Profit planning and CVP Activity

Which of the following best describes the impact of selling more units?

• The increase in sales volume increases total variable cost.

• The increase in sales volume means an increase in total fixed cost.

• The increase in sales increases contribution margin, causing net income to decrease.

• The increase in sales increases contribution margin per unit causing the break-even point to decrease.

The most likely strategy to reduce the breakeven point would be to

• Increase both the fixed costs and the contribution margin.

• Decrease both the fixed costs and the contribution margin.

• Decrease the fixed costs and increase the contribution margin.

• Increase the fixed costs and decrease the contribution margin.

If a company’s variable costs are 70% of sales, which formula represents the computation of peso sales that will yield a profit equal to 10% of the contribution margin when an S equal sale in pesos for the period and FC equals total fixed costs for the period?

• S = FC ÷ 0.4

• S = FC ÷ 0.3

• S = FC ÷ 0.27

• none of the above

Lia Corporation 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

• Proportionate change in net income

• Large changes in net income

• Negligible change in net income

• No change in net income

  When used in cost-volume-profit analysis, sensitivity analysis

•       Determines the most profitable mix of product to be sold.

• Allows the decision maker to introduce probabilities in the evaluation of decision alternatives.

• Computes profit per unit of production and determines the optimum production of the company.

• Is done through various possible scenarios and computes the impact on profit of various predictions of future events.

A company has revenues of P 500,000, variable costs of P 300,000, and pretax profit of P 150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost per unit unchanged, what would be the new breakeven point in pesos?

•   P 88,000

• P 100,000

• P 110,000

•   P 125,000

A company has contribution margin per unit of P 18 and a contribution margin ratio of 40%.  What is the unit selling price?

•     P 30.00.

•   P 45.00.

•      P 7.20.

• Cannot be determined.

Tomas Company sells products X, Y and Z. Tomas sells three units of X for each units of Z, and two units of Y for each unit of X. The contribution margins are P 1.00 per unit of X, P 1.50 per unit of Y, and P 3.00 per unit of Z. Fixed costs are P 600,000. How many units of X would Tomas sell at the breakeven point?

EVE’s income declined by 200% when sales declined from P 10M to P 8M. What was the operating leverage?

Basic Illustration Corp. produces and sells a  single product. The selling price is P 25 and the variable costs is P 15 per unit. The corporation’s fixed costs is P 100,000 per month. Average monthly sales is 11,000 units. If the corporation desires to earn profit of P 20,000 before tax, it must generate sales of P

• P 12,000

• 300,000 units

• 10,000 units or P 250,000

• 12,000 units or P 300,000