Cost-Volume-Profit Relationships

Additional Problem 1

Solution:

Required a

Sales per unit 10

Less: Variable Costs 4
Contribution margin per unit 6

Contribution margin Ratio: 6/10 = 0.6 or 60%

BEP (units) = Total fixed Costs BEP (pesos) = Total fixed Costs
CM per unit CM ratio

= ₱ 12,000 = ₱ 12,000
6 0.6

= 2000 units = ₱ 20,000

Required b

Profit-after tax ₱ 56,000.00

Divide: 1-tax rate (100% - 30%) 70%
Desired Profit before tax ₱ 80,000.00

Sales (units) = Total Fixed Cost + Desired Profit

 CM per unit

= ₱ 12,000 + 80,000
6

= 15,333 units

Required c

c. Margin of safety (pesos) = Budgeted sales – Break-even sales

= 50,000 – 20,000
= ₱ 30,000

Margin of safety (units) = Budgeted sales – Break-even sales

= 5,000 – 2,000
= 3,000 units

Margin of safety ratio = Margin of safety (pesos)

Budgeted sales

= ₱ 30,000
₱ 50,000

= 0.6 or 60%

Margin of safety ratio = Margin of safety (units)

Budgeted sales

= 3,000
5,000

= 0.6 or 60%
Additional Problem 2
Solution:

a. Composite contribution margin (or contribution margin per unit)

Z Y K

Sales per unit ₱ 20 ₱ 30 ₱ 25

Less: Variable cost per unit 16 21 15
Contribution margin per unit ₱ 4 ₱ 9 ₱ 10

Z Y K

Contribution margin per unit ₱4 ₱9 ₱ 10

Multiply by Sales mix ratio 3 2 1
Composite contribution margin ₱12 ₱18 ₱ 10
= ₱ 40

b. Number of sales (or mixes) to break-even (or composite units to break-

even)

Total Fixed Cost ₱ 40,000

Divide by composite contribution margin 40
No. Sales (units) 1,000 units

c. Individual break-even point units and in pesos

Products No. of Sales Sales Mix BEP (units) Sales BEP (pesos)
Z 1,000 3 3,000 20 P60,000
Y 1,000 2 2,000 30 60,000
K 1,000 1 1,000 25 25,000
6, 000 P145,000