PROFIT PLANNING

Breakeven Point - Units

DEF Company is a retailer for video disks. The projected net income
for the current year is P200,000 based on sales volume of 200,000
video disks. DEF has been selling the disk for P16 each. The
variable cost consists of P10 unit purchase price of the disks and
handling cost of P2 per disk. DEF’s annual fixed costs are
P600,000. Management is planning for the coming year and it
expects that the unit purchase price of the video disks will
increase 30%. (Ignore income taxes).
What is the company’s break-even point for the current year in
number of video disks?
a. 152,000. c. 155,000.
b​. 150,000. d. 140,000

Marginal Revenue per Unit

An organization's sales revenue is expected to be $72,600, a 10%
increase over last year. For the same period, total fixed costs of
$22,000 are expected to be the same as last year. If the number of
units sold is expected to increase by 1,100, the marginal revenue
per unit will be (M)
a. $4 c. $20
b​. $6 d $46

Desired Sales
CM per Unit
The following information relates to Clyde Corporation, which
produced and sold 50,000 units during a recent accounting period:
Sales $850,000
Manufacturing costs
Fixed 210,000
Variable 140,000
Selling and
administrative costs
Fixed 300,000
Variable 45,000
Income tax rate 40%
For the next accounting period, if production and sales are
expected to be 40,000 units, the company should anticipate a
contribution margin per unit of (M)
a. $1.86 c. $7.30
b. $3.10 e​. $13.30

Before Tax Income

Games Corp. expected to sell 150,000 board games for July. Its
master budget related to the sale and production of these items is
presented below:
In Thousand Pesos
Revenue 480
Cost of goods sold
Direct materials 135
 Direct labor 60
Variable overhead 90 285
Contribution margin 195
Fixed overhead 50
Fixed selling and 100 150
administrative
Operating Income 45
July’s sales registered at 180,000 board games. Using a
flexible budget the company expects the operating income for
July to be (M)
a. P102,000 c​. P84,000
b. P270,000 d. P45,000

Desired Before-Tax Return on Investment

Target Price
Matubo Corp. aims to earn a 25% return on its P500,000 investment in
equipment used in the manufacture of product FX. Based on
estimated sales of 10,000 units of FX next year, the costs per
unit were estimated as follows:
Variable manufacturing costs P25
Fixed selling & 10
administrative costs
Fixed manufacturing costs 5
FX should be priced at (E)
a​. P52.50 c. P50.00
b. P45.00 d. P55.00

Desired Incremental Income Before-Tax

CM Ratio
Last year, the contribution margin ratio of Lamesa Company was 30%.
This year, fixed costs are expected to be $120,000, the same as
last year, and sales are forecasted at $550,000, a 10% increase
over last year. For the company to increase income by $15,000 in
the coming year, the contribution margin ratio must be (M)
a. 20% c. 40%
b​. 30% d. 70%

Comprehensive
Yakal Company show the following budgeted data for the year 1984:
Estimated sales 18,000 units
Estimated costs Amount Per Unit
Direct labor P54,000 P3.00
Materials 8,100 .45
Fixed overhead 13,500 .75
Administrative 16,200 .90
expenses
Total P91,800 P5.10
Selling expenses are expected to be 20% of sales and profit before
tax is to amount to P1.50 per unit.
In order to attain the company’s goal for 1984, the selling price per
unit must be set at: (M)
a. P5.10 c​. P8.25
b. P6.60 d. P9.75

The Company’s break-even point in units assuming that overhead and

administrative expenses are fixed but that other expenses are
fully variable is equal to: (M)
a. 4,826 units. c​. 9,428 units.
b. 5,143 units. d. 18,000 units.