Management Accounting - CVP Analysis ARAS

ARAS

Solve the following problems. Round off your answers to two decimal places. All
problems/questions/cases are independent of each other unless otherwise stated. Apply
CVP assumptions.

Problem A
Selling price - 250; Product cost per unit- 150; Overhead rate - 50; Normal Capacity - 32,175;
Budgeted fixed cost - 1,029,600; Budgeted sales (units) - 32,175; Tax rate - 35%

1) Contribution margin per unit

2) Contribution margin ratio
3) Degree of operating leverage
4) Break-even point in sales revenue
5) Margin of safety percentage if profit after tax is P617,760

Problem B
Margin of safety 12.5% Sales (units) - 7500
Profit after tax - 12000 Variable overhead rate - 48
Tax rate - 20%

6) Fixed cost
7) Selling price
8) Contribution margin ratio
9) Break-even point in units (ROUND OFF TO WHOLE NUMBER)

Problem C
Denned Pizza Co. has a yearly budgeted revenue of P1,769,040. In 200A, it incurred P560,200
operating expense and earned a profit of P307,940. It applies fixed overhead rate of P10 in
its production. Variable nonmanufacturing cost per unit is P7.75. The following
questions/cases are independent of each other unless otherwise stated.

10) Variable cost per unit if production is 27,300 units

11) Break-even point in units using information in no. 10 (ROUND OFF TO WHOLE
NUMBER)
12) Using the information in no. 10, compute for degree of operating leverage if fixed cost
increases by 15%
13) Using the information in no. 10, determine the Contribution margin per unit
14) Margin of safety percentage if actual sales is 125% of BEP sales

Problem D
Rabara Auto Supplies delivers parts for several local auto parts stores. It charges clients P10
per kilometer driven. The company has determined that if the delivery truck travels 300

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kilometers per month, its average operating cost is P40 per kilometer. If it travels 400
kilometers, average operating cost is P35 per kilometer. Using high-low method, the
company determined that its monthly equation cost is: total cost = P20 + P0.05 per
kilometer.

15) Contribution margin ratio

16) Break-even point in kilometers

Problem E
Tabag Publishing House had sales of 16,200 books during the current year with a 17% return
on sales. The manufacturing capacity of Tabag Publishing House's facilities is 20,000 books.
Fixed and variable operating expense are P241,520 and P113,400 respectively. Budgeted
fixed cost is P400,000. Overhead rate is P30 based on units produced. Books are sold for
P120.

17) Contribution margin per unit if fixed cost increases to 270,000 and prime cost
decreases by 12%
18) Quantity of books that must be sold to earn a 20% return on sales

Problem F
POLLY CRACKER Co. has the following revenue and cost budgets for the three products that it
sells:

Jerseys Shoes Wrist bands

Sales Price 520 2000 75
Prime Cost 285 950 20
Fixed Overhead 100 300 15
Profit per unit ??? ??? 40
Planned Sales 40,000 30,000 30,000

The budgeted unit sales equal the current unit demand, and the total fixed overhead for the
year is budgeted at P25,530,000. Assume the company plans to maintain the same
proportional mix.

19) No. of jerseys needed to be sold to break-even

20) No. of wrist bands needed to be sold to break-even
21) Percentage change in profit if sales decreases by 25%

Problem G
AK OBOB Co. sells electronic games. Its three salespersons are currently being paid
commissions of 15% based on sales. The sales manager has suggested that it might be more

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profitable to pay the salespersons fixed salaries of P30,000 per month. Current data for KA
OBOB Co. are as follows:
Sales Price per unit P 40
Variable Costsper unit 35
Fixed Costs 50,000

22) At what sales volume would the two compensation schemes be indifferent?
23) Which of the two compensations schemes (present or fixed pay) has higher income at
20,000 units and by how much?

Problem H
AK AGNAT Co. has variable costs of P48,000 at production level of 2,400 units. At sales of
2,000 units, degree of operating leverage is 1.25. Contribution margin ratio is 20%.

24) Break-even sales in pesos

Problem I
Samala Garcia Valix and Co., which is subject to 30% income tax rate, had the following
operating data for the period just ended:

X Y Z
Selling Price 100 120 110
Fixed cost per unit ??? ??? 25
Contribution Margin Ratio ??? 20% 30%
Budgeted Sales Revenue P250,000 P360,000 P495,000

The firm's total fixed cost is P214,875 including sales personnel's fixed salary of P50,000.
Break-even sales in units is 7,500.

The management plans to improve the quality of its products by replacing a component of
product X that costs P30 with a high grade unit that costs P35 and acquiring a P122,280
equipment with a useful life of 8 years.

25) No. of units of X needed to be sold to earn an after tax income of P28,770
26) Break-even point in sales after the improvement by the management
27) Required percentage change in sales to increase profit by 40%
28) No. of units of Y required to be sold to earn an income of P93,160
29) Degree of operating leverage if profit after tax is P15,344
30) Assume that the firm implemented a 22.92% increase in the fixed salaries of their sales
personnel instead of the improvement stated above, compute for the new break-even
point in units

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SUGGESTED ANSWERS

1. 132
2. 52.8%
3. 1.32
4. 1,950,000
5. 92.31%
6. 105,000
7. 64
8. 25%
9. 6,563
10. 30.75
11. 18,256
12. 4.33
13. 34.05
14. 20%
15. 99.5%
16. 400
17. 65.16
18 17,820
19. 24,000
20. 18,000
21. -62.5%
22. 15,000
23. Fixed pay; 30,000
24. 10,000
25. 2,475
26. 8,400
27. 6.4%
28. 3,540
29. 11.5
30. 7,900

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