1. Statement I - The beginning phases of strategic planning focus on research and discussions.

True
Statement II - One of the benefits of strategic planning is that it allows a company to engage in tasks
randomly. False
a. Statement I – True; Statement II – True
b. Statement I – True; Statement II – False
c. Statement I – False; Statement II – True
d. Statement I – False; Statement II – False

2. Statement I - Strategic planning doesn’t need to change over time. False

Statement II - Strategic plan and business plan are the same. False
a. Statement I – True; Statement II – True
b. Statement I – True; Statement II – False
c. Statement I – False; Statement II – True
d. Statement I – False; Statement II – False

3. Statement I - The basic plan is a strategic planning model that begins with a vision statement.
Statement II – PEST are all external factors that could impact a business, for good or bad.
a. Statement I – True; Statement II – True
b. Statement I – True; Statement II – False
c. Statement I – False; Statement II – True
d. Statement I – False; Statement II – False

4. In using cost-volume-profit analysis to calculate expected unit sales, which of the following should be
deducted to fixed cost in the numerator?
a. Predicted operating loss
b. Predicted operating income
c. Unit contribution margin
d. Variable costs

5. 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

6. When an organization is operating above the breakeven point, the degree or amount that revenues
may decline before losses are incurred is the
a. Residual income rate
b. Marginal rate of return
c. Margin of safety
d. Target (hurdle) rate of return
Problem I
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.
7. The corporation’s contribution margin per unit and as a percent of sales (CMR) is
a. P 10 per unit; 40%
b. P 40 per unit; 160%
c. 10 units; 40%
d. P 10 per unit; 60%

8. The corporation’s break-even point is

a. P 10,000
b. 250,000 units
c. 10,000 units or P 250,000
d. 250,000 units or P 10,000

9. If the corporation desires to earn profit of P 20,000 before tax, it must generate sales of P
a. P 12,000
b. 300,000 units
c. 10,000 units or P 250,000
d. 12,000 units or P 300,000

10. If the corporation pays corporation income tax at the rate of 32%, and it desires to earn after-tax profit
of P 20,400, it must generate sales of
a. P 325,000 or 13,000 units
b. P 13,000 or 325,000 units
c. 12,040 units or P 301,000
d. 16,375 units or P 409,375

11. How much sales (in pesos) must be generated to earn profit that is 8% of such sales?
a. P 270,000
b. P 312,500
c. P 208,333.33
d. P 230,000

12. How many units must be sold to earn profit of P 2 per unit?
a. 8,333.33
b. 10,000
c. 12,500
d. 312,500

13. With an average monthly sales of 11,000 units, the corporation’s margin of safety is
a. 1,000 units or P 25,000
b. 11,000 units or P 275,000
c. 10,000 units or P 250,000
d. P 10,000

14. The margin of safety ratio (MSR) and the break-even sales ratio (BESR) are
MSR BESR
a. 9% 91%
b. 40% 60%
 c. 91% 9%
d. 60% 40%

15. At the present average monthly sales level of 11,000 units, the corporation’s operating leverage factor
(OLF) is
a. 6
b. 11
c. 9.09
d. 90.9

16. If fixed costs increase by P 20,000, the break-even point in units will increase (decrease) by
a. 12,000
b. 10,000
c. 50,000
d. 2,000

17. If variable costs per unit will go up by P 5, the peso break-even sales will increase (decrease) to
a. P 500,000
b. P 250,000
c. (P 500,000)
d. (P 250,000)

18. If selling price will increase to P 30, the break-even point in units will
a. Remain unchanged
b. Decrease by P 166,666.75
c. Decrease to 6,666.67
d. Decrease by 6,666.67

Problem II
A Company sells two products, A and B. the sales mix consists of a composite unit of 5 units of A for
every 3 units of B (5:3). Fixed costs amounts to P 202,500. The unit contribution margins are P 4.80 for A
and P 10 for B.
19. The number of composite units to break-even is
a. 13,682
b. 1,710
c. 30,000
d. 18,750

20. If the sales mix ratio is changed from 5:3 to 3:5, only of the of the following statements is not true,
and that is
a. The WaUCM will increase to P 8.05
b. The BEP will decrease to 25,155.28 composite units
c. Total fixed costs will remain the same.
d. The weighted-average UCM will not change.
21. Break-even analysis is based upon several simplifying assumptions. For a multi-product company,
such assumptions are as follows, except
a. Sales volume equals production volume
b. A given sales mix is maintained for all volume changes
c. Variable costs are constant per unit
d. Total fixed costs are constant regardless of volume changes within the relevant range

22. 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
a. Proportionate change in net income
b. Large changes in net income
c. Negligible change in net income
d. No change in net income

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

a. Determines the most profitable mix of product to be sold.
b. Allows the decision maker to introduce probabilities in the evaluation of decision
alternatives.
c. Computes profit per unit of production and determines the optimum production of the
company.
d. Is done through various possible scenarios and computes the impact on profit of
various predictions of future events.

24. 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?
a. P 88,000
b. P 100,000
c. P 110,000
d. P 125,000

25. Sari-sari Corporation is a multiple-product firm. In their review of operations, they decided to shift
the sales mix from less profitable products to more profitable products, accounting for 30% of gross
sales. This will cause the company’s breakeven profit to
a. Decrease
b. Change by 15%
c. Increase
d. Not change

26. A company has an operating leverage factor of 4. When its sales increased to P 500,000, its profit
before tax increased by 100%. Its variable cost ratio is 40%. How much is the company’s fixed costs?
Answer: P 180,000

27. Variable cost per unit is P 3.50. Contribution margin is 30%. Breakeven sales is P 1 million. To sell
an additional 50,000 units at the same price and contribution margin, how much ill fixed costs
increase to have a gross margin equal to 10% of the sales value of the additional cost of 50,000 units
to be sold?
 Answer: P 50,000

28. 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?
Answer: 120,000 units

29. At 40,000 units of sales, Ellia Corporation had an operating loss of P 3.00 per unit. When sales were
70,000 units, the company had a profit of P 1.20 per unit. What is the number of units to breakeven?
(Round to whole number)
Answer: 57,647 units

30. EVE’s income declined by 300% when sales declined from P 10M to P 8M. What was the operating
leverage?
Answer 15