Johnson Corporation is preparing a flexible budget and desires to separate its electricity

expense, which is semi-variable and fluctuates with total machine hours, into its fixed and
variable components. Information for the first three months of 2009 is as follows:
Machine Hours Electricity Expense
January 3, 500 P31, 500
February 2, 000 20, 000
March 4, 000 35, 600

1. Compute the variable rate per machine hour

VC/hour = Change in cost / Change in machine hours
VC/hour = (35,600 - 20,000) / (4,000 - 2,000)
VC/hour = 15,600 / 2,000
VC/hour = P7.8

2. Compute the fixed portion of John’s electricity expense

Fixed Portion = 35,600 - (4,000 x P7.8)
Fixed Portion = 35,600 - 31,200
Fixed Portion = P4,400

3. Compute the total manufacturing costs if Johnson’s actual machine hours is 4, 500.
TMC = (Machine hours x VC) + Fixed Portion
TMC = (6,000 x P7.8) + P4,400
TMC = P46,800 + P4,400
TMC = P51,200
Candy Company has developed its cost equation. the total cost equation is presented
below:
Y = P6, 000 + P5.25X

If 1, 000 machine hours are used in one month, the estimated maintenance cost is
X= 1,000
y= P6,000 + P5.25 (1,000)
y= P6,000 + P5,250
y= 11,250
Remar Incorporated reported the following results from sales of 5, 000 units of Product C for the month
of June 2012:
Sales P200, 000
Variable cost 120, 000
Fixed cost 60, 000
Operating income 20, 000

would have to be sold in July 2012 in order to generate an operating income of P20, 000?

Unit Selling Price (200,000/5,000 x 110%) = P44

Variable Cost per unit (120,000/5,000) = (P24)
Contribution Margin per unit = P20

Required Sales in Units = FC + DP / CMu

Required Sales in Units = 60,000 + 20,000 / 20
Required Sales in Units = 4,000 units
Preview Company sold 100, 000 units of its product at P20 per unit. Variable
cost is P14 per unit (manufacturing cost of P11 and selling cost of P3).
Fixed cost is incurred uniformly throughout the year and amounts to P792, 000
(manufacturing costs of P500, 000 and selling cost of P292, 000). There are no
beginning inventories.

1. The break-even point for this product is (in units and sales)
BEPu = FC / CMu
BEPu = 792,000 / P6
BEPu = 132,000 units

BEPs = FC / CMr CMr =

BEPs = 792,000 / 30% CMr =
BEPs = P2,640,000 CMr =

2. The number of units that must be sold to earn a net income of P60, 000 for the year before income taxes would
be
Required Sales in Units = FC + DP / CMu
Required Sales in Units = 792,000 + 60,000 / 6
Required Sales in Units = 142,000 units
CMr = Total CM Peso / Sales
CMr = 600,000 / 2,000,000
CMr = .30 or 30%
The break-even point for sales of Torolin is P200, 000 with a contribution margin of 40%.
Assuming that the profit for the Torolin line during the year amounted to P100, 000.

The total sales would amount to

Total Sales = ((200,000 x 40%) + 100,000) / 40%
Total Sales = 80,000 + 100,000 / 40%
Total Sales = 180,000 / 40%
Total Sales = 450,000
Kerropi Company manufactures and sells a telephone answering machine. The company’s contribution
format income statement for the most recent years is given below:
TOTAL Per unit Percent of Sales
Sales (20, 000 units) P900, 000 P45.00 100%
Less variable expenses P675, 000 P33.75 ?
Contribution margin P225, 000 P11.25 ?
Less fixed expenses P180, 000
Net income P45, 000
Management is anxious to improve the company’s profit performance and has asked for several
items of information. Required:

1. Compute the company’s CM ratio and variable expense ratio.

CMr = Total CM Peso / Sales VEr = Total VE Peso / Sale
CMr = P225,000 / P900,000 VEr = P675,000 / P900,00
CMr = .25 or 25% VEr = .75 or 75%

2. Compute the company’s break-even point in both units and sales pesos.
BEPu = FC / CMu
BEPu = 180,000 / 11.25
BEPu = 16,000 units

BEPs = FC / CMr
BEPs = 180,000 / 25%
BEPs = P720,000
Total VE Peso / Sales
P675,000 / P900,000
.75 or 75%