Bruegas, Elaiza Rein A.

Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

EXERCISE 1
Units Selling Price Unit Variable Cost Contribution Margin per Unit Contribution Margin Ratio
P 640 P 384 P256 40%
P 300 P 210 P 90 30%
P 1,280 P 960 P 320 25%
P 35 P 22 P 13 37%
P 1,600 P 1,120 P 480 30%

EXERCISE 2
𝑃 60,000
A. Break-even point (units) = 1.2
= 𝟓𝟎, 𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔
𝑃 60,000
B. Break-even point (peso) = 60%
= 𝑷 𝟏𝟎𝟎, 𝟎𝟎𝟎

EXERCISE 3
1) Net Income of P102,000 before income taxes
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 375,000+102,000
Sales in Units = = = 𝟏𝟗, 𝟖𝟕𝟓
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑈𝑛𝑖𝑡 24

𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 375,000+102,000

Sales in Peso = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜
= 40%
= 𝟏, 𝟏𝟗𝟐, 𝟓𝟎𝟎

2) Net Income of P97,500 after income taxes tax rate is 35%

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 97,500
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+ 375,000+ 525,000
1−𝑡𝑎𝑥 𝑟𝑎𝑡𝑒 1−35%
Sales in Units = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑈𝑛𝑖𝑡 = 24
= 24
= 𝟐𝟏, 𝟖𝟕𝟓 𝒖𝒏𝒊𝒕𝒔

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 97,500

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+ 375,000+
1−𝑡𝑎𝑥 𝑟𝑎𝑡𝑒 1−35%
Sales in Peso = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 = 40%
= 𝟏, 𝟑𝟏𝟐, 𝟓𝟎𝟎

3) Net Income of 15% of sales. Ignore income taxes.

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 375,000 375,000
Sales in Peso = = = = 𝟏, 𝟓𝟎𝟎, 𝟎𝟎𝟎
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜−𝑇𝑎𝑟𝑔𝑒𝑡 𝑟𝑒𝑡𝑢𝑟𝑛 % 𝑜𝑛 𝑠𝑎𝑙𝑒𝑠 40%−15% 25%

4) 20% return on sales. Ignore income taxes.

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 375,000 375,000
Sales in Peso = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜−𝑇𝑎𝑟𝑔𝑒𝑡 𝑟𝑒𝑡𝑢𝑟𝑛 % 𝑜𝑛 𝑠𝑎𝑙𝑒𝑠 = 40%−20%
= 20%
= 𝟏, 𝟖𝟕𝟓, 𝟎𝟎𝟎

EXERCISE 4

1) Compute the break-even point in units and sales pesos.

A. In units

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 594,000 594,000

= = = 𝟓𝟓, 𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑢𝑛𝑖𝑡 24 − 13.20 10.8

B. Sales Peso

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 594,000

= = 𝟏, 𝟑𝟐𝟎, 𝟎𝟎𝟎 𝒑𝒆𝒔𝒐𝒔
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 45%

2) Compute the number of units that must be sold to realize a net income of P75,060 before taxes.

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 594,000+75,060

Target sales in unit = = = 𝟔𝟏, 𝟗𝟓𝟎 𝒖𝒏𝒊𝒕𝒔
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 10.8

3) If the net income tax rate is 35%, compute the number of units that must be sold to realize a net income
of P68,900 after taxes.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 68,900
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+ 594,000+
1−𝑡𝑎𝑥 𝑟𝑎𝑡𝑒 1−.35
Target sales in units = = = 𝟔𝟒, 𝟖𝟏𝟓 𝒖𝒏𝒊𝒕𝒔
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 10.8
Bruegas, Elaiza Rein A. Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

4) If labor cost were 50% of variable cost and 20% of fixed costs. A 10% increase in wages and salaries
would increase the number of units necessary to breakeven. Compute for the break-even unit.
Variable cost per unit (13.2 x 50%) = 6.6 x .10 = 66
= 13.2 + 6.6 = 13.86
Fixed cost = 594,000 x 20% = 118,800 x .10 = 11,880
=594,000 + 11,880 = 605,880
Break-even point in units:
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 605,880
= = 𝟓𝟗, 𝟕𝟓𝟏 𝒖𝒏𝒊𝒕𝒔
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 10.14
EXERCISE 5
1) Margin of Safety Ratio = P528,000 x 0.40
𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑆𝑎𝑓𝑒𝑡𝑦 (𝑃) 132,000 = P211,200
= = 𝟐𝟎%
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑/𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 660,000
5) Net Income
2) Actual Sales
= Actual Sales x Profit Ratio
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 221,200
= = 𝟔𝟔𝟎, 𝟎𝟎𝟎 = P660,000 x 8%
𝐹𝑖𝑥𝑒𝑑 𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 40% − 8%
= P52,800
3) Margin Safety
6) Degree of Operating Leverage
Actual Sales – Break-even Sales
= Actual Sales x Contribution Margin Ratio / Net
= 660,000 – 528,000
Income
= 132,000
= 660,000 x 40% / 52,800
4) Fixed Cost
=5
= Break-even x Fixed Cost Ratio
EXERCISE 6
1) Composite contribution margin per unit
Zeta Zona
Unit Contribution Margin P4 P2
Multiplied by: Sales mix rate
Zeta – 2/5 40%
Zona – 3/5 60%
Composite Contribution margin per unit P 1.60 P 1.20 = P 2.80

2) Composite contribution margin ratio

Zeta Zona
Sales Mix Rate (Each CCMPV/Total CCMPV 57% 43%

Multiplied by: Contribution Margin Ratio (CM-SP) 40% 25%

Weighted CMR
Total Weighted Contribution Margin Ratio 33.55% or 33.6%

3) Composite break-even point in units

𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 420,000
= = 𝟏𝟓𝟎, 𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐶𝑀 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑃2.8
Bruegas, Elaiza Rein A. Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

4) Compute break-even point in sales

𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 420,000
= = 𝑷𝟏, 𝟐𝟓𝟎, 𝟎𝟎𝟎
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐶𝑀𝑅 33.55%
5) Break-even point for each product (in unit and peso sales)
1,250,000 / 150,000 = 8.33 selling price
Product Zeta (1,250,000 x 57%) = P712,500; 712,500 / 8.33 selling price = 85,500 units
Product Zona (1,250,000 x 43%) = P537,500; 537,500 / 8.33 selling price = 69,500 units
EXERCISE 7
LUMBERYARD COMPANY
Alternatives:
Option A Option B Option C
Sales 4,500,000 5,600,000 5,760,000
Variable Costs (3,342,600) (4,456,800) (4,011,120)
Contribution Margin 1,157,400 1,143,200 1,748,880
Fixed Costs (916,900) (916,900) (1,216,900)
Net Income Before Taxes P 240,500 P226,300 P531,980

Recommendation: Proposal / option C should be adopted because it will most probably result to the
highest amount of profit among the three options.
EXERCISE 8
1)
Sales with
Current additional Difference Per Unit Ratio
Sales advertising budget
Sales 225,000 240,000 15,000 75 100%
Variable Cost (135,000) (144,000) (9,000) (45) 60%
Contribution 90,000 96,000 6,000 30 40%
Margin
Fixed Costs (75,000) (83,000) (8,000)
Net Income 15,000 13,000 (2,000)

If no other important factors that need to be considered, the said increase in the advertising budget should
not be approved as it would result to a decrease in net income of P2,000.
2)
Expected Total CM with higher quality components:
3,450 units x P27 per unit 93,150
Present Total CM
3,000 x per unit P30 (90,000)
Change in total contribution margin P 3,150

If there’s no possible change in fixed cost and other factors remains the same, the higher quality components
should be used.
EXERCISE 9
1) Net Income = 36,000 / 12,000 = 3
2) Estimated percent increase in net operating = Degree of operating leverage x % increase in sales
= 3 x 10% = 30%
Bruegas, Elaiza Rein A. Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

3)
Sales 132,000 100%
Variable Cost 92,400 70%
Contribution 39,600 30%
Fixed Cost 24,000
Net Operating Income 15,600

Net Operating Income 15,600

Change in Sales:
Original net operating income (a) 12,010
Change in net operating income (b) 3,600
% change in net operating income (b/a) 30%

EXERCISE 10
1)
A B
Sales 60% 40%
Multiply by: Contribution Margin Ratio 40% 15%
Weighted Contribution Margin Ratio 24% 6% = 30%

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 150,000

2) Break-even point (pesos) = 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐶𝑀𝑅 = 30%
= 𝟓𝟎𝟎, 𝟎𝟎𝟎

3)
Desired Net Income 9,000
Add: Fixed Cost (150,000 x 130%) 195,000
Contribution Margin 204,000
Divide: Weighted CM ratio 30%
Sales pesos necessary to guarantee desired net income 680,000

EXERCISE 11
1)
D W
Sales Mix Rate (2+3 = 5 units) 40% 60%
Multiplied by: Contribution Margin 4 2
Weighted CM per unit 1.60 1.20 = 2.80

𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 420,000

2) Break-even point = = = 𝟏𝟓𝟎, 𝟎𝟎𝟎
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 2.80

3)
D W
Sales Mix Rate 57% 43%
Multiplied by: Contribution Margin 40% 40%
Weighted CM ratio 22.8% 17.2% = 40%

𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 420,000

4) Break-even point = 𝐶𝑀 𝑟𝑎𝑡𝑖𝑜
= 40%
= 1,050,000

Product D = P1,050,000 x (1.6/2.8) = P 600,000

Product W = P1,050,000 x (1.2/2.8) = P 450,000
Bruegas, Elaiza Rein A. Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

EXERCISE 12
1)
Zeta Zona
Unit Contribution P4 P2
Multiplied by: Sales Mix Rate 40% 60%
Weighted CM per unit P 1.60 1.20 = 2.80

2)
Sales Mix Rate 57% 43%
Multiply by: CM Ratio 40% 25%
Weighted contribution margin ratio 22.8% 10.8% = 33.6%

420,000
3) Break-even point in units = 2.8
= 𝟏𝟓𝟎, 𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔
420,000
4) Break-even point in peso sales = = 𝟏, 𝟐𝟓𝟎, 𝟎𝟎𝟎
33.6%

5) Zeta (1,250,000 x 57%) = P 712,500

Zona (1,250,000 x 43%) = P 537,500
EXERCISE 13
𝑇𝑜𝑡𝑎𝑙 𝐶𝑀 120,000
1) Overall CM ratio = 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 = 150,000
= 𝟖𝟎%

𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 90,000

2) Overall break-even = 𝑂𝑣𝑒𝑟𝑎𝑙𝑙 𝐶𝑀 𝑟𝑎𝑡𝑖𝑜 = 80%
= 𝟏𝟏𝟐, 𝟓𝟎𝟎

3)
XYZ Company
Income Statement
For the Year Ended December 31, 2023

Xander Xandee Total

Sales 75,000 37,500 112,500
Variable Expense 18,750 3,750 22,500
Contribution Margin 56,250 33,750 90,000
Fixed Expenses 90,000
Net Operating Income -

EXERCISE 14

𝑈𝑛𝑖𝑡 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 15

1) CM ratio = 𝑈𝑛𝑖𝑡 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
= 60
= 𝟐𝟓%

𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑒𝑥𝑝𝑒𝑛𝑠𝑒 45
Variable expense ratio = = = 𝟕𝟓%
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 60

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 240,000

2) Break-even in units = = = 𝟏𝟔, 𝟎𝟎𝟎
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 15

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 240,000

Break-even in sales = 𝐶𝑀 𝑟𝑎𝑡𝑖𝑜
= 25%
= 𝟗𝟔𝟎, 𝟎𝟎𝟎

3)
Increase in sales 400,000
Multiply by: CM Ratio 25%
Expected Increase in CM 100,000
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡 240,000+90,000 330,000
4) Units sales to attain desired profit = = = = 𝟐𝟐, 𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑃 15 15
 Bruegas, Elaiza Rein A. Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

5) Margin of safety (P) = Total sales – break-even sales

= 1,200,000 – 960,000
= 240,000
𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑠𝑎𝑓𝑒𝑡𝑦 240,000
Margin of safety ratio = 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑠𝑎𝑙𝑒𝑠 = 1,200,000 = 𝟐𝟎%

6)
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 300,000
a. Degree of operating leverage = 𝑁𝑒𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒 = 60,000 = 𝟓

b.

Expected increase in sales 8%

Degree of operating leverage 5
Expected increase in net income 40%

c.
Total Sales Per Unit Ratio
Sales 1,296,000 60 100%
Variable expense (972,000) 45 75%
Contribution margin 324,000 15 25%
Fixed expense (240,000)
Net operating income 84,000

Therefore, the 84,000 expected income represents the 40% increase over the 60,000 prior to net operating
84,000−60,000 24,000
income. 60,000
= 60,000 = 𝟒𝟎%

7)
a.
Total Sales Per Unit Percentage Ratio
Sales (24,000 units) 1,440,000 60 100%
Variable expense (1,152,000) (48) 80%
Contribution margin 289,000 12 20%
Fixed cost (210,000)
Net operating income 78,000

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 210,000

b. Break-even point in unit = 𝐶𝑀 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 12
= 𝟏𝟕, 𝟓𝟎𝟎 𝒖𝒏𝒊𝒕𝒔

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 210,000

Break-even point in sales = 𝐶𝑀 𝑟𝑎𝑡𝑖𝑜
= 20%
= 𝟏, 𝟎𝟓𝟎, 𝟎𝟎𝟎

c. Yes, because as we observed the above data computed wherein there is a clear change and increase in
the company’s profit as well as its margin of safety. Although the said changes also resulted in a higher
break-even point, still it is much better than the prior data.

EXERCISE 15

1)
Model E700 Model J1500 Total
Amount % Amount % Amount %
Sales 700,000 100% 300,000 100% 1,000,000 100%
Less: Variable expense 280,000 40% 90,000 30% 370,000 37%
Contribution margin 420,000 60% 210,000 70% 630,000 63%
Less: Fixed expenses 598,500
Net Operating Income 31,500

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 598,500

2) Break-even point (sales) = = = 𝑷𝟗𝟓𝟎, 𝟎𝟎𝟎
𝐶𝑀 𝑟𝑎𝑡𝑖𝑜 63%
Bruegas, Elaiza Rein A. Cost-Volume-Profit Relationship
2BSA2 Ms. Jocelyn Chua

3)
Expected sales increase 50,000
Multiply by: CM ratio 63%
Expected Net Operating Income 31,500