CVP analysis

1. Sales volume of product 'X' is expected to be 10,000 units in coming year. Opening stock of the
product 'X' is 2,500 units and closing stock of finished goods is expected to be 4,000 units.
Budgeted production volume for 'X' will be
A. 8,500 units
B. 11,500 units
C. 3,500 units
D. None of above (2 marks)

2. Following data relates to a particular company’s finished product.

Opening stock at the start of the quarter 1 is 3,000 units
Demand in
- January 5,000 units
- February 6,500 units
- March 8,000 units
Closing stock for the quarter 1 is expected to be 4,500 units
Budgeted production for the first quarter will be
A. 18,000 units
B. 21,000 units
C. 12,000 units
D. 27,000 units (2 marks)

3. A company is expecting that it will produce and sale 5,000 units of product ‘Danny’. Each
product of Danny requires 1.5 kg of raw material ‘M’. Opening stock of material M is 1,200 kg and
closing stock is expected to reduce by 500 kg.
What amount of raw material M should be purchased in next year from supplier in order to meet
demand?
A. 5,700 kg
B. 4,500 kg
C. 7,000 kg
D. 8,000 kg (2 marks)

4. Which of the following tasks would normally be carried out first when preparing a master
budget?
A. Prepare sales budget
B. Calculate overhead absorption rate
C. Establish the organisation’s long term objective
D. Identify the principal budget factor (2 marks)

5. Following are some details are details related about two activity levels.
Name of Flexed Actual Variance
expenditure budget Cost (£) (£)
5,000 units 5,000 units
Direct material 10,000 10,500 500 (A)
Direct labour 7,500 5,500 2,000 (F)
Production overheads 15,000 18,000 3,000 (A)
Company’s policy is to investigate variance if it is above 10%. No difference is made for adverse
or favourable.
Which variance is most likely to be investigated?
A. Direct material
B. Direct labour
C. Production overheads
D. Cannot be find out from above data.
6. For a company that does not have any production resource limitation, in what sequence would
the following budgets be prepared?
A. Production budget, finished goods stock budget, sales budget, then materials usage budget.
B. Sales budget, production budget, finished goods stock budget, then materials usage budget.
C. Sales budget, finished goods stock budget, production budget, then materials usage budget.
D. Sales budget, finished goods stock budget, materials usage budget then production budget.
(2
marks)

7. A company has established the following information for the costs and revenues at an activity
level of 500 units:
£
Direct materials 2,500
Direct labour 5,000
Production overheads 1,000
Total cost 8,500
Sales revenue 17,500
Profit 9,000
50% of the production overheads are fixed over all levels of activity.
What would be the profit at an activity level of 1,000 units?
A £18,500 B £23,000
C £18,000 D £19,000

8. If variable cost of company increases, then

Break –even Margin of safety
A. will decrease will increase
B. will increase will decrease
C. will increase will increase
D. will decrease will decrease

9. If fixed cost of company increases, then

Break –even Margin of safety
A. will decrease will increase
B. will increase will decrease
C. will increase will increase
D. will decrease will decrease

10. If selling price of company increases, then

Break –even Margin of safety
A. will decrease will increase
B. will increase will decrease
C. will increase will increase
D. will decrease will decrease

11. Which one of the following is not an assumption in CVP

i) Selling price will remain same at all sales volumes
ii) Total variable cost will remain same at all production volumes
iii) Total fixed cost will remain same at all production volumes
iv) There is no semi variable cost
A. i and iii only
B. ii and iv only
C. i and iv only
D. ii and iii only
12. Which one of the following statement is/are incorrect
i. Braekeven is a point where company neither earns profit nor loss
ii. At breakeven point, total fixed cost is equivalent to total contribution margin
iii. Increase in sales volume will increase margin of safety.
A. i and iii only
B. ii and iii only
C. i only
D. i, ii and iii

13. Following are some details given about a particular company’s product.
£
Selling price 80
Variable cost 60
Total fixed cost 32,000
Company is currently earning a profit of £25,000. In coming year company wishes to earn 25%
high profits.
Required:-
Calculate sales volume that company should achieve in order to earn same level of profit.
_____________ units

14. Following are some details given about a particular company’s product.
£
Selling price 50
Variable cost 30
Total fixed cost 60,000
It is expected that company’s variable cost per unit will increase by £2.
Required:-
Calculate change in breakeven sales volume
_____________ units