[go: up one dir, main page]
Scribd
Upload
136 views2 pages

Problem Solving Chapter 8

This document contains solved problems related to profitability, break-even analysis, contribution margin, degree of operating leverage, and degree of financial leverage. Problem 5 calculates break-even units, contribution margin, target profit units, and margin of safety. Problem 6 calculates degree of operating leverage and uses it to estimate next year's net operating income given a sales increase. Problem 10 calculates degrees of operating, financial, and combined leverage and break-even points in units.

Uploaded by

Kevin TW Sales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
136 views2 pages

Problem Solving Chapter 8

This document contains solved problems related to profitability, break-even analysis, contribution margin, degree of operating leverage, and degree of financial leverage. Problem 5 calculates break-even units, contribution margin, target profit units, and margin of safety. Problem 6 calculates degree of operating leverage and uses it to estimate next year's net operating income given a sales increase. Problem 10 calculates degrees of operating, financial, and combined leverage and break-even points in units.

Uploaded by

Kevin TW Sales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Problem 5

1 Profit=(Unit CM * Q) - Fixed expenses


P0 = ((P30−P12) × Q) − P450,000
P0 = (P18 × Q) − P450,000
P18Q = P450,000
Q = P450,000 ÷ $18 per unit
Q = 25,000 units, or at P30 per unit, P750,000

2 P450,000 is the CM or the "Contribution Margin" because the CM is equal to


the fixed expenses at the break-even point

3a Unit sold to attain target profit= (Target profit + Fixed Expenses)/ Unit CM
= (P90,000 + P450,000)/ P18 per unit
=30,000 units

Sales (30,000 units * P30 per unit) ₱ 900,000


Variable expenses ( 30,000 units * P12 per unit) -₱ 360,000
Contribution margin ₱ 540,000
Fixed expenses -₱ 450,000
Net profit ₱ 90,000

4 Margin of safety= Total sales - Break even sales


= P450,000 - P750,000
= P300,000

Margin of safety percentage = Margin of safety in dollars/ Total sales


= P300,000/ P450,000
=66.67%

5 CM ratio= (Sales - Variable expense) /sales


CM ratio is = 60%

P50,000 incremental sales * 60% CM ratio= P30,000


Increased contribution margin P30,000

Since the company's fixed expenses will not change, monthly net operating
income will increase by P30,000

Problem 6
1 Galaxy Beyond, Inc.
Contribution Income Statement

Sales ₱ 3,000,000 ₱ 200


Variable ₱ 900,000 60
Controbiton margin ₱ 2,100,000 ₱ 140
Fixed expense ₱ 1,820,000
Net operating income ₱ 280,000

Degree of operating leverage= Contribution margin / Net operating income


= P2,100,000 /P280,000
= 7.5

2 The sales of 18,000 represents a 20% increase over last year's income
because the degree of operating leverage is 7.5, the net operating
income should increase by 7.5 times as much. Then, (7.5*20%) or by 150%.

Last year's net operating income ₱ 280,000


Expected increase in net operating income next year ₱ 420,000
Total expected net operating income ₱ 700,000

Problem 10
a. Degree of DOL= Q(P-V)/Q(P-V)-F
operating =20,000(P60-P30)/20,000(P60-P30)-P400,000
leverage = 3%

b. Degree of DFL= EBIT/EBIT- interest


financial =P200,000/P200,000 - 50,000
leverage =1.33%

c. Degree of DCL= DOL * DFL


combine =3*1.33
leverage = 3.99%

d. Break-even Break-even points (units) = fixed costs / (P-V)


point in units = P400,000 / (P60-P30)
=13,333.33 units

Problem 13
N/A

You might also like