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    MAS8703

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    MAS8703

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    of 23
    CPAR CPA REVIEW SCHOOL OF THE PHILIPPINES neil MAS 8703 MANAGEMENT ADVISORY SERVICES COST-VOLUME-PROFIT ANALYSIS Sree ean lesen (CVP analysis) examines the behavior of total revenues, total 7 ing income as changes occur in the output | i i er unit, or fixed costs of a product. : Coma eete eet BREAK-EVEN SALES — that point of activity | level (sales volume) where total revenues equal total costs, ie., there is neither profit nor loss. : = Methods of Computing Break-even Point 1, Equation Method or algebraic approact 2, Contribution margin method or formula approach 3. Graphic approach GRAPHS OF CVP RELATIONSHIPS ‘The cost-volume-profit graph depicts the relationships among cost, volume, and profits. Total Revenue Pesos ™~‘N Profit “Total Cost “\— Breaiceven Point 5C toss Units Sold The point where the total revenue line and the total cost line intersect is the break-even ‘point. ‘Assumptions of Cost-Volume-Profit Analysis 1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units produced and sold. 2 Total costs can be separated into a fixed component that does not vary with the output fevel and a component that is variable with respect to the output level 3. When represented graphically, the behavior of total revenues and total costs are linear (represented as a straight line) in relation to output level within a relevant range and time period 4, The selling price, variable cost per unit, and fixed costs are known and constant, 5, The analysis either covers a single product or assumes that the sales mix, when multiple products are sold, will remain constant as the level of total units sold changes. 6. All revenues and costs can be added and oampared without taking into account the time value of money. aa MULTIPLE-PRODUCT ANALYSIS When CVP analysss is used for a multiple:product firm, the product is defined as a package of products. For example, Ifthe sales mic is 3:1 for Preducts A and B, the package would consist of 3 units of Product A and 1 unit of Product B. Break-even in packages for a multiple-product firm is then calculated as: Break-even packages = Fixed Costs/Weighted average contribution margin MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 2 of 23 SALES MDX- the composition of total sales in terms of various products, i.e., the percentage of each product Included in total sales. CVP ANALYSIS AND RISK AND UNCERTAINTY: MARGIN OF SAFETY — ixdicates the amount by which actual or planned sales may be reduced without incurring a loss. It is the difference between actual or planned sales volume and break-even sales. OPERATING LEVERAGE - a measure of the extent to which fixed costs are being used in an organization. The greater the fixed costs in relation to variable cost, the greater is the operating leverage avallable and the greater Is the sensitivity of income to changes in sales. DEGREE OF OPERATING LEVERAGE (DOL) - a measure of the sensitivity of profit changes to changes in sales volume. DOL measures the percentage of change in profit that results from 2 percentage of change in sales. Degree of Operating Leverage (DOL) or Operating Leverage Factor (OLF) - 2 measure, at a given level of sales, of how a percentage change in sales volume will affect profits. DEGREE OF OPERATING LEVERAGE (DOL) ‘ oR = Contribution Margin / Operating income (OPERATING LEVERAGE FACTOR (OLF) > The higher the degree of operating leverage, the greater the change in profit when sales change. PERCENTAGE CHANGE IN PROFIT = DOL x Percentage change in sales SENSITIVITY ANALYSIS- a “what if’ technique that examines the impact of changes on an answer. For ‘example, computer spreadsheets are used to analyze changes in prices, variable costs, and fixed costs on expected profits. Factors Affecting Profit 1. Selling price per unit 4, Fixed cost 2. Variable cost per unit 5. Sales mix 3. Volume or number of units EXERCISES: 4. Graham Company preduces a variety of chemicals. One division makes reagents for laboratories. The division's projected income statement for the coming year is as follows: Sales (110,000 units @ P25) 2,750,000 Less: Variable expenses ‘925,000 Contribution margin P'825,000 Less: Fixed expenses 495,000 Operating income 330,000 Feat compute the contribution margin per unit and calculate the breakeven point In units {round to the nearest unlt. Calculate the contribution margin ratio and the break-even sales revenue. 2, The divisional manager has decided to increase the advertising budget by P40,000. This ‘wil Increase sales revenues by P400,000. By how much will operating income increase + or decrease as a result of this action? 3, Suppose sales revenues exceed the estimated amount on the income statement by 315,000. Without preparing @ new income statement, by how much are profits underestimated? 4, Refer to the original data. MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 3 of 23 a. How much sales must be generates to earn pre-tax profit of P180,0007 b. How many units must D¢ sold to eam an after-tax profit of P360,0007 Assume a tax rate of 40 percent. How much must sales be to esm pre-tax profit of 20% of such sales? 5. Compute the margin of safety based on the original income statement. 6. Compute the degree cf operating leverage based on the original income statement. If sales revenues are 20 percent greater then expected, what is the percentage increase in profits? 2. Tennessee Tonic makes 2 high-energy proten drink, The selling price per gallon s F720, and variable cost of production is P4.32. Total foved cost per year '5 F316,600. The company is currently selling 125,000 gallons per year. 2. What is the margin of safety in gallons? b. What is the degree of operating leverage? © If the company can increase sales in gallons by 30 percent, what percentage Jncraase will experience in income? Prove your answer .sing the income statement approach, 4. If the company increases advertising by P43,200, sales in Gallons wil increase by 18 percent. ‘What wil be the new break-even point? The new degree of cperating ieverage? 3. Thompson Company is considering the development of two products: No. 65 or No. 66. Manufacturing cost information follows. No. 65 No.66 Annual fixed costs, 220.000 240,000 Variable cost 2er unit B B Regardless of which product is introcuoed, the anticipated selling price wll be PSO and the Company will pay 8 10% sales commestion 07 gross peso sales. Thompson will not carry an Inventory of these items. REQUIRED: 2, What Is the break-even sates volume (in pesos) an product no. 66? 1b. Which of the two products will be mcre orottanie at 2 sales level of 25,000 units? & At what unit-volume leve! will the prc##y ess on product no. 65 equal the profit/loss on product no. 657 4, The Lite Shoe Company produces is femous shoe, the Superite that sells for P6O per pair. Operating income for this year is as folows Sales revenue (P60 pe: pair) 300,000 Variable cost (P25 per pair) 123,000 Contributhin margin 175,000 Fixed cost 100,000 ‘Operating income 27.000 Lite Shoe Company would like to increase its profitability over the next year by at least 25%. To do so, the company is considering the following options: 1. Replace a portion of its variable labor with an automated machining process. This would result in 3 20% decrease in variable cost per unt, but @ 15% increase in fixed costs. ‘Sales would temain the seme. 2. Spend P30,000 on a new advertising cempaign, which would increase sales by 20%. 3, Increase both seling price by P10 per unit and variable costs by P7 per unit by using a higher quality leather material in the production of its shoes. The higher priced shoe would cause demand to drop by anoroximately 10%. 4, Add a second manufacturing faciity which would double Lite's fired costs, but would Increase sales by 60%. 0 ain Evaluate each of the alternatives considered by Lite Shoes. Do any of the options meet or exceed Lite's targetud increase in income of 25%? What should Lite do? MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 4 of 23 4. Alphabet Corporation sells three products: J, K, and L. The following information was taken from a recent budget: Tee Unit sales 40,000 130,000 30,000 Selling price P60 Peo P75 Variable cost 40 65 50 Total fixed costs are anticipated to be P2,45¢,000. REQUIRED: a. Calculate the breakeven points in units and in pesos for J, K, and L ». If Alphabet desires to Increase company profitability, should it attempt to increase or decrease the sales of product K relative to those of J and L? Briefly explain. 5. Zacarello Company produces a single product. The projected income statement for the coming year is as follows: Sales (50,000 units @ P50) 2,500,000 Less: Variable costs 1,440,000 Contribution margin 1,060,000 Less: Fixed costs 816.412 Operating income P.243,588 REQUIRED: 1. Compute the unit contribution margin and the units that must be sold to break aven. ., Suppose that 30,000 units are sold above breakeven. What is the profit? 2. Compute the contribution margin ratio and the break-even point in pesos. Suppose that revenues are P200,000 more than expected. What would the total profit be? 3. Compute the margin of safety. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units rust be sold to earn a profit equal to 10 percent of sales? 6. Assume that the tax rate Is 40 percent. How many units must be sold to earn an after- tax profit of P180,000? 6. — Dackers Company, wholesaler of jeans, had the following income statement for last year: Sales (40,000 pairs at P35) 1,400,000 Cost of sales 800,000 Gross margin 600,000 Selling expenses 350,000 ‘Administrative expenses 190,000 540,000 Income P_ 60,000 Mr. Dackers informs vou that the only variables costs are cost of sales and P2 per unit selling costs. All administrative expenses are fixed. In planning for the coming year, Mr. Dackers expects his selling price to remain constant, with unit volume increasing by 20%. He also forecasts the following changes in costs and is concerned about how they will affect profitability. Varlable costs: Cost of goods sold up P1.50 per unit Selling costs Uup PO.10 per unit Fixed costs: Selling costs up P40,000 ‘Administrative costs up P30,000 (REQUIRED: 1. Compute the expected income for the coming year, assuming that all forecasts are met, _ MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 5 of 23 2. Determine the number of units that Dackers will have to sell in the coming year to earn the same profit as the current year. 3. Mr. Dackers is disturbed at the results of requirements 1 and 2. He asks you how much he must raise his selling price to earn P60,000 selling 48,000 units. 7. Gosnell Company produces two products: squares and circles. The projected income for the coming year, segmented by procuct line, follows: Squares Circles Total Sales 300,000 P2,500,000 2,800,000 Less: Variable expenses 100,000 500,000 600,000 - . Contribution margin P200,000 2,000,000 P2,200,000 Less: Direct fixed expenses __28,000 1,500,000_ 1,528,000 Product margin 172,000 P'500,000 © P672,000 Less: Common fixed expenses 100,000 Operating income 572,000 The selling prices are P30 for squares and PSO for circles. REQUIRED: 1, Compute the number of units of each product that must be sold for Gosnell Company to break even. 7.400; 37,000 2. Compute the revenue that must be earned to produce an operating income of 10 Percent of sales revenues, (2,374,216 ‘Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles, Repeat Requirements 1 and 2. 28,786; 31,319; 2,449,225 Refer to the original data. Suppose that Gosnell can increase the sales of squares.with increased advertising. The extra advertising would cost an additional P45,000, and some of the potential purchasers of circles would switch to squares. In total, sales of Squares would increase by 15,000 units, and sales of circles would decrease by 5,000 Units. Would Gosnell be better off wth this strategy? P 55,000 increase in profit. This is a good strategy 3. 8. . Hay! Co. produces a single product. Sales have been very erratic, with iegular monthly Operating results. The company's income statement for the most recent month is given below: Sales (15,000 units ) 450,000 Less variable expenses 315,000 Contribution Margin 135,000 Less fixed expenses 150,000 Net Loss (15,000) REQuiRED: Compute the company’s CM “atio and its break-even ESOS. 30%; 16,966.67; PE00,000 2. The sales manager feels that a P20,000 increase in budget, combined with an intensified effort by the sales staff, will result in a 100,000 increase in monthly sales. if the sales manager is right, what will be the effect on the company's monthly net income or loss? 1P10,000 The president is convinced that a 10% reduction in the selling price, combined with @ P50,000 increase in the monthly advertising budget, will cause unit sales to double. ‘What will the new income statement look like if these changes are adopted? P20,000 loss Refer to the original data. ‘The company’s advertising agency thinks that a new Package for the company’s product would help sales. The new package being Proposed would increase packaging costs by P3 per unit. Assuming no other changes in cost behavior, how many units would have to be sold each month to earn a profit of P9,000? 26,500 Refer to the original data. By automating certain operations, the company could slash its variable expenses to half. However, fixed costs would increase to 250,000 per month, point in both units and the monthly advertising MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 6 of 23 ‘a. Compute the new CM ratio and the new break-even point in both units and pesos. 65%; 12.6201 units; P384,615 b. Assume that the company expects to sell 20,000 units next month Prepare two income statements, one assuming that operations are not automated and one showing that they are. Not, P30,000: Auto: P140,000 c. Would you recommend that the company automate its operations? Explain. Automate 9, Great Wall Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 15,000 pairs of cross-country skis of the mountaineering model or the touring model, The Sales Department assures management that it can sell between 9,000 pairs and 13,000 pairs of either product this year. Because the models are very similar, Great Wall will produce only one of the two models. ‘The following information was compiled by the Accounting Department. Pe er-Unit (Pair) Data Mountaineering Touring Selling price 88.00 80.00 Variable costs 52.80 52.80 Fixed costs will total P369,600 if the mountaineering model is produced but will be only 316,800 if the touring model is produced. Great Wall Ski is subject to a 40 percent income tax rate, REQUIRED: a. Compute the contribution margin for each product line. 35.20 or 40%; 27.20 or 34% b. If Great Wall desires an after-tax net income of 22,080, how many pairs of touring skis will the company have to sell? 13,000 c. How much would the variable cost per unit of the touring model have to change before it had the same break-even point in units as the mountaineering model? des. 2.97 _ d. Suppose the variable cost per unit of touring skis decreases by 10 percent, and the total fixed cost of touring skis increases by 10 percent. Compute the new break-even point. 10,726.06 €. Suppose management decided to produce both products. If the two models are sold in equal proportions, and total fixed costs amount to P343,200, what is the firm’s break-even point in units? 11,000 f. Suppose that Great Wall decided to produce only one model of ski. What is the total sales revenue at which Great Wall would make the same profit or loss regardless of the ski model It decided to produce? >880,000 9. If the Great Wall sales department could guarantee the annual sale of 12,000 pairs of either model, which model would the company produce and why? M=52,8C0; T=9,600 10. Popoy Company and Basha Company both make wall clocks. They have the same production capacity, but Popoy is more automated than Basha. At an output of 2,000 wall clocks per year, the two companies have the following data: Popoy Basha Fixed costs 500,000 300,000 : : Selling price 400 400 Variable cost per unit 100 200 REQUIRED: By how much would each company's income change if production and sales level increase by 500 units per year? Increase by 150,000; 100,000 MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 7 of 23 11. Following are data taken from the most recent income statement of Whitney Company: Sales (45,000 units at P10 per unit) 450,000 Less cost of goods sold: Direct materials 90,000 Direct labor 78,300 Manufacturing overhead 98,500 266,800 Gross margin 183,200 Less operating expenses: Selling expenses Variable: Sales commissions 27,000 : Shipping 5,400 32,400 Fixed (advertising, salaries) 120,000 Administrative: Variable (billing and other’ 1,800 Fixed (salaries and other) 48,000 202,200 Net operating loss (19,000) All variable expenses in the company vary In terms of unit sold, except for sales commissions which are based on peso sales, Variable manufacturing overhead is P0.30 per unit. There were ‘no beginning or ending inventories. Whitney Company's plant has a capacity of 75,000 units per year, ‘The company has been at a loss for several years. Management is studying several possible Courses of action to determine what should be done to make next year profitable, REQUIRED: 1. The president is considering two proposals prepared by his staff: : : a. For next year, the vice president would like to reduce the unit selling price by 20%. She Is certain that this would fill the plant to capacity. (4,000) b. For net year, the sales manager would like to reduce the unit selling price by 20%, increase the sales commission to 9% of sales, and increase advertising by P100,000. Based on marketing studies, he is confident this would increase unit sales by one-third. Compute the amounts of income, one under the vice president's proposal and the other one under the sales manager’s proposal. (168,200) 2. Refer to the original data. The president believes it would be a mistake to change the Unit selling price. Instead, he wants to use less costly raw materials, thereby reducing Unit costs by P0.70. How many units would have to be sold next year to earn a target profit of P30,200? -i8,000 3. Refer to the original data. Whitney Company's board of directors believes that the ‘company’s problem lies in inadequate promotion. By how much can advertising be Increased and still allow the company to earn a target profit of 4.5% on sale of 60,000 units? 32,000 4, Refer to the original data. The company has been approached by an overseas distributor who wants to purchase 9,500 units on a special price basis. There would be no sales ‘commission on these units. However, shipping costs would be increased by 50% and variable administrative cost would be reduced by 25%. In addition, a PS,700 special Insurance fee would have to be paid by Whitney Company to protect the goods in transit. What unit price would have to be quoted on the 9,500 units by Whitney Company to allow the company to earn a profit of P14,250 on total operations? Regular business would not be affected by this special order. 15 MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 8 of 23 12. Pittman Company is a small but growing manufacturer of telecommunications equipment. ‘The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a commission of 15% of selling price for all items sold. Barbara Cruz, Pittman's controller, has just prepared the company’s budgeted income statement for next year. The statement shows the following: Sales 16,000,000 Manufacturing costs: Variable 7,200,000 Fixed overhead 2,340,000 —9.540,000 Gross margin 6,460,000 ‘Commissions to agents 2,400,000 Fixed marke:ing costs 120,000* Fixed admin strative costs 1,800,000 —4,320,000 Net operating income 2,140,000 Less fixed interest cost 540,000 Income before income taxes 1,600,000 Less income taxes (30%) ——480,000 Net income -P1.120,000 *Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vega, Pittman’s president, she commented, “I went ahead and used the agents 15% commission rate in completing these statements, but we've Just leaned that they refuse to handle our products next year unless we increase the commission rate to 20%.” “That's the last straw," Kari replied angrily. “Those agents have been demanding more, and More, and this time they've gone too far. How can they possibly defend a 20% commission rate?” “They claim that after paying for advertising, travel, and the other costs of promotion, there’s nothing left over for profit,” replied Barbara, “I say it’s just plain robbery,” retorted Karl. " And I also say it’s time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?” “We've already worked hem up,” said Karl. Several companies we know about pay a 7.5% ‘commission to their own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed costs would increase by P2,400,000 per year, but that would be more than offset by the P3,200,000 (20% x P16,000,000) that we would avoicl on agents’ commissions.” ‘The breakdown of the P2,400,000 cost follows: Salaries: . Sales Manager P 100,000 Salespersons 600,000 Travel anc entertainment 400,000 Advertising 1,300,000 Total 2,400,000 “Super,” replied Karl. "And'I noticed that the P2,400,000 is just what we're paying the agents under the old 15% commission rate.” It’s even better than that,” explained Barbara. “We can actually save P75,000 a year because that’s what we're having to pay the auditing firm now to check out the agent's reports. So our ‘overall administrative costs would be less.” MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 9 of 23 Pull all of these numbers together and welll show them to the executive committee tomorrow,” said Karl, ‘With the approval of the committee, we can move on the matter immediately.” REQUIRED: 1. Compute Pittman Company's break-even point in peso sales for next year assuming: a. That the agent's commission rate remain unchanged at 15%. 12M b. That the agents’ commission rate Is increased to 20%. 13,714,286 That the company employs its own sales force 1Sé 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the volume of sales that would be required to generate the same net income as contained in the budgeted income statement for next year, 18,285,714 a 3. Determine the volume of sales at which net income would be equal regardless of whether Pittman Company sells through agents ( at 2 20% commission rate) or employs its own sales force. 18,600,000 4. Compute the degree of leverage that che company would expect to have on December 31 at the end of next year assuming: @. That the agents’ commission rate remains unchanged at 15%. 6,400, 1600=4 b. That the agents’ commission rate is increased to 20%. 5,600/800=7 ©. That the company employs its own sales force. 7,600/475=16 13. Snape Company has fixed expenses of P120,000, a variable cost ratio of 70% and a margin of safety ratio of 20% for a quarter's operations, REQuIRED: Compute the company’s profit fer the quarter. P30,000 (Sales of P500,000 x 69%) (Prost ratio = 30% x 20% = 6%) 14. ‘The accountant of Sirus Company is trying t> prepare comparative income statements for the last two months of the year 2019. However, he obtained only the following information: « November December Sales 400,000 : Contribution margin ratio 40% 25% Break even sales ratio 70% 80% Changes in the given ratics are due to the decrease in sales price and fixed costs. REQUIRED: 1. Decrease in sales 2. Decrease in fixed costs 3. Compute the break-even point for December. 15. Pomfrey Company has annual fixed costs of P78,000. In the year 2019, sales increased by 20% from the 2018 level of P600,000. Profit for the year 2019 was P36,000 higher than in 2018. REQuiRED: 1. If there is no need to expand the company’s capacity, how much should profit be in the year 2020 if the budgeted sales volume is P1,350,000? 2. What is the company’s break-even point? MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 10 of 23 WINDING-UP PROBLEMS IN COST-VOLUME-PROFIT/ BREAK-EVEN ANALYSIS 1, Tierra Company prepared the following preliminary forecast concerning Product X for 2020 assuming no expenditure for advertising: Selling price per unit P10 Unit sales 100,000 Variable costs 600,000 Fixed costs 300,000 Based on a market study In December 2019, Tierra estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if P100,000 was spent in advertising. Assuming that Tlerra incorporated these changes in its 2020 forecast, what should be the operating income from Product X? a. P175,000 c. 205,000 b. P190,000 d, 365,000 2. Darigold, Inc., sells Product M for P5 per unit. The fixed cost is 210,000 and the variable cost is 60% of the selling price. What would be the amount of sales if Darigold is to realize a profit of 10% of sales? a. P700,000 cc. 472,500 b. 525,000 d. P420,000 3. Dukha Company is considering a proposal to replace existing machinery used for the manufacture of Product E. The new machines are expected to cause increased annual fixed cost of P120,000; however, variable cost should decrease by 20% due to a reduction in direct- labor hours and more efficient usage of direct materials. Before this change was under consideration, Dukha had budgeted Product E sales and costs for 2020 as follows: Sales 2,000,000 7 Variable cost 70% of sales Fixed cost 400,000 ‘Assuming that Dukha implemented the above proposal by January 1, 2020, what would be the increase in budgeted operating profit for Product E for 2020? a. 160,000 c. P360,000 b. P280,000 4, P380,000 4. Remar, Inc. reported the following results from sales of 5,000 units of Product C for the month of June 2019: Sales 200,000 Variable cost 120,000 Fixed cost 60,000 Operating income 20,000 ‘Assume that Remar, Inc. increases the selling price of Product C by 10% on July 1, 2019. How ‘many units of Product C would have to be sold in July 2019 in order to generate an operating income of P20,000? a. 4,000 c. 4,500 b. 4,300 d. 5,000 5. Araw Corporation is planning its advertising campaign for 2020 and has prepared the following budget data based on a zero advertising expenditure: ‘Normal plant capacity 200,000 units Sales 150,000 units Selling price P25 per unit Variable manufacturing cost PS per unit Fixed cost: Manufacturing 800,000 Selling & administrative 700,000 MAS 8703 COST-VOLUME-PROFIT ANALYSIS Page 11 of 23, An advertising agency claims that an aggressive advertising campaign would enable Arav to Increase its unit sales by 20%, What Is the maximum amount that Araw can pay for advertising and obtain an operating profit of 200,000? a. 100,000 c. P300,000 b. 200,000 d. 550,000 In planning its operations for 2070 based on a sales forecast of 6,000,000, Thone, Inc., prepared the following estimated data; COST AND EXPENSES Variable Fixed Direct materials 1,600,000 . . Direct labor 1,400,000 Factory overhead 600,000 P 900,000 Selling expenses 240,000 360,000 Administrative expenses, —140,000 ——60,000 P3,900.000 P1.400,000 What would be the mount of sales in pesos at the break-even point? a. 2,250,000 cc. P4,000,000 b. P3,500,000 d.P5,300,000 Merissa Company Is planning to sell 100,000 units of Product Y for P12 a unit. The fixed cost ts F280,000. In order to realize a profit of 200,000, what would the variable cost be? a. P480,000 c, P300,000 b. P720,000 d. P220,000 Bibot Company has projected cost of goods sold of P4,000,000, including fixed cost of 800,000. Variable cost is expected to be 75% of net sales. What will be the projected net sales? a. P4,266,667 c. P3,333,333 b. 4,800,000 d. P4,400,000 ‘The Little Star Company is planning to sell 200,000 units of Product M. The fixed cost is 400,000 and the variable cost is 60% of the selling price. In order to realize a profit of 100,000, the selling price per unit would have to be a. P3.75 c. P6.00 b. Patz, d. P6.25 ITEMS 10 and 11 ARE BASED ON THE FOLLOWING INFORMATION. 10. ML 2 Bruto, Inc. produces only two products, Popeye an Olive. These account for 60% and 40% of the total sales in pesor of Bruto, respectively. Variable costs (as a percentage of sales) in pesos are 60% for Popeye and 85% for Olive. Total fixed cost is P150,000. There are no other costs. What is Bruto’s break-even point in sales (in 92505)? a. 150,000 . P300,000 b. 214,286 d. P500,000 Assuring that the total fixed cost of Bruto increases by 30%, what amount of sales in pesos would be necessary to generate a net incorne of P9,000? a, P204,000

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