Problem 2: Basic Corp. 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 P 100,000 per month. Average monthly sales
Is 11,000 units.

A)     The corporation’s contribution margin per unit and as a percent of sales (CMR): P10 per unit; 40%
11,000
S 25 275,000 100%
VC 15 165,000 60%
CM 10 110,000 40%
FC 100,000 100,000
NI/P 10,000

B)     The corporation’s break-even point: 10,000 units or P250,000

BEP units = FC/unit CM BEP peso sales = FC/CM%
100,000 100,000
10 40%
10,000 250,000

C)     If the corporation desires to earn profit of P20,000 before tax, it must generate sales of:
12,000 12,000 units or P300,000
S 25 300,000
VC 15 180,000
CM 10 120,000
FC 100,000
NI/P 20,000

D)     If the corporation pays corporate income tax at the rate of 30% ,and it desires to earn
after tax profit of P21,000, it must generate sales of: 13,000 units or P325,000
13,000
S 25 325,000
VC 15 195,000
CM 10 130,000
FC 100,000
NI/P 30,000
TR 30% 9,000
NIAT 70% 21,000

E) How much sales (in peso) must be generated to earn profit that is 8% of such sales? 312,500
Peso sales with target ROA = FC/(CM%-ROA)
100,000
32%
312,500

F)     How many units must be sold to earn profit of P2 per unit? 12,500
Unit sales with target profit per unit = FC/(CMu-2)
 100,000
8
12,500

G) With an average monthly sales of 11,000 units, the corporation’s margin of safety is: 1,000 units or P 25,000
MoS = Sales-BEP sales MoSu = Sales units-BEP sales units
275,000 11,000
250,000 10,000
25,000 1,000

H)     The margin of safety ratio (MSR) and the break-even sales ratio (BESR) are: MSR- 9%. BESR- 91%
MSR BESR
25,000 250,000
275,000 275,000
9% 91%

I)     At the present average monthly sales level of 11,000 units, the corporation’s operating leverage factor (OLF) is:
OLF = CM/Profit before tax
110,000
10,000
11

J)     If fixed cost will increase by P20,000, the break-even point in units will increase (decrease) by:
BEP units = FC/unit CM
120,000 12,000
10 10,000
12,000 2,000 increase

K)     If variable costs per unit will go up by P5, the peso break-even sales will increase (decrease) to:
% BEP peso sales = FC/CM%
S 25 100% 100,000
VC 20 80% 20%
CM 5 20% 500,000 increase

L)     If selling price will increase to P30, the break-even point in units will: Decrease to 6,666.67
BEP units = FC/unit CM
S 30 100,000
VC 15 15
CM 15 6,667
er unit; 40%
1,000 units or P 25,000

9%. BESR- 91%

ge factor (OLF) is: 11

2,000

P500,000
Problem 3: As a company’s sales move farther from it’s break-even point,
one would expect the degree of Operating leverage to increase or decrease?
Problem 5: A company has a operating leverage factor of 4. When it sales increased to P500,000,
its profit before tax increased by 100%. It’s variable cost ratio is 40%. How much is the company’s
fixed costs? P180,000
OLF = CM/Profit before tax before after
OLF = Δ% Profit before tax/Δ% Sales S 400,000 500,000 100%
100% 240,000 VC 160,000 200,000 40%
25% 60,000 CM 240,000 300,000 60%
4 4 FC 180,000 180,000
NI/P 60,000 120,000
Problem 8: A company sells two products ,A and B. The sales mix consists of a composite unit
of 5 units of A for every 3 units of B (5:3). Fixed costs amounts to P202,500. The unit contribution
margins are P4.80 for A and P10 for B.

A)     The number of composite units to break-even is: 30,000

Over-all BEP units = FC/WACMu A B
202,500 S 100% 100%
6.75 VC
30,000 CM 4.8 10
62.5% 37.5%
3 3.75 6.75

B) If the sales mix ratio is changed from 5:3 to 3:5:

WACM/u will increase to 8.05; BEP will decrease to 25,155.28 composite units; and toal fixed costs will remain the same.
Over-all BEP units = FC/WACMu A B
202,500 S 100% 100%
8.05 VC
25,155 CM 4.8 10
37.5% 62.5%
1.8 6.25 8.05
v
ill remain the same.