MGMT 222

Module 5 Activity 1

Name: PADERNAL, RONIC M. Course/Year/Section: BSA 2-A

Deadline: May 23, 2022 Grade for : QUIZ (50pts)

Louis Company distributes a single product. The company’s sales and expenses for last
month follow:

Total Per Unit

Sales P 450,000 P 30

Variable Expenses (180,000) (12)

Contribution Margin 270,000 P 18
Fixed Expenses (216,000)
Net Operating Income P 54,000

Required:
1. What is the monthly break-even point in units sold and in sales pesos? (10 pts)

Breakeven in units = Fixed Costs / CM per unit

P 216,000 / P 18 = 12,000 units

2. Without resorting to computations, what is the total contribution margin at the break-
even point? (5pts)

P 216,000
The amount of fixed cost!
Revenue – Variable costs = Fixed costs
Contribution margin = Fixed costs

3. How many units would have to be sold each month to earn a target profit of P 90,000?
Verify your answer by preparing a contribution format income statement at the target
sales level. (15 pts)

Target profit sales in units = (Fixed Costs + TP)/CM per unit

(P 216,000 + P 90,000) / P 18 =
P 306,000 / P 18 = 17,000 units
Check: (17,000 * P 18) – P 216,000 = P 90,000
P 306,000 – P 216,000 = P 90,000
P 90,000 = P 90,000
4. Refer to the original data. Compute the company’s margin of safety in both peso and
percentage terms. (10pts)

Margin of safety in dollars = Sales – Break-even point in sales dollars

Sales = P 450,000
Break-even point in sales dollar = P 360,000
Margin of safety in dollars = P 450,000 – P 360,000 = P 90,000
Margin of safety as percentage of sales = P 90,000/P 450,000 = 20%

5. What is the company’s CM ratio? If sales increase by P 50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating
income to increase? (10pts)

Contribution margin ratio = (total revenue - variable costs) / total revenue = (P

450,000 – P 180,000) / P 450,000 = 60%

P 50,000 x 60% = P 30,000