MANAGEMENT ACCOUNTING & CONTROL

PROFIT PLANNING AND COST VOLUME PROFIT ANALYSIS

Learning Activity 8. BEP, sales with profit

Arenas Company has analyzed the costs of producing and selling 5,000 units of its only
product to be as follows:

Direct Materials 60,000

Direct Labor 40,000
Variable Factory Overhead 20,000
Fixed Factory Overhead 30,000
Variable Marketing & Admin Expenses 10,000
Fixed Marketing & Admin Expenses 15,000

Required:
1. Compute the number of units needed to breakeven at a per unit sales price of Php
38.50.
Sales = 5,000 units x Php 38.50 per unit sales price
Sales = 192,500

CM = Sales – (Direct Material +Direct Labor + Variable Factory Overhead + VMA)

= 192,500 – (60,000 + 40,000 + 20,000 + 10,000)
CM = 62,500

Variable Costs per Unit = (Direct Material +Direct Labor + Variable Factory Overhead
+ VMA)
5,000
= 130,000
5,000
Variable Costs per Unit = Php 26.00

Number of Units = (Fixed Factory Overhead + Fixed Marketing & Admin Expenses)
(Price of Product – Variable Costs per Unit)
= (30,000 + 15,000)
38.50 –26
= 45,000
12.5
Number of Units = 3,600 units
2. Determine the number of units that must be sold to produce an Php 18,000 profit, at
a Php 40 per unit sales price.

Variable Costs per Unit = Php 26.00

Target Profit = Php 18,000
Total Fixed Cost = Php 45,000
Unit Selling price = Php 40.00

Unit sales = (Total Fixed Cost + Target Profit) ÷ (Unit Selling Price – Variable Costs per
Unit)
= (18,000 + 45,000) ÷ (40 – 26)
= 63,000 ÷ 14
Unit sales = 4,500 units

3. Determine the price Arenas must charge at a Php 5,000 unit sales level, to produce a
profit equal to 20% of sales.

Variable Cost = 130,000

Fixed Cost = 45,000
Total Cost = 175,000
Profit Percentage = 20%

Selling Price = (TC/100% - Profit%)/Unit Sales Level

= (175,000/100% - 20%) / 5,000
= 218,750/5,000
Selling Price = Php 43.75