1.

An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30 per unit,
and total fixed costs of P80,000. If the company sells 500 additional units, by how much will its profit increase?

a. P25,000
b. P15,000
c. P10,000
d. P12,000
Solution:
CM/U=P20/u (50-30)
Additional profit: P10,000 (500x20)
Profit increases by the amount of contribution margin brought by additional units sold.

2. The Hard Company sells widgets. The company breaks even at an annual sales volume of 80,000 units. At an
annual sales volume of 100,000 units the company reports a profit of P220,000. The annual fixed costs for the
Hard Company are:

a. P880,000
b. P1,100,000
c. P800,000
d. P1,000,000
Solution:
CM/U=P11/u (220,000/(100,000-80,000)
Fixed Costs: P880,000 (80,000x11)
At break-even point, total fixed cost is equal to total contribution margin

3. An entity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000 units in the
coming year. If the entity pays income taxes on its income at a rate of 40%, what sales price must the firm use to
obtain an after-tax profit of P24,000 on the 40,000 units?

a. P11.60
b. P11.36
c. P12.00
d. P12.50
Solution:
Profit before tax: P40,000 (24,000/60%)
Target Contribution Margin: P240,000 (200,000+40,000)
Selling Price=VC/u + CM/u (6 + (240,000/40,000)

4. Carribean Company produces a product that sells for P60. The variable manufacturing costs are P30 per unit.
The fixed manufacturing cost is P10 per unit based on the current level of activity, and fixed selling and
administrative costs are P8 per unit. A selling commission of 10% of the selling price is paid on each unit sold.
 The contribution margin per unit is:

a. P24
b. P36
c. P54
d. P30
Solution:
Selling Prices per unit – Variable Cost per Unit
(60- (30+6*)
*10% of selling price

5. Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on this relationship,
what is its projected profit at P1,200,000 sales?
a. P50,000
b. P200,000
c. P150,000
d. P400,000
Solution:
CMR= 12.5% (100,000/800,000)
CM: P150,000 (1,200,000x12.5%)
Profit: P50,000 (Contribution margin – Fixed costs)
At break-even point, total fixed cost is equal to total contribution margin

6. At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses were P50,000.
The profit from the 5,001st unit would be?

a. P10
b. P50
c. P15
d. P12
Solution:
CM/u= P10 (50,000/5000)
Profit increases by the amount of contribution margin brought by additional units sold.

7. Marsman Company had a margin of safety ratio of 20%, variable costs of 60% of sales, fixed costs of P240,000,
a break-even point of P600,000, and an operating income of P60,000 for the current year. What are the current
year's sales?

a. P500,000
b. P600,000
c. P750,000
d. P900,000
 Solution:
Sales= P750,000 (BEP sale /(1-MSR)

8. Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the variable costs are 60% of the
selling price. What would be the amount of sales if Regal is to realize a profit of 10% of sales?

a. P700,000
b. P472,500
c. P525,000
d. P420,000
Solution:
Peso Sales= P700,000 (FC/CMR-ROS)
=210,000/(40%-10%)

9. Food Factory, Inc. sells loose biscuits for P5 per unit. The fixed costs are P210,000 and the variable costs are
45% of the selling price. What would be the amount of sales if Food Factory, Inc. were to realize a profit of 15%
of sales?

a. P700,000
b. P472,500
c. P525,000
d. P420,000
Solution:
Peso Sales= P525,000 (FC/(CMR-Profit Margin)
=210,000/(55%-15%)

10. At 40,000 units of sales, Benevolent Corporation had an operating loss of P3.00 per unit. When sales were
70,000 units, the company had a profit of P1.20 per unit. The number of units to breakeven is

a. 35,000
b. 52,500
c. 57,647
d. 45,000
Solution:
CM/u= P6.80 (increase in profit/increase in units)
204,000/30,000
FC=units x (CM/u – profit per unit)
FC= 70,000 x (6.80 – 1.20) or 40,000 x (6.80-(-3))
FC=P392,000
BEPunits=57,647(392,000/6.80)
11. Alexandra Co. provides two products, Velvet and Cotton. Velvet accounts for 60 percent of total sales. The
variable costs as a percentage of selling prices are 60% for Velvet and 85% for Cotton. Total fixed costs are
P225,000.
If fixed costs will increase by 30 percent, what amount of peso sales would be necessary to generate an
operating profit of P48,000?

a. P1,350,000
b. P486,425
c. P1,135,000
d. P910,000
Solution:
WACMR= 30% (60%x40%)+(40%x15%)
FC= 292,500 (225,000 x 1.3)
BEPpeso= 1,135,000 (292,500+48,000 / 30%)