Using also the high low point method the estimated

32. Using also the high-low point method, the estimated annual fixed cost for maintenance expense
is:
a. P48,000 c. P128,000
b. P96,000 d. P144,000
ITEMS 33 to 37 ARE BASED ON THE FOLLOWING INFORMATION:
The management of Riviera Corporation is evaluat ing the profitability of the company’s present
product mix. Several proposals are being reviewed. A partial income statement and other
information follows:
Products
ABC DEF GHI JKL TOTAL
Sales P24,000 P35,000 P24,000 P30,000 P113,000
Cost of Sales 10,000 20,000 25,000 25,000 80,000
Gross profit P14,000 P15,000 (P 1,000) P 5,000 P
Operating costs 5,000 8,125 8,000 6,000 27,125
Income before tax P9,000 P6,875 (P9,000) (P1,000) (P5,875)
Units sold 2,000 2,500 3,000 4,000
Selling price/unit P12.00 P14.00 P8.00 P7.50
Variable cost of
sales/unit P3.00 P5.00 P6.50 P5.00
Variable operating
cost/unit P1.50 P1.25 P2.00 P1.00
The various proposals shall be treated as separate and independent of the other
proposals. Consider only the product changes stated in each proposal, the activity of other
products remain the same. Disregard effects of income taxes. Based on the above
information:
33. If the production of GHI is stopped, the effect on income will be
33,000

CPA REVIEW SCHOOL OF THE PHILIPPINES
MANAGEMENT ADVISORY SERVICES
MASW 8901
Page 15 of 23
34. If the production of GHI is stopped and an accompanying loss of the customers results in a
decrease of 500 units in sales of product DEF, the total effect on income will be
35. If the selling price of GHI is increased by P1.25 per unit with a reduction in the number of units
sold to 2,000, the effect on income will be
36. The factory in which GHI is produced can be used to manufacture another product, MNO. The
total variable cost and expenses per unit of this new product is P9.50 and 2,500 units can be
sold at P10.75 each. If MNO is introduced and GHI is discontinued, the total effect on income
will be
a. P4,625 increase c. P4,625 decrease
b. P3,125 increase d. P3,125 decrease