Basic Illustration Corporation produces and sells a single product.

The selling price is P25 and

the variable costs is P15 per unit. The corporation’s fixed costs is P100,000 per month. Average
monthly sales is 11,000 units.
Compute for the following:
1. The corporation’s contribution margin per unit and as percent of sales (CMR)

Control Margin = Selling Price – Variable Cost

= P25 – P15
= P10

Total Sales−Total Variable Cost

Control Margin Ratio =
Total sales
[ ( P 25∗11,000 )−( P15∗11,000 ) ]
=
P25∗11,000
275,000−165,000
=
275,000
110,000
= = 0.4 * 100 = 40%
275,000

2. The corporation’s break-even point (units/pesos)

Break-even point (units) = Fixed Cost / Control Margin

= 100,000 / 10
= 10,000 units

Break-even point (pesos) = 10,000 units * Selling Price

= 10,000 units * P25
= P250,000

3. If the corporation desires to earn profit of P20,000 before tax, how many units must
be generated?

Total
Target sales = ¿ Cost +Target Income ¿
Control margin per unit
100,000+20,000
=
10
120,000
= = 12,000 units
10
4. If the corporation pays corporate income tax at the rate of 30% and it desires to earn
after-tax profit of P21,000, how much sales and how many units must be generated?

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 Total
Target sales = ¿ Cost +[TI /(1−Tax Rate )] ¿
Control margin per unit
21,000 21,000
100,000+{ } 100,000+{ }
= 1−30 % = 70 % =
10 10
100,000+30,000 130,000
= = 13,000 units
10 10

Target Sales (pesos) = 13,000 units * Selling Price

= 13,000 units * P25
= P325,000

5. How much sales (in pesos) must be generated to earn profit that is 8% of such sales?

Total
Target sales (pesos) = ¿ Cost ¿
Control margin−( Percentage∗Selling Price)
100,000 100,000
= = = 12,500 units * P25 =
10−(8 %∗P25) 10−2
P312,500

6. How many units must be sold to earn profit of P2 per unit?

Total
Total sales(units) = ¿ Cost ¿
[ ( Selling Price−Target profit )−Variable cost per unit ]
100,000 100,000
= = = 12,500 units
[ ( P 25−P 2 )−P15 ] 8

7. With average monthly sales of 11,000 units, what is the corporation’s margin of
safety?

Margin of safety (units) = Actual sales in units – BEP

= 11,000 – 10,000
= 1,000 units

Margin of safety (pesos) = Actual sales – BES

= (11,000 * P25) – 250,000
= P25,000

8. Compute for the corporation’s Margin of safety ratio (MSR) and the Break-even ratio
(BESR)

Margin of Safety Ratio = Margin of safety(units) / Actual sales(units)

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 = 1,000 / 11,000
= 0.09 * 100 = 9%

Break-even Sales Ratio = Break-even Sales / Actual Sales (pesos)

= P250,000 / P275,000
= 0.91 * 100 = 91%

9. At the present average monthly sales level of 11,000 units, what is the corporation’s
operating leverage factor?

( Units∗Control Margin )−Total

Degree of operating leverage = Units∗Contributionmargin
[¿cost ]
11,000∗10
=
[ ( 11,000∗10 )−100,000]
110,000 110,000
= = = 11
110,000−100,000 10,000

10. If fixed costs will increase by P20,000, the break-even point in units will increase
(decrease) by how many?

Break-even Point = (Total Fixed Cost +Increase) / Contribution Margin

= (100,000 + 20,000) / 10
= 120,000 / 10 = 12,000 units

Break-even point units (increase) = 12,000 – 10,000 = 2,000 units

11. If variable costs per unit will go up by P5, the peso break-even sales will increase
(decrease) by how much?

Break-even Sales = (Total fixed cost * Sales) / (Sales – Variable costs)

= (100,000 * 275,000) / ( 275,000 – 220,000)
= 27,500,000,000 / 55,000
= 500,000

Break-even sales (increase) = 500,000 – 250,000 = 250,000

12. If selling price will increase to P30, what happen to break-even point in units?

Break-even point (units) = Total Fixed Costs / (Selling Price – Variable Cost)
= 100,000 / (30 – 15)
= 100,000 / 15
= 6,666.67 = 6,667 units

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 Break-even point in units will decrease from 10,000 to 6,667 units.

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