adapted) Pablo Manufacturing, which is subject to a 40% income tax rate, had the following operating data for the period just ended: Selling price per unit P 60 Variable cost per unit 22 Fixed costs 504,000 Management plans to improve the quality of its sole product by (1) replacing a component that costs P3.50 with a higher-grade unit that costs P5.50 and (2) acquiring a P180,000 packing machine. Pablo will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of P172,800 in the upcoming period, it must sell 19,300 units. b. 21,316 units. 22,500 units. (CMA, Adapted) d. 23,800 units. a. c. 20. A company that sells its single product for P40 per unit uses cost- volume-profit analysis in its planning. The company's after-tax net income for the past year was P1,188,000 after applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are presented below. Variable costs per unit: Direct material P 5.00 Direct labor 4.00 6.00 Manufacturing overhead 3.00 Selling and administrative costs P18.00 Total cost per unit P6,200.00 3,700.26 P9.900.00 that The company has learned that a new direct material is available will increase the quality of its product. The new material will increase the direct material costs by P3 per unit. The company will increase the costs by P1,575,000 to advertise the higher-quality product. The selling price of the product to P50 per unit and increase its marketing number of units the company has to sell in order to earn a 10% before- A company allocates its variable factory overhead based on direct labor hours. During the past 3 months, the actual direct labor hours and the 132 Chapter 4 Annual fixed operating costs: Manufacturing overhead Selling and administrative costs Total annual fixed cost tax return on sales would be a. 337,500 units. b. 346,875 units. c. 425,000 units. d. 478,125 units. total factory overhead allocated were as follows: January February Direct labor hours 1,000 3,000 Total factory overhead allocated P 80,000 P140,000 (CIA, Adapted) 21. March 5,000 P200,000 Based upon this information, monthly fixed factory overhead was P50,000. P33,333. b. P46,667 d. P30,000 a. c. (CIA, Adapted) 22. Blue Company produces Product A and sells it for P18.00. The following cost data apply: Type of Cost Per Unit Direct materials (3 lb. x P1.50) P 4.50 Direct labor 6.45 Variable overhead 1.35 Fixed overhead 1.50 Variable selling expense 1.10 Fixed selling expense 2.20 P17.10 Cost-Volume-Profit Relationships 133 Blue has thought of marketing a new Product B with the same cost structure as Product A except that the price will be P15.60. Blue Company currently has the plant capacity necessary for this expansion. Because of the cost structure, Blue Company will find the production and sale of Product B in the short run to be Not profitable unless the price can be raised to P17.10. b. Not profitable at any price. Not profitable at P15.60 because the fixed selling expense and fixed manufacturing overhead will not be covered by the price. d. Profitable to produce and sell Product B in the short run at the price of P15.60. a. c. 23. P30 (CIA, Adapted) Mango Company's controller developed the following direct-costing income statement for year 1: Per Unit Sales (150,000 units at P30) Variable costs: P4,500,000 Direct materials P1,050,000 P 7 Direct labor 1,500,000 10 Mfg. overhead 300,000 2 Selling & marketing 300,000 2 (3,150,000) P21 P1,350,000 P9 Contribution margin Fixed costs: Mfg. overhead P 600,000 P4 Selling & marketing 300,000 2 (900,000) P6 Net income P450,000 P 3 Mango Co. based its next year's budget on the assumption that fixed costs, unit sales, and the sales price would remain as they were in year 1, but with net income being reduced to P300,000. By July of year 2, the controller was able to predict that unit sales would increase over year 1 levels by 10%. Based on the year 2 budget and the new information, the predicted year 2 net income would be a. P300,000. c. P420,000 b. P330,000. d. P585,000. (CIA, Adapted) Questions 24 and 25 are based on the following information. Pacey Manufacturing Company produces two products for which the following data have been tabulated. Fixed manufacturing cost is applied at a The sales manager has had a P160,000 increase in the budget allotment for 134 Chapter 4 rate of P1.00 per machine hour. Per Unit Selling price Variable manufacturing cost Fixed manufacturing cost Variable selling cost P4.00 P2.00 P0.75 P1.00 Y P3.00 P1.50 P0.20 P1.00 advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company's customers. 24. Suppose the sales manager chooses to devote the entire P160,000 to increased advertising for X. The minimum increase in sales units of X required to offset the increased advertising is 640,000 units. b. 160,000 units. 128,000 units. d. 80,000 units. a. c. (CMA, Adapted) 25. Suppose the sales manager chooses to devote the entire P160,000 to increased advertising for Y. The minimum increase in sales pesos of Y required to offset the increased advertising would be P 160,000. b. P 320,000. P 960,000. d. P1,600,000. (CMA, Adapted) a. C. Questions 26 through 28 are based on the following information. Jheng Company has the following revenue and cost budgets for the two products it sells: Sales price Direct materials Plastic Frames P10.00 (2.00) Glass Frames P15.00 (3.00) Exeruice #5 Cost-Volume-Profit Relationships 135 Direct labor Fixed overhead (3.00) (5.00) Net income per unit (3.00) (4.00) P2.00 P 3.00 Budgeted unit sales 100,000 300.000 The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at p975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations. Jheng rounds to the nearest centavos and unit. 26. The total number of units Jheng needs to produce and sell to break even is 150,000 units. b. 354,545 units. 177,273 units. d. 300,000 units. (CMA, Adapted) 27. The total number of units needed to break even if the budgeted direct labor costs are P2 for plastic frames instead of P3 is 154,028 units. b. 144,444 units. 156,000 units. d. 146,177 units. (CMA, Adapted) a. c. a. c. 28. The total number of units needed to break even if sales are budgeted at 150,000 units of plastic frames and 300,000 urfits of glass frames with all other costs remaining constant is 171,958 units. b. 418,455 units. 153,947 units. d. 365,168 units. (CMA, Adapted) a. c. Questions 29 and 30 are based on the following information. current Extreme Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the The breakeven point (rounded to the nearest peso) for Extreme 136 Chapter year is presented below. Sales Cost of sales: Direct materials Direct labor Variable overhead Fixed overhead Gross profit Selling and G&A Variable Fixed Operating income P1,500,000 P250,000 150,000 75,000 100,000 575,000 P 925,000 P200,000 250,000 450,000 P 475.000 29. Corporation for the current year is a. P146,341. b. P636,364. P729,730. d. P181,818 C. (CMA, Adapted) 30. For the coming year, the management of Extreme Corporation anticipates a 10% increase in sales, a 12% increase in variable costs, and a P45,000 increase in fixed expenses. The breakeven point for next year will be P729,027. b. P862,103. P214,018 d. P474,000. a. c. (CMA, Adapted)