ADDITIONAL PROBLEMS

COST-VOLUME-PROFIT ANALYSIS

BREAKEVEN ANALYSIS

1. A company manufactures a single product. Estimated cost data regarding this product and other information for the
product and the company are as follows:
Sales price per unit P40
Total variable production cost per unit P22
Sales commission (on sales) 5%
Fixed costs and expenses
Manufacturing overhead P5,598,720
General and administrative P3,732,480
Effective income tax rate 40%

The number of units the company must sell in the coming year in order to reach its breakeven point is
A. 388,800 units C. 583,200 units
B. 518,400 units D. 972,000 units

BEP units = Total FC ÷ CM per unit

= (P5,598,720 + P3,732,480) ÷ [P40 – P22 – (P40 x 5%)
= P9,331,200 ÷ P16
= 583,200 units

PROFIT PLANNING

2. Merchandisers, Inc. sells Product O to retailers for P200. The unit variable cost is P40 with a selling commission of
10%. Fixed manufacturing costs total P1,000,000 per month while fixed selling and administrative costs total
P420,000. The income tax rate is 30%. The target sales if after tax income is P123,200 would be
A. 10,950 units. C. 13,750 units.
B. 11,400 units. D. 15,640 units.

SALES
VCOGS
VS&A
CM 1,596,000 ÷ [P200 – P40 – (P200 X 10%)] = 11,400 units
FC (P1M + P420K) 1,420,000
PBT P 176,000 ÷ 70%
TAX (30%)
PAT P 123,200

3. NCB, Inc. manufactures computer tables. It has an investment of P1,750,000 in assets and expects a 25% return on
investment. Its total fixed production costs for 2,000 units is P550,000 plus an additional P150,000 for selling and
administrative expenses. The variable cost to manufacture is P1,500 per table. The selling price per table should be
A. P1,850.00 C. P2,531.25
B. P2,068.75 D. P2,725.00
 SALES P 2,068.75
VC 1,500.00
CM P 1,137,500 ÷ 2,000 units = P 568.75
FC (P550,000 + P150,000) 700,000
P/L (P1.75M X 25%) P 437,500

4. Planners have determined that sales will increase by 25% next year, and that the profit margin will remain at 15% of
sales. Which of the following statements is correct?
A. Profit will grow by 25%.
B. The profit margin will grow by 15%.
C. Profit will grow proportionately faster than sales.
D. Ten percent of the increase in sales will become net income.

(ALL AMOUNTS ARE ASSUMED)

x 125%
SALES P 100 P 125
VC
CM P
FC
P/L (15%) P 15 P 18.75

P3.75 increase / P15 = 25% increase

INCREMENTAL ANALYSIS

5. A company is concerned about its operating performance, as summarized below:

Sales (P12.50 per unit) P300,000
Variable costs 180,000
Net operating loss (40,000)

How many additional units should have been sold in order for the company to break even?
A. 8,000 C. 16,000
B. 12,800 D. 32,000

CM-CURRENT (P300,000 – P180,000) P 120,000

CM-REQUIRED TO BREAKEVEN (+P40,000) P 160,000

÷ CM per unit (P120,000 ÷ 24,000 units*) P5
Required No. of units to breakeven 32,000
Current No. of units 24,000
Increase 8,000

*P300,000/P12.5) = 24,000
MARGIN OF SAFETY

6. Product Kurt has sales of P200,000, a contribution margin of 20%, and a margin of safety of P80,000. What is
Kurt’s fixed cost?
A. P16,000 C. P80,000
B. P24,000 D. P96,000

MS = Actual Sales – Breakeven Sales

P 80,000 = P200,000 – Breakeven Sales
 Breakeven Sales = P120,000

@BEP, FC = CM
CM @ BEP = 20% x P120,000
= P24,000

BREAKEVEN POINT – MULTIPLE PRODUCTS

7. A company with P280,000 of fixed costs has the following data:

Product A Product B
Sales price per unit P5 P6
Variable costs per unit P3 P5

Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of product B at the
breakeven point?
A. P200,000 C. P280,000
B. P240,000 D. P840,000

BEP units = Total FC ÷ WACM per unit

= P280,000 ÷ [(P2 x ¾) + (P1 x ¼)]
= P280,000 ÷ (P1.50 + P0.25)]
= P280,000 ÷ P1.75
= 160,000 units

BEP units-Product B = 160,000 x ¼

= 40,000 units

BEP pesos-Product B = 40,000 units x P6

= P240,000

Questions 8 and 9 are based on the following information.

A company sells two products, X and Y. The sales mix consists of a composite unit of two units of X for every five
units of Y (2:5). Fixed costs are P49,500. The unit contribution margins for X and Y are P2.50 and P1.20,
respectively.

8. Considering the company as a whole, the number of composite units to break even is
A. 1,650 C. 8,250
B. 4,500 D. 22,500

BEP units = TFC ÷ WACM per unit

= P49,500 ÷ [(P2.5 x 2/7) + (P1.2 x 5/7)]
 = P49,500 ÷ P1.5714
= 31,500 units

Composite Units to Breakeven = 31,500 units / 7

= 4,500 units

9. If the company had a profit of P22,000, the unit sales must have been
A. B. C. D.
Product X 5,000 13,000 23,800 32,500
Product Y 12,500 32,500 59,500 13,000

2/7 = 13,000
CM P 71,500 ÷ P1.5714 = 45,500
FC 49,500 5/7 = 32,500
P/L P 22,000

INDIFFERENCE POINT

10. Wheels Corp. employs 45 sales personnel to market its sedan cars. The average car sells for P690,000 and a 6%
commission is paid to the sales person. It is considering changing the scheme to a commission arrangement that
would pay each person a package of P30,000 plus a commission of 2% of the sales made by the person. The amount
of total monthly car sales at which Wheels Corp. would be indifferent (answer may be rounded off) as to which plan
to select is
A. P22,500,000 C. P36,500,000
B. P33,750,000 D. P45,000,000

6%Sales = P30,000 + 2%Sales

4%Sales = P30,000
Sales = P750,000

Required total sales = P750,000 x 45 = P3