Strategic Cost Management

Cost-Volume-Profit Analysis

Problems
Instructions: Supply the answer.

2. Rovie Manufacturing has the following product information available:

Sales price P75 per unit
Variable costs P25 per unit
Before-tax profit P180,000

If Rovie has calculated that it needs to sell 20,000 units in order to earn an after-tax target profit of P126,000,
what were its fixed costs?

3. An organization’s break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30
per unit, and total fixed costs of P80,000. If the company sells 500 additional units, by how much will its
profit increase?

4. Matthew’s Hotdog Stand sells big juicy hotdogs for P25 each. The variable costs per hotdog are P10.
Matthew’s fixed costs are currently P8,000 per month. Matthew’s is considering expanding his business to
three hotdog stands which will increase fixed costs per month by P12,000.

If Matthew does expand his business to three stands, how many additional hotdogs will need to be sold per
year in order to break even?

5. The Jaimee Precious Sisterhood is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event:
Dinner per person P 70
Programs and souvenir per person 30
Orchestra 15,000
Tickets and advertising 7,000
Riverboat rental 48,000
Floor show and strolling entertainment 10,000

The committee members would like to charge P300 per person for the evening’s activities. Assume that
only 250 persons are expected to attend the extravaganza, what ticket price must be charged to breakeven?

6. Consider the following:

Fixed expenses P78,000
Unit contribution margin 12
Target net profit 42,000

How many unit sales are required to earn the target net profit?

7. Based on the following, compute the amount of sales:

Profit margin before tax based on sales 8 percent

Margin of safety ratio 20 percent
Fixed costs P1,200,000
Variable cost of goods sold 25 percent

What is the amount of sales?

8. Dencio Company produces a product that sells for P60. The variable manufacturing costs are P30 per
unit. The fixed manufacturing cost is P10 per unit based on the current level of activity, and fixed selling
and administrative costs are P8 per unit. A selling commission of 10% of the selling price is paid on each
unit sold.

What is the contribution margin per unit?

9. Chandy Ornaments sells lawn ornaments for P15 each. Chandy’s contribution margin ratio is 40%. Fixed
costs are P32,000. Should fixed costs increase by 30%, how many additional units will Chandy have to
produce and sell without affected the current amount of profit?

10. At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses were
P50,000. The profit from the 5,001st unit would be?

11. Wilmarc Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on this
relationship, what is its projected profit at P1,200,000 sales?

12. The Allen Company sells widgets. The company breaks even at an annual sales volume of 80,000 units.
At an annual sales volume of 100,000 units the company reports a profit of P220,000. The annual fixed
costs for the Allen Company are?

13. Kiana Company earned P50,000 on sales of P400,000. It earned P70,000 on sales of P450,000. The
amount of total fixed costs for Tamarine Company is?

14. Faye Company has fixed costs of P90,300. At a sales volume of P360,000, return on sales is 10%; at a
P600,000 volume, return on sales is 20%. What is the break-even point?

15. An entity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000 units
in the coming year. If the entity pays income taxes on its income at a rate of 40%, what sales price must the
firm use to obtain an after-tax profit of P24,000 on the 40,000 units?

16. The following is the Puno Corporations’ contribution format income statement for last month:
Sales P2,000,000
Less variable expenses 1,400,000
Contribution Margin 600,000
Less fixed expenses 360,000
Net income P 240,000

The company has no beginning or ending inventories. A total of 40,000 units were produced and sold last
month. What is the company’s degree of operating leverage?

18. In 2010, Obligacion Company had a net loss of of P8,000. The company sells one product with a selling
price of P80 and a variable cost per unit of P60. In 2011, the company would like to earn a before-tax profit
of P40,000. How many additional units must the company sell in 2011 than it sold in 2010? Assume that
the tax rate is 40%.

19. Sapungan Company has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000,
and an operating loss of P20,000. How much increase in sales would Sapungan need to make in order to
achieve a target operating income of 10% of sales?

46. De Guzman Company developed the following information for the year ended December 31, 2011.
Product A Product B Total
Units sold 4,000 6,000 10,000
 Sales P12,000 P27,000 P 39,000
Variable costs 6,000 15,000 21,000
Contribution margin P 6,000 P12,000 18,000
Fixed costs 12,600
Net income P 5,400

If the sales mix changes to 5,000 units of Product A and 5,000 units of Product B, the effect on the
company’s break-even point would be:
a. To increase it by 200 units
b. To decrease it by 200 units
c. To increase it by 1,200 units
d. No change.
 ANSWER KEY

2. 820,000 8. 24 14. 258,000

3. 10,000 9. 1,600 15. 12
4. 9,600 10. 10 16. 2.5
5. 420 11. 50,000 18. 2,400
6. 10,000 12. 880,000 19. 400,000
7. 3,750,000 13. 110,000 46. A
Problems were taken from Comprehensive Reviewer in Management Advisory Services by Bobadilla and Trinidad.