Management 1 Cost-Volume-Profit Analysis

1. The Boston Warriors, a minor-league baseball team, play their weekly games in a small stadium just
outside Boston. The stadium holds 6,000 people and ticket sell for ₱20 each. The franchise owner
estimates that the team’s annual fixed expenses are ₱360,000 and the variable expense per ticket
sold is ₱2.

Required:

1. Using the contribution margin approach, compute the company’s break-even point in units.
2. Using the contribution margin approach, compute the company’s break-even point in pesos.

3. Draw a cost-volume-profit graph for the sports franchise. Label the axes, break-even point, profit
and loss areas, fixed expenses, total-expense line and total-revenue line.

BEP
20,000 units
P400,000
2. HappyBakes is an online baking shop and is known for their cupcakes. The shop’s annual fixed
expenses are ₱24,000. The sales price of a cupcake is ₱22, and it costs the shop ₱10 to make each
cupcake.

Required:

1. How many cupcakes must the shop sell to earn a target net profit of ₱90,000?
2. Compute the company’s break-even point in units.

3. What is the contribution margin ratio?

4. What is the break-even point in pesos?
1. The term “constraint” in a linear programming model generally refers to:

a. Costs
b. Scarce resources
c. Inefficiencies
d. Dependent variables

2. A technique used for selecting the combination of resources that maximizes profits or minimizes
costs.

a. Curvilinear Analysis
b. Queuing Theory
c. Linear Programming
d. Dynamic Programming

3. Julien Company makes two products, X and Y. Their contribution margins are ₱50 and ₱90,
respectively. Each product goes through process: cutting, finishing and painting. The number of hours
required by each process for each product and capacities available are given below:

Hours required in each process

Product Cutting Finishing Painting
X 2 4 3
Y 1 6 2
Capacities in hours 300 500 250

Question: Which of these expressions will NOT be used in linear programming to determine optimal
product mix?

a. Z = 50x + 90y
b. 4x ≤ 500 – 6Y 4x + 6y ≤ 500
c. 3x ≤ 250 + 2Y 3x – 2y ≤ 250
d. X,Y ≥ 0

4. Yellow Company makes product X and Y, with the following production constraints representing
two machines:

Machine 1 : 2x + 3y ≤ 18 Substitute Y to Machine 2

-Machine 2 : 2x + Y ≤ 10 2x + 4 = 10
0 + 2y = 8 2x = 6
y=4 x=3
Z = 4x + 2y
Z = 4(3) + 2(4)
Z = 12 + 8
Z= 20

Question: if the profit equation is Z = 4x + 2y, then what is the maximum possible profit?

a. ₱18
b. ₱20
c. ₱21
d. ₱24
5. K&C manufactures Product C and Product A which are processed as follows:

Type D Machine Type B Machine

Product C 6 hours 4 hours
Product A 9 hours 5 hours

The contribution margin is ₱12 for Product C and ₱7 for Product A. The available time daily for
processing the two products is 120 hours for Machine type D and 80 hours for Machine type B.

Question: How would the CONSTRAINTS for Machine type B be expressed?

a. 4C + 5A
b. 4C + 5A ≤ 80
c. 6C + 9A ≤ 120
d. 12C + 7A