MANAGEMENT ADVISORY SERVICES

1 Cost Volume Profit analysis

jjaurojrtcbic1

 Problem I

1.Compute the companys contribution

margin ratio and variable expense ratio.

Amount
Unit
Sales
1,200,000.00 20,000 60(1,200,000/1,200,000) or(60/60)
Variable Costs
900,000.00 20,000 45(900,000/1,200,000) or(45/60)
Contribution Margin 300,000.00 20,000 15(300,000/1,200,000) or(15/60)
Fixed Costs
240,000.00
Operating Income 60,000.00

Ratio
100%
75%
25%

2.Compute the companys break-even point in

units and in pesos by using the equation method.

Fixed Costs
=
Contribution Margin Per Unit (CMU)

240,000.00 =
15.00

Fixed Costs
Contribution Margin Ratio (CMR)

240,000.00 = 960,000.00 Pesos

25%

16,000 Units

BEP Units X Selling Price Per Unit = 16,000Units X P60 = 960,000.00 Pesos

a. 10,000 (P120,000/12)
b. 14,167 [(P120,000 + P30,000/60%)/12]
c. P29.00 {P20 + [(P120,000 +
P36,000/60%)/20,000]}

Problem V

Problem V
1
Sales
Variable Costs
Contribution Margin
Fixed Costs
Operating Income

X
X
X

350,000
200,000 ?
150,000 ?
125,000
25,000

100%

Sales
Variable Costs
Contribution Margin
Fixed Costs
Operating Income

X
X
X

350,000
200,000
150,000
125,000
25,000

100%
57%
43%

Fixed Costs
Contribution Margin Ratio

125,000.00
43%

290,697.67

2
Sales
Variable Costs
Contribution Margin
Fixed Costs
Operating Income
Tax
After Tax Profit
FC + ATP/1-TR
CMR

X
X
X

581,395

250,000
125,000
125,000 (75,000/60%)

100%
40%
60%

75,000
125,000+75,000/1-.40
43%

250,000 =
43%

100% (250,000/43%)
57%
43%

581395.3488

125,000+75,000/.60
43%

3
Sales
X
Variable Costs
X
Contribution Margin
X
Fixed Costs
Operating Income 100%
Tax
40%
After Tax Profit
60%

694,444 100% (125,000/18%)

57%
125,000 43%
125,000 18% (43%-25%)
25% (15%/60%)
15%

Problem VI

Vl. Mound Company has a before-tax return on sales of 9%

and a 25% margin of safety. Current sales are P800,000.
1. Compute the break-even point in pesos.
2. Find Mound's variable cost percentage.
SOLUTION:
1. P600,000 (P800,000 x 75%)
2. 64%
Sales
Total Cost
P800,000
P728,000 (P800,000 x 91%)
P600,000
P600,000 break-even
P728,000 - P600,000
-------------------- = 64%
P800,000 - P600,000

Problem VII

Vll. Stout Company sells three products. Planned results for

next year follow.
Product
A
B
C
---------Selling price
P10
P8
P4
Variable cost
4
6
1
------Contribution margin
P6
P2
P3
===
===
===
Sales mix in Pesos
25%
25%
50%
Fixed costs are P500,000.
1.
2.
3.

4.

Compute the weighted-average contribution margin

percentage.
Compute the sales (in P) required to earn a P100,000
profit.
Suppose now that the sales mix, in UNITS, is 25%, 25%,
50%. Determine the weighted-average contributionmargin per unit.
Determine the total unit sales needed to earn P100,000.

SOLUTION:
1. 58.75%

Contribution margin percentage

Sales mix in dollars
Weighted-average
58.75%
2. P1,021,277 [(P500,000 + P100,000)/.5875]

A B C Total
--- --- --- ----60% 25% 75%
25% 25% 50%
--- --- --15% + 6.25% + 37.5% =

3. P3.50

Contribution margin per unit

Sales mix in units
Weighted-average
4. 171,429, (P500,000 + P100,000)/P3.50

A
B
--- --P6.00 P2.00
25% 25%
----- ----P1.50 + P0.50

C Total
--- ----P3.00
50%
----+ P1.50 = P3.50

Problem VIII

Problem VIII
1. CM = (3 P2) + (4 P.75) = P9
SP = (3 P5) = (4 P2.50) = P25
BE = P72,000 = P200,000
P9/P25
2. A = P36,000 = P90,000
.4

B = P36,000 = P120,000
.3

3.

Problem
VIII
CM = (5 P2) + (4 P.75) = P13
SP = (5 P5) + (4 P2.50) = P35
BE = P72,000 + P9,700 = P219,962
P13/35

CM

OLD
A = 30,000 P2 =
B = 40,000 P.75
=

- FC
OI

P60,000
30,000
P90,000
(72,000)
P18,000

At current sales levels increase advertising.

CM

NEW
A = 40,000
P2 =
B = 32,000
P.75
- FC
OI

P 80,000
24,000
P104,000
(81,700)
P 22,300

Problem IX

1.

SP
- VC
= CM
CMR

A
P10
(7)
P 3
30%

Problem IX

B
P20
(12)
P 8
40%

C
P40
(16)
P24
60%

CMR = (.2 30%) + (.6 40%) + (.2 60%) = 42%

BE = P840,000/.42 = P2,000,000
2.

A (P2,000,000 .20)/P10 = 40,000 units

B (P2,000,000 .60)/P20 = 60,000 units
C (P2,000,000 .20)/P40 = 10,000 units

Problem X

Problem X

A SP P1,200 B SP P240
- VC (480)
- VC (160)
CM P 720
CM P 80
Weighted CM = (3 P720) + (5 P80) = P2,560

1. P1,800,000 = 703.125
P2,560

A = 704 3 = 2,112 units

B = 704 5 = 3,520

2.

A = 1,016 3 = 3,048
units
B = 1,016 5 = 5,080

P1,800,000 + P800,000 = 1,015.625

P2,560

3. P800,000/1 - .3 = P1,142,857
P1,800,000 + P1,142,857 = 1,149.55 A = 1,150 3 = 3,450
units
P2,560
B = 1,150 5 = 5,750

Problem X
4. SP = (3 P1,200) + (5 P240) = P4,800
X = P1,800,000 + P.12X = P4,354,839
P2,560/P4,800
A = (P4,354,839 .75)/P1200 = 2,722 units
B = (P4,354,839 .25/P240 = 4,537
5. X = P1,800,000 + P.12X
1 - .3 = P4,973,684
P2,560/P4,800
A = (P4,973,684 .75)/P1,200 = 3,109 units
B = (P4,973,684 .25/P240 = 5,181

Problem XI

Peso break-even point.= P100,000

Unit break-even point.= 5,000 UNITS
Fixed costs at 4,500 units.= P40,000
Fixed costs at 5,500 units. .= P40,000
Fixed costs at 5,500 units. .= P40,000
Total variable costs at 4,000 units
sold.=P100,000-P40,000=P60,000/5,000
UNITS=P12X4,000=P48,000
7. Total variable costs at 6,000 units sold.
.=P100,000-P40,000=P60,000/5,000
UNITS=P12X6,000=P72,000
1.
2.
3.
4.
5.
6.

8.
9.
10.
11.
12.
13.
14.

15.

Variable cost per unit at 4,000 units sold.

.=P100,000-P40,000=P60,000/5,000 UNITS=P12
Variable cost per unit at 6,000 units sold.
.=P100,000-P40,000=P60,000/5,000 UNITS=P12
Selling price per unit. =P100,000/5,000
UNITS=P20
Total contribution margin at 4,000 units sold. P20P12=P8X4,000 UNITS=P32,000
Profit or loss at 4,000 units sold.= 4,000 UNITS5,OOO UNITS= -1,000 UNITS X P8 = (P8,000)
Profit or loss at 6,000 units sold. .= 6,000 UNITS5,OOO UNITS= 1,000 UNITS X P8 = P8,000
Breakeven in units if fixed costs were to increase
by P10,000.=P40,000 +P10,000=P50,000/P8=
6,250 UNITS
Degree of operating leverage using units sold of
6,000. CM P48,000/OI P8,000 = 6

Problem XII

1. The contribution margin per person would be:

Price per ticket .......................................
P35
Less variable expenses:
P1
Dinner ..................................................
8
Favors and program .............................
2 20
Contribution margin per person.............
P15
The fixed expenses of the dinner-dance total P6,000
(P2,800+P900+P1,000+P1,300). The break-even
point would be:
Variable expenses + Fixed expenses +
Sales = Profits
P35Q = P20Q + P6,000 + P0
P15Q = P6,000
Q = P6,000 P15 per person
400 persons; or, at P35 per person,
Q = P14,000

Alternative solution:

Fixed expenses
Break-even point =
.
in unit sales
Unit contribution margin
$6,000
=
= 400 persons
$15 per person

2. Variable cost per person ($18 + $2)................... $20

Fixed cost per person ($6,000 300 persons).... 20
Ticket price per person to break even................. $40

$20,000

Total Sales

$18,000

Total
Expenses

Break-even point:
400 persons or
$14,000 total sales

$16,000

Total Sales

$14,000
$12,000
$10,000
$8,000
Total
Fixed
Expenses

$6,000
$4,000
$2,000
$0
0

100

200

300

400

500

Number of Persons

600

700

 Problem XIII

1. The contribution margin per sweatshirt would be:

Selling price.....................................................................................................P13.50
Variable expenses:
Purchase cost of the sweatshirts....................................................................
P8.00
Commission to the student salespersons........................................................
1.50
9.50
Contribution margin .........................................................................................P 4.00
Since there are no fixed costs, the number of unit sales needed to yield the desired P1,200 in
profits can be obtained by dividing the target P1,200 profit by the unit contribution margin:

Target profit
$1,200
=
=300 sweatshirts
Unit contribution margin $4.00 per sweatshirt
300 sweatshirts $13.50 per sweatshirt = $4,050 in total sales.

2. Since an order has been placed, there is now a fixed cost associated
with the purchase price of the sweatshirts (i.e., the sweatshirts cant be
returned). For example, an order of 75 sweatshirts requires a fixed cost
(investment) of P600 (75 sweatshirts P8.00 per sweatshirt = P600).
The variable cost drops to only P1.50 per sweatshirt, and the new
contribution margin per sweatshirt becomes:
Selling price ..........................................................................
P13.50
Variable expenses (commissions only) .................................
1.50
Contribution margin..............................................................
P12.00
Since the fixed cost of P600 must be recovered before Mr. Hooper
shows any profit, the break-even computation would be:

Fixed expenses
Break-even point =
in unit sales
Unit contribution margin
$600
=
=50 sweatshirts
$12.00 per sweatshirt
50 sweatshirts $13.50 per sweatshirt = $675 in total sales
If a quantity other than 75 sweatshirts were ordered, the answer would
change accordingly.

Problem XIV

1. The total annual fixed cost of the Pediatric Department can be computed as follows:

Annual
Patient-Days
10,000-14,000
14,001-17,000
17,001-23,725
23,726-25,550
25,551-27,375
27,376-29,200

Aides
@ P18,000
P378,000
396,000
396,000
450,000
468,000
522,000

Nurses
@ P26,000
P286,000
312,000
338,000
364,000
364,000
416,000

Supervising
Nurses
@ P36,000
P144,000
144,000
144,000
180,000
180,000
216,000

Total Other Fixed Total Fixed

Personnel Cost
Cost
P808,000
852,000
878,000
994,000
1,012,000
1,154,000

P454,000
454,000
454,000
454,000
454,000
454,000

P1,262,000
1,306,000
1,332,000
1,448,000
1,466,000
1,608,000

2. The break-even can be computed for each range of activity by

dividing the total fixed cost for that range of activity by the
contribution margin per patient-day, which is P80 (=P130 revenue P50 variable cost).

Annual
Patient-Days

(a)
Total Fixed
Cost

(b)
Contribution
Margin

BreakEven
(a) (b)

Within
Relevant
Range?

10,000-14,000 P1,262,000
P80
15,775
No
14,001-17,000
1,306,000
80
16,325
Yes
17,001-23,725
1,332,000
80
16,650
No
23,726-25,550
1,448,000
80
18,100
No
25,551-27,375
1,466,000
80
18,325
No
27,376-29,200
1,608,000
80
20,100
No
While a break-even can be computed for each range of activity (i.e.,
relevant range), all but one of these break-evens is bogus. For
example, within the range of 10,000 to 14,000 patient-days, the
computed break-even is 15,755 patient-days. However, this level of
activity is outside this relevant range. To serve 15,755 patient-days,
the fixed costs would have to be increased from P1,262,000 to
P1,306,000 by adding one more aide and one more nurse. The only
break-even that occurs within its own relevant range is 16,325. This
is the only legitimate break-even.

3. The level of activity required to earn a profit of P200,000 can be

computed as follows:

Activity to
Attain
(a)
(b)
Target
Within
Annual Total Fixed Target Total Fixed Cost Contribution Profit Relevant
Patient-Days
Cost
Profit + Target Profit
Margin (a) (b) Range?
10,000-14,000 P1,262,000 P200,000 P1,462,000
P80
18,275
No
14,001-17,000 1,306,000 200,000
1,506,000
80
18,825
No
17,001-23,725 1,332,000 200,000
1,532,000
80
19,150
Yes
23,726-25,550 1,448,000 200,000
1,648,000
80
20,600
No
25,551-27,375 1,466,000 200,000
1,666,000
80
20,825
No
27,376-29,200 1,608,000 200,000
1,808,000
80
22,600
No
In this case, the only solution that is within the appropriate relevant
range is 19,150 patient-days.