UNIT 4

Exercises 4-3 & 4-4

EXERCISE 4-3

1. What is the budgeted operating income?

Budgeted operating income = Budgeted Sales – Budgeted Variable Cost –
Budgeted Fixed Costs
= P420,000 – P147,000 – P227,500
= P45,500
2. What is the variable cost ratio?
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑃147,000
Variable cost ratio = = = 0.35 𝑜𝑟 35%
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑠𝑎𝑙𝑒𝑠 𝑃420,000
EXERCISE 4-3

3. What is the break-even point in sales pesos?

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 227,500
Break-even point in pesos = =
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 65%

= P350,000

4. What is the contribution margin?

Contribution margin = Sales – Variable costs
= P420,000 – P147,000
= P273,000
EXERCISE 4-3

5. What is the contribution margin ratio?

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑃273,000
Contribution margin ratio = =
𝑆𝑎𝑙𝑒𝑠 𝑃420,000

= 0.65 or 65%
EXERCISE 4-4

Unit contribution margin = Sales price per unit – Variable cost per unit
= P400 – P160
= P240

A. What is the company’s break-even point in units?

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑃36,000
Break-even point in units = =
𝑈𝑛𝑖𝑡 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑃240

= 150 units
EXERCISE 4-4

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 −𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠

Contribution margin ratio = =
𝑆𝑎𝑙𝑒𝑠 𝑆𝑎𝑙𝑒𝑠
400 −160 240
= =
400 400
= 0.6 or 60%

B. What is the company’s break-even point in pesos?

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑃36,000
Break-even point in pesos = =
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 60%

= P60,000
EXERCISE 4-4

C. Prepare a contribution margin income statement for the month of November

when they will sell 130 units.
DEF Motors
Contribution Margin Income Statement
For the Month of November 20xx
Sales (130 units x P400) P 52,000
Variable costs (130 units x P160) ( 20,800)
Contribution margin 31,200
Fixed costs ( 36,000)
Net operating income/loss (P 4,800)
EXERCISE 4-4

D. How many units will DEF need to sell in order to realize a target profit of
P48,000?
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠 + 𝑇𝑎𝑟𝑔𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑃36,000 +𝑃48,000
Sales (units) = =
𝑈𝑛𝑖𝑡 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑃240
𝑃84,000
=
𝑃240
= 350 units

Therefore, DEF will need to sell 350 units in order to realize a target profit of
P48,000.
EXERCISE 4-4

E. What peso sales will DEF need to generate in order to realize a target profit of
P48,000?
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠 + 𝑇𝑎𝑟𝑔𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑃36,000 +𝑃48,000
Sales (peso) = =
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 60%
𝑃84,000
=
60%

= P140,000

Therefore, DEF need to generate P140,000 sales in order to realize a target profit of
P48,000.
EXERCISE 4-4

F. Construct a contribution margin income statement for the month of February

that reflects P200,000 in sales revenue for DEF Motors.
DEF Motors
Contribution Margin Income Statement
For the Month of February 20xx
Sales (500 units x P400) P 200,000
Variable costs (500 units x P160) ( 80,000)
Contribution margin 120,000
Fixed costs ( 36,000)
Net operating income P 84,o00
EXERCISE 4-4

𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒

Number of units sold =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
𝑃200,000
=
𝑃400
= 500 units
Thank
you!!!