Alcaide, Daiane L.

BSA 3103

KG Company manufactures and sells a single product. The company’s sales and expenses for the recent
month are shown below:

Total Per Unit

Sales P P 40
600,000
Less: Variable Expenses 420,000 28
Contribution margin P P 12
180,000
Less: Fixed Expenses 150,000
Profit P 30,000

Required:
1. Breakeven point in units and in pesos.
Breakeven Points in Units = Fixed Cost/ CM per unit
= 150,000/12
= 12,500 units

Breakeven Points in Peso = BEP Units x Sales Price

= 12,500 x 40
= ₱ 500,000

2. What is the contribution margin at breakeven point? ₱ 150,000

Total
Sales (125,000 units) 500,000
Less: Variable Expense (350,000)
Contribution Margin 150,000
Less: Fixed Cost (150,000)
Profit 0

3. How much is the total fixed costs and expenses at breakeven point? ₱150,000, ₱350,000
4. Margin of safety in pesos, in units and in percentage.
Margin of Safety in Peso = Current Sales- BEP Sales
= 600,000- 500,000
= ₱100,000

Margin of Safety in Units = Current Sales Units - BEP Sales Units

= 15,000 - 12,500
 = 2,500 units

Margin of Safety Percentage = (Margin of Safety/Current Sales) x100

= 100,000/600,000
= 16.67%

5. Compute the profit using the margin of safety ratio.

NP Ratio= MSR x CMR = 16.67% x 30% = 5%
NP Ratio x Budgeted Sales = 600,000 x 5% = ₱ 30,000

6. How many units must be sold to earn a minimum profit of P 18,000?

Total Per Unit
Sales (14,000 units) 560,000 40
Less: Variable Expense (392,000) (28)
Contribution Margin 168,000 12
Less: Fixed Cost (150,000)  
Profit 18,000

7. If sales increase by P 80,000, how much is the expected increase in profit?

Original New Per Unit
Sales 600,000 680,000 40
Less: Variable Expense (420,000) 476,000 (28)
Contribution Margin 180,000 204,000 12
Less: Fixed Cost (150,000) (150,000)  
Profit 30,000 54,000  

Increase in Profit = 54,000- 30,000= ₱24,000

Liya Band is planning its annual A Night of Extravaganza. The committee would like to charge P 800 per
person for the activity.
  Variable Fixed
Diner per person 250  
Diner per person P 250
Favors and
Favors and programs per person 300
Programs/person 300  
Band 25,000
Band   25,000
Tickets and advertising 40,000
Tickets and advertising   40,000
Venue rental 20,000
Floorshow 15,000 Venue rental   20,000
Floorshow   15,000
Total 550 100,000
Required:
1. Breakeven point in terms of units and pesos

Breakeven Points in Units = Fixed Cost/ CM per unit

= 100,000/250
= 400 person

Breakeven Points in Peso = BEP Units x Sales Price

= 400 x 800
= ₱ 320,000

2. Assume that last year only 200 persons attended the event and the same number of attendees is
expected this year, what price per ticket must be charged to breakeven?

Total Per Unit

Sales (200 person) 210,000 ₱ 1,050
Less: Variable Expense 110,000 (550)
Contribution Margin 100,000 500
Less: Fixed Cost (100,000)  
Profit 0

3. The committee has learned that Mega ShaSha will make an appearance during the evening.
Accordingly, the committee has decided to raise the ticket price to P 850 per person. Compute the
expected breakeven point in units and in pesos.

Breakeven Points in Units = Fixed Cost/ CM per unit

= 100,000/300
= 333 person

Breakeven Points in Peso = BEP Units x Sales Price

= 333 x 850
= 283,050

Highlands, Inc. produces and sells camping equipment. One of the company’s products, a camp lantern,
sells for P 90 per unit. Variable expenses are P 63 per lantern, and fixed expenses associated with the
lantern total P 135,000 per month.
Required:
1. Determine the breakeven point in units and in pesos.

Breakeven Points in Units = Fixed Cost/ CM per unit

= 135,000/27
= 5000 units

Breakeven Points in Peso = BEP Units x Sales Price

= 5000 x 90
= ₱ 450,000

2. At present, the company is selling 8,000 lanterns a month. The sales manager is convinced that a
10% reduction in the selling price would result in a 25% increase in the number of lanterns sold
each. How much is the change in net income if the sales manager’s expectations are correct?

Total Per Unit

Sales (8,000) 720,000 90
Less: Variable Expense (504,000) (63)
Contribution Margin 216,000 27
Less: Fixed Cost (135,000)  
Profit 81,000

Total Per Unit

Sales (10,000) 810,000 81
Less: Variable Expense (630,000) (63)
Contribution Margin 180,000 18
Less: Fixed Cost (135,000)  
Profit 45,500

Change in Net Income = 45,500 - 81,000

= (36,000) decrease

Malingling Company produces a single roduct and presented below are data taken from its recent income
statement.
Sales (135,000 units at P 20) P 2,700,000
Less: Variable costs 1,890,000
Contribution margin 810,000
Less: Fixed costs 900,000
Net loss P (90,000)
Required:
1. The sales manager feels that a P 80,000 increase in monthly advertising budget, combined with
an intensified effort by the sales staff, will result in a P 700,000 increase in monthly sales.
Considering these changes, will the company’s net income increase or decrease? Net increase of
₱ 130,000

Total
Sales (170,000 units) 3,400,000 increase by 700,000
Less: Variable Expense (2,380,000)
Contribution Margin 1,020,000
Less: Fixed Cost (980,000) increase by 80,000
Profit ₱40,000

2. The president is convinced that a 10% reduction in the selling price, combined with an increase
iof P 35,000 in the monthly advertising budget, will cause unit sales to double. Considering these
changes, how much is the company’s expected net income?

Total Per Unit

Sales (270,000 units) 4,860,000 18
Less: Variable Expense (3,780,000) (14)
Contribution Margin 1,080,000 4
Less: Fixed Cost (935,000)  
Profit ₱145,000

3. A new package for the product is being considered to induce sales. This package costs P 0.60 per
unit. Considering the new package cost, how many units would have to be sold each month to
earn a profit of P 45,000?

Total Per Unit

Sales (175,000 units) 5,040,000 20
Less: Variable Expense 4,060,000 (14.6)
Contribution Margin 945,000 5.4
Less: Fixed Cost (900,000)  
Profit 45,000

Castleton Company has analyzed the costs of producing and selling 5,000 units of its only product to be
as follows:
Direct materials P 60,000
Direct labor 40,000
Variable factory overhead 20,000
Fixed factory overhead 30,000
Variable marketing and administrative expenses 10,000
Fixed marketing and administrative expenses 15,000
   Variable Fixed
DM 60,000  
DL 40000  
V FOH 20,000  
F FOH   30,000
V Ma 10,000  
F MA   15,000
Total 130,000 45,000

Required:
1. Compute the number of units needed to breakeven at a per unit sales price of P 38.50.

Total Per Unit

Sales (5,000 units) 192,500 38.5
Less: Variable Expense (130,000) (26)
Contribution Margin 62,500 12.5
Less: Fixed Cost (45,000)  
Profit 17,500

Breakeven Points in Units = Fixed Cost/ CM per unit

= 45,000/12.5
= 3,600

2. Determine the number of units that must be sold to produce an P 18,000 profit at a P 40 per unit
sales price.
Total Per Unit
Sales (4,500 units) 180,000 40
Less: Variable Expense (117,000) (26)
Contribution Margin 63,000 14
Less: Fixed Cost (45,000)  
Profit 18,000

3. Determine the price Castleton must charge at a 5,000 unit sales level to produce a profit equal to
20% of sales.

Total Per Unit

Sales (5,000 units) 218,750 43.75
(130,000
Less: Variable Expense ) (26)
Contribution Margin 88,750 17.75
Less: Fixed Cost (45,000)  
Profit 43,750
Variable Cost 130,000
 Fixed Cost 45,000
Total 175,000
Divided by 80%
(100%-20%) 80%
218,750/5,000 =
₱ 43.75
218,750 x 20% = 43,750
Wild’s Company’s income statement is shown below:

Total Per Unit

Sales (30,000 units) P 150,000 P 5.00
Less: Variable costs 90,000 3.00
Contribution margin 60,000 P 2.00
Less: Fixed expenses 50,000
Net income P 10,000

Required:
1. Compute the contribution margin ratio, breakeven point in pesos, and operating income.
Total Per Unit Ratio
Sales (30,000 units) 150,000 5 100%
Less: Variable Expense (90,000) (3) 60
Contribution Margin 60,000 2 40%
Less: Fixed Cost (50,000)    
Profit ₱ 10,000

Breakeven Points in Units = 50,000 /40%

= 125,000 units

Total Per Unit Ratio

Sales (25,000 units) 125,000 5 100%
Less: Variable Expense (75,000) (3) 60
Contribution Margin 50,000 2 40
Less: Fixed Cost (50,000)    
Profit 0

2. Calculate the new contribution margin ratio, breakeven point in pesos, and operating profit under
each of the changes below:
a. Unit sales price increase by 15%
Increase of USP by 15% Total Per Unit Ratio
Sales (30,000 units) 172,500 5.75 100%
Less: Variable Expense (90,000) (3) 52
Contribution Margin 82,500 2.75 48
Less: Fixed Cost (50,000)    
Profit 32,500
 BEP units = 50,000/2.75 = 18,182
BEP Peso= 18,182 x 5.75 = ₱ 104,545

b. Unit variable costs decrease by 25%

Total Per Unit Ratio
Sales (30,000 units) 150,000 5 100%
Less: Variable Expense (67,500) (2.25) 45
Contribution Margin 82,500 2.75 55
Less: Fixed Cost (50,000)    
Profit 32,500

BEP units = 50,000/2.75 = 18,182

BEP Peso= 18,182 x 5 = ₱ 90,909

c. Total fixed costs increase to P 80,000

Total Per Unit Ratio
Sales (30,000 units) 150,000 5 100%
Less: Variable Expense (90,000) (3) 60
Contribution Margin 60,000 2 40
Less: Fixed Cost (80,000)    
Profit (20,000)

BEP units = 80,000/2 = 40,000

BEP Peso= 40,000 x 5 = ₱ 200,000

d. Unit sales price decreases by 20% and the sales volume increases by 20%
Total Per Unit Ratio
Sales (36,000 units) 144,000 4 100%
Less: Variable Expense (108,000) (3) 75
Contribution Margin 36,000 1 25
Less: Fixed Cost (50,000)    
Profit (14,000)

BEP Peso= 50,000 x 25% = ₱ 200,000

e. The selling price increases by P 0.50 per unit, fixed costs increase by P 10,000, and the
sales volume decreases by 5%.
Total Per Unit Ratio
Sales (28,500 units) 156,750 5.50 100%
 Less: Variable Expense (85,500) (3) 54.45
Contribution Margin 71,250 2.5 45.45
Less: Fixed Cost (60,000)    
Profit 11,250

BEP units = 60,000/2.5 = 24,000

BEP Peso= 24,000 x 5.5 = ₱ 132,000

f. Variable costs increase by P 0.20 per unit, the selling price increases by 12%, and the
sales volume decreases by 10%.
Total Per Unit Ratio
Sales (27,000 units) 151,200 5.60 100%
Less: Variable Expense (86,400) (3.20) 57
Contribution Margin 64,800 2.40 43
Less: Fixed Cost (50,000)    
Profit 14,800

BEP units = 50,000/2.4 = 20,833

BEP Peso= 20,833 x 5.6 = ₱ 116,667

Montgomery Company expected to incur the following costs to produce and sell 70,000 units of its
product:
Variable manufacturing cost P 210,000
Fixed manufacturing cost 80,000
Variable marketing expenses 105,000
Fixed marketing and administrative expenses 60,000

Required:
1. What price does the company have to charge for the product in order to just breakeven if all
70,000 units are sold?
Total Per Unit
Sales (70,000 units) 455,000 ₱6.5
Less: Variable Expense (315,000) (4.5)
Contribution Margin 140,000 2
Less: Fixed Cost (140,000)  
Profit 0

2. If management decides on a price of P 8 and has a profit objective of 10%, what amount of sales
is required?
Profit before tax = FC/(CMR-PRBT)
= 140,000/44%-10%
= 140,000/34%
 = ₱ 411,765

3. The company plans to expand capacity next year to 100,000 units. The increased capacity will
increase fixed manufacturing costs to P 100,000. If he sales price of each of unit of product
remains at P 8, how many units must the company sell to produce a profit of 15% of sales?

Profit before tax Sales Units = FC/(UCM-UPM)

= 160,000/3.5-1.2
= 160,000/ 2.3
= 69,565 units

Locker Company manufactures and sells electronic door lockers for P 600 each. Variable costs are P 420
per unit, and fixed costs total P 4,500,000 per year. The company currently sells 40,000 units year.

Required:
1. Compute the degree of operating leverage at the present level of sales.
BEP = 4,500,000/180
= 25,000

Margin of Safety Ratio = 40,000-25,000/40,000

= 37.5%

DOL = 1/37.5%
= 2.67

2. If 48,000 units are sold next year, what is the

a. Expected increase in net income next year?
b. Percentage change in net income
Total Per Unit
Sales (48,000 units) 28,800,000 600
Less: Variable Expense (20,160,000) (420)
Contribution Margin 8,640,000 180
Less: Fixed Cost (4,500,000)  
Profit 4,140,000

Expected Increase = 4,140,000- 2,700,000

= ₱ 1,440,000

% Change in Net Income = 1,440,000/2,700,000

= 53.33%