1.
Explosion Company produces fireworks and has provided the following information:
Total fixed costs Php100,000
Unit variable costs Php6
Planned unit sales 30,000
The break-even point is 25,000 units.
Required:
a. Compute the selling price per unit.
b. Compute the contribution-margin ratio.
c. Compute the break-even volume in Pesos
d. Compute the margin of safety.
Answer:
a. $100,000 / 25,000 = $4 + $6 = $10
b. $4 / $10 = 0.40
c. 25,000 units x $10 = $250,000
d. 30,000 - 25,000 = 5,000 fireworks
2. The Eastman Family Restaurant is open 24 hours per day serving breakfast, lunch, and
dinner. Fixed costs are Php24,000 per month. Variable costs are estimated at Php9.60 per
meal. The average total bill (excluding tax and tip) is Php12 per customer.
Required:
a. Compute the number of meals that must be served if the Eastman Family
Restaurant wishes to earn a profit before taxes of Php6,000.
b. Compute the break-even point in meals.
c. Compute the break-even volume in dollars.
d. Assume that fixed costs increase to Php30,000. How many additional meals
must be served if the Eastman Family Restaurant wishes to earn the same
before-tax profit?
Answer:
a. X = FC + P target / CM = 12,500 meals
b. BEP unit – TFC / CM = 10,000
c. BEP peso – BEP unit * R = 120,000
d. 2,500 meals
3. Sole Company manufactures running shoes. The selling price per pair of shoes (one unit)
averages Php80 and variable costs per pair are Php47.50. The sales volume of Php776,000
produces Php100,750 of net income before taxes.
Required:
a. Compute total fixed costs.
b. Compute total variable costs.
c. Compute the break-even point in units.
d. Compute the quantity of units above breakeven to reach targeted net income before
taxes.
Answer:
a. No. of Units Produced = Total Sales Volume Produces / SP per unit
= 776,000 / 80
= 9700
Total Fixed Cost = (SP per unit – VC per unit) * No. of units produced
= (80- 47.50) * 9,700
= 32.50 * 9,700
= 315,250 – 100,750 net income before taxes
= 214,500
b. Variable Cost = Number of units * Variable cost per unit
= 9,700 * 47.50
= 460,750
c. CM per unit = SP per unit – VC per unit
= 80 – 47.50
= 32.50
BEP units = Total fixed cost / CM units
= 214,500 / 32.50
= 6,600
d. No. of units produced – BEP units
= 9,700-6,600
= 3,100
4. For the current year ending April 30, Phillip Company expects fixed costs of Php70,000, a
unit variable cost of Php60, and a unit selling price of Php95.
(a) Compute the anticipated break-even sales (units).
(b) Compute the sales (units) required to realize an operating profit of
Php8,000.
Answer:
a. Unit CM= Php 95 - Php 60
Unit CM = Php 35
Break Even Sales in Units
=Php 70,000 / Php 35
= 2000 units
¿ Cost +Operating Profit
b.
Unit CM
P 70000+ P 8000
c.
35
= 2228.57 or 2229 units
5. For the coming year, Swain Company estimates fixed costs at Php90,000, the unit variable
cost at Php20, and the unit selling price at Php80.
Determine
(a) the break-even point in units of sales,
(b) the unit sales required to realize operating income of Php150,000, and
(c) the probable operating income if sales total Php500,000.
Answers:
a. x=Fixed Cost/(Revenue-Variable Cost)
x=Php 90,000/(Php 80-Php 20)
x=Php 90,000/Php 60
x=1,500
b. R(x)-VC(x)=FC+PBT
x(R-VC)=FC+PBT
x=FC+PBT/(R-VC)
x=Php 90,000 + Php 150,000/(Php 80-Php 20)
x=Php 240,000/Php 60
x=4,000
Sales=4,000 x Php 80
Sales= Php 320,000
c. x=Php 500,0000/Php 80
x=6,250
Total VC=6,250 x Php 20
Total VC=125,000
Sales: 500,000
Less VC: 125,000
Less FC: 90,000
IBT=285,000
6. For the past year, Chandler Company had fixed costs of Php70,000, unit variable costs of
Php32, and a unit selling price of Php40. For the coming year, no changes are expected in
revenues and costs, except that property taxes are expected to increase by Php10,000.
Determine the break-even sales (units) for
(a) the past year and
(b) the coming year.
Answers:
a. BEP(units) = FC / (SP - FC)
= 70,000 / (40 - 32)
= 70,000 / 8 BEP(units)
= 8,750
b. BEP(units) = 70,000 + 10,000 / (40 - 32)
= 80,000 / 8 BEP(units)
= 10,000
7. For the past year, Holcomb Company had fixed costs of Php6,552,000, a unit variable cost of
Php444, and a unit selling price of Php600. For the coming year, no changes are expected in
revenues and costs, except that a new wage contract will increase variable costs by Php6
per unit.
Determine the break-even sales (units) for
(a) the past year and
(b) the coming year.
Answers:
a. the past year:
BEP unit = FC total / CM unit
BEP unit = ₱6,552,000 / ₱156
BEP unit = 42,000
b. the coming year:
BEP unit = FC total / CM unit
BEP unit = ₱6,552,000 / ₱150
BEP unit = 43,680
8. A company with a break-even point at Php900,000 in sales revenue and had fixed costs of
Php225,000. When actual sales were Php1,000,000 variable costs were Php750,000.
Determine
(a) the margin of safety expressed in dollars,
(b) the margin of safety expressed as a percentage of sales,
(c) the contribution margin ratio, and
(d) the operating income.
Answers:
a. Actual sales - bep sales
1,000,000-900,000
= P100,000 margin of safety (peso)
b. MS / AS x 100 100,000/1,000,000
= 0.1 x 100
= 10% margin of safety (percentage)
c. (AS - VC)/AS x 100 1,000,000-750,000
= 250,000 / 1,000,000
= .25 x 100 = 25% contribution margin
d. AS * CM - FC 1,000,000 x .25
= 250,000 - 225,000
= 25,000 operating income
9. A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of
Php1,000,000.
(a) What was the break-even point?
(b) What was the operating income?
(c) If neither the relationship between variable costs and sales nor the
amount of fixed costs is expected to change in the next year, how much
additional operating income can be earned by increasing sales by
Php110,000?
Sales 1,000,000 100.00%
Total Variable Cost 700,000.00 70.00%
Contribution Margin 300,000.00 30.00%
Margin Safety 250000 25%
BEP(Sales-Margin Safety=Bep) 750,000 75.00%
Fixed Cost 225000
Income Before Tax 75000
A. Break-Even Point
1,000,000-
Sales-BEP=Margin of safety BEP=250,000
BEP=1,000,000-
Sales - Margin Safety=BEP 250,000
BEP=750,000php
B. BEP=Fixed Cost/ Contribution Margin
BEP*Contribution Margin = Fixed Cost 225,000
Income Before Tax 75,000
C. Contribution Margin-Fixed Cost 108,000
Previous sale-Current sale 33,000
