Dianne Company makes a product that sells for P240 per unit.

Variable costs are P144 per

unit and fixed costs total P3,840,000 annually. The company sold 68,000 units during
the current year.

1. Compute for the unit contribution margin.

Unit contribution margin = Sales price per unit - Variable cost per unit
wherein:
Sales price per unit = P240
Variable cost per unit = P144

Unit contribution margin = P240 - P144

Unit contribution margin = P96

2. Compute for the contribution margin rate.

Contribution margin rate = Unit contribution margin / Sales price per unit * 100
wherein:
Unit contribution margin = P96
Sales price per unit = P240

Contribution margin rate = P96 / P240 * 100

Contribution margin rate = 40%

3. Compute for the variable cost rate.

Variable cost rate = Variable cost per unit / Sales price per unit * 100
wherein:
Variable cost per unit = P144
Sales price per unit = P240

Variable cost rate = P144 / P240 * 100

Variable cost rate = 60%

4. Compute for the breakeven point in units.

 Breakeven point in units = Fixed costs / Unit contribution margin
wherein:
Fixed costs = P3,840,000
Unit contribution margin = P96

Breakeven point in units = P3,840,000 / P96

Breakeven point in units = 40,000 units

5. Compute for the breakeven point in pesos.

Breakeven point in pesos = Fixed costs / Contribution margin rate

wherein:
Fixed costs = P3,840,000
Contribution margin rate = 40%

Breakeven point in pesos = P3,840,000 / 40%

Breakeven point in pesos = P9,600,000

6. Compute for the margin of safety in units.

Margin of safety in units = Current sales units - Breakeven point in units

wherein:
Current sales units = 68,000 units
Breakeven point in units = 40,000 units

Margin of safety in units = 68,000 - 40,000

Margin of safety in units = 28,000 units

7. Compute for the margin of safety in pesos.

Margin of safety in pesos = Current sales - Breakeven point in pesos

wherein:
Current sales = 68,000 units * P240 = P16,320,000
Breakeven point in pesos = P9,600,000

Margin of safety in pesos = P16,320,000 - P9,600,000

 Margin of safety in pesos = P6,720,000

8. Compute for the margin of safety ratio.

Margin of safety ratio = (Current sales - Breakeven point in pesos) / Current sales * 100
wherein:
Current sales = 68,000 units * P240 = P16,320,000
Breakeven point in pesos = P9,600,000

Margin of safety ratio = (P16,320,000 - P9,600,000) / P16,320,000 * 100

Margin of safety ratio = P6,720,000 / P16,320,000 * 100
Margin of safety ratio = 41.18%

KG Company manufactures and sells a single product. The company's sales and
expenses for the recent month are shown below.

TOTAL PER UNIT

Sales 600,000 40
Less: Variable Expenses 420,000 28
Contribution Margin 180,000 12
Less: Fixed Expenses 150,000
Profit 30,000
 1. What is the breakeven point in units?

Breakeven point in units = Fixed costs / Unit contribution margin

wherein:
Fixed costs = P150,000
Unit contribution margin = P12

Breakeven point in units = P150,000 / P12

Breakeven point in units = 12,500 units

2. What is the breakeven point in pesos?

Breakeven point in pesos = Fixed costs / Contribution margin rate

wherein:
Fixed costs = P150,000
Contribution margin rate = P12 / P40 = 0.3 or 30%

Breakeven point in pesos = P150,000 / 30%

Breakeven point in pesos = P500,000

3. What is the contribution margin at breakeven point?

Contribution margin = Breakeven point in units * Unit contribution margin

wherein:
Breakeven point in units = 12,500 units
Unit contribution margin = P12

Contribution margin = 12,500 units * P12

Contribution margin = P150,000

4. How much is the total fixed costs and expenses at breakeven point?

The total fixed costs and expenses at breakeven point will remain at P150,000. This is fixed
regardless of how many units are sold.
 5. How much is the margin of safety in pesos?

Margin of safety in pesos = Current sales - Breakeven point in pesos

wherein:
Current sales = P600,000
Breakeven point in pesos = P500,000

Margin of safety in pesos = P600,000 - P500,000

Margin of safety in pesos = P100,000

6. How much is the margin of safety in units?

Margin of safety in units = Current sales units - Breakeven point in units

wherein:
Current sales units = P600,000 / P40 = 15,000 units
Breakeven point in units = 12,500 units

Margin of safety in units = 15,000 - 12,500

Margin of safety in units = 2,500 units

7. How many units must be sold to earn a minimum profit of P12,000?

Target units to be sold = (Fixed costs + Target profit) / Unit contribution margin
wherein:
Fixed costs = P150,000
Target profit = P12,000
Unit contribution margin = P12

Target units to be sold = (P150,000 + P12,000) / P12

Target units to be sold = P162,000 / P12
Target units to be sold = 13,500 units

8. If sales increase by 80,000, how much is the expected increase in profit?

First, let us compute for the degree of operating leverage.
DOL = Contribution margin / Profit
wherein:
Contribution margin = P180,000
Profit = P30,000

DOL = P180,000 / P30,000

DOL = 6

We can also compute DOL using the formula:

DOL = % change in profit / % change in sales
wherein:
DOL = 6
% change in sales = P80,000 / P600,000 = 13.33%

6 = % change in profit / 13.33%

% change in profit = 6 * 13.33%
% change in profit = 0.8 or 80%

The expected increase in profit is:

Increase in profit = Old profit * % change in profit
wherein:
Old profit = P30,000
% change in profit = 0.8 or 80%

Increase in profit = P30,000 * 80%

Increase in profit = P24,000
Gandaku corporation produces and sells three products and has provided you the
following operating data:

PRODUCTS
X Y Z
Unit sales price 400 600 700
Unit variable cost 100 350 500
 Budgeted sales in units 500 300 200 1,000
Budgeted sales in pesos 200,000 180,000 140,000 520,000
Total fixed costs 795,000

1. compute for the breakeven point in total units.

2. compute for the breakeven point in total pesos.
3. compute for the units X must sell at breakeven point.
4. compute for the units Y must sell at breakeven point.
5. compute for the units Z must sell at breakeven point.
6. compute for the units Z must sell at breakeven point.
7. compute for the total contribution margin if the company expects a profit of
P2,000,000.
8. compute for the total sales in pesos if the company expects a profit of
P2,000,000.

Santiago Enterprises produces and sells product AU and makes available to you the following
data:

Unit sales price 80

Unit variable costs 50
Total fixed costs 600,000
Unit sold 45,000

1. Based on the attached data, what is the contribution margin rate?

The contribution margin is 30 (80-50).

The contribution margin rate is 37.50% or 38% (30/80).

2. Based on the attached data, what is the breakeven point in pesos?

BEP (pesos) = P 600,000/ 37.50% = P 1,600,000

3. Based on the attached data, suppose the unit variable costs increase by 10%,
what is the new breakeven point in pesos?
 USP P 80
UVC (P 50 x 110%) 55
UCM P 25

CMR = P 25 / P 80 = 31.25%

BEP = P 600,000/ 31.25% = P 1,920,000

4. Based on the attached data, suppose the total fixed costs decrease to
P450,000, by how much is the increase in the new contribution margin
rate?

CMR = P 30 / P 80 = 37.50%

5. Based on the attached data, suppose the total fixed costs decrease to
P450,000, what is the new breakeven point in pesos?

BEP = P 450,000/ 37.50% = P 1,200,000

6. Based on the attached data, suppose the units sold increase by 20%, what is
the new operating profit?

Units sold (45,000 x 120%) 54,000

CMR = 37.50%

BEP = P 600,000/ 37.50% = P 1,600,000

CM (54,000 x P 30) P 1,620,000

- FC 600,000
Operating profit P 1,020,000