BREAK-EVEN ANALYSIS AND ACTIVITY BASED COSTING

1. It is the level of output or sales at which total revenues equal to total costs, that is the point at which operating income
is equal to zero.

A. Indifference point
B. Break-even point
C. Order point
D. Point of Interval
2. Which of the following is not correct?
At break-even point,
A. Profit is equal to zero
B. Gross profit is equal to zero
C. Sales is equal to total costs
D. Fixed costs is equal to Contribution Margin

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

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

4. The amount of variable cost per unit and total fixed cost within a relevant range behave this way in relation to
production level:
A. Production increases, unit variable cost increases, total fixed cost increases
B. Production decreases, unit variable cost decreases, total fixed cost decreases
C. Production increases, unit variable cost remains constant, total fixed cost remains the same
D. Production increases, unit variable cost decreases, total fixed cost remains the same

Items 5-14 are based on the following information:

Green Beenz Co produces and sells a single product. The selling price is P25 and the variable cost is P15 per unit. The
Company’s fixed costs is P100,000 per month. Average monthly sales is 11,000 units.

5. The company’s contribution margin per unit and as a percentage of sales (CMR) is:
A. P10 per unit ; 40% C. 10 units; 40%
B. P40 per unit; 160% D. P10 per unit; 60%

6. The company’s break-even point is

A. P10,000 C. 10,000 units or P250,000
B. 250,000 D. 250,000 units or P10,000

7. If the company desires to earn a profit of P20,000 before tax, it must generate a sales of :
A. P12,000 C. 10,000 units or P250,000
B. 300,000 units D. 12,000 units or P300,000

8. If the company pays corporate income tax at the rate of 30% and it desires to earn after-tax profit of P21,000, it must
generate a sales of:
A. P325,000 or 13,000 units C. 12,040 units or P301,000
B. P13,000 or 325,000 units D. 16,375 units or P409,375

9. How much sales (in pesos) must be generated to earn a profit that is 8% of such sales?
A. P270,000 C. P208,333.33
B. P312,500 D. P230,000

10. How many units must be sold to earn a profit of P2 per unit?
A. 8,333.33 C. 12,500
B. 10,000 D. 312,500

11. With an average monthly sales of 11,000 units, the company’s Margin of Safety is:
A. 1,000 units or P25,000 C. 10,000 units or P250,000
B. 11,000 units or P275,000 D. 10,000

12. Margin of Safety ratio and the break-even sale ratio are:
A. 9% and 91% C. 91% and 9%
B. 40% and 60% D. 60% 40%

13. If fixed costs will increase by 20,000, the break-even point in units will increase (decrease) by:

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A. 12,000 C. 50,000
B. 10,000 D. 2,000

14. If variable costs per unit will go up by P5, the peso break-even sales will increase (decrease) to
A. P500,000 C. (P500,000)
B. P250,000 D. (P250,000)

15. Bruto, Inc. produces only two products, Popeye and Olive. These account for 60% and 40% of the total sales in pesos
Bruto, respectively. Variable costs (as a percentage of sales) in pesos are 60% for Popeye and 85% for Olive. Total fixed
costs is P150,000. There are no other costs.
What is Bruto’s break-even point in sales (in pesos)?
A. P150,000 C. P300,000
B. P214,286 D. P500,000

16. Assuming that the total fixed cost of Bruto increase by 30%, what amount of sales in pesos would be necessary to
generate a net income of P9,000?
A. P204,000 C. P650,000
B. P434,000 D. P680,000

17. Within the relevant range, the amount of variable cost per unit
A. Differs at each production level
B. Remains constant at each production level
C. Increases as production increases
D. Decreases as production increases

18. Tierra Company prepared the following preliminary forecast concerning Product X for 2018 assuming no expenditure
for advertising:

Selling price per unit P10

Unit sales 100,000
Variable costs P600,000
Fixed costs P300,000

Based on a market study in December 2017, Tierra estimated that it could increase the unit selling price by 15% and
increase the unit sales volume by 10% if P100,000 was spent in advertising. Assuming that Tierra incorporated these
changes in its 2018 forecast, what should be the operating income from product X?
A. P175,000 C. 205,000
B. P190,000 D. 365,000

19. Araw Corporation is planning its advertising campaign for 2018 and has prepared the following budget based on a zero
advertising expenditure:
Normal plant capacity 200,000 units
Sales 150,000 units
Selling price per unit P25
Variable costs P15
Fixed costs:
Manufacturing P800,000
Selling and Admin P700,000
Advertising agency claims that an aggressive advertising campaign would enable Araw to increase its unit sales by 20%.
What is the maximum amount that Araw can pay for advertising and obtain an operating profit of P200,000?
A. P100,000 C. P300,000
B. P200,000 D. P550,000

20. Dukha Company is considering a proposal to replace existing machinery used for the manufacture of product E. The
new machines are expected to cause increased annual fixed costs of P120,000; however, variable cost should decrease
by 20% due to a reduction in direct labor hours and more efficient usage of direct materials. Before this change was
under consideration, Dukha budgeted had Product E sakes and costs for 2018 as follows:

Sales P2,000,000
Variable costs 70% of sales
Fixed costs P400,000

Assuming Dukha has implemented the above proposal, what would be the increase in budgeted operating profit for
Product E?
A. P160,000 C. P360,000
B. P280,000 D. P380,000

21. In planning its operations for 2019 based on the sales forecast of P6,000,000, Thone, Inc., prepared the following
estimated data:

Costs and Expenses

Variable Fixed

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Direct materials P1,600,000
Direct labor 1,400,000
Factory overhead 600,000 P900,000
Selling expenses 240,000 360,000
Administrative expenses 60,000 140,000
P3,900,000 P1,400,000

What would be the amount of sales in pesos at the break-even point?

A. P2,250,000 C. P4,000,000
B. P3,5000,00 D. P5,300,000

22. Miller, Inc. sells product X, Y, and Z. Miller sells three units of X for each unit of Z and two units of Y for each unit of
X. The contribution margins are P1 per unit of X, P1.50 per unit of Y and P3 per unit of Z. Fixed costs are P600,000.
How many units of X would Miller sell at the break-even point?
A. 40,000 C. 360,000
B. 120,000 D. 400,000
23. The Vetron Company is planning to produce two products, Tig and Lam. Vetron is planning to sell 100,000 units of
Tig at P4 per unit and 200,000 units of Lam at P3 per unit. Variable cost is 70% of sales for Tig and 80% of sales for
Lam. In order to realize a profit of P160,000, what must be the total fixed cost?
A. P80,000 C. P240,000
B. P90,000 D. P600,000
24. At break-even point of 400 units sold, the variable costs is P400 and fixed cost is P200. What will the 401st unit sold
contribute to profit before income taxes?
A. P0 C. P1.00
B. P0.50 D. P1.50
25. The contribution margin ratio always increases when the
A. Fixed costs increases
B. Break-even point increases
C. Variable costs as percentage of net sales decreases
D. Variable costs as percentage of net sales increases

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

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

27. When an organization is operating above the break-even point, the degree or amount that revenues may decline
before losses are incurred is the
A. Economic rate C. Margin of safety
B. Residual income rate D. Target rate of return

28. Janice Corp. has sales of P300,000, a variable cost ratio of 80% and margin of safety of P120,000. What is Janice’s
fixed costs?
A. P144,000 C. P60,000
B. P24,000 D. P36,000

Items 29-30 are based on the following information:

29. As part of the cost study, a manager has recorded the actual maintenance expenses for six diferent levels of machine
hours. This cost data is shown below:

Month Machine Hours Cost per month

July 12,000 22,000
August 10,000 21,000
September 15,000 25,400
October 11,000 20,000
November 16,000 27,200
December 14,000 24,000

If the manager applies the high-low method, the estimated variable cost per machine hour is:
A. P0.08 C. P1.20
B. P1.03 D. 1.70

30. Using also the high-low method, the estimated annual fixed cost for maintenance expense is:
A. P48,000 C. P128,000
B. P96,000 D. P144,000

31. An accounting system that collects financial and operating data on the basis of the underlying nature and extent of
the cost driver is:
A. Activity-based costing
B. Target costing

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C. Cycle-time costing
D. Variable costing

32. Cost drivers are

A. Activities that cause costs to increase as the activity increases
B. Accounting techniques used to control costs
C. Accounting measurements used to evaluate whether performance is proceeding according to plan
D. Accounting techniques used to control costs in a given production levels

33. In an ABC system, cost reduction is accomplished by identifying and eliminating

All cost drivers Non-value adding activities
A. NO NO
B. YES YES
C. NO YES
D. YES NO

34. Palawan Enterprises is a Philippine exporter of souvenir items manufactured in the capital city of Jerusalem. The
following overhead cost date have been accumulated:

Activity Center Cost Driver Amt of Activity Center Costs

Materials Handling Grams handled 100,000 grams P50,000
Painting Units Painted 50,000 units P200,000
Assembly Labor hours 4,000 hours P120,000

Job 1234 contains 3,000 units. It weighs 10,000 grams and uses 300 hours of labor.

Compute the total overhead costs that should be assigned to Job 1234.
A. P31,955 C. P26,000
B. P27,750 D. P32,000

35. Peter Company manufactures two types of medical systems: Low-unit and Med-unit. The overhead activities. Costs,
and related data are as follows:

Low-Unit Med-Unit Center Costs

Receiving orders 100 150 P7,500
Machine hours 12,000 13,000 P125,000
Setups 45 20 P9,750
Shipping orders 200 400 P30,000

Assume the total costs of all activity centers are allocated on the basis of machine hours. Calculate the overall rate
and allocate overhead costs to the two products using that rate.

Low-unit Med-unit
A. P89,570 P82,680
B. P82,680 P89,570
C. P82,680 P82,680
D. P89,570 P89,570

36. Partner Inc., produces three products. Production and costs information are as follows:
Model A Model B Model C
Units produced--------------------- 2,000 6,000 12,000
Direct labor hours ------------- 4,000 2,000 4,000
Number of Setups------------------ 100 150 250

The consumption ratios for number of setups would be:

A. 40% 20% 40%

B. 20% 30% 50%
C. 10% 30% 60%
D. 5% 22% 73%

37. Using the same information above, compute the consumption ratios based on units produced would be:
A. 40% 20% 40%
B. 20% 30% 50%
C. 10% 30% 60%
D. 5% 22% 73%

38. Patty Machine Tool Inc. produces a varied product line without the use of direct labor. An Extensive setup procedure
is required. Because no single base for a predetermined overhead rate will provide Patty with relaibale product cost
information, overhead is classified into two cost pools and two predetermined overhead rate were used. For 2018, it is
estimated that total overhead cost will consists P525,000 of overhead related to setups and P900,000 overhead related

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to machine usage. Total machine usage is expected to be 3,600 hours for the year, and total number of setups is
expected to be 300.

Job 403 required parts and materials costing P56,000, 70 hours of machine time and 4 setups.

Determine the dual predetermined overhead rates:

Per Machine Hour Per Setup

A. P250.00 P1,750.00
B. P1,750.00 P250.00
C. P145.83 P3,000.00
D. P365.38 P365.38

39. Using the same information above, compute the cost of Job 403.
A. P78,208 C. 83,083
B. P80,500 D. 179,500

40. Which of the following would be a reasonable basis for allocating the materials handling costs to the units produced in
an activity-based costing system?
A. Number of production runs per year
B. Number of components per completed units
C. Amount of time required to produce one unit
D. Amount of overhead applied to each completed unit

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