QUIZ - 14 FINANCIAL MANAGEMENT

Quiz 14 – Financial management

1. It involves a systematic examination of the relationships among costs, cost driver and
profit

a. Financial statement analysis

b. Cost-volume profit analysis
c. Cost-benefit analysis
d. Profit planning

2. CVP analysis may be used by managers in planning and decision making, which may
involve the following, except:

a. Choosing the type of product to produce and sell

b. Choosing the pricing policy to follow
c. Choosing the type of productive facilities to acquire
d. Choosing the analytical technique to use

3. The elements of CVP analysis include the following except

a. Total fixed costs

b. Unit variable cost
c. Volume or number of units
d. Relevant costs

4. Which of the following statements is correct?

a. Gross margin and contribution margin are the same

b. Contribution margin is the excess of sales over variable costs and this is the amount available
for the recovery of fixed assets and generation of profit
QUIZ - 14 FINANCIAL MANAGEMENT

c. One inherent, simplifying assumption in CVP analysis is that, production equals sales
d. Unit variable costs charge directly with the cost driver or activity level

5. In CVP analysis, it is assumed that

a. All costs are classifiable as either direct or indirect costs

b. Cost and revenue relationships are predictable and linear over any range of activity
c. Selling prices per unit and market conditions remain unchanged
d. Total fixed costs are constant over the relevant range, but fixed costs per unit vary directly
with the cost driver or volume

6. Management may use CVP analysiss to determine the relative profitability of a product
by

a. Determining the unit contribution margin and the projected profits at various levels of
production
b. Controlling the physical production of the products
c. Assigning costs to a product in such a way that the contribution margin is maximized
d. Keeping all costs to an absolute minimum

7. Cost-volume profit relationships that are curvilinear may be analyzed linearly by

considering only

a. A relevant range of activity

b. The variable costs
c. The fixed costs
d. The relevant costs

8. In a contribution income statement

a. Costs are classified as to function

QUIZ - 14 FINANCIAL MANAGEMENT

b. Fixed and variable manufacturing costs are combined as one level item
c. Fixed costs are shown separately from variable costs
d. Manufacturing costs are shown separately from variable manufacturing costs, but fixed and
variable operating costs are combines as one line item

9. Sensitivity analysis when used in cost-volume profit analysis

a. Is done through various possible scenarios and computes the impact on profit of various
predictions of future events
b. Is done through various possible scenarios and determines the effect of the cost accounting
systems used in each scenario
c. Allows the decision maker to introduce probabilities in the evaluation of decision alternatives
d. Allows managers to study how total fixed costs vary with cost drivers.

10. The assumptions under which CVP analysis operates primarily hinge on certainty.
However, when uncertainty enters the situation, the results may not be so clear. In this
case, the MAS consultant should:

a. Use a sample from the entire population of data to generate a decision model and make the
decision for management.
b. Do nothing. It is not the MAS consultant’s responsibility to be concerned with the uncertainty
of the results and/or assumptions.
c. Ascertain the probabilities of various outcomes and work with management on understanding
those probabilities in reference to the CVP decision
d. Refer the case to another consultant who is an expert in making accurate predictions.

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

a. Indifference point
b. Break-even point
c. Sangley point
QUIZ - 14 FINANCIAL MANAGEMENT

d. Order point

12. A calculation used in CVP analysis is the break-even point. At this point, total revenue
equals total costs. Beyond the break-even point, operating income will increase by the:

a. Variable cost per unit for each additional unit

b. Selling price per unit for each additional unit
c. Contribution margin per unit for each additional unit
d. Gross profit per unit for each additional unit

13. One of the major assumptions limiting the reliability of break-even analysis is that

a. Unit variable costs and total fixed costs will vary directly with the change in units sold
b. There is a relevant range in which the various relationships are true for a given period of time
c. Productive efficiency will increase as more units are produced
d. Changes in inventory are significant in amount

14. The type of costing system that will provide the best information for CVP and BE
analyses if inventories are expected to change is

a. Process costing
b. Job-order costing
c. Absorption (full costing)
d. Variable (direct costing)

15. Which of the following statements is not correct?

a. All other factors remaining constant, a 10% decrease in the selling price of a given product
will have the same effect on profit as a 10% increase in the unit variable cost of such product
b. Other things as they are, a P10,000 decrease in fixed costs will increase operating profit by
the same amount
QUIZ - 14 FINANCIAL MANAGEMENT

c. A change in the amount of fixed costs will not affect the ratio of variable costs to sales
d. A change in fixed costs has no effect on the contribution margin

16. Cost-volume profit analysis is most essential in the determination of the

a. Relationship between revenues and costs at various levels of operations

b. Volume of operation in order to break-even
c. Variable costs necessary to equal fixed costs
d. Production level that is equal to sales

17. The conventional break-even chart adopted by businessmen and accountant does not take
for granted that

a. Some costs are semi-variable

b. Production is not equal to sales
c. There is a significant amount of change in inventories
d. The sales mix ratio of the products being sold changes within the relevant range

18. It is the excess of sales price over the related variable cost, contributing to the recovery of
fixed expenses

a. Gross margin
b. Margin of Safety
c. Contribution margin
d. Gross profit

19. Which of the following is not correct?

At break-even
QUIZ - 14 FINANCIAL MANAGEMENT

a. Profit equals zero

b. Gross profit equals zero
c. Sales equal total costs
d. Fixed cost equals contribution margin

20. The alternative that would increase the contribution margin pert unit the most is a

a. 10% decrease in unit variable cost

b. 10% increase in selling price
c. 10% decrease in fixed costs
d. 10% decease in selling price

21. Which of the following changes in cost-volume profit factors will reduce the break-even
point?

a. A decrease in total fixed costs

b. A decrease in selling price
c. An increase in unit variable cost
d. An increase in total fixed cost

22. Which of the following statements is not correct?

All other things remaining the same,

a. Equal percentage increases in both the selling price and variable cost per unit will cause the
break-even point in sales pesos to remain unchanged
b. Equal percentage increases in both the selling price and variable cost per unit will cause the
contribution margin ratio to remain unchanged
c. Equal peso increases in both the selling price and variable cost per unit will cause the break-
even point in units to remain unchanged
d. Equal peso increases in both the selling price and variable cost per unit will cause the break-
even point in pesos to remain unchanged.
QUIZ - 14 FINANCIAL MANAGEMENT

23. The margin of safety is a key concept of CVP analysis. Which off the following is not a
correct description of margin of safety?

a. It is the amount of sales which may be reduced without resulting into a loss
b. It is the difference between budgeted sales and breakeven sales
c. It may be expressed in terms of units or in pesos
d. Its presence means that the company earns profit

24. Which off the following statements is false

a. If Product 1 has a higher unit contribution margin than Product 2, then Product 1 will always
have a higher CM ratio than Product 2.
b. If the product mix changes, the break-even point may change
c. For a given increase in peso sales, a high CM ratio will result in a greater increase in profits
than with a low CM ratio
d. If a company’s cost structure shifts toward greater fixed costs and lower variable costs, one
would expect the company’s CM ratio to rise

25. As a company’s sales move farther from its break-even point, one would expect the
degree of operating leverage to

a. Increase
b. Decrease
c. Remain unchanged
d. Vary in direct proportion to changes in the activity level

26. If sales increase form P800,000 to P900,000, and if the degree of operating leverage is 5,
one would expect profit to increase by

a. 62.5%
b. 12.5%
c. 5.0%
d. 2.5%
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27. A company has an operating leverage factor of 4. When its sales increased to P500,000,
its profit before tax increased by 100%. Its variable cost ratio is 40%. How much is the
company’s fixed costs?

a. P100,000
b. P240,000
c. P180,000
d. P120,000

ITEMS BELOW ARE BASED ON THE FOLLOWING INFORMATION

A company sells two products: Product 1 and Product 2. Three units of Product 1 are sold for every two
units of Product 2. Fixed costs is P234,000 per year.

Product 1 is sold for P20 per unit and the variable costs identified with the production and sale of each
unit of the product amounts to P14. Product 2 is sold for P24 per unit and the variable costs identified
with the production and sale of each unit of the product amounts to P20.

28. The weighted average unit contribution margin is

a. P25
b. P10
c. P50
d. P5.20

29. The break-even point in units is:

a. Product 1 – 45,000 and Product 2 – 45,000

b. Product 1 – 27,000 and Product 2- 18,000
c. Product 1 – 135,000 and Product 2 – 90,000
d. Product 1 – 3 and Product 2 – 2
QUIZ - 14 FINANCIAL MANAGEMENT

30. The weighted average contribution margin ratio is:

a. 24%
b. 46.67%
c. 9.33%
d. 11.82%