Problem 1 (CM Format Income Statement) Bataan Company’s contribution format income statement for the period

just ended follows:

Sales (20,000 units) P 800,000
Variable Cost (600,000)
Contribution Margin P 200,000
Fixed Cost (100,000)
Operating Income/(Loss) P 100,000
Required: Prepare a revised contribution format income statement under each of the following independent situations:
1. The number of units sold will increase by 1,000 units
2. The number of units sold will decrease by 1,000 units
3. The number of units sold will be 25,000.
4. The number of units sold will be 15,000.

Problem 2 (BEP) Fill-up the missing item

Company N Company B Company A Company C
CM Ratio 20% 25% 15%
Total Fixed Costs P100,000 P 50,000 P150,000
Break-Even Sales P500,000 P 1,000,000

Problem 3 (Target Profit): One of Zamboanga Corp.’s only products has the following information:
Selling Price P 15
Variable Cost per Unit 10
Total Fixed Cost P 25,000
Tax Rate 40%
The following questions are independent of each other:
1. If the company would like to have an after-tax net income of P 6,000 while only selling 30,000 units, how
much should be its selling price?
2. If the company will reduce the current selling price by 20% and reduce per unit variable cost by the same
percentage while increasing Fixed cost by P 3,000, what would be the company’s after-tax net income (loss)
if it will be able to sell 5,000 units?
3. If the company’s fixed cost would be increased by 20% while reducing per unit variable cost by P 3.00, what
would be the new break-even point (in units)?
4. If the company’s total current sale is at 12,000 units, what is the company’s operating leverage? (Use before
tax net income)

Problem 4 (Multi-Product): Ilocos Corporation has the following information about its two products and its operation:
Product A B
Selling Price P10 P20
Variable Cost 4 16
Units Sold 10,000 30,000
Total Fixed Costs P 90,000
Required:
1. What is the weighted average contribution margin per unit?
2. How many units of each product must the company be able to sell to break even?
3. How many units of each product must the company be able to sell to earn a target profit of P45,000?
4. If the Product A’s variable cost per unit will increase by P2.00, how much should product B’s variable cost
be to maintain the same level of break-even sales?

Problem 5 (Margin of Safety) A company has the following limited data for the current year:
Total Variable Cost at BEP P 30,000
Margin of Safety 37.5%
Contribution Margin Ratio 40%
Required:
 1. How much is the Company’s current year total sales?
2. How much is the Company’s current year total variable cost?
3. How much is the current year’s net income?

Problem 6 (Basic Comprehensive) In its budget for next month, Waray Company has revenues of P500,000, variable
costs of P350,000, and fixed costs of P135,000.
Required:
1. Compute contribution margin percentage.
2. Compute total revenues needed to break even.
3. Compute total revenues needed to achieve a target operating income of P45,000.
4. Compute total revenues needed to achieve a target net income of P48,000, assuming the income tax rate is
40%.
5. Compute total revenues needed to achieve a target profit equal to 10% of sales.
6. Referring to the original information, determine the margin of safety.

Problem 7 (Changes in Structure): Cavite operates a stall at a local market, selling caps for P30 each. Cavite currently
pays P900 a month to rent the space and pays three full-time employees to each work 160 hours a month at P12 per
hour. The store shares a manager with a neighboring market and pays 40% of the manager’s annual salary of P60,000
and benefits equal to 18% of salary. The wholesale cost of the caps to the company is P10 a cap.
Required:
1. How many caps does Cavite need to sell each month to break even?
2. If Cavite wants to earn an operating income of P5,000 per month, how many caps does the store need to sell?
3. If the store’s hourly employees agreed to a 20% sales-commission-only pay structure, instead of their hourly pay,
how many caps would Cavite need to sell to earn an operating income of P5,000?
4. Assume Cavite pays its employees hourly under the original pay structure, but is able to pay the mall 5% of its
monthly revenue instead of monthly rent. At what sales levels would Cavite prefer to pay a fixed amount of monthly
rent, and at what sales levels would it prefer to pay 5% of its monthly revenue as rent?