Saint Ferdinand College

College of Accountancy
Integrated Course in Management Advisory Services

MANAGEMENT ACCOUNTING SERVICES

COST VOLUME PROFIT ANALYSIS
Assignment

Instruction: Write your complete solution.

1. A company’s projected profit for the coming year is as follows:

Sales @ P20 P200,000

Less: Variable Costs @12 120,000
Contribution Margin P80,000
Less: Fixed Costs 64,000
Operating Income P16,000

Required:
1. Calculate the contribution margin per unit and the break-even point in number of units.
2. Calculate the contribution margin ratio and the break-even point in pesos.
3. How many units must the company sell to earn operating income equal to ₱30,000 before
tax?
4. How much revenue must the company generate to earn operating income equal to ₱20,000
5. If the company desires to earn pre-tax profit of 20% of sales, how much should sales be?
6. If the company desires to earn an after-tax profit of 11.25% of sales. The income tax rate
is 25%. How much should sales be?
7. How many units must be sold to earn a desired pre-tax profit of ₱3 per unit?
8. How many units must be sold to earn an after-tax profit of ₱3 per unit?
9. Refer to the original data. If the cost of labor would decrease from ₱3 to ₱1 per unit, what
effect would this have on the units that must be sold to earn the same profit of ₱16,000?
What effect would this have on the break-even point?

2. Hay! Co. produces a single product. Sales have been very erratic, with irregular monthly
operating results. The company’s income statement for the most recent month is given below:

Sales (15,000 units) P450,000

Less variable expenses 315,000
Contribution Margin 135,000
Less fixed expenses 150,000
Net Loss (P15,000)

REQUIRED:
1. Compute the company’s CM ratio and its break-even point in both units and pesos.
2. The sales manager feels that a P20,000 increase in the monthly advertising budget, combined
with an intensified effort by the sales staff, will result in a P100,000 increase in monthly
sales. If the sales manager is right, what will be the effect on the company’s monthly net
income or loss?
3. The president is convinced that a 10% reduction in the selling price, combined with a
P50,000 increase in the monthly advertising budget, will cause unit sales to double. What will
the new income statement look like if these changes are adopted?
4. Refer to the original data. The company’s advertising agency thinks that a new package for
the company’s product would help sales. The new package being proposed would increase
 packaging costs by P3 per unit. Assuming no other changes in cost behavior, how many units
would have to be sold each month to earn a profit of P9,000?
5. Refer to the original data. By automating certain operations, the company could slash its
variable expenses to half. However, fixed costs would increase to P250,000 per month.
a. Compute the new CM ratio and the new break-even point in both units and pesos.
b. Assume that the company expects to sell 20,000 units next month. Prepare two
income statements, one assuming that operations are not automated and one
showing that they are.
c. Would you recommend that the company automate its operations?

3. The Insular corporation sells two products, D and W at a rate of 2 units and 3 units respectively. The
following data are available:

D W
Unit Selling Price ₱10 ₱5
Unit Variable Cost ₱6 ₱3
Total Fixed Cost ₱420,000

Required:

1. Weighted contribution margin per unit.

2. Breakeven points in units (combined).
3. Weighted contribution margin ratio.
4. Break-even point in sales pesos (combined).
5. Break-even point in sales pesos for:
1. Product D
2. Product W