BULACAN POLYTECHNIC COLLEGE

McArthur Highway, Barangay Bulihan, City of Malolos, Bulacan 3000

Name: Angela T. Dela Peña

Year level/Section: BSAIS-2A
Subject: Financial Management 223
Module Date: April 3, 2020

Topic Title: OPERATING AND FINANCIAL LEVERAGE (Chapter 8)

A. Application
In a ½ sheet of yellow paper crosswise, what is meant by a product’s contribution
margin ratio? How is this ratio useful in planning business operations?

I. Evaluation/Quiz (10 Points)

Instruction: Solve the following problems below in a ½ sheet crosswise yellow paper.
1. Mariah Corporation is a distributor of sun umbrella used at resort hotels. Data
concerning the next month’s budget appear below:
Selling price P30 per unit
Variable expenses P20 per unit
Fixed expenses P7,500 per month
Unit sales 1,000 units per month
a. Compute the company’s margin of safety.

Answer:

Margin of safety = (Selling Price x Unit Sales)-(Variable Expenses x Unit

Sales) - Fixed Expenses
= (30 x 1,000)-(20x1,000)-7,500 = 2,500

b. Compute the company’s margin of safety as a percentage of its

sales.

Answer:

VE x US – 20 x 1,000 = 20,000
SE x US – 30 x 1,000 = 30,000
20,000/30,000 = 0.67 or 67%

II. Assignment
1. What are trade or commercial credit, consumer or retail credit, and credit policy
in relation to accounts receivable management; and inventory management and
its objectives? Answers should be in a ½ sheet crosswise yellow paper.