Cost-Volume-Profit Analysis

MODULE 4 COST-VOLUME-PROFIT ANALYSIS THEORIES: 1. To which function of management is CVP analysis most applica le! ". Planning C. #i$ecting %. O$gani&ing #. Cont$olling %o a'illa (. The systematic e)amination of the $elationships among selling p$ices* +olume of sales an' p$o'uction* costs* an' p$ofits is te$me': ". cont$i ution ma$gin analysis C. u'geta$y analysis %. cost,+olume,p$ofit analysis #. g$oss p$ofit analysis %o a'illa -. The te$m cont$i ution ma$gin is est 'efine' as the: ". 'iffe$ence etween fi)e' costs an' +a$ia le costs. %. 'iffe$ence etween $e+enue an' fi)e' costs. C. amount a+aila le to co+e$ fi)e' costs an' p$ofit. #. amount a+aila le to co+e$ +a$ia le costs.

%. "mount of sales $e+enue nee'e' to co+e$ ente$p$ise fi)e' costs. C. Relationship among $e+enues* +a$ia le costs* an' fi)e' costs at +a$ious le+els of acti+ity. #. Volume o$ output le+el at which the ente$p$ise $ea/s e+en. %o a'illa 4. 5hich of the facto$s is 6a$e7 in+ol+e' in stu'ying cost,+olume,p$ofit $elationships! ". 8e+els of p$o'uction C. 9i)e' costs %. Va$ia le costs #. "ll of these %o a'illa :. "t the $ea/e+en point* fi)e' cost is always ". 8ess than the cont$i ution ma$gin C. ;o$e than the cont$i ution ma$gin %. E<ual to the cont$i ution ma$gin. #. ;o$e than the +a$ia le cost %o a'illa =. "t the $ea/,e+en point: ". net income will inc$ease y the unit cont$i ution ma$gin fo$ each a''itional item sol' a o+e $ea/,e+en. %. the total cont$i ution ma$gin changes f$om negati+e to positi+e C. fi)e' costs a$e g$eate$ than cont$i ution ma$gin #. the cont$i ution ma$gin $atio egins to inc$ease %o a'illa 1>.In cost,+olume,p$ofit analysis* the g$eatest p$ofit will e ea$ne' at ". One hun'$e' pe$cent at no$mal p$o'ucti+e capacity. %. The p$o'uction point with the lowest ma$ginal cost. C. The p$o'uction point at which a+e$age total $e+enue e)cee's a+e$age ma$ginal cost. #. The point at which ma$ginal cost an' ma$ginal $e+enue a$e e<ual. %o a'illa 11.5hich of the following is not an assumption un'e$lying C,V,P analysis! ". The eha+io$ of total $e+enue is linea$. %. ?nit +a$ia le e)penses $emain unchange' as acti+ity +a$ies. C. In+ento$y le+els at the eginning an' en' of the pe$io' a$e the same.
97

%o a'illa

.. Cost,+olume,p$ofit analysis allows management to 'ete$mine the $elati+e p$ofita ility of a p$o'uct y ". Highlighting potential ottlenec/s in the p$o'uction p$ocess. %. #ete$mining the cont$i ution ma$gin pe$ unit an' p$o0ecte' p$ofits at +a$ious le+els of p$o'uction. C. "ssigning costs to a p$o'uct in a manne$ that ma)imi&es the cont$i ution ma$gin. #. 1eeping fi)e' costs to an a solute minimum. %o a'illa 2. Cost,+olume,p$ofit analysis cannot e use' if which of the following occu$s! ". Costs cannot e p$ope$ly classifie' into fi)e' an' +a$ia le costs. %. The pe$ unit +a$ia le costs change. C. The total fi)e' costs change. #. Pe$ unit sales p$ices change. %o a'illa 3. The most useful info$mation 'e$i+e' f$om a $ea/e+en cha$t is the ". "mount of sales $e+enue nee'e' to co+e$ ente$p$ise +a$ia le costs.

Cost-Volume-Profit Analysis

#. The num e$ of units p$o'uce' e)cee's the num e$ of units sol'. %o a'illa 1(.5hich of the following assumptions is inhe$ent to C,V,P analysis! ". In manufactu$ing fi$ms* the eginning an' en'ing in+ento$y le+els a$e the same. %. In a multi,p$o'uct o$gani&ation* the sales mi) +a$ies o+e$ time. C. The eha+io$ of total $e+enue is cu$+ilinea$. #. he $ele+ant $ange is not a consi'e$ation. %o a'illa 1-.5hich of the following assumptions is closely $ele+ant to cost, +olume,p$ofit analysis! ". fo$ multiple p$o'uct analysis* the sales mi) is not impo$tant %. in+ento$y le+els $emain unchange' C. total fi)e' costs an' unit +a$ia le costs can e i'entifie' an' $emain constant o+e$ the $ele+ant $ange #. % an' C %o a'illa 1.."'+ocates of cost,+olume,p$ofit analysis a$gue that: ". 9i)e' costs a$e i$$ele+ant fo$ 'ecision ma/ing. %. 9i)e' costs a$e man'ato$y fo$ CVP 'ecision ma/ing. C. #iffe$entiation etween the patte$ns of +a$ia le costs an' fi)e' costs is c$itical. #. 9i)e' costs a$e necessa$y to calculate in+ento$y +aluations. %o a'illa 12.5ith $espect to fi)e' costs* C,V,P analysis assumes total fi)e' costs ". pe$ unit $emains constant as +olume changes %. $emain constant f$om one pe$io' to the ne)t C. +a$y 'i$ectly with +olume #. $emain constant ac$oss changes in +olume %o a'illa 13.The CVP mo'el assumes that o+e$ the $ele+ant $ange of acti+ity: ". only $e+enues a$e linea$. C. unit +a$ia le cost is not constant. %o a'illa %. total fi)e' cost changes. #. $e+enues an' total costs a$e linea$.

14.5hich of the following is not a limiting facto$ of Cost,Volume,P$ofit analysis! ". The p$ocess assumes a linea$ $elationship among the +a$ia les. %. The p$ocess assumes +a$ia le costs pe$ unit a$e a+aila le. C. Efficiency is assume' to e constant. #. In+ento$y le+els a$e assume' to not change. %o a'illa 1:.Cost,+olume,p$ofit analysis is a techni<ue a+aila le to management to un'e$stan' ette$ the inte$$elationships of se+e$al facto$s that affect a fi$m@s p$ofit. "s with many such techni<ues* the accountant o+e$simplifies the $eal wo$l' y ma/ing assumptions. 5hich of the following is not a ma0o$ assumption un'e$lying CVP analysis! ". "ll costs incu$$e' y a fi$m can e sepa$ate' into thei$ fi)e' an' +a$ia le components. %. The p$o'uctAs selling p$ice pe$ unit is constant at all +olume le+els within a $ele+ant $ange. C. Ope$ating efficiency an' employee p$o'ucti+ity is constant at all +olume le+els. #. 9o$ multi,p$o'uct situations* the sales mi) can +a$y at 'iffe$ent +olume le+els. %o a'illa 1=.Pines Company has a highe$ 'eg$ee of ope$ating le+e$age than Tagaytay Company. 5hich of the following is t$ue! ". Pines has highe$ +a$ia le e)pense. %. Pines is mo$e p$ofita le than Tagaytay CompanyAs. C. Pines is mo$e $is/y than Tagaytay is. #. Pines@ p$ofits a$e less sensiti+e to pe$centage changes in sales. %o a'illa (>."s p$o0ecte' net income inc$eases the ". 'eg$ee of ope$ating le+e$age 'eclines. C. $ea/,e+en point goes 'own. %o a'illa %. ma$gin of safety stays constant. #. cont$i ution ma$gin $atio goes up. (1.Bi+en the following notations* what is the units!
98

$ea/e+en sales le+el in

Cost-Volume-Profit Analysis

SP C selling p$ice pe$ unit 9C C total fi)e' cost VC C +a$ia le cost pe$ unit ". SP D 69CDVC7 %. 9CD6VCDSP7

%. has a high net income. $ea/e+en point. C. VCD6SP E 9C7 #. 9CD6SP E VC7 %o a'illa

#. is

ope$ating

close

to

its

((." company inc$ease' the selling p$ice fo$ its p$o'uct f$om P1.>> to P1.1> a unit when total fi)e' costs inc$ease' f$om P.>>*>>> to P.:>*>>> an' +a$ia le cost pe$ unit $emaine' unchange'. How woul' these changes affect the $ea/e+en point! ". The $ea/e+en point in units woul' e inc$ease'. %. The $ea/e+en point in units woul' e 'ec$ease'. C. The $ea/e+en point in units woul' $emain unchange'. #. The effect cannot e 'ete$mine' f$om the info$mation gi+en. %o a'illa (-.On Fanua$y 1* (>>4* Inc$emental Company inc$ease' its 'i$ect la o$ wage $ates. "ll othe$ u'gete' costs an' $e+enues we$e unchange'. How 'i' this inc$ease affect Inc$emental CompanyAs u'gete' $ea/,e+en point an' u'gete' ma$gin of safety! %o a'illa ". %. C. #. %u'gete' %$ea/,e+en Inc$eas Inc$eas #ec$eas #ec$eas Point e e e e E)pecte' ;a$gin of Inc$eas #ec$eas #ec$eas Inc$eas Safety e e e e (.."s the +a$ia le cost inc$eases ut the selling p$ice $emains constant* the ". #eg$ee of ope$ating le+e$age 'eclines C. %$ea/e+en point goes 'own %o a'illa %. ;a$gin of safety stays constant #. Cont$i ution ma$gin $atio goes up (2." +e$y high 'eg$ee of ope$ating le+e$age 6#O87 in'icates that a fi$m: ". has high fi)e' costs. C. has high +a$ia le costs. %o a'illa
99

(3.5ith the ai' of compute$ softwa$e* manage$s can +a$y assumptions $ega$'ing selling p$ices* costs* an' +olume an' can imme'iately see the effects of each change on the $ea/,e+en point an' p$ofit. Such an analysis is calle' ". G5hat ifH o$ sensiti+ity analysis. C. Compute$ ai'e' analysis. %. Va$y the 'ata analysis. #. #ata gathe$ing. %o a'illa (4.If a company $aises its ta$get peso p$ofit* its ". $ea/,e+en point $ises. %. fi)e' costs inc$ease. C. $e<ui$e' total cont$i ution ma$gin inc$eases. #. selling p$ice $ises.

%o a'illa

(:.%$oa'way Company sells th$ee p$o'ucts: "* % an' C. P$o'uct "@s unit cont$i ution ma$gin is highe$ than P$o'uct %@s which is highe$ than P$o'ucts C@s. 5hich one of the following e+ents is most li/ely to inc$ease the company@s o+e$all $ea/,e+en point! ". The installation of new automate' e<uipment an' su se<uent lay,off of facto$y wo$/e$s. %. " 'ec$ease in P$o'uct C@s selling p$ice. C. "n inc$ease in the o+e$all ma$/et 'eman' fo$ P$o'uct %. #. " change in the $elati+e ma$/et 'eman' fo$ the p$o'ucts* with the inc$ease fa+o$ing P$o'uct " $elati+e to P$o'uct % an' P$o'uct C. %o a'illa (=.5hich of the following is not a enefit of using sensiti+ity analysis! ". ;o$e people can see the impact of thei$ i'eas on the p$o0ect. %. The use of a sp$ea'sheet p$og$am inc$eases the accu$acy of the p$o0ections. C. 5hat will happen is not /nown in a'+ance so a +a$iety of options can e e)plo$e' p$io$ to ma/ing a 'ecision. #. " well,w$itten sp$ea'sheet will allow fo$ a +a$iety of <uestions to e answe$e' in a minimal amount of time. %o a'illa

Cost-Volume-Profit Analysis

->." Cost,Volume,P$ofit g$aph contains an I"$ea of 8ossI an' an I"$ea of P$ofita ilityI. 5hich of the following est e)plains the 'iffe$ence etween the two points on the g$aph! ". The a$ea of loss $ep$esents the 'iffe$ence etween Sales an' Va$ia le Cost. %. The a$ea of loss egins with the concept that fi)e' costs ha+e to e $eco+e$e' p$io$ to sales cont$i uting to p$ofit. C. The a$ea of p$ofit $ep$esents the 'iffe$ence etween Sales an' Va$ia le Cost. #. The a$ea of p$ofit egins with the concept that no company woul' ha+e any le+el of sales elow the $ea/,e+en point. %o a'illa -1.5hich of the following est 'esc$i es the impact of selling mo$e units! ". The inc$ease in sales +olume inc$eases total +a$ia le cost. %. The inc$ease in sales +olume means an inc$ease in total fi)e' cost. C. The inc$ease in sales inc$eases cont$i ution ma$gin* causing net income to 'ec$ease. #. The inc$ease in sales inc$eases cont$i ution ma$gin pe$ unit causing the $ea/,e+en point to 'ec$ease. %o a'illa -(.On a cost,+olume,p$ofit cha$t 6 $ea/,e+en g$aph7* whe$e a$e the total fi)e' costs shown! ". "s the point whe$e the sales line inte$sects the +e$tical a)is 6pesos7 %. "s the point whe$e the sales line c$osses the total cost line C. "s the point whe$e the sales line c$osses the ho$i&ontal a)is 6+olume7 #. "s the point whe$e the total cost line inte$sects the +e$tical a)is 6pesos7 %o a'illa --.5hen using con+entional cost,+olume,p$ofit analysis* some assumptions a out costs an' sales p$ices a$e ma'e. 5hich of the following is one of those assumptions! ". The cont$i ution ma$gin will change as +olume inc$eases %. The +a$ia le cost pe$ unit will 'ec$ease as +olume inc$eases
100

C. The sales p$ice pe$ unit will $emain constant as +olume inc$eases #. 9i)e' cost pe$ unit will $emain the same as +olume inc$eases %o a'illa -..Classifying a cost as fi)e' o$ +a$ia le 'epen's on how it eha+es ". pe$ unit* as the +olume of acti+ity changes. %. in total* as the +olume of acti+ity changes. C. oth " an' % a$e co$$ect. #. none of the a o+e. %o a'illa -2." fi)e' cost is the same pe$centage of sales in th$ee 'iffe$ent months. 5hich of the following is t$ue! ". The company ha' the same sales in each of those months. %. The cost is oth fi)e' an' +a$ia le. C. The company is ope$ating at its $ea/,e+en point. #. The company is achie+ing its ta$get le+el of p$ofit. %o a'illa -3.Pe$,unit +a$ia le cost ". $emains constant within the $ele+ant $ange. %. inc$eases as +olume inc$eases within the $ele+ant $ange. C. 'ec$eases as +olume inc$eases within the $ele+ant $ange. #. 'ec$eases if +olume inc$eases eyon' the $ele+ant $ange. %o a'illa -4.In planning p$o'uct mi) fo$ ma)imum p$ofit* CVP analysis woul' stimulate sales of the p$o'uct y inc$easing the: ". sales p$ice C. cont$i ution ma$gin %. +a$ia le cost pe$ unit #. emphasis on custome$ p$io$ity %o a'illa -:." $elati+ely low ma$gin of safety $atio fo$ a p$o'uct is usually an in'ication that the p$o'uct: ". is losing money %. has a high cont$i ution ma$gin C. is $is/ie$ than highe$ ma$gin of safety p$o'ucts #. is less $is/y than highe$ ma$gin of safety p$o'ucts %o a'illa

Cost-Volume-Profit Analysis

-=.5ithin the $ele+ant $ange* total $e+enues an' total costs ". inc$ease* ut at a 'ec$easing $ate. C. $emain constant. %. 'ec$ease. #. can e g$aphe' as st$aight lines. %o a'illa .>."n assumption in a CVP analysis is that a change in costs is cause' y a change in ". unit 'i$ect mate$ial cost C. sales commission pe$ unit %o a'illa %. the num e$ of units #. efficiency 'ue to lea$ning cu$+e effect .1.In CVP analysis* when the num e$ of units changes* which one of the following will $emain the same! ". Total sales $e+enues C. Total fi)e' costs %. Total +a$ia le costs #. Total cont$i ution ma$gin %o a'illa .(."s fi)e' costs fo$ a fi$m $ise* all othe$ things hel' constant* the $ea/e+en point will ". e unchange' C. inc$ease %. not e affecte' y fi)e' costs #. 'ec$ease %o a'illa .-.5hich of the following woul' not affect the $ea/e+en point! ". Jum e$ of units sol'. C. Total fi)e' costs. %. Va$ia le cost pe$ unit. #. Sales p$ice pe$ unit. %o a'illa ...The ma$gin of safety is a /ey concept of CVP analysis. The ma$gin of safety is ". The cont$i ution ma$gin $ate. %. The 'iffe$ence etween u'gete' cont$i ution ma$gin an' actual cont$i ution ma$gin. C. The 'iffe$ence etween u'gete' cont$i ution ma$gin an' $ea/e+en cont$i ution ma$gin #. The 'iffe$ence etween u'gete' sales an' $ea/e+en sales. %o a'illa

.2." techni<ue fo$ 'ete$mining what woul' happen in a 'ecision analysis if a /ey p$e'iction o$ assumption p$o+es to e w$ong is calle': ". CVP analysis. C. Post,au'it analysis. %o a'illa %. Sensiti+ity analysis. #. Cont$i ution,ma$gin +a$iation analysis. .3."n inc$ease in the unit +a$ia le cost will gene$ally cause an inc$ease in all of the following e)cept ". the $ea/,e+en point. C. total +a$ia le costs. %. cont$i ution ma$gin. #. unit selling p$ice. %o a'illa .4.The most li/ely st$ategy to $e'uce the $ea/e+en point woul' e to ". Inc$ease oth the fi)e' costs an' the cont$i ution ma$gin. %. #ec$ease oth the fi)e' costs an' the cont$i ution ma$gin. C. #ec$ease the fi)e' costs an' inc$ease the cont$i ution ma$gin. #. Inc$ease the fi)e' costs an' 'ec$ease the cont$i ution ma$gin. %o a'illa .:.The $ea/,e+en point in total sales 'ec$eases when: ". +a$ia le cost inc$eases an' sales $emain unchange' %. +a$ia le cost inc$eases an' sales inc$ease C. fi)e' cost inc$eases #. fi)e' cost 'ec$eases

%o a'illa

.=.5hich of the following est 'esc$i es the impact of an inc$ease in fi)e' cost! ". The inc$ease in fi)e' cost will $esult in an inc$ease in selling mo$e units. %. The inc$ease in fi)e' cost will cause an inc$ease in +a$ia le cost. C. The inc$ease in fi)e' cost causes net income to 'ec$ease an' the $ea/,e+en point to 'ec$ease. #. The inc$ease in fi)e' cost causes net income to 'ec$ease an' the $ea/,e+en point to inc$ease. %o a'illa 2>." companyAs $ea/e+en point in peso sales may e affecte' y e<ual pe$centage inc$eases in oth selling p$ice an' +a$ia le cost pe$ unit 6assume all othe$ facto$s a$e e<ual within the $ele+ant
101

Cost-Volume-Profit Analysis

$ange7. The e<ual pe$centage changes in selling p$ice an' +a$ia le cost pe$ unit will cause the $ea/e+en point in peso sales to ". #ec$ease y less than the pe$centage inc$ease in selling p$ice. %. #ec$ease y mo$e than the pe$centage inc$ease in the selling p$ice. C. Inc$ease y less than the pe$centage inc$ease in selling p$ice. #. Remain unchange'. %o a'illa 21.If the fi)e' costs atten'ant to a p$o'uct inc$ease while +a$ia le costs an' sales p$ice $emains constant* what will happen to cont$i ution ma$gin 6C;7 an' $ea/e+en point 6%EP7! %o a'illa ". %. C. #. C; Inc$ease #ec$ease ?nchange ?nchange ' ' %EP #ec$ease Inc$ease Inc$ease ?nchange ' 2(.5hich of the following will 'ec$ease the $ea/e+en point! %o a'illa #ec$ease in Selling Inc$ease in #i$ect Inc$ease in 9i)e' P$ice 8a o$ Cost " KES KES KES . % KES JO KES . C JO JO KES . # JO JO JO . 2-.5hich of the following is an inco$$ect statement! ". The cont$i ution income statement that is p$epa$e' fo$ inte$nal use$s is ette$ than the t$a'itional income statement as a management tool to p$e'ict the $esults of inc$eases o$ 'ec$eases in sales +olume* +a$ia le costs* an' fi)e' costs. %. The g$eate$ the p$opo$tion of fi)e' costs in a fi$m@s cost st$uctu$e* the smalle$ will e the impact on p$ofit f$om a gi+en pe$centage change in sales $e+enue.

C. In an economic $ecession* the highly automate' company with high fi)e' costs will e less a le to a'apt to lowe$ consume$ 'eman' than will a fi$m with a mo$e la o$,intensi+e p$o'uction p$ocess. #. " ma0o$ 'iffe$ence etween income statements p$epa$e' un'e$ the t$a'itional fo$mat an' those p$epa$e' un'e$ the cont$i ution fo$mat is that e)penses un'e$ the t$a'itional fo$mat a$e shown y function* while the e)penses shown un'e$ the cont$i ution fo$mat a$e shown y function an' cost eha+io$. %o a'illa 2..If a company is ope$ating at a loss* ". fi)e' costs a$e g$eate$ than sales. %. selling p$ice is lowe$ than the +a$ia le cost pe$ unit. C. selling p$ice is less than the a+e$age total cost pe$ unit. #. fi)e' cost pe$ unit is g$eate$ than +a$ia le cost pe$ unit. %o a'illa 22."s ". %. C. #. +olume inc$eases* a+e$age cost pe$ unit inc$eases. 'ec$eases. $emains constant. inc$eases in p$opo$tion to the change in +olume.

%o a'illa

23.If all goes acco$'ing to plan e)cept that unit +a$ia le cost falls* ". total cont$i ution ma$gin will e lowe$ than e)pecte'. %. the cont$i ution ma$gin pe$centage will e lowe$ than e)pecte'. C. p$ofit will e highe$ than e)pecte'. #. pe$,unit cont$i ution ma$gin will e lowe$ than e)pecte'. %o a'illa 24.5hich of the following 'ec$eases pe$,unit cont$i ution ma$gin the most fo$ a company that is cu$$ently ea$ning a p$ofit! ". " 1>L 'ec$ease in selling p$ice. C. " 1>L inc$ease in fi)e' costs. %o a'illa %. " 1>L inc$ease in +a$ia le cost pe$ unit. #. " 1>L inc$ease in fi)e' cost pe$ unit. 2:.If +a$ia le cost as a pe$centage of sales inc$eases* the
102

Cost-Volume-Profit Analysis

". cont$i ution ma$gin pe$centage inc$eases. %. selling p$ice inc$eases. C. $ea/,e+en point in pesos inc$eases. #. fi)e' costs 'ec$ease.

". cont$i ution $atio. %. cont$i ution ma$gin pe$ unit. %o a'illa

C. total +a$ia le cost. #. total fi)e' cost.

%o a'illa

2=.Int$o'ucing income ta)es into cost,+olume,p$ofit analysis ". $aises the $ea/,e+en point. %. lowe$s the $ea/,e+en point. C. inc$eases unit sales nee'e' to ea$n a pa$ticula$ ta$get p$ofit. #. 'ec$eases the cont$i ution ma$gin pe$centage. %o a'illa 3>.If a company is ea$ning a p$ofit* its fi)e' costs ". a$e less than total cont$i ution ma$gin. %. a$e e<ual to total cont$i ution ma$gin. C. a$e g$eate$ than total +a$ia le costs. #. can e g$eate$ than o$ less than total cont$i ution ma$gin. %o a'illa 31." cost,+olume,p$ofit g$aph $eflects $elationships ". that a$e e)pecte' to hol' o+e$ the $ele+ant $ange. %. of $esults o+e$ the past few yea$s. C. that the company@s manage$s woul' li/e to ha+e happen. #. li/ely to p$e+ail fo$ the in'ust$y. %o a'illa 3(.The following 'iag$am manufactu$ing company. is a cost,+olume,p$ofit
E P # " O % C

3-.Select the answe$ that est 'esc$i es the la ele' item on the 'iag$am. ". "$ea C#E $ep$esents the a$ea of net loss. %. 8ine "C g$aphs total fi)e' costs. C. Point # $ep$esents the point at which the cont$i ution ma$gin pe$ unit inc$eases. #. 8ine "C g$aphs total costs. %o a'illa 3..In a cost,+olume,p$ofit g$aph ". the total $e+enue line c$osses the ho$i&ontal a)is at the $ea/e+en point. %o a'illa %. eyon' the $ea/e+en sales +olume* p$ofits a$e ma)imi&e' at the sales +olume whe$e total $e+enues e<ual total costs. C. an inc$ease in unit +a$ia le costs woul' 'ec$ease the slope of the total cost line. #. an inc$ease in the unit selling p$ice woul' shift the $ea/e+en point in units to the left. 32."n ". %. C. #. inc$ease in the income ta) $ate $aises the $ea/,e+en point. lowe$s the $ea/,e+en point. 'ec$eases sales $e<ui$e' to ea$n a pa$ticula$ afte$,ta) p$ofit. inc$eases sales $e<ui$e' to ea$n a pa$ticula$ afte$,ta) p$ofit. %o a'illa

g$aph

fo$

33.If the sales mi) shifts towa$' highe$ cont$i ution ma$gin p$o'ucts* the $ea/,e+en point ". 'ec$eases. %. inc$eases. C. $emains constant. #. it is impossi le to tell without mo$e info$mation. %o a'illa
Volume

The 'iffe$ence etween line "% an' line "C 6a$ea %"C7 is the
103

34.Ta$get costing is ". a su stitute fo$ CVP analysis. %. use' y companies that cannot classify thei$ costs y eha+io$.

Cost-Volume-Profit Analysis

C. inapp$op$iate if a company has al$ea'y esta lishe' a ta$get p$ofit. #. use' in 'ecisions to offe$ a new p$o'uct o$ ente$ a new ma$/et. %o a'illa 3:.In o$'e$ fo$ the $ea/,e+en computation to e meaningful to management* sales mi) shoul' e compute' using the ". e)pecte' mi) C. most 'esi$a le mi) %. least 'esi$a le mi) #. t$a'itional mi) %o a'illa 3=.5hich of the following is a t$ue statement a out sales mi)! ". P$ofits may 'ecline with an inc$ease in total peso of sales if the sales mi) shifts to sell mo$e of the high cont$i ution ma$gin p$o'uct. %. P$ofits may 'ecline with an inc$ease in total peso of sales if the sales mi) shifts to sell mo$e of the lowe$ cont$i ution ma$gin p$o'uct. C. P$ofits will $emain constant with an inc$ease in total peso of sales if the total sales in units $emains constant. #. P$ofits will $emain constant with a 'ec$ease in total peso of sales if the sales mi) also $emains constant. %o a'illa PROBLEMS: 1 . B$een Co$po$ation e)pects to sell -*>>> plants a month. Its ope$ations manage$ estimate' the following monthly costs: Va$ia le costs P 4*2>> 9i)e' costs 12*>>> 5hat sales p$ice pe$ plant 'oes she nee' to achie+e to egin ma/ing a p$ofit if she sells the estimate' num e$ of plants pe$ month! ". P4.21 C. P2.>> %. P4.2> #. P(.2> %o a'illa
(

". P(2*>>> %. P12*>>>

C. P1>*>>> #. P1(*>>>

%o a'illa

. The Re' 8ions %$othe$hoo' is planning its annual Ri+e$ oat E)t$a+agan&a. The E)t$a+agan&a committee has assem le' the following e)pecte' costs fo$ the e+ent: #inne$ pe$ pe$son P 4> P$og$ams an' sou+eni$ pe$ pe$son -> O$chest$a 12*>>> Tic/ets an' a'+e$tising 4*>>> Ri+e$ oat $ental .:*>>> 9loo$ show an' st$olling ente$tainment 1>*>>> The committee mem e$s woul' li/e to cha$ge P->> pe$ pe$son fo$ the e+eningAs acti+ities. "ssume that only (2> pe$sons a$e e)pecte' to atten' the e)t$a+agan&a* what tic/et p$ice must e cha$ge' to $ea/e+en! ". P.(> C. P-(> %. P-2> #. P-=> %o a'illa . Consi'e$ the following: 9i)e' e)penses P4:*>>> ?nit cont$i ution ma$gin 1( Ta$get net p$ofit .(*>>> How many unit sales a$e $e<ui$e' to ea$n the ta$get net p$ofit! ". 12*>>> units C. 1(*:>> units %. 1>*>>> units #. (>*>>> units %o a'illa . Ca$$i ean Company p$o'uces a p$o'uct that sells fo$ P3>. The +a$ia le manufactu$ing costs a$e P-> pe$ unit. The fi)e' manufactu$ing cost is P1> pe$ unit ase' on the cu$$ent le+el of acti+ity* an' fi)e' selling an' a'minist$ati+e costs a$e P: pe$ unit. " selling commission of 1>L of the selling p$ice is pai' on each unit sol'. The cont$i ution ma$gin pe$ unit is: ". P(.. C. P->. %. P-3. #. P2.. %o a'illa

. "n o$gani&ation@s $ea/,e+en point is .*>>> units at a sales p$ice of P2> pe$ unit* +a$ia le cost of P-> pe$ unit* an' total fi)e' costs of P:>*>>>. If the company sells 2>> a''itional units* y how much will its p$ofit inc$ease!
104

Cost-Volume-Profit Analysis
3

. Seal Ka$' O$naments sells lawn o$naments fo$ P12 each. Seal@s cont$i ution ma$gin $atio is .>L. 9i)e' costs a$e P-(*>>>. Shoul' fi)e' costs inc$ease ->L* how many a''itional units will Seal ha+e to p$o'uce an' sell in o$'e$ to gene$ate the same net p$ofit as un'e$ the cu$$ent con'itions! ". 1*3>>. C. 3*=--. %. 2*---. #. 1*>34. %o a'illa . "t a $ea/,e+en point of 2*>>> units sol'* +a$ia le e)penses we$e P1>*>>> an' fi)e' e)penses we$e P2>*>>>. The p$ofit f$om the 2*>>1st unit woul' e! ". P1> C. P12 %. P2> #. P1( %o a'illa . Balactica Company has fi)e' costs of P1>>*>>> an' $ea/e+en sales of P:>>*>>>. %ase' on this $elationship* what is its p$o0ecte' p$ofit at P1*(>>*>>> sales! ". P 2>*>>> C. P12>*>>> %. P(>>*>>> #. P.>>*>>> %o a'illa . The sales p$ice pe$ unit will inc$ease f$om P-( to P.>. The +a$ia le cost pe$ unit will $emain at P(.* an' the fi)e' costs will $emain unchange' at P.>>*>>>. How many fewe$ units must e sol' to $ea/,e+en at the new sales p$ice of P.> pe$ unit! ". (2*>>> C. 1>*>>> %. (*2>> #. 1(*2>> %o a'illa . The Ha$' Company sells wi'gets. The company $ea/s e+en at an annual sales +olume of :>*>>> units. "t an annual sales +olume of 1>>*>>> units the company $epo$ts a p$ofit of P((>*>>>. The annual fi)e' costs fo$ the Ha$' Company a$e: ". P ::>*>>> C. P :>>*>>> %. P1*1>>*>>> #. P1*>>>*>>> %o a'illa . "l at$oss Company has fi)e' costs of P=>*->>. "t a sales +olume of P-3>*>>>* $etu$n on sales is 1>LM at a P3>>*>>> +olume* $etu$n on sales is (>L. 5hat is the $ea/,e+en +olume! ". P((2*>>> C. P->1*>>>
105

%. P(2:*>>>
1(

#. P(.>*>>>

%o a'illa

. "n entity has fi)e' costs of P(>>*>>> an' +a$ia le costs pe$ unit of P3. It plans on selling .>*>>> units in the coming yea$. If the entity pays income ta)es on its income at a $ate of .>L* what sales p$ice must the fi$m use to o tain an afte$,ta) p$ofit of P(.*>>> on the .>*>>> units! ". P11.3> C. P1(.>> %. P11.-3 #. P1(.2> %o a'illa . The following is the 8u) Co$po$ation@s cont$i ution fo$mat income statement fo$ last month: Sales P(*>>>*>>> 8ess +a$ia le e)penses 1*.>>*>>> Cont$i ution ma$gin 3>>*>>> 8ess fi)e' e)penses -3>*>>> Jet income P (.>*>>> The company has no eginning o$ en'ing in+ento$ies. " total of .>*>>> units we$e p$o'uce' an' sol' last month. 5hat is the company@s 'eg$ee of ope$ating le+e$age! ". >.1( C. (.2> %. >..> #. -.-> %o a'illa . #elma$ Company has the oppo$tunity to inc$ease its annual sales y P1(2*>>> y selling to a new* $is/ie$ g$oup of custome$s. The uncollecti le e)pense is e)pecte' to e 1>L* an' collection costs will e 1>L. The companyAs manufactu$ing an' selling e)penses a$e 4>L of sales* an' its effecti+e ta) $ate is .>L. If #elma$ we$e to accept this oppo$tunity* the companyAs afte$ ta) p$ofits woul' inc$ease y ". P 4*2>> C. P1(*2>> %. P 3*>>> #. P12*>>> %o a'illa . In (>>3 8ucia Company ha' a net loss of P:*>>>. The company sells one p$o'uct with a selling p$ice of P:> an' a +a$ia le cost pe$ unit of P3>. In (>>4* the company woul' li/e to ea$n a efo$e,ta) p$ofit of P.>*>>>. How many a''itional units must the company

1-

1.

1>

12

11

Cost-Volume-Profit Analysis

sell in (>>4 than it sol' in (>>3! "ssume that the ta) $ate is .> pe$cent. ". 1*3>> C. (*>>> %. (*.>> #. 2*.>> %o a'illa
13

(>

. %ulusan Company has sales of P.>>*>>> with +a$ia le costs of P->>*>>>* fi)e' costs of P1(>*>>>* an' an ope$ating loss of P(>*>>>. How much inc$ease in sales woul' %ulusan nee' to ma/e in o$'e$ to achie+e a ta$get ope$ating income of 1>L of sales! ". P.>>*>>> C. P2>>*>>> %. P.3(*>>> #. P:>>*>>> %o a'illa . The following 'ata apply to #i+a Co$po$ation fo$ the yea$ (>>3: Total +a$ia le cost pe$ unit P-.2> Cont$i ution ma$ginDsales ->L %$ea/e+en sales 6p$esent +olume7 P1*>>>*>>> #i+a wants to sell an a''itional 2>*>>> units at the same selling p$ice an' cont$i ution ma$gin pe$ unit. %y how much can fi)e' costs inc$ease to gene$ate a g$oss ma$gin e<ual to 1>L of the sales +alue of the a''itional 2>*>>> units to e sol'! ". P 2>*>>> C. P 34*2>> %. P 24*2>> #. P1(2*>>> %o a'illa . ;a$sman Company ha' a ma$gin of safety $atio of (>L* +a$ia le costs of 3>L of sales* fi)e' costs of P(.>*>>>* a $ea/,e+en point of P3>>*>>>* an' an ope$ating income of P3>*>>> fo$ the cu$$ent yea$. 5hat a$e the cu$$ent yea$@s sales! ". P 2>>*>>> C. P 42>*>>> %. P 3>>*>>> #. P =>>*>>> %o a'illa . Regal* Inc. sells P$o'uct ; fo$ P2 pe$ unit. The fi)e' costs a$e P(1>*>>> an' the +a$ia le costs a$e 3>L of the selling p$ice. 5hat woul' e the amount of sales if Regal is to $eali&e a p$ofit of 1>L of sales! ". P4>>*>>> C. P2(2*>>> %. P.4(*2>> #. P.(>*>>> %o a'illa

. The following economic 'ata we$e p$o+i'e' y the co$po$ate planning staff of Hea+en* Inc.: Sales +olume ->*>>> units Sales p$ice pe$ unit P-> ?nit +a$ia le costs: Va$ia le manufactu$ing P1Othe$ +a$ia le costs : ?nit +a$ia le costs P(1 ?nit cont$i ution ma$gin P : 9i)e' costs: ;anufactu$ing P12>*>>> Othe$ fi)e' costs P 2>*>>> Total fi)e' costs P(>>*>>> The management is consi'e$ing installing a new* automate' manufactu$ing p$ocess that will inc$ease fi)e' costs y P2>*>>> an' $e'uce +a$ia le manufactu$ing cost y P- pe$ unit. The management set a ta$get a p$ofit of P4>*>>> efo$e an' afte$ the ac<uisition of the automate' machine. "fte$ installation of the automate' machine* what will e the change in the units $e<ui$e' to achie+e the ta$get p$ofit! ". 3*334 unit inc$ease C. -*--- unit 'ec$ease %. 2*334 unit 'ec$ease #. .*--- unit 'ec$ease %o a'illa

14

1:

(1

1=

. In planning its ope$ations fo$ ne)t yea$ ase' on a sales fo$ecast of P3*>>>*>>>* He$$an* Inc. p$epa$e' the following estimate' costs an' e)penses: Va$ia le 9i)e' #i$ect mate$ials P1*3>>*>>> #i$ect la o$ 1*.>>*>>> 9acto$y o+e$hea' 3>>*>>> P =>>*>>> Selling e)penses (.>*>>> -3>*>>> "'minist$ati+e 3>*>>> 1.>*>>> e)penses P-*=>>*>>> P1*.>>*>>> 5hat woul' e the amount of peso sales at the $ea/e+en point! ". P(*(2>*>>>. C. P.*>>>*>>>.

106

Cost-Volume-Profit Analysis

%. P-*2>>*>>>.
((

#. P2*->>*>>>.

%o a'illa

. The E)p$essi+e Company cu$$ently has fi)e' cost of P44>*2>>. This cost is e)pecte' to inc$ease y P1>-*2>> if the company e)pan's its p$o'uction facilities. Cu$$ently* it sells its p$o'uct fo$ P.4. The p$o'uct has a +a$ia le cost pe$ unit of P(.. How many mo$e units must the company sell to $ea/ e+en* at the cu$$ent sales p$ice pe$ unit* than it 'i' to $ea/ e+en p$io$ to the inc$ease in fi)e' cost! ". -*2>> C. .*2>> %. .*>>> #. 3*>>> %o a'illa . The Tan/e$ Company estimate' the following 'ata fo$ the coming yea$: 9i)e' manufactu$ing costs P232*>>> Va$ia le p$o'uction costs pe$ peso of sales ;ate$ials P >.1(2 #i$ect la o$ >.12> Va$ia le o+e$hea' >.>42 Va$ia le selling costs pe$ peso of sales >.12> Tan/e$ estimates its sales fo$ the coming yea$ to e P(*>>>*>>>. The e)pecte' cost of goo's sol' fo$ the coming yea$ is ". P1*(32*>>> C. P1*232*>>> %. P1*112*>>> #. P 4>>*>>>
(3

"lpineAs management is unhappy with the $esults an' plans to ma/e some changes fo$ ne)t yea$. If management implements a new ma$/eting p$og$am* fi)e' costs a$e e)pecte' to inc$ease y P1=*(>> an' +a$ia le costs to inc$ease y P1 pe$ unit. ?nit sales a$e e)pecte' to inc$ease y 12 pe$cent. 5hat is the effect on income if the fo$egoing changes a$e implemente'! ". 'ec$ease of P(1*(>> C. inc$ease of P 1*:>> %. inc$ease of P1-*:>> #. inc$ease of P1.*:>> %o a'illa . ;e$ca'o* Inc. ha' the following economic 'ata fo$ (>>4: Jet sales P.>>*>>> Cont$i ution ma$gin 13>*>>> ;a$gin of safety .>*>>> 5hat is ;e$ca'oAs $ea/e+en point in (>>4! ". P-3>*>>> C. P-(>*>>> %. P(::*>>> #. P :>*>>> %o a'illa . ;a$<ue& Co. manufactu$es a single p$o'uct. 9o$ (>>3* the company ha' sales of P=>*>>>* +a$ia le costs of P2>*>>>* an' fi)e' costs of P->*>>>. ;a$<ue& e)pects its cost st$uctu$e an' sales p$ice pe$ unit to $emain the same in (>>4M howe+e$ total sales a$e e)pecte' to 0ump y (>L. If the (>>4 p$o0ections a$e $eali&e'* net income in (>>4 shoul' e)cee' net income in (>>3 y ". 1>>L C. (>L %. :>L #. 2>L %o a'illa . %elow is the income statement fo$ Ha$po Co. fo$ (>>3: Sales P.>>*>>> Va$ia le costs 6 1(2*>>>7 Cont$i ution ma$gin P(42*>>> 9i)e' costs 6 (>>*>>>7 P$ofit efo$e ta) P 42*>>> "ssuming that the fi)e' costs a$e e)pecte' to $emain at P(>>*>>> fo$ (>>4* an' the sales p$ice pe$ unit an' +a$ia le cost pe$ unit a$e also e)pecte' to $emain constant* how much p$ofit efo$e ta) will

(-

(4

%o a'illa

(.

. "t a sales +olume le+el of (*(2> units* %alua$te CompanyAs cont$i ution ma$gin is one an' one,half of the fi)e' costs of P-3*>>>. Cont$i ution ma$gin is ->L How much peso sales shoul' the %alua$te Company sell to ea$n 1> pe$cent of sales! ". P(4>*>>> C. P-3>*>>> %. P1:>*>>> #. P2.>*>>> %o a'illa . The "lpine CompanyAs yea$,en' income statement is as follows: Sales 6(>*>>> units7 P-3>*>>> Va$ia le costs ((>*>>> Cont$i ution ma$gin P1.>*>>> 9i)e' costs 1>2*>>> Jet income P -2*>>>
107

(:

(2

Cost-Volume-Profit Analysis

e p$o'uce' if the company anticipates (>>4 sales $ising to 1->L of the (>>3 le+el! ". P =4*2>> C. P1=2*>>> %. P124*2>> #. P1:>*>>> %o a'illa
(=

. "lmos Co$po$ation p$o'uces a p$o'uct that sells fo$ P1> pe$ unit. The +a$ia le cost pe$ unit is P3 an' total fi)e' costs a$e P1(*>>>. "t this selling p$ice* the company ea$ns a p$ofit e<ual to 1>L of total peso sales. %y $e'ucing its selling p$ice to P= pe$ unit* the manufactu$e$ can inc$ease its unit sales +olume y (2L. "ssume that the$e a$e no ta)es an' that total fi)e' costs an' +a$ia le cost pe$ unit $emain unchange'. If the selling p$ice we$e $e'uce' to P= pe$ unit* the companyAs p$ofit woul' ha+e een ". P-*>>>. C. P2*>>>. %. P.*>>>. #. P3*>>>. %o a'illa . Info$mation conce$ning the (>>4 financial p$o0ections of the Sil+e$ Company is as follows: Jet sales of P-*>>>*>>>. 9i)e' costs of P:>>*>>>. P>.32 inc$ease in cost of sales fo$ each peso inc$ease in net sales. 5hat is the p$o0ecte' cost of sales fo$ (>>4! ". P =2>*>>> C. P1*>2>*>>> %. P(*42>*>>> #. P1*:2>*>>> %o a'illa . The Chil'less Company sells wi'gets. The company $ea/s e+en at an annual sales +olume of 42*>>> units. "ctual annual sales +olume was $epo$te' a p$ofit of P(>>*>>>. Chil'less Company a$e ". P:>>*>>> %. P3>>*>>> 1>>*>>> units* an' the company The annual fi)e' costs fo$ the C. P(>>*>>> #. P12>*>>> %o a'illa

9acto$y o+e$hea'* all fi)e' (=*>>> Selling e)pense 6-2L +a$ia le* 32L fi)e'7 (.*>>> 5hat unit p$ice woul' the company ha+e to cha$ge to ma/e P(*(2> on a sale of 1*2>> a''itional units that woul' e shippe' out of the no$mal ma$/et a$ea! ". P2.1> C. P..1> %. P2.3> #. P2.>> %o a'illa
--

. The ;an'a$in Company@s p$o'uct mi) inclu'es P4(>*>>> in sale of N an' P3.>*>>> in sale of K. N@s cont$i ution ma$gin is 3>L an' K@s is .>L of sales. 9i)e' costs amount to P2>2*::1. K@s sale at $ea/e+en point shoul' amount to ". P3.>*>>> C. P2(=*.=> %. P4(>*>>> #. P.4>*2=> %o a'illa . 8e+iAs Company has $e+enues of P2>>*>>>* +a$ia le costs of P->>*>>>* an' p$eta) p$ofit of P12>*>>>. Ha' the company inc$ease' the sales p$ice pe$ unit y 1>L* $e'uce' fi)e' costs y (>L* an' left +a$ia le cost pe$ unit unchange'* what woul' the new $ea/e+en point in pesos ha+e een! ". P ::*>>> C. P1>>*>>> %. P :>*>>> #. P1(2*>>> %o a'illa . " fi$m has fi)e' costs of P(>>*>>> an' +a$ia le cost pe$ unit of P3. It plans to sell .>*>>> units in the coming yea$. If the fi$m pays income ta)es on its income at a $ate of .>L* what sales p$ice must the fi$m use to o tain an afte$,ta) p$ofit of P(.*>>>! ". P11.3> C. P11.-3 %. P1(.>> #. P1(.2> %o a'illa . %elow is the income statement fo$ %len'e$ Co. fo$ (>>4: Sales P.>>*>>> Va$ia le costs 61(2*>>>7 Cont$i ution ma$gin P(42*>>> 9i)e' costs 6 (>>*>>>7 P$ofit efo$e ta) P 42*>>>

-.

->

-2

-1

-3

-(

. The costs to p$o'uce (.*>>> units at 4>L capacity a$e: #i$ect mate$ials P-3*>>> #i$ect la o$ 2.*>>>
108

Cost-Volume-Profit Analysis

5hat is the 'eg$ee of ope$ating le+e$age fo$ %len'e$ Company fo$ (>>4! ". -.34 C. 2.-%. 1..2 #. 1.34 %o a'illa
-4

". P->>*>>> %. P.>>*>>>

C. P2>>*>>> #. P:>>*>>>

%o a'illa

. 9oo' 9acto$y* Inc. sells loose iscuits fo$ P2 pe$ unit. The fi)e' costs a$e P(1>*>>> an' the +a$ia le costs a$e .2L of the selling p$ice. 5hat woul' e the amount of sales if 9oo' 9acto$y* Inc. we$e to $eali&e a p$ofit of 12L of sales! ". P4>>*>>> C. P2(2*>>> %. P.4(*2>> #. P.(>*>>> %o a'illa . The Opposition Sales Co$po$ation is e)pecting an inc$ease of fi)e' costs y P4:*42> upon mo+ing thei$ place of usiness to the 'owntown a$ea. The company anticipates that the selling p$ice pe$ unit an' the +a$ia le e)penses will not change. "t p$esent* the sales +olume necessa$y to $ea/e+en is P42>*>>> ut with the e)pecte' inc$ease in fi)e' costs* the sales +olume necessa$y to $ea/e+en woul' go up to P=42*>>>. %ase' on these p$o0ections* what we$e the total fi)e' costs efo$e the inc$ease of P4:*42>! ". P-.1*(2> C. P1:-*42> %. P(3(*2>> #. P->>*>>> %o a'illa

-:

. %al oa* Inc. ha' the following economic info$mation fo$ the yea$ (>>3: Sales 62>*>>> units O P(>7 P1*>>>*>>> Va$ia le manufactu$ing costs .>>*>>> 9i)e' costs (2>*>>> Income ta) $ate .> pe$cent %al oa* Inc. u'gets its (>>4 sales at 3>*>>> units o$ P1*(>>*>>>. The company anticipates an inc$ease' competitionM hence* an a''itional P42*>>> a'+e$tising costs is u'gete' in o$'e$ to maintain its sales ta$get fo$ (>>4. 5hat is the amount of peso sales nee'e' fo$ (>>4 in o$'e$ to e<ual the afte$,ta) income in (>>3! ". P1*1(2*>>> C. P1*-(2*>>> %. P1*1:4*2>> #. P1*-:4*2>> %o a'illa

.(

. ;au$esmo Company 'e+elope' the following info$mation fo$ the yea$ en'e' #ecem e$ -1* (>>4: P$o'uct " P$o'uct % Total ?nits Sol' .*>>> 3*>>> 1>*>>> Sales P1(*>>> P(4*>>> P-=*>>> Va$ia le costs 3*>>> 12*>>> (1*>>> Cont$i ution ma$gin P 3*>>> P1(*>>> 1:*>>> 9i)e' costs 1(*3>> Jet income P 2*.>> If the sales mi) changes to 2*>>> units of P$o'uct " an' 2*>>> units of P$o'uct %* the effect on the companyAs $ea/,e+en point woul' e ". to inc$ease it y (>> units. C. to inc$ease it y 1*(>> units. %. to 'ec$ease it y (>> units. #. no change. %o a'illa

-=

. "t .>*>>> units of sales* %ene+olent Co$po$ation ha' an ope$ating loss of P-.>> pe$ unit. 5hen sales we$e 4>*>>> units* the company ha' a p$ofit of P1.(> pe$ unit. The num e$ of units to $ea/e+en is ". -2*>>> C. .2*>>> %. 2(*2>> #. 24*3.4 %o a'illa . The following info$mation pe$tains to Hennin Co$po$ation fo$ the yea$ en'ing #ecem e$ -1* (>>3: %u'gete' sales P1*>>>*>>> %$ea/e+en sales 4>>*>>> %u'gete' cont$i ution ma$gin 3>>*>>> Cashflow $ea/e+en (>>*>>> The ma$gin of safety fo$ the Hennin Co$po$ation is:
109

.>

.-

. ;eno$ Company sells two p$o'ucts with the following pe$ unit 'ata: Stan'a$' #elu)e Selling p$iceDunit P42 P1(>

Cost-Volume-Profit Analysis

Va$ia le costsDunit .2 3> Cont$i ution ma$ginDunit P-> P 3> Sales mi) ( If fi)e' costs a$e P3->*>>>* the num e$ of stan'a$' an' 'elu)e units that ;eno$ must sell to $ea/ e+en is %o a'illa ". 1*:>> stan'a$' an' 1*(>> 'elu)e. C. =*>>> stan'a$' an' 3*>>> 'elu)e. %. -*3>> stan'a$' an' (*.>> 'elu)e. #. (1*>>> stan'a$' an' 1.*>>> 'elu)e.
..

P$o'uct C: unit.

3 units O P1(.(2 sales p$iceM P1>.-2 +a$ia le cost pe$

#ial Ente$p$ise@s fi)e' costs a$e P42*=2>. 5hat a$e the composite $ea/,e+en point! ". =:*>>> C. -*2>> %. (*>>> #. .*>>>
.3

%o a'illa

. The following a$e p$o0ections a out the two p$o'ucts of #o$ine Company* au les an' t$in/ets* fo$ the coming yea$: %au les T$in/ets ?nits "mou ?nits "mou Total nt nt Sales 1>*>> P1>*> 4*2>> P1>*> P(>*> > >> >> >> Costs 9i)e' P P P (*>>> 2*3>> 4*3>> Va$ia le 3*>> -*>> =*> > > >> P P P13*3 :*>>> :*3>> >> Income efo$e P P P ta)es (*>>> 1*.>> -*.>> "ssuming that the custome$s pu$chase composite units of fou$ au les an' th$ee t$in/ets* the $ea/e+en output fo$ the two p$o'ucts woul' e %o a'illa ". %. C. #. %au les 3*=>= 3*=>= 2*>>> 2*>>> T$in/ets 3*=>= 2*1:( :*>>> 3*>>> . The sales mi) fo$ #ial Ente$p$ise is as follows: P$o'uct ": 1( units O P2.(2 sales p$iceM P..:2 +a$ia le cost pe$ unit. P$o'uct %: 1> units O P4.2> sales p$iceM P3.=2 +a$ia le cost pe$ unit.
110

. "le)an'$a Co. p$o+i'es two p$o'ucts* Vel+et an' Cotton. Vel+et accounts fo$ 3> pe$cent of total sales. The +a$ia le costs as a pe$centage of selling p$ices a$e 3>L fo$ Vel+et an' :2L fo$ Cotton. Total fi)e' costs a$e P((2*>>>. If fi)e' costs will inc$ease y -> pe$cent* what amount of peso sales woul' e necessa$y to gene$ate an ope$ating p$ofit of P.:*>>>! ". P1*-2>*>>> C. P1*1-2*>>> %. P .:3*.(2 #. P =1>*>>> %o a'illa

.4

. 8ast month* Pamo$a Company ha' an income of P>.42 pe$ unit with sales of 3>*>>> units. #u$ing the cu$$ent month when the unit sales a$e e)pecte' to e only .2*>>>* the$e is a loss of P1.(2 pe$ unit. %oth the +a$ia le cost pe$ unit an' total fi)e' costs $emain constant. The fi)e' costs amounte' to ". P :>*>>> %. P(.4*2>> C. P-3>*>>> #. P(1>*>>>

%o a'illa

.:

.2

. %ytes Company is a $etaile$ of +i'eo 'is/s. The p$o0ecte' afte$,ta) income fo$ the cu$$ent yea$ is P1(>*>>> ase' on a sales +olume of (>>*>>> +i'eo 'is/s. %ytes has een selling the 'is/s at P13 each. The +a$ia le costs consist of the P1> pe$ unit pu$chase p$ice of the 'is/s an' a han'ling cost of P( pe$ 'is/. %ytesA annual fi)e' costs a$e P3>>*>>>* an' %ytes is su 0ect to a .>L income ta) $ate. ;anagement is planning fo$ the coming yea$ when it e)pects that the unit pu$chase p$ice of the +i'eo 'is/s will inc$ease ->L.

Cost-Volume-Profit Analysis

%ytes CompanyAs $ea/e+en point fo$ the cu$$ent yea$ in num e$ of +i'eo 'is/s is ". 1>>*>>> units C. 2>*>>> units %. 12>*>>> units #. 3>*>>> units %o a'illa
.=

Bla$eless Company estimates that its 'i$ect la o$ costs will inc$ease : pe$cent ne)t yea$. How many units will Bla$eless ha+e to sell ne)t yea$ to $each $ea/e+en! ". =4*2>> units C. 1>1*4.> units %. :-*24( units #. :3*(2> units %o a'illa
2(

. "lon&o Co$po$ation ha' sales of P1(>*>>> fo$ the month of ;ay. It has a ma$gin of safety $atio of (2 pe$cent* an' an afte$,ta) $etu$n on sales of 3 pe$cent. The company assumes its sales eing constant e+e$y month. If the ta) $ate is .> pe$cent* how much is the annual fi)e' cost! ". P -3*>>> C. P =>*>>> %. P.-(*>>> #. P-3>*>>> %o a'illa . Cultu$e' Company is a manufactu$e$ of its only one p$o'uct line. It ha' sales of P.>>*>>> fo$ (>>4 with a cont$i ution ma$gin $atio of (> pe$cent. Its ma$gin of safety $atio was 1> pe$cent. 5hat a$e the companyAs fi)e' costs! ". P 4(*>>> C. P :>*>>> %. P(::*>>> #. P-(>*>>>

2>

%o a'illa

21

. Santos Company is planning its a'+e$tising campaign fo$ ne)t yea$ an' has p$epa$e' the following u'get 'ata ase' on a &e$o a'+e$tising e)pen'itu$e: Jo$mal plant capacity (>>*>>> units Sales 12>*>>> units Selling p$ice P(2 pe$ unit Va$ia le manufactu$ing costs P12 pe$ unit 9i)e' manufactu$ing costs P:>>*>>> 9i)e' selling costs P4>>*>>> "n a'+e$tising agency claims that an agg$essi+e a'+e$tising campaign woul' ena le Santos to inc$ease its unit sales y (>L. 5hat is the ma)imum amount that Santos Company can pay fo$ a'+e$tising an' ha+e an ope$ating p$ofit of P(>>*>>> ne)t yea$! ". P1>>*>>> C. P->>*>>> %. P(>>*>>> #. P22>*>>> %o a'illa . "'+entu$ous Co. is consi'e$ing '$opping a p$o'uct. Va$ia le costs a$e P3>.>> pe$ unit. 9i)e' o+e$hea' costs* e)clusi+e of 'ep$eciation* ha+e een allocate' at a $ate of P-.2> pe$ unit an' will continue whethe$ o$ not p$o'uction ceases. #ep$eciation on the e<uipment is P3>*>>> a yea$. If p$o'uction is stoppe'* the e<uipment can e sol' fo$ P(4>*>>>* if p$o'uction continues* howe+e$* it will e useless at the en' of 1 yea$ an' will ha+e no sal+age +alue. The selling p$ice is P1>> a unit. Igno$ing ta)es* the minimum num e$ of units to e sol' in the cu$$ent yea$ to $ea/ e+en on a cash flow asis is ". 1*2>> units. C. :*(2> units. %. 3*42> units. #. =*42> units %o a'illa . Pansipit Company ha' a (2 pe$cent ma$gin of safety. Its afte$,ta) $etu$n on sales is 3 pe$cent. The companyAs income is su 0ect to ta)

. Bla$eless Company manufactu$es an' sells sunglasses. The p$ice an' cost 'ata a$e as follows: Selling p$ice pe$ pai$ of Sunglasses P(2.>> Va$ia le costs pe$ pai$ of sunglasses: Raw mate$ials P11.>> #i$ect la o$ 2.>> ;anufactu$ing o+e$hea' (.2> Selling e)penses 1.-> Total +a$ia le costs pe$ unit P1=.:> "nnual fi)e' costs: ;anufactu$ing o+e$hea' P1=(*>>> Selling an' a'minist$ati+e (43*>>> Total fi)e' costs P.3:*>>> 9o$ecaste' annual sales +olume 61(>*>>> pai$s7P-*>>>*>>> Income ta) $ate .>L

2-

2.

111

Cost-Volume-Profit Analysis

$ate of .> pe$cent. If fi)e' costs amount to P-(>*>>>* how much peso sales 'i' Pansipit ma/e fo$ the yea$! ". P1*>33*334 C. P1*(:>*>>> %. P1*>>>*>>> #. P :>>*>>> %o a'illa
22

24

. The management of ;esa Company has pe$fo$me' cost stu'ies an' has p$o0ecte' the following annual costs ase' on 3>*>>> units of p$o'uction an' sales: Total "nnual Pe$cent of Va$ia le Po$tion of Total Costs "nnual Costs #i$ect P3>>*>>> 1>> mate$ial #i$ect 4(>*>>> :> la o$ ;fg. .>>*>>> 2> O+e$hea' Selling 1=(*2>> (2 costs 5hat selling p$ice will yiel' a 12 pe$cent p$ofit f$om sales of 3>*>>> units! ". P.1.34 C. P(4.-> %. P-4.2> #. P-2..( %o a'illa . The following 'ata $elate to Ha$+este$ Company which sells a single p$o'uct: ?nit selling p$ice P :>.>> Pu$chase cost pe$ unit 22.>> Sales commission 12 L of selling p$ice 1(.>> ;onthly fi)e' costs P1:>*>>> The fi$mAs two salespe$sons woul' li/e to change thei$ compensation f$om a 12 pe$cent commission to a 4.2 pe$cent commission plus P12*>>> each pe$ month in fi)e' sala$y. Cu$$ently* they only $ecei+e commissions as thei$ compensation. "t what sales +olume in units woul' the two cost st$uctu$es e in'iffe$ent! ". (*2>> units C. .*>>> units %. -*>>> units #. 2*>>> units %o a'illa
112

. ;ulti9$ame Company has the following $e+enue an' cost u'gets fo$ the two p$o'ucts it sells: Plastic 9$ames Blass 9$ames Sales p$ice P1>.>> P12.>> #i$ect mate$ials 6 (.>>7 6 -.>>7 #i$ect la o$ 6 -.>>7 6 2.>>7 9i)e' o+e$hea' 6 -.>>7 6 (.427 Jet income pe$ P (.>> P ..(2 unit %u'gete' unit 1>>*>>> ->>*>>> sales The u'gete' unit sales e<ual the cu$$ent unit 'eman'* an' total fi)e' o+e$hea' fo$ the yea$ is u'gete' at P=42*>>>. "ssume that the company plans to maintain the same p$opo$tional mi). The total num e$ of units that ;ulti9$ame nee's to p$o'uce an' sell in o$'e$ to $ea/ e+en is ". 12>*>>> units C. 12-*=.4 units %. 1>>*>>> units #. ->>*>>> units %o a'illa

2:

23

. #u$ing (>>3* St. Paul 8a supplie' hospitals with a comp$ehensi+e 'iagnostic /it fo$ P1(>. "t a +olume of :>*>>> /its* St. Paul ha' fi)e' costs of P1*>>>*>>> an' ope$ating income efo$e income ta)es of P(>>*>>>. %ecause of an a'+e$se legal 'ecision* St. PaulAs (>>4 lia ility insu$ance inc$ease' y P1*(>>*>>> o+e$ (>>3. "ssuming the +olume an' othe$ costs a$e unchange'* what shoul' the (>>4 p$ice e if St. Paul is to ma/e the same P(>>*>>> ope$ating income efo$e income ta)es! ". P1(> C. P12> %. P1-2 #. P(.> %o a'illa . The following 'ata $elate to He$ e$t Company which sells a single p$o'uct: ?nit selling p$ice P (>.>> Pu$chase cost pe$ unit 11.>> Sales commission* 1>L of selling p$ice (.>> ;onthly fi)e' costs P:>*>>>

2=

Cost-Volume-Profit Analysis

The fi$mAs salespe$sons woul' li/e to change thei$ compensation f$om a 1> pe$cent commission to a 2 pe$cent commission plus P(>*>>> pe$ month in sala$y. Cu$$ently* they only $ecei+e commissions as thei$ compensation. The change in compensation plan shoul' change the monthly $ea/e+en point y ". 1*>41 Inc$ease C. 1*2-: Inc$ease %. 1*>41 #ec$ease #. 1*2-: #ec$ease %o a'illa
3>

Costs: "nnual machine P3>*>>>.>> P:(*2>>.>> $ental Popco$n cost pe$ o) -.=> -.=> Cost of each o) >.:> >.:> Othe$ +a$ia le cost pe$ o) 3.3> ..(> The le+el of output in o)es at which the Economy an' the Regula$ woul' ea$n the same p$ofit 6loss7 is ". (>*>>> o)es C. 12*>>> o)es %. =*-42 o)es #. 1(*2>> o)es %o a'illa
3-

. The manage$ of Jaughty 9oo' Company $e+iewe' the following 'ata: 9$uits ;eat Canne' P$o'ucts Cont$i ution ma$gin .>L 2>L .>L $atio Sales mi) in pesos (>L ->L 2>L 9i)e' costs* P1*(=>*>>> pe$ month. The $ea/e+en sales fo$ each month is ". P1*344*>>> C. P.*2>>*>>> %. P-*>>>*>>> #. P3*>>>*>>> %o a'illa . The O$egano 5atch Company manufactu$es a line of la'iesA watches which a$e sol' th$ough 'iscount houses. Each watch is sol' fo$ P1*2>>M the fi)e' costs a$e P-*3>>*>>> fo$ ->*>>> watches o$ lessM +a$ia le cost is P=>> pe$ watch. 5hat is O$eganoAs 'eg$ee of ope$ating le+e$age at sales of 1(*>>> watches! ". (.>N C. >.2N %. 2.>N #. >.(N %o a'illa

31

. The Ha$pe$ Co$po$ation manufactu$es an' sells T,shi$ts imp$inte' with college names an' slogans. 8ast yea$* the shi$ts sol' fo$ P4.2> each* an' the +a$ia le cost to manufactu$e them was P(.(2 pe$ unit. The company nee'e' to sell (>*>>> shi$ts to $ea/ e+en. The net income last yea$ was P2*>.>. Ha$pe$As e)pectations fo$ the coming yea$ inclu'e the following: 1. The sales p$ice of the T,shi$ts will e P= (. Va$ia le cost to manufactu$e will inc$ease y one,thi$' -. 9i)e' costs will inc$ease y 1>L .. The income ta) $ate of .>L will e unchange' The selling p$ice that woul' maintain the same cont$i ution ma$gin $ate as last yea$ is ". P =.>> C. P1>.>> %. P :.(2 #. P =.42 %o a'illa . #u$ing the month of Fune* "$mani Co$po$ation p$o'uce' 1(*>>> units an' sol' them fo$ P(> pe$ unit. Total fi)e' costs fo$ the pe$io' we$e P12.*>>>* an' the ope$ating p$ofit was P(3*>>>. The +a$ia le cost pe$ unit fo$ Fune was ". P..2> C. P3.>> %. P2.>> #. P4.14 %o a'illa . Stone Company plans to sell .>>*>>> laun'$y hange$s. The fi)e' costs a$e P3>>*>>>* an' the +a$ia le cost is 3>L of the selling p$ice. If the company wants to $eali&e a p$ofit of P1(>*>>>* the selling p$ice of each laun'$y hange$ must e ". P(.2> C. P..2> %. P-.42 #. P2.>> %o a'illa

3.

3(

. #u/e* Inc. owns an' ope$ates a chain of foo' cente$s. The management is consi'e$ing installing machines that will ma/e popco$n on the p$emises. These machines a$e a+aila le in two 'iffe$ent si&es with the following 'etails: Economy Regula$ "nnual capacity (>*>>> 2>*>>>
113

32

Cost-Volume-Profit Analysis
33

. The unit cont$i ution ma$gin of P$o'uct " is P(> an' of P$o'uct % is P13. If si) units of P$o'uct " an' eight units of P$o'uct % can e p$o'uce' pe$ machine hou$* the cont$i ution ma$gin of the p$o'ucts pe$ machine hou$ is %o a'illa ". P$o'uct "* P13>M P$o'uct %* P=3 C. P$o'uct "* P-.--M P$o'uct %* P(.>> %. P$o'uct "* P1(>M P$o'uct %* P1(: #. P$o'uct "* P-(.>>M P$o'uct %* P->.>> . The %itte$sweet Company is a wholesale 'ist$i uto$ of can'y. The company se$+ices +a$ious g$oce$y* con+enience* an' '$ug sto$es in ;et$o ;anila. Small* ut stea'y g$owth in sales* has een achie+e' y the company o+e$ the past few yea$s while can'y p$ices ha+e een inc$easing. The company is fo$mulating its plans fo$ the coming fiscal yea$. P$esente' elow a$e the 'ata use' to p$o0ect the cu$$ent yea$As afte$,ta) net income of P11>*.>>. "+e$age selling p$ice P..>> pe$ o) "+e$age +a$ia le costs Cost of can'y P(.>> pe$ o) Selling e)penses >..> pe$ o) Total P(..> pe$ o) "nnual fi)e' costs: Selling P 13=*>>> "'minist$ati+e (:>*>>> Total P ..>*>>> E)pecte' annual sales +olume 6-=>*>>> o)es7P1*23>*>>> The manufactu$e$s of can'ies ha+e announce' that they will inc$ease p$ices of thei$ p$o'ucts an a+e$age of 12L in the coming yea$ 'ue to inc$eases in $aw mate$ial 6suga$* cocoa* peanuts* etc.7 an' la o$ costs. %itte$sweet Company e)pects that all othe$ costs will $emain at the same $ates o$ le+els as the cu$$ent yea$. %itte$sweet is su 0ect to .> pe$cent ta) $ate. If net income afte$ ta)es woul' $emain the same afte$ the cost of can'y inc$eases ut no inc$ease in the sales p$ice is ma'e* how many o)es of can'y must %itte$sweet sell!
114

". .:>*>>> %. (4*3>>

C. .>>*>>> #. (=*->>

%o a'illa

34

. 8a$& Company p$o'uces a single p$o'uct. It sol' (2*>>> units last yea$ with the following $esults: Sales P3(2*>>> Va$ia le costs P-42*>>> 9i)e' costs 12>*>>> 2(2*>>> Jet income efo$e P1>>*>>> ta)es Income ta)es .>*>>> Jet income P 3>*>>> In an attempt to imp$o+e its p$o'uct in the coming yea$* 8a$& is consi'e$ing $eplacing a component pa$t in its p$o'uct that has a cost of P(.2> with a new an' ette$ <uality costing P..2> pe$ unit. " new machine will also e nee'e' to inc$ease plant capacity. The machine woul' cost P1:*>>> with a useful life of 3 yea$s an' no sal+age +alue. The company uses st$aight,line 'ep$eciation metho' on all plant assets. If 8a$& wishes to maintain the same cont$i ution ma$gin $atio afte$ implementing the changes* what selling p$ice pe$ unit of p$o'uct must it cha$ge ne)t yea$ to co+e$ the inc$ease' mate$ial costs! ". P(4.>> C. P(2.>> %. P-(.2> #. P(:.-%o a'illa

3=

. %; ;oto$s* Inc. employs .> sales pe$sonnel to ma$/et its line of economy automo iles. The a+e$age ca$ sells fo$ P1*(>>*>>> an' a 3L commission is pai' to the salespe$son. %; ;oto$s is consi'e$ing a change to a commission a$$angement that woul' pay each salespe$son a sala$y of P(.*>>> pe$ month plus a commission of (L of the sales ma'e y that salespe$son. The amount of total ca$ sales at which the two e)pense st$uctu$es woul' e in'iffe$ent is ". P((*2>>*>>> C. P->*>>>*>>> %. P(.*>>>*>>> #. P1(*>>>*>>> %o a'illa

Cost-Volume-Profit Analysis
4>

. Roun' Company is a g$oce$y sto$e that is cu$$ently open only ;on'ay th$ough Satu$'ay. Roun' Company is consi'e$ing opening on Sun'ays. The annual inc$emental costs of Sun'ay openings a$e estimate' at P-1*(>>. Roun'As g$oss ma$gin on sales is (2 pe$cent. Roun' estimates that 42 pe$cent of its Sun'ay sales to custome$s woul' e ma'e on othe$ 'ays if the sto$e we$e not open on Sun'ays. The one,'ay +olume of Sun'ay sales that woul' e necessa$y fo$ Roun' to attain the same wee/ly ope$ating as the cu$$ent si),'ay wee/ is ". P(*.>> C. P=*3>> %. P-*(>> #. P=*=:. %o a'illa

"ssuming that last yea$As fi)e' costs totale' P=1>*>>>* what was Sola$ CompanyAs composite $ea/,e+en point! ". -.*1(2 C. 11*-42 %. (4*->( #. =*1>1 %o a'illa
4-

. Ri+e$ an' Co.* ma/e$ of <uality pipes* has e)pe$ience' a stea'y g$owth in sales fo$ the past fi+e yea$s. Howe+e$* inc$ease in competition has le' Ri+e$ Co. to elie+e that an agg$essi+e a'+e$tising campaign will e necessa$y ne)t yea$ to maintain the companyAs p$esent g$owth. To p$epa$e fo$ ne)t yea$As a'+e$tising campaign* the companyAs accountant has p$epa$e' an' p$esente' the management with 'ata fo$ the cu$$ent yea$* (>>3* as p$esente' elow: Cost Sche'ule Va$ia le costs: #i$ect la o$ P :>.>>Dpipe #i$ect mate$ials -(.2>Dpipe Va$ia le o+e$hea' (2.>>Dpipe Total +a$ia le costs P1-4.2>Dpipe 9i)e' costs: ;anufactu$ing P (2>*>>> Selling .>>*>>> "'minist$ati+e 4>>*>>> Total fi)e' costs P1*-2>*>>> Selling p$ice* pe$ pipe P (2>.>> E)pecte' sales* (>>4 6(>*>>> units7 P2*>>>*>>> Ta) $ate: .>L The company has set the sales ta$get fo$ (>>4 at a le+el of P2*2>>*>>> 6o$ ((*>>> pipes7. If an a''itional P11(*2>> ha+e to e spent fo$ a'+e$tising in (>>4* what is the $e<ui$e' sales le+el in pesos to e<ual (>>3As afte$,ta) income! ". P.*42>*>>> C. P2*(2>*>>> %. P2*42>*>>> #. P.*(2>*>>> %o a'illa

41

. "ilu Company has the following ope$ating 'ata fo$ its manufactu$ing ope$ations: ?nit selling p$ice P (2> ?nit +a$ia le cost 1>> Total fi)e' costs :.>*>>> The companyAs 'ecision to inc$ease the wages of hou$ly wo$/e$s will inc$ease the unit +a$ia le cost y 1> pe$cent. Inc$eases in the sala$ies of facto$y supe$+iso$s an' p$ope$ty ta)es fo$ the facto$y will inc$ease fi)e' costs y . pe$cent. If sales p$ice is hel' constant* the ne)t $ea/,e+en point fo$ "ilu Company will e ". Inc$ease' y 3.> units. C. #ec$ease' y 3.> units. %. Inc$ease' y .>> units. #. Inc$ease' y :>> units. %o a'illa . Sola$ Company sells two p$o'ucts* %iggs an' %oggs. 8ast yea$* Sola$ Company sol' 1(*>>> units of %iggs an' (.*>>> units of %oggs. Relate' 'ata fo$ last yea$ a$e: P$o'uct ?nit Selling P$ice %iggs %oggs P1(> :> ?nit Va$ia le Cost P:> 3> ?nit Cont$i ution ;a$gin P.> (>

4(

115

Cost-Volume-Profit Analysis
4.

. "'o e Company sol' 1>>*>>> units of its p$o'uct at P(> pe$ unit. Va$ia le costs we$e P1. pe$ unit* consisting of manufactu$ing costs of P11 an' selling costs of P-. 9i)e' costs* which we$e incu$$e' unifo$mly th$oughout the yea$* amounte' to P4=(*>>> 6manufactu$ing costs of P2>>*>>> an' selling e)penses of P(=(*>>>7. The$e ha' een no eginning o$ en'ing in+ento$ies. If la o$ costs comp$ise of 2> pe$cent +a$ia le costs an' (> pe$cent f fi)e' costs* a 1> pe$cent inc$ease in wages an' sala$ies woul' inc$ease the num e$ of units $e<ui$e' to $ea/ e+en to ". 12(*.(C. 1.-*:42 %. 142*314 #. 1(=*=-: %o a'illa

Va$ia le selling cost P1.>> P1.>> The sales manage$ has ha' a P13>*>>> inc$ease in the u'get allotment fo$ a'+e$tising an' wants to apply the money to the most p$ofita le p$o'uct. The p$o'ucts a$e not su stitutes fo$ one anothe$ in the eyes of the companyAs custome$s. The manage$ may 'e+ote the enti$e P13>*>>> to inc$ease' a'+e$tising fo$ eithe$ NK,4 o$ %#,.. Suppose Tactless has only 1>>*>>> machine hou$s that can e ma'e a+aila le to p$o'uce a''itional units of NK,4 an' %#,.. If the potential inc$ease in sales units fo$ eithe$ p$o'uct $esulting f$om a'+e$tising is fa$ in e)cess of this p$o'uction capacity* which p$o'uct shoul' e a'+e$tise' an' what is the estimate' inc$ease in cont$i ution ma$gin ea$ne'! %o a'illa ". P$o'uct NK,4 shoul' e p$o'uce'* yiel'ing a cont$i ution ma$gin of P42*>>>. %. P$o'uct NK,4 shoul' e p$o'uce'* yiel'ing a cont$i ution ma$gin of P1--*---. C. P$o'uct %#,. shoul' e p$o'uce'* yiel'ing a cont$i ution ma$gin of P1:4*2>>. #. P$o'uct %#,. shoul' e p$o'uce'* yiel'ing a cont$i ution ma$gin of P(2>*>>>.
44

42

. ;ellow* Inc. sells its single p$o'uct fo$ P.> pe$ unit. ;ellow pu$chases the p$o'uct fo$ P(>. The salespeople $ecei+e a sala$y plus a commission of 2L of sales. 8ast yea$ the co$po$ationAs net income was P1>>*:>>. The co$po$ation is su 0ect to ->L income ta) $ate. The fi)e' costs of the company a$e: "'+e$tising P1(.*>>> Rent 3>*>>> Sala$ies 1:>*>>> Othe$ fi)e' costs -(*>>> Total P-=3*>>> The company is consi'e$ing changing the compensation plan fo$ sales pe$sonnel. If the o$gani&ation inc$eases the commission to 1>L of $e+enues an' $e'uces sala$ies y P:>*>>>* what $e+enues must the o$gani&ation ha+e to $aise in o$'e$ to ea$n the same net income as last yea$! ". P1*3>>*>>> C. P1*-2>*>>> %. P1*12>*>>> #. P1*3->*>>> %o a'illa . Tactless ;anufactu$ing Company p$o'uces two p$o'ucts fo$ which the following 'ata ha+e een ta ulate'. 9i)e' manufactu$ing cost is applie' at a $ate of P1.>> pe$ machine hou$. Pe$ ?nit NK,4 %#,. Selling p$ice P..>> P-.>> Va$ia le manufactu$ing cost P(.>> P1.2> 9i)e' manufactu$ing cost P>.42 P>.(>
116

43

. #$ape Co$p. woul' li/e to ma$/et a new p$o'uct at a selling p$ice of P12 pe$ unit. 9i)e' costs fo$ this p$o'uct a$e P1*>>>*>>> fo$ less than 2>>*>>> units of output an' P1*2>>*>>> fo$ 2>>*>>> o$ mo$e units of output. The cont$i ution ma$gin pe$centage is -2L. How many units of this p$o'uct must e sol' to ea$n a ta$get ope$ating income of P1 million! ". -33*334 C. .43*1=> %. -:>*=2( #. (23*.1> %o a'illa . Ca$e Company sol' 1>>*>>> units of its p$o'uct at P(> pe$ unit. Va$ia le costs a$e P1. pe$ unit* consisting of manufactu$ing costs of P11 an' selling costs of P-. 9i)e' costs* which a$e incu$$e' unifo$mly th$oughout the yea$* amount to P4=(*>>> 6manufactu$ing

4:

Cost-Volume-Profit Analysis

costs of P2>>*>>> an' selling costs of P(=(*>>>7. The$e we$e no eginning o$ en'ing in+ento$ies. If la o$ costs a$e 2>L of +a$ia le costs an' (>L of fi)e' costs* a 1>L inc$ease in wages an' sala$ies woul' inc$ease the num e$ of units $e<ui$e' to $ea/e+en 6in f$action fo$m7 to ". :>4*:.>D2.-. C. :>4*:.>D1..4. %. :-1*3>>D2.4:. #. :-1*3>>D1..(:. %o a'illa Question Jos. 4= th$ough :1 a$e ase' on the following: ;etal In'ust$ies* Inc. ope$ates its p$o'uction 'epa$tment only when o$'e$s a$e $ecei+e' fo$ one o$ oth of its two p$o'ucts* two si&es of metal 'iscs. The manufactu$ing p$ocess egins with the cutting of 'oughnut,shape' $ings f$om $ectangula$ st$ips of sheet metalM these $ings a$e then p$esse' into 'iscs. The sheets of metal* each . feet long an' weighing -( ounces* a$e pu$chase' P1-.3> pe$ $unning foot. The 'epa$tment has een ope$ating at a loss fo$ the past yea$ as shown elow. Sales fo$ the yea$ P1*4(>*>>> 8ess: e)penses 1*44(*>>> Jet loss fo$ the 'epa$tment P 2(*>>> The following info$mation is a+aila le. Ten thousan' .,foot pieces of metal yiel'e' .>*>>> la$ge 'iscs* each weighing . ounces an' selling fo$ P(=* an' .>*>>> small 'iscs* each weighing (.. ounces an' selling fo$ P1.. The co$po$ation has een p$o'ucing at less than Gno$mal capacityH an' has ha' no spoilage in the cutting step of the p$ocess. The s/eletons $emaining afte$ the $ings ha+e een cut a$e sol' fo$ sc$ap at P:.>> pe$ poun'. The +a$ia le con+e$sion cost of each la$ge 'isc is :>L of the 'iscAs 'i$ect mate$ial cost* an' +a$ia le con+e$sion cost of each small 'isc is 42L of the 'iscAs 'i$ect mate$ial cost. Va$ia le con+e$sion costs a$e the sum of 'i$ect la o$ an' +a$ia le o+e$hea'. 9i)e' costs we$e P:3>*>>>.
117

4=

. The net cost pe$ ounce of mate$ial is ". P(.>> C. P1.4> %. P1.3> #. P1.:>

%o a'illa

:>

. The total +a$ia le costs pe$ unit fo$ the la$ge an' small 'iscs* $especti+ely* a$e ". P1>.(> an' P:.3>. C. P =.1> an' P2.->. %. P1...> an' P:..>. #. P11.:> an' P3.3>. %o a'illa . If the mate$ial costs fo$ la$ge an' small 'iscs a$e P:.2> an' P2.1>* $especti+ely* an' the no$mal p$o'uction capacity is 1>>*>>>,unit le+el* what is the $ea/e+en point! ". =1*311. C. 4=*:13. %. :4*(13. #. :(*.1(. %o a'illa

:1

Questions :( th$ough :3 a$e ase' on the Statement of Income of #a+ao* Inc. which $ep$esents the ope$ating $esults fo$ the cu$$ent fiscal yea$ en'ing #ecem e$ -1. #a+ao ha' sales of 1*:>> tons of p$o'uct 'u$ing the cu$$ent yea$. The manufactu$ing capacity of #a+aoAs facilities is -*>>> tons of p$o'uct. Consi'e$ each <uestionAs situation sepa$ately. Sales P=>>*>>> Va$ia le costs ;anufactu$ing P-12*>>> Selling costs 1:>*>>> Total +a$ia le costs P.=2*>>> Cont$i ution ma$gin P.>2*>>> 9i)e' costs ;anufactu$ing P =>*>>> Selling 11(*2>> "'minist$ation .2*>>> Total fi)e' costs P(.4*2>> Jet income efo$e income ta)es P124*2>> Income ta)es 6.>L7 63-*>>>7 Jet income afte$ income ta)es P =.*2>>
:(

. The $ea/e+en +olume in tons of p$o'uct fo$ the yea$ is

Cost-Volume-Profit Analysis

". %.
:-

.(> .=2

C. 1*1>> #. 22>

%o a'illa

. If the sales +olume is estimate' to e (*1>> tons in the ne)t yea$* an' if the p$ices an' costs stay at the same le+els an' amounts ne)t yea$* the afte$,ta) income that #a+ao can e)pect fo$ ne)t yea$ is ". P1-2*>>> C. P11>*(2> %. P(:-*2>> #. P1:.*2>> %o a'illa . #a+ao has a potential fo$eign custome$ that has offe$e' to uy 1*2>> tons at P.2> pe$ ton. "ssume that all of #a+aoAs costs woul' e at the same le+els an' $ates as last yea$. 5hat net income afte$ ta)es woul' #a+ao ma/e if it too/ this o$'e$ an' $e0ecte' some usiness f$om $egula$ custome$s so as not to e)cee' capacity! ". P(=4*2>> C. P(11*2>> %. P(2(*>>> #. P(23*2>> %o a'illa . 5ithout p$e0u'ice to you$ answe$s to p$e+ious <uestions* an' assume that #a+ao plans to ma$/et its p$o'uct in a new te$$ito$y. #a+ao estimates that an a'+e$tising an' p$omotion p$og$am costing P31*2>> annually woul' nee' to e un'e$ta/en fo$ the ne)t two o$ th$ee yea$s. In a''ition* a P(2 pe$ ton sales commission o+e$ an' a o+e the cu$$ent commission to the sales fo$ce in the new te$$ito$y woul' e $e<ui$e'. How many tons woul' ha+e to e sol' in the new te$$ito$y to maintain #a+aoAs cu$$ent afte$,ta) income of P=.*2>>! ". ->4.2 C. (4-.%. 1*>=2.> #. 1*2.2.> %o a'illa . 5ithout p$e0u'ice to p$ece'ing <uestions* assume that #a+ao estimates that the pe$ ton selling p$ice will 'ecline 1>L ne)t yea$. Va$ia le costs will inc$ease P.> pe$ ton an' the fi)e' costs will not change. 5hat sales +olume in pesos will e $e<ui$e' to ea$n an afte$,ta) income of P=.*2>> ne)t yea$! ". P1*1.>*>>> C. P1*2>>*>>> %. P :(2*>>> #. P1*-2>*>>> %o a'illa

:.

Question Jos. :4 th$ough =1 a$e ase' on the following: "nilao S/i Company $ecently e)pan'e' its manufactu$ing capacity to allow it to p$o'uct up to 12*>>> pai$s of c$oss,count$y s/is of eithe$ the mountainee$ing mo'el o$ the tou$ing mo'el. The sales 'epa$tment assu$es management that it can sell etween =*>>> an' 1-*>>> pai$s 6units7 of eithe$ p$o'uct this yea$. %ecause the mo'els a$e +e$y simila$* "nilao S/i will p$o'uce only one of the two mo'els. The following 'ata we$e compile' y the accounting 'epa$tment. ;ountainee$ing Tou$ing Selling p$ice pe$ P::.>> :>.>> unit Va$ia le cost pe$ 2(.:> (.:> unit 9i)e' costs will total P-3=*3>> if the mountainee$ing mo'el is p$o'uce' ut will e only P-13*:>> if the tou$ing mo'el is p$o'uce'. "nilao S/i Company is su 0ect to a .>L income ta) $ate.
:4

:2

. If "nilao S/i Company 'esi$es an afte$,ta) net income of P(.*>>>* how many pai$s of tou$ing mo'el s/is will the company ha+e to sell! ". 1-*11: C. 1-*:2%. 1(*2(= #. .*.3> %o a'illa . The total sales $e+enue at which "nilao S/i Company woul' ma/e the same p$ofit o$ loss $ega$'less of the s/i mo'el it 'eci'e' to p$o'uce is ". P::>*>>> C. P=(.*>>> %. P.((*.>> #. P3:3*.>> %o a'illa . How much woul' the +a$ia le cost pe$ unit of the tou$ing mo'el ha+e to change efo$e it ha' the same $ea/e+en point in units as the mountainee$ing mo'el! ". P(.3:Dunit inc$ease C. P2.>-Dunit 'ec$ease %. P..2-Dunit inc$ease #. P(.=4Dunit 'ec$ease %o a'illa . If the +a$ia le cost pe$ unit of tou$ing s/is 'ec$eases y 1>L* an' the total fi)e' cost of tou$ing s/is inc$eases y 1>L* the new $ea/e+en point will e ". 1>*4-> pai$s

::

:=

:3

=>

118

Cost-Volume-Profit Analysis

%. 1-*>>4 pai$s C. 1(*:1( pai$s #. ?nchange' f$om 11*3.: pai$s e<ual an' offsetting
=1

%o a'illa ecause the cost changes a$e

. If the "nilao S/i Company sales 'epa$tment coul' gua$antee the annual sale of 1(*>>> s/is of eithe$ mo'el* "nilao woul' ". P$o'uce tou$ing s/is ecause they ha+e a lowe$ fi)e' cost. %. P$o'uce only mountainee$ing s/is ecause they a lowe$ $ea/e+en point. C. P$o'uce mountainee$ing s/is ecause they a$e mo$e p$ofita le. #. %e in'iffe$ent as to which mo'el is sol' ecause each mo'el has the same +a$ia le cost pe$ unit. %o a'illa

8ess fi)e' inte$est cost Income efo$e income ta)es 8ess income ta) 6->L7 Jet income RP$ima$ily 'ep$eciation on sto$age facilities

2.>*>>> 1*3>>*>>> .:>*>>> P1*1(>*>>>

"s ;aui han'e' the statement to 1im Vice$oy* PullmanAs p$esi'ent* she commente'* GI went ahea' an' use' the agentsA 12L commission $ate in completing these statements* ut weA+e 0ust lea$ne' that they $efuse to han'le ou$ p$o'ucts ne)t yea$ unless we inc$ease the commission $ate to (>L.H GThatAs the last st$aw*H 1im $eplie' ang$ily. GThose agents ha+e een 'eman'ing mo$e an' mo$e* an' this time theyA+e gone too fa$. How can they possi ly 'efen' a (>L commission $ate!H GThey claim that afte$ paying fo$ a'+e$tising* t$a+el* an' the othe$ costs of p$omotion* the$eAs nothing left o+e$ fo$ p$ofit*H $eplie' ;aui. GI say itAs 0ust plain $o e$y*H $eto$te' 1im. G"n' I also say itAs time we 'umpe' those guys an' got ou$ own sales fo$ce. Can you get you$ people to wo$/ up some cost figu$es fo$ us to loo/ at!H G5eA+e al$ea'y wo$/e' them up*H sai' ;aui. GSe+e$al companies we /now a out pay a 4.2L commission to thei$ own salespeople* along with a small sala$y. Of cou$se* we woul' ha+e to han'le all p$omotion costs* too. 5e figu$e ou$ fi)e' costs woul' inc$ease y P(*.>>*>>> pe$ yea$* ut that woul' e mo$e than offset y the P-*(>>*>>> 6(>L ) P13*>>>*>>>7 that we woul' a+oi' on agentsA commissions.H The $ea/'own of the P(*.>>*>>> cost figu$e follows: Sala$ies: Sales manage$ P 1>>*>>> Salespe$sons 3>>*>>> T$a+el an' ente$tainment .>>*>>> "'+e$tising 1*->>*>>> Total P(*.>>*>>>
119

Question Jos. =( th$ough =3 a$e ase' on the following: Pullman Company is a small ut g$owing manufactu$e$ of telecommunications e<uipment. The company has no sales fo$ce of its ownM $athe$* it $elies completely on in'epen'ent sales agents to ma$/et its p$o'ucts. These agents a$e pai' a commission of 12L of selling p$ice fo$ all items sol'. ;aui Soliman* PullmanAs cont$olle$* has 0ust p$epa$e' the companyAs u'gete' income statement fo$ ne)t yea$. The statement follows: Pullman Company %u'gete' Income Statement 9o$ the Kea$ En'e' #ecem e$ -1 Sales ;anufactu$ing costs: Va$ia le 9i)e' o+e$hea' B$oss ma$gin Selling an' a'minist$ati+e costs: Commissions to agents 9i)e' ma$/eting costsR 9i)e' a'minist$ati+e costs Jet ope$ating income

P13*>>>*>>> P4*(>>*>>> (*-.>*>>> =*2.>*>>> 3*.3>*>>>

(*.>>*>>> 1(>*>>> 1*:>>*>>>

.*-(>*>>> (*1.>*>>>

Cost-Volume-Profit Analysis
=3

GSupe$*H $eplie' 1im. G"n' I note that the P(*.>>*>>> is 0ust what weA$e paying the agents un'e$ the ol' 12L commission $ate.H GItAs e+en ette$ than that*H e)plaine' ;aui. G5e can actually sa+e P42*>>> a yea$ ecause thatAs what weA$e ha+ing to pay the au'iting fi$m now to chec/ out the agentsA $epo$ts. So ou$ o+e$all a'minist$ati+e costs woul' e less.H GPull all of these num e$ togethe$ an' weAll show them to the e)ecuti+e committee tomo$$ow*H sai' 1im. G5ith the app$o+al of the committee* we can mo+e on the matte$ imme'iately.H
=(

. The +olume of sales at which net income woul' e e<ual $ega$'less of whethe$ Pullman Company sells th$ough agents at a (>L commission $ate o$ employs its own sales fo$ce: ". P11*3(2*>>> C. P1=*(>>*>>> %. P1(*>>>*>>> #. P1:*3>>*>>> %o a'illa

. 5hat is the $ea/e+en point in pesos fo$ ne)t yea$ assuming that the agentsA commission $ate $emains unchange' at 12L! ". P1>*32>*>>> C. P =*>>>*>>> %. P1(*>>>*>>> #. P1>*42>*>>> %o a'illa . 5hat is the $ea/e+en point in pesos fo$ ne)t yea$ assuming that the agentsA commission $ate is inc$ease' to (>L! ". P1-*141*>>> C. P1-*41.*(:3 %. P12*>>>*>>> #. P1(*42>*>>> %o a'illa . 5hat is the $ea/e+en point in pesos fo$ ne)t if the company employs its own sales fo$ce! ". P12*>>>*>>> C. P1-*>=>*=>= %. P1(*=2.*2.2 #. P12*124*:=2 %o a'illa . "ssume that Pullman Company 'eci'es to continue selling th$ough agents an' pays the (>L commission $ate. The +olume of sales that woul' e $e<ui$e' to gene$ate the same net income as containe' in the u'gete' income statement fo$ ne)t yea$ woul' e: ". P1:*(:2*41. C. P1=*((2*>>> %. P1:*-3:*.(1 #. P(>*.1.*41. %o a'illa

Question Jos. =4 th$ough 1>( a$e ase' on the following info$mation: San Ca$los ope$ates a gene$al hospital ut $ents space an' e's to sepa$ate entities fo$ speciali&e' t$eatment such as pe'iat$ics* mate$nity* psychiat$ic* etc. San Ca$los cha$ges each sepa$ate entity fo$ common se$+ices to its patients li/e meals an' laun'$y an' fo$ all a'minist$ati+e se$+ices such as illings* collections* etc. "ll uncollecti le accounts a$e cha$ge' 'i$ectly to the entity. Space an' e' $entals a$e fi)e' fo$ the yea$. 9o$ the enti$e yea$ en'e' Fune ->* the Pe'iat$ics #epa$tment at San Ca$los Hospital cha$ge' each patient an a+e$age of P32> pe$ 'ay* ha' a capacity of 3> e's* ope$ate' (. hou$s pe$ 'ay fo$ -32 'ays* an' ha' $e+enue of P1>*343*(2>. E)penses cha$ge' y the hospital to the Pe'iat$ics #epa$tment fo$ the yea$ en'e' Fune -> we$e: %asis of "llocation Patient %e' #ays Capacity #ieta$y P -(:*2>> Fanito$ial P 11:*.>> 8aun'$y 1=4*1>> 8a * othe$ than 'i$ect cha$ges to patients .1>*3(2 Pha$macy .1>*3(2 Repai$s an' maintenance 32*4>> 33*>.2 Bene$al a'minist$ati+e se$+ices 1*(1:*4:> Rent (*2.3*41> %illings an' collections 3:=*:2> %a' 'e t e)pense (.3*-42
120

=-

=.

=2

Cost-Volume-Profit Analysis

11.*=42 (.>*-12 P(*.3-*42 P.*1=>*(2 > > The only pe$sonnel 'i$ectly employe' y the Pe'iat$ics #epa$tment a$e supe$+ising nu$ses* nu$ses* an' ai'es. The hospital has minimum pe$sonnel $e<ui$ements ase' on total annual patient 'ays. Hospital $e<ui$ements eginning at the minimum* e)pecte' le+el of ope$ation follow: "nnual Patient "i'es Ju$ses Supe$+ising Ju$ses #ays 1>*>>> E 1.*>>> (1 11 . 1.*>>1 E 14*>>> (( 1( . 14*>>1 E (-*4(2 (( 1. (-*4(3 E (2*22> (2 1. 2 (2*221 E (4*-42 (3 1. 2 (4*-43 E (=*(>> (= 13 3 The staffing le+els a o+e $ep$esent full,time e<ui+alents* an' it shoul' e assume' that the Pe'iat$ics #epa$tment always employs only the minimum num e$ of $e<ui$e' full,time e<ui+alent pe$sonnel. "nnual sala$ies fo$ each class of employee follow: supe$+ising nu$ses* P1:>*>>>M nu$ses* P1->*>>>M an' ai'es* P2>*>>>. Sala$y e)pense fo$ the yea$ en'e' Fune -> fo$ supe$+ising nu$ses* nu$ses* an' ai'es was P4(>*>>>* P1*23>*>>>* an' P1*1>>*>>>* $especti+ely. The Pe'iat$ics #epa$tment ope$ate' at 1>>L capacity 'u$ing 111 'ays of the past yea$. It is estimate' that 'u$ing => of these capacity 'ays* the 'eman' a+e$age 14 patients mo$e than capacity an' e+en went as high as (> patients mo$e on some 'ays. The hospital has an a''itional (> e's a+aila le fo$ $ent fo$ the coming fiscal yea$.
=4

Othe$s Total

%.
==

=*:(>

#. 1(*>>>

%o a'illa

. The num e$ of patient 'ays nee'e' to co+e$ total costs is ". 1.*4:> C. 12*:(> %. 12*1.> #. 13*>:> %o a'illa . If the Pe'iat$ics #epa$tment $ente' an a''itional (> e's an' all othe$ facto$s $emain the same as in the past yea$* what woul' e the inc$ease in $e+enue! ". P ==.*2>> C. P1*>2.*2>> %. P :44*2>> #. P :=4*2>> %o a'illa .Continuing to consi'e$ the (> a''itional $ente' e's* the inc$ease in total +a$ia le cost applie' pe$ patient 'ay is ". P((=*-2> C. P((=*32> %. P((=*2>> #. P(-=*-2> %o a'illa .5hat is the inc$ease in fi)e' cost applie' fo$ e' capacity* gi+en the inc$ease in num e$ of e's! ". P1*-=3*334 C. P1*.4>*>>> %. P1*1:4*(-: #. P1*2(>*>>> %o a'illa

1>>

1>1

1>(

. The cont$i ution ma$gin pe$ patient 'ay is ". P.>>.>> C. P2>>.>> %. P.2>.>> #. P2(2.>>

%o a'illa e'

Question Jos. 1>- E 1>2 a$e ase' on the following: ;s. Sha$/ey sta$te' a pi&&a $estau$ant in (>>-. 9o$ this pu$pose a uil'ing was $ente' fo$ P.>*>>> pe$ month. Two women we$e hi$e' to wo$/ full time at the $estau$ant an' si) college stu'ents we$e hi$e' to wo$/ -> hou$s pe$ wee/ 'eli+e$ing pi&&a. This le+el of employment has een consistent. "n outsi'e accountant was hi$e' fo$ ta) an' oo//eeping pu$poses* fo$ which ;s. Sha$/ey pays P->*>>> pe$ month. The necessa$y $estau$ant e<uipment an' 'eli+e$y ca$s we$e pu$chase' with cash. ;s. Sha$/ey has notice' that e)penses fo$ utilities an' supplies ha+e een $athe$ constant. ;s. Sha$/ey inc$ease' he$ usiness etween (>>- an' (>>3. P$ofits ha+e mo$e than 'ou le' since (>>-. ;s. Sha$/ey 'oes not un'e$stan' why p$ofits ha+e inc$ease' faste$ than +olume. " p$o0ecte' income statement fo$ the yea$ en'e' #ecem e$ -1* (>>4* p$epa$e' y the accountant* is shown elow:
121

=:

. How many patient 'ays a$e necessa$y to co+e$ fi)e' costs fo$ capacity an' fo$ supe$+iso$y nu$ses! ". =*2>> C. 1>*(2>

Cost-Volume-Profit Analysis

Sales Cost of foo' sol' P(*:2>*>>> 5ages S f$inge enefits: Restau$ant help :12*>>> #eli+e$y help 1*4->*>>> Rent .:>*>>> "ccounting se$+ices -3>*>>> #ep$eciation: #eli+e$y e<uipment 2>>*>>> Restau$ant e<uipment ->>*>>> ?tilities (-(*2>> Supplies 1(>*>>> Jet income efo$e ta)es Income ta)es 6.>L7 Jet income Jote: The a+e$age pi&&a sells fo$ P(2>.
1>-

P=*2>>*>>>

4*-:4*2>> P(*11(*2>> :.2*>>> P1*(34*2>>

.5hat is the ta) shiel' on the noncash fi)e' costs! ". P-(>*>>> C. P1.=*2>> %. P-.>*>>> #. P2.>*>>>

income statement is shown elow. "ssume that cost of goo's sol' is 1>> pe$cent +a$ia le cost. Sales P1>*>>>*>>> Cost of goo's sol' 3*>>>*>>> B$oss ma$gin P .*>>>*>>> Selling an' a'minist$ati+e Commissions P(*>>>*>>> Othe$ e)penses 6fi)e'7 1>>*>>> (*1>>*>>> Income efo$e ta)es P 1*=>>*>>> Income ta) 6->L7 24>*>>> Jet income P 1*-->*>>> Time)As management is consi'e$ing the possi ility of employing full, time sales pe$sonnel. Th$ee in'i+i'uals woul' e $e<ui$e'* at an estimate' annual sala$y of P->*>>> each* plus commissions of 2 pe$cent of sales. In a''ition* a sales manage$ woul' e employe' at a fi)e' annual sala$y of P13>*>>>. "ll othe$ fi)e' costs* as well as the +a$ia le cost pe$centages* woul' $emain the same as the estimates in the (>>4 u'gete' income statement.
1>3

%o a'illa

1>.

.5hat is the $ea/e+en point in num e$ of pi&&as that must e sol'! ". (2*=(= C. (-*23= %. 1:*12> #. .(*11. %o a'illa .5hat is the cash flow $ea/e+en point in num e$ of pi&&as that must e sol'! ". 1=*2(= C. 1(*==> %. (1*(:. #. 1>*44%o a'illa
1>4

.How much is the estimate' $ea/,e+en point in peso sales fo$ the yea$ en'ing #ecem e$ -1* (>>4* ase' on the u'gete' income statement p$epa$e' y the cont$olle$! ". P2>>*>>> C. P(2>*>>> %. P.>>*>>> #. P1(2*>>> %o a'illa .How much is the estimate' $ea/,e+en point in peso sales fo$ the yea$ en'ing #ecem e$ -1* (>>4* if the company employs its own sales pe$sonnel! ". P 2.(*:24 C. P :42*>>> %. P 4.(*:24 #. P1*>>>*>>> %o a'illa .How much +olume in peso sales woul' e $e<ui$e' fo$ the yea$ en'ing #ecem e$ -1* (>>4* to yiel' the same net income as p$o0ecte' in the u'gete' income statement* if Time) continues to use the in'epen'ent sales agents an' ag$ees to thei$ 'eman' fo$ a (2 pe$cent sales commission! ". P :*>>>*>>> C. P1>*>>>*>>> %. P =*2--*--#. P1-*---*--%o a'illa

1>2

Question Jos. 1>3 th$ough 1>= a$e ase' on the following info$mation: Time) Spo$ting Boo's Company* a wholesale supply company* engages in'epen'ent sales agents to ma$/et the companyAs p$o'ucts th$oughout the count$y. These agents cu$$ently $ecei+e a commission of (> pe$cent of sales* ut they a$e 'eman'ing an inc$ease to (2 pe$cent of sales ma'e 'u$ing the yea$ en'ing #ecem e$ -1* (>>4. The cont$olle$ al$ea'y p$epa$e' the (>>4 u'get efo$e lea$ning of the agentsA 'eman' fo$ an inc$ease in commission. The u'gete' (>>4
122

1>:

Cost-Volume-Profit Analysis
1>=

.How much is the estimate' +olume in peso sales that woul' gene$ate an i'entical net income fo$ the yea$ en'ing #ecem e$ -1* (>>4* $ega$'less of whethe$ Time) employs its own sales pe$sonnel o$ continues to use the in'epen'ent sales agents an' pays them a (2 pe$cent commission! ". P1*>>>*>>> C. P1*2>>*>>> %. P1*(2>*>>> #. P1*:>>*>>> %o a'illa

". (-*-.. %. (4*>>>

C. (=*:-#. ->*>>>

%o a'illa

."ssuming that Step Company will 0ust $ent a manufactu$ing space fo$ a month in o$'e$ to p$o'uce special o$'e$ fo$ :*>>> toys. 5hat is the accepta le minimum selling p$ice to Step Company fo$ the special sale! ". P1..>> C. P((.>> %. P12.(2 #. P(..>> %o a'illa

Question Jos. 11> th$ough 11- a$e ase' on the following 'ata: Step Company p$o'uces toys an' othe$ items fo$ use in each an' $eso$t a$eas. " small* inflata le toy has come onto the ma$/et that the company is an)ious to p$o'uce an' sell. Enough capacity e)ists in the companyAs plant to p$o'uce 13*>>> units of the toy each month. Va$ia le costs to manufactu$e an' sell one unit woul' e P1(.2>* an' fi)e' costs associate' with the toy woul' total P-2>*>>> pe$ month. The companyAs ;a$/eting #epa$tment p$e'icts that 'eman' fo$ the new toy will e)cee' the 13*>>> units that the company is a le to p$o'uce. "''itional manufactu$ing space can e $ente' f$om anothe$ company at a fi)e' cost of P1>*>>> pe$ month. Va$ia le costs in the $ente' facility woul' total P1. pe$ unit* 'ue to somewhat less efficient ope$ations than in the main plant. The new toy will sell fo$ P-> pe$ unit.
11>

Question Jos. 11. th$ough 11: a$e ase' on the following: %olton CompanyAs income statement fo$ last month is gi+en elow: Sales 612*>>> units O P->7 P.2>*>>> 8ess +a$ia le e)penses -12*>>> Cont$i ution ma$gin 1-2*>>> 8ess fi)e' e)penses =>*>>> Jet income P .2*>>> The in'ust$y in which %olton Company ope$ates is <uite sensiti+e to cyclical mo+ements in the economy. Thus* p$ofits +a$y consi'e$a ly f$om yea$ to yea$ acco$'ing to gene$al economic con'itions. The company has a la$ge amount of unuse' capacity an' is stu'ying ways of imp$o+ing p$ofits. " new e<uipment has Company to automate e $e'uce' y P= pe$ total of P((2*>>> each
11.

.The $ea/e+en units fo$ the new toy woul' e: ". (>*>>> C. (1*>>> %. 1:*>>> #. ((*2>>

come onto the ma$/et that woul' allow %olton a po$tion of its ope$ations. Va$ia le costs woul' unit. Howe+e$* fi)e' costs woul' inc$ease to a month.

%o a'illa

111

.How many units shoul' the company nee' to sell in o$'e$ to ea$n a efo$e,ta) p$ofit of P12>*>>>! ". =*1.C. -1*:42 %. ->*-42 #. -2*>>> %o a'illa .If the sales manage$ $ecei+es a onus of P1.>> fo$ each unit sol' in e)cess of the $ea/,e+en point* how many units must e sol' each month to ea$n a $etu$n of (2L on the monthly in+estment in fi)e' costs!
123

.How much income fo$ the month woul' the company ea$n if the new e<uipment is pu$chase'! ". P.2*>>> C. P3>*>>> %. P->*>>> #. P42*>>> %o a'illa .How many units a$e $e<ui$e' as inc$ease o$ 'ec$ease in point if the new e<uipment is pu$chase'! ". Pe$o C. -*(>> units %. (*2>> units #. .*>>> units $ea/e+en %o a'illa

112

11(

Cost-Volume-Profit Analysis
113

.The 'eg$ee of ope$ating le+e$age 'u$ing the month whe$e the new e<uipment is use' is: ". -.> times C. 3.> times %. ..2 times #. =.> times %o a'illa .Refe$ to the o$iginal 'ata. Rathe$ than pu$chase a new e<uipment* the p$esi'ent is thin/ing a out changing the companyAs ma$/eting metho'. ?n'e$ the new metho'* sales woul' inc$ease y (>L each month an' net income woul' inc$ease y one,thi$'. 9i)e' costs coul' e slashe' to only P.:*>>> pe$ month. Compute the $ea/,e+en point fo$ the company afte$ the change in ma$/eting metho'. ". :*>>> units C. =*>>> units %. 1(*2>> units #. 1>*>>> units %o a'illa ."ssuming that 'u$ing the month following the month new e<uipment has een sta$te' in use* the unit sales inc$ease' y .*2>> units. The +a$ia le e)penses pe$ unit an' the monthly fi)e' costs as affecte' y the ac<uisition of the new e<uipment a$e e)pecte' to $emain constant. 5hat is the e)pecte' p$ofit of the company fo$ that month! ". P :1*>>> C. P :2*2>> %. P1(3*>>> #. P .2*>>> %o a'illa

Sales commission 9i)e' e)penses pe$ yea$: Rent "'+e$tising Sala$ies Total
11=

1.> P2>> P1*3>>*>>> -*>>>*>>> 1*.>>*>>> P3*>>>*>>>

114

.How many units a$e $e<ui$e' fo$ the companyAs #a+ao sales outlet to $ea/e+en! ". 1(*>>> pai$s C. (>*>>> pai$s %. 14*1.- pai$s #. ((*>>> pai$s %o a'illa .If 1:*>>> pai$s of shoes a$e sol' in a yea$* what woul' e #a+ao sales outletAs net income! ". P 3>>*>>> C. P 2>>*>>> %. P63>>*>>>7 #. P62>>*>>>7 %o a'illa .The company is consi'e$ing paying the sto$e manage$ of #a+ao sales outlet an incenti+e commission of P42 pe$ pai$ of shoes 6in a''ition to the salespe$sonAs commission7. If this change is ma'e* what will e the new $ea/e+en in pai$s of shoes! ". (3*334 C. (>*>>> %. 13*>>> #. ((*>>> %o a'illa .Instea' of paying the manage$ a st$aight P42 pe$ pai$ of shoes commission on all pai$s of shoes sol'* the company is consi'e$ing paying the sto$e manage$ P2> commission on each pai$ of shoes sol' in e)cess of the $ea/e+en point. If this change is ma'e* what will e the sales outletAs net income o$ loss if (2*>>> pai$s of shoes a$e sol'! ". P (2>*>>> C. P1*2>>*>>> %. P =>>*>>> #. P1*(2>*>>> %o a'illa .If the company woul' pay the manage$ P2> commission on each pai$ of shoes sol' in e)cess of the $ea/e+en point* how many pai$s of shoes a$e $e<ui$e' to ea$n P=>>*>>> p$ofit!

1(>

11:

1(1

Question Jos. 11= th$ough 1(. a$e ase' on the following: Papate$o Co$po$ation ope$ates a chain of shoe sto$es a$oun' the count$y. The sto$es ca$$y many styles of shoes that a$e all sol' at the same p$ice. To encou$age sales pe$sonnel to e agg$essi+e in thei$ sales effo$ts* the company pays a su stantial sales commission on each pai$ of shoes sol'. Sales pe$sonnel also $ecei+e a small asic sala$y. The following cost an' $e+enue 'ata $elate to #a+ao sales outlet an' a$e typical of the companyAs many sales outlets: Selling p$ice P:>> Va$ia le e)penses: In+oice costs P-3>
124

1((

1(-

Cost-Volume-Profit Analysis

". (-*3>> %. (-*>>>

C. (2*>>> #. (4*2>>

%o a'illa

.The company is consi'e$ing eliminating sales commissions enti$ely in its sto$es an' inc$easing fi)e' sala$ies y P(*1.(*>>> annually. If this change is ma'e* what will e the num e$ of pai$s of shoes to e sol' y #a+ao outlet to e in'iffe$ent to commission asis! ". (2*->> C. (1*>>> %. 12*->> #. 1:*2>2 %o a'illa

'ou le. 5hat will the new p$ofit o$ loss if these changes a$e a'opte'! ". P 3>*>>> C. P .2*>>> %. P63>*>>>7 #. P6.2*>>>7 %o a'illa
1(:

The following info$mation shoul' e use' to answe$ Question Jos. 1(2 th$ough 1-1. #ue to e$$atic sales of its sole p$o'uct , a high,capacity atte$y fo$ laptop compute$s* Salce'o Company has een e)pe$iencing 'ifficulty fo$ some time. The companyAs income statement fo$ the most $ecent month is gi+en elow: Sales 61=*2>> units O P->>7 P2*:2>*>>> 8ess +a$ia le e)penses .*>=2*>>> Cont$i ution ma$gin 1*422*>>> 8ess fi)e' e)penses 1*:>>*>>> Jet loss P 6.2*>>>7
1(2

.Refe$ to the o$iginal 'ata. The ;a$/eting #epa$tment thin/s that a fancy new pac/age fo$ the laptop compute$ atte$y woul' help sales. The new pac/age woul' inc$ease pac/aging costs y P4.2> pe$ unit. "ssuming no othe$ changes* how many units woul' ha+e to e sol' each month to ea$n a p$ofit of P=4*2>>! ". (1*:1: C. (2*.2> %. (-*>>> #. (:*>>> %o a'illa .Refe$ to the o$iginal 'ata. %y automating ce$tain ope$ations* the company coul' $e'uce +a$ia le costs y P- pe$ unit. Howe+e$* fi)e' costs woul' inc$ease y P4(*>>> each month. How woul' the $ea/e+en point in units change if the company automate' the ope$ations! ". 1*>>> units inc$ease C. -*>>> units inc$ease %. 1*>>> units 'ec$ease #. -*>>> units 'ec$ease %o a'illa

1(=

1->

.The $ea/ e+en in peso sales fo$ Salce'o Company is: ". P3*>>>*>>> C. P2*:2(*423 %. P(*241*.(= #. P4*2>>*>>>

%o a'illa
1-1

."t what le+el of p$o'uction woul' the automation of the p$o'uction p$ocess e in'iffe$ent to the p$esent p$ocess! ". 1:*>>> C. (.*>>> %. (1*>>> #. (:*>>> %o a'illa .5hich of the two metho's 6the p$esent o$ the automate'7 has highe$ income at the le+el of sales of (3*>>> units! ". ;anual* P3>*>>> C. ;anual* P(.>*>>> %. "utomate'* P3>*>>> #. "utomate'* P(.>*>>> %o a'illa

1(3

.The p$esi'ent elie+es that a P13>*>>> inc$ease in the monthly a'+e$tising u'get* com ine' with an intensifie' effo$t y the sales staff* will $esult in an P:>>*>>> inc$ease in monthly sales. If the p$esi'ent is $ight* what will e the effect on the companyAs monthly net income o$ loss! ". P1(>*>>> inc$ease C. P1(>*>>> 'ec$ease %. P :>*>>> inc$ease #. P :>*>>> 'ec$ease %o a'illa .Refe$ to the o$iginal 'ata. The sales manage$ is con+ince' that a 1>L $e'uction in the selling p$ice* com ine' with an inc$ease of P3>>*>>> in the monthly a'+e$tising u'get* will cause unit sales to
125

1(4

Question Jos. 1-( E 1-. a$e ase' on the following: "lmo Company manufactu$es an' sells a'0usta le canopies that attach to moto$ homes an' t$aile$s. The ma$/et co+e$s new unit pu$chases as well as $eplacement canopies. "lmo 'e+elope' its (>>4 usiness plan ase' on the assumption that canopies woul' sell at a p$ice of P.>>

Cost-Volume-Profit Analysis

each. The +a$ia le costs fo$ each canopy we$e p$o0ecte' at P(>>* an' the annual fi)e' costs we$e u'gete' at P1>>*>>>. "lmoAs afte$Eta) p$ofit o 0ecti+e was P(.>*>>>M the companyAs effecti+e ta) $ate is .> pe$cent. 5hile "lmoAs sales usually $ise 'u$ing the secon' <ua$te$* the ;ay financial statements $epo$te' that sales we$e not meeting e)pectations. 9o$ the fi$st fi+e months of the yea$* only -2> units ha' een sol' at the esta lishe' p$ice* with +a$ia le costs as planne'* an' it was clea$ that the (>>4 afte$,ta) p$ofit p$o0ection woul' not e $eache' unless some actions we$e ta/en. "lmoAs p$esi'ent assigne' a management committee to analy&e the situation an' 'e+elop se+e$al alte$nati+e cou$ses of action. The following mutually e)clusi+e alte$nati+es* la ele' "* %* an' C* we$e p$esente' to the p$esi'ent. Re'uce the sales p$ice y P.>. The sales o$gani&ation fo$ecast that with the significantly $e'uce' sales p$ice* (*4>> units can e sol' 'u$ing the $emain'e$ of the yea$. Total fi)e' an' +a$ia le unit costs will stay as u'gete'. 8owe$ the +a$ia le costs pe$ unit y P(2 th$ough the use of less e)pensi+e mate$ials an' slightly mo'ifie' manufactu$ing techni<ues. The sales p$ice will also e $e'uce' y P->* an' sales of (*(>> units fo$ the $emain'e$ of the yea$ a$e fo$ecast. Cut fi)e' costs y P1>*>>>* an' lowe$ the sales p$ice y 2 pe$cent. Va$ia le costs pe$ unit will e unchange'. Sales of (*>>> units a$e e)pecte' fo$ the $emain'e$ of the yea$.
1-(

%. 1*4>>
1-.

#. (*2>>

%o a'illa y P.>* what will %o a'illa

.If management 'eci'es to $e'uce the selling p$ice "lmo@s afte$,ta) p$ofit e! ". P124*(>> C. P(.1*(>> %. P13>*:>> #. P->1*(>>

1-2

.If the management can $e'uce the +a$ia le cost pe$ unit y P(2 th$ough the use of less e)pensi+e mate$ials an' slightly mo'ifie' manufactu$ing techni<ues* with the sales p$ice $e'uce' y P->* an' sales of (*(>> units fo$ the $emain'e$ of the yea$ a$e fo$ecast* the amount of e)pecte' income fo$ the yea$ was: ". P(-=*.>> C. P(.1*(>> %. P(>.*>>> #. P-==*>>> %o a'illa .How much woul' e the e)pecte' income fo$ the yea$ if the management cut fi)e' costs y P1>*>>>* an' lowe$ the sales p$ice y 2 pe$cent* with +a$ia le costs pe$ unit unchange' an' sales of (*>>> units a$e e)pecte' fo$ the $emain'e$ of the yea$! ". P(-=*.>> C. P(.1*(>> %. P(>.*>>> #. P-==*>>> %o a'illa .If the sales p$ice is $e'uce' y 3.(2 pe$cent sta$ting Fune 1* an analysis in'icates that (*2>> unit sales can e ma'e if the company has to spent fo$ a''itional a'+e$tising. 5hat is the ma)imum amount of a'+e$tising cost that the company can spen' an' still the p$ofit o 0ecti+e is achie+e'! ". P-2*>>> C. P12*>>> %. P((*2>> #. P 4*2>> %o a'illa

1-3

1-4

."ssuming no changes we$e ma'e to the selling p$ice o$ cost st$uctu$e* how many units must "lmo sell to $ea/ e+en! ". 134 C. 2>> %. (2> #. 1*4>> %o a'illa ."ssuming no changes we$e ma'e to the selling p$ice o$ cost st$uctu$e* how many units must "lmo sell to achie+e its afte$,ta) p$ofit o 0ecti+e! ". 1*(2> C. (*>>>
126

1--

. "nswe$: % Cont$i ution ;a$gin C 9i)e' costs C P12*>>> 6Cont$i ution ;a$ginD?nit Sales7 T Va$ia le cost pe$ unit C #esi$e' ;inimum Sales P$ice 6P12*>>> U -*>>>7 T 6P4*2>> U -*>>>7 4.2> P (>.>> P1>*>>>

. "nswe$: C ?nit cont$i ution ma$gin 6P2> , P->7 "''itional p$ofit 62>> ) P(>7

"fte$ the $ea/,e+en le+el* the amount of p$ofit e<uals the unit cont$i ution ma$gin multiplie' y the num e$ of units sol' in e)cess of $ea/,e+en units. The can'i'ates shoul' $emem e$ that the p$ofit inc$eases cont$i ution ma$gin $ought y a''itional units sol'.
3

y the amount of

"nswe$: " Cost of 'inne$ 9a+o$s an' p$og$am 9i)e' costs 612*>>> T 4*>>> T .:*>>> T 1>*>>>7D(2> Cost to e cha$ge'

P 4>.>> ->.>> -(>.>> P.(>.>>

. "nswe$: % The num e$ of units $e<ui$e' to ea$n the ta$get p$ofit is e<ual to the sum of fi)e' e)penses an' the ta$get p$ofit 'i+i'e' y the unit cont$i ution ma$gin. The num e$ of units $e<ui$e' to ea$n the ta$get net p$ofit is: 6P4:*>>> T P.(*>>>7 U P1( 1>*>>> . "nswe$: " Selling P$ice 8ess: Va$ia le ;anufactu$ing Cost 1>L Commission ?nit Cont$i ution ;a$gin P 3> 6 ->7 6 37 P (.

. "nswe$: " Cu$$ent $ea/,e+en: Pesos: 6P-(*>>> U >..>7 ?nits: VP-(*>>> U P37 2*--Cont$i ution ma$gin pe$ unit: P12 ) >..> P "''itional units to co+e$ a''itional fi)e' costs: 6P-(*>>> ) >.-7 P3 "lte$nati+e solution: Jew $ea/e+en units 6P-(*>>> ) 1.-7 U P3 8ess cu$$ent $ea/e+en units Inc$ease in $ea/e+en units

P:>*>>> 3.>> 1*3>> 3*=-2*--1*3>>

. "nswe$: " The amount of cont$i ution ma$gin pe$ unit is constant within a $ele+ant $ange. The amount of p$ofit is inc$ease' y the amount of unit cont$i ution ma$gin. Cont$i ution ma$gin pe$ unit: fi)e' cost U $ea/e+en unit sales 2>*>>> U 2*>>> P1>.>> "t $ea/e+en point* the p$ofit is &e$o. The$efo$e* the p$ofit at a le+el of 2*>>1 units will e P1> which is the amount of cont$i ution p$o+i'e' y the unit 6one unit7 in e)cess of $ea/e+en point.

"nswe$: " C;R C 9i)e' costDSales C 1>>*>>>D:>>*>>> C 1(.2>L P$ofit C 61*(>>*>>> E :>>*>>>7>.1(2 P2>*>>>

The amount of sales that p$o+i'es p$ofit shoul' e the sales $e+enues a o+e the $ea/ e+en sales. "lte$nati+e solution: Total cont$i ution ma$gin 1*(>>*>>> ) >.1(2 9i)e' costs P$ofit
9

P12>*>>> 1>>*>>> P 2>*>>> P: 2>*>>> P13 (2*>>> (2*>>> 11.>> P::>*>>>

"nswe$: " Cu$$ent unit cont$i ution ma$gin 6P-( E P(.7 Cu$$ent $ea/,e+en units 6P.>>*>>> U P:7 Jew unit cont$i ution ma$gin 6P.> , P(.7 Jew $ea/,e+en units 6.>>*>>> U 137 Jet 'ec$ease in $ea/e+en units 62>*>>> E (2*>>>7 "nswe$: " C; pe$ unit: ((>*>>> D 61>>*>>> E :>*>>>7 9i)e' costs: :>*>>> ) 11

10

The cont$i ution ma$gin pe$ unit is linea$ o$ constant pe$ unit. The$efo$e: TC; ?nits C ?C;
11

"nswe$: % TC; Sales C C;R Change in TC;: 63>>*>>>R>.(7 E 6-3>*>>>R>.17 C;R: Inc$ease in TC; U Inc$ease in Sales :.*>>> U (.>*>>> %$ea/e+en sales =>*->> U >.-2

:.*>>> -2L (2:*>>> .>*>>> (>>*>>> (.>*>>>

12

"nswe$: C %efo$e,ta) p$ofit (.*>>> U >.3 "'' fi)e' cost Total cont$i ution ma$gin

Selling p$ice C ?VC T ?C; Selling P$ice C 3 T 6(.>*>>> U .>*>>>7

1(.>>

. "nswe$: C The company@s 'eg$ee of ope$ating le+e$age is 'ete$mine' as follows: #eg$ee of ope$ating le+e$age C Cont$i ution ma$gin U Jet income #eg$ee of ope$ating le+e$age C P3>>*>>> U P(.>*>>> C (.2> . "nswe$: " Inc$ease in sales 8ess +a$ia le costs an' e)penses >.=> ) 1(2*>>> "''itional p$ofit efo$e ta) 8ess a''itional ta) >..> ) 1(*2>> "''itional p$ofit 1(2*>>> 11(*2>> 1(*2>> 2*>>> 4*2>>

14

15

. "nswe$: % "''itional p$ofit U ?C; C a''itional unit sales C 6.>*>>> T :*>>>7 U 6:>,3>7 C (*.>> units . "nswe$: " Total peso sales $e<ui$e' 1(>*>>> U 6>.(2 E >.17 :>>*>>>R 8ess p$io$ sales .>>*>>> Re<ui$e' inc$ease in sales .>>*>>>

16

RPeso sales $e<ui$e' to ea$n p$ofit state' as pe$centage of sales 6ROS7: S C V9C T 6ROSS7W C;R 6C;R S7 C V9C T 6ROSS7W 6C;R S7 , 6ROSS7 C 9C 6C;R E ROS7 S C 9C S C 9C 6C;R E ROS7
17

"nswe$: " Cont$i ution ma$gin 2>*>>> ) 62,-.2>7 8ess: a''itional p$ofit 6(2>*>>> ) >.1>7 "''itional fi)e' costs Selling p$ice C P-.2> U >.4>

42*>>> (2*>>> 2>*>>> P2.>>

18

. "nswe$: C " sho$te$ calculation of fin'ing the amount of sales is to 'i+i'e $ea/e+en sales y 61 E ;SR7 Sales C P3>>*>>> 61 E >.(7 P42>*>>> "n alte$nati+e solution to fin' sales is to compute the p$ofit ma$gin. P$ofit ma$gin C Cont$i ution ma$gin $atio ) ma$gin of safety $atio. P$ofit ma$gin C (>L ) .>L :L Sales C P$ofit U P$ofit ma$gin

Sales 63>*>>> U >.>:7

P42>*>>>

. "nswe$: " Peso sales C 9CD6C;R , ROS7 C P(1>*>>>D6>..> , >.1>7 C;R C .>L

P4>>*>>>

" long computation of $e<ui$e' sales uses the following e<uation: S C P(1>*>>> T >.1>S >..> >..>S C P(1>*>>> T >.1>S >..>S , >.1>S C P(1>*>>> S C P(1>*>>>D6>..> E >.1>7 S C P4>>*>>>
20

. "nswe$: C Cu$$ent num e$ of units $e<ui$e' to ea$n the ta$get net p$ofit: V6P(>>*>>> T P4>*>>>7 U P=W ->*>>> "fte$ the automate' machine is place' into se$+ice* the num e$ of units $e<ui$e' to ea$n the ta$get net p$ofit will e: 66P(2>*>>> T P4>*>>>7 U P1(7

(3*334

Change in units: ->*>>> , (3*334 C -*--- 'ec$ease in unit sales

"nswe$: C C;RC 1>>L , 6-.= U 3.>7 C -2L %ES C 1*.>>*>>> U .-2

.*>>>*>>>

22

"nswe$: C Jew $ea/,e+en point: P:4.*>>> U P(-:*>>> Cu$$ent $ea/,e+en point in units: P44>*2>> U P(- --*2>> Inc$ease in units: -:*>>> , --*2>> .*2>> "lte$nati+e solution: 6P1>-*2>> U P(-7 .*2>>

23

. "nswe$: " The estimate' cost of goo's sol' C P232*>>> T >.-2SR RSum of all pe$centages fo$ +a$ia le p$o'uction costs C P232*>>> T 6P(*>>>*>>> ) >.-27 C P1*(32*>>>

24

. "nswe$: % Peso sales $e<ui$e' to ea$n 1>L of salesM 9CD6C;R E ROS7 C P-3*>>>D6>.->,>.1>7 C 1:>*>>>

25

"nswe$: " Re+ise' cont$i ution ma$gin (>*>>> ) 1.12 ) 64,171-:*>>> 9i)e' cost 61>2*>>> T 1=*(>>7 1(.*(>> Re+ise' p$ofit 1-*:>> P$io$ p$ofit -2*>>> #ec$ease in p$ofit (1*(>> "nswe$: " ;a$gin of Safety C %u'gete' sales E %$ea/e+en sales ;a$gin of Safety: P.>>*>>> E P.>*>>> P-3>*>>>

26

27

. "nswe$: % #O8 at P=>*>>> sales: Sales Va$ia le costs Total Cont$i ution ma$gin 9i)e' costs P$ofit #O8 C TC;DOP C .>*>>>D1>*>>> L inc$ease in sales ) #O8 C L inc$ease in p$ofit . ) (>L C :>L

=>*>>> 2>*>>> .>*>>> ->*>>> 1>*>>> . times

28

"nswe$: % (>>3 #O8 C (42*>>>D42*>>> -.34 Pe$centage Inc$ease in p$ofit* (>>4 C -.34 ) ->L 11>L (>>4 P$ofit C 42*>>> T642*>>> ) 1.1>7 P124*2>> "nswe$: " Peso sales 1(*>>>D6>..> E >.17 ?nit sales P.>*>>>D1> Inc$ease' units .*>>> ) 1.(2 Re+ise' cont$i ution ma$gin 2*>>> ) 6= E 37 8ess fi)e' cost Re+ise' p$ofit P.>*>>> .*>>> 2*>>> P12*>>> 1(*>>> P -*>>>

29

30

. "nswe$: % P$o0ecte' cost of sales: P:>>*>>> T 6P-*>>>*>>> ) >.327 . "nswe$: % ?nit C; C Change in P$ofit U Change in Sales C (>>*>>> U 61>>*>>> E 42*>>>7 C: 9i)e' costs C %$ea/e+en units ) ?C; 42*>>> ) : C 3>>*>>>

P(*42>*>>>

31

32

"nswe$: %

?nit cost: ;ate$ials 6P-3*>>> U (.*>>>7 8a o$ 6P2.*>>> U (.*>>>7 Va$ia le selling e)pense Va$ia le unit cost Re<ui$e' p$ofit 6(*(2> U 1*2>>7 Re<ui$e' minimum selling p$ice
33

P1.2> (.(2 >.-2 P..1> 1.2> P2.3>

. "nswe$: # Composite $atio: N: 3.>*>>> U 64(>*>>> T 3.>*>>>7 K: 4(>*>>> U 64(>*>>> T 3.>*>>>7 5eighte',"+e$age Cont$i ution ;a$gin: 6.2(=.1 X .3>7 T 6..4>2= X ..>7 %$ea/e+en sales in pesos: 62>2*::1 U >.2>2::(7 KAs peso sales at $ea/e+en P1; ) >..4>2=

.4.>2=L 2(.=.1L >.2>2::( P1*>>>*>>> P .4>*2=> 22>*>>> ->>*>>> (2>*>>>

34

"nswe$: " Sales 62>>*>>> ) 1.1>7 Va$ia le cost Cont$i ution ma$gin

C;R C (2> U 22> C .2..2L O$iginal fi)e' costs: 2>>*>>> E ->>*>>> E 12>*>>> C 2>*>>> Jew fi)e' cost C 2>*>>> ) >.:> C .>*>>> %$ea/e+en sales C .>*>>>D>..2.2 C P::*>>>
35

"nswe$: % %efo$e,ta) p$ofit 6(.*>>> U >.37 "'' fi)e' costs Total cont$i ution ma$gin

P .>*>>> (>>*>>> P(.>*>>>

Cont$i ution ma$gin pe$ unit 6P(.>*>>> U .>*>>>7 P 3.>> Va$ia le cost pe$ unit 3.>> Selling p$ice P1(.>>
36

. "nswe$: " #O8 C C;DOP C (42*>>>D42*>>> C -.34 times . "nswe$: C Peso sales : 9C U 6C;R , P$ofit ;a$gin7 C P(1>*>>> U 6>.22 , >.127 C P2(2*>>> C;R C 1>>L , .2L C 22L

37

38

. "nswe$: % C;R: Change in 9i)e' Costs U Change in %$ea/e+en Sales 4:*42> U 6=42*>>> E 42>*>>>7 >.-2 9i)e' costs efo$e an inc$ease of 4:*42>: 42>*>>> ) >.-2 (3(*2>>

The inc$ease in fi)e' costs of P4:*42> e<uals the inc$ease in cont$i ution ma$gin in o$'e$ to continue at $ea/e+en sales.
39

. "nswe$: # ?C; C 64>*>>> ) 1.(>7T6.>*>>> ) -7 4>*>>> E .>*>>> C P3.:> 9C C ?nits6?C; E p$ofit pe$ unit7 C 4>*>>>63.:> E 1.(>7 C P-=(*>>> %E? C -=(*>>>D3.:> C 24*3.4

40

. "nswe$: " ;a$gin of safety in peso sales C %u'gete' sales E %$ea/e+en sales ;a$gin of safety C P1; E P.4; P->>*>>> . "nswe$: " (>>3 Sales "'+e$tising Cost 642>>> U .37 Re<ui$e' (>>4 peso sales "nswe$: " Re+ise' 5"C; 6>.2 ) 1.2>7 T 6>.2 ) (7 O$iginal 5"C; 6>.. ) 1.2>7 T 6>.3 ) (7 Re+ise' %$ea/e+en units 1(*3>>D1.42 O$iginal %$ea/e+en units 1(*3>>D1.:> Inc$ease in $ea/e+en units 1*>>>*>>> 1(2*>>> 1*1(2*>>> 1.42 1.:> 4*(>> 4*>>> (>> P.( 12*>>> =*>>> 3*>>>

41

42

43

. "nswe$: C 5"C; C 6-> ) >.37 T 63> ) >..7 %$ea/e+en units: 3->*>>>D.( %$ea/'own: P$o'uct Stan'a$' 12*>>> ) >.3 P$o'uct #elu)e 12*>>> ) >..

44

"nswe$: % 5"C; C 6.D4 ) >..>7T6-D4 ) >.=- C P>.3(:24 %E units C 4*3>>D>.3(:24 C 1(*>=1 %au les C 1(*>=1 ) .D4 C 3*=>=

T$in/ets C 1(*>=1 ) -D4 C 2*1:(

"nswe$: C Total sales $e+enue pe$ composite sales: 61( ) P2.(27 T 61> ) P4.2>7 T 63 ) P1(.(27 Total +a$ia le cost pe$ composite sales: 61( ) P..:27 T 61> ) P3.=27 T 63 ) P1>.-27 Total cont$i ution ma$gin pe$ composite sales 6P(11.2> , P1:=.:>7 Composite $ea/e+en point P42*=2> U P(1.4>

P(11.2> P1:=.:> P (1.4> -*2>>

Jote: Total $ea/e+en units: -*2>> ) (: C =:*>>>

"nswe$: C 5"C;R C 6.3 ) ..7 T 6.. ) .127 9i)e' Costs C ((2>>> ) 1.Sales 6(=(2>> T .:>>>7 U .-

->L P (=(*2>> P1*1-2*>>>

47

. "nswe$: C ?C; C 63>*>>> ) >.427T6.2*>>> ) 1.(27 3>*>>> E .2*>>> C 3.42 9i)e' cost C 63>*>>> ) 3.427,63>*>>> ) >.427 P-3>*>>> P12>*>>>

48

. "nswe$: % %EV C 3>>*>>> 13 E 1( . "nswe$: % C;R C %efo$e Ta) P$ofit ;a$gin ;DS Ratio C 6>.>3 U >.37 U .(2 C .>L 9C C 61(>*>>> ) ..>7 E 61(>*>>> ) .1>7 C P-3*>>> "nnual 9C C -3*>>> ) 1(

49

P.-(*>>>

50

"nswe$: " P$ofit ;a$gin C (>L ) 1>L C (L P$ofit C .>>*>>> ) (L C :*>>> 9i)e' Costs C C; , P$ofit 9i)e' Costs C 6.>>*>>> ) (>L7 E :*>>> "nswe$: " Re+ise' ?C; C (2 E 1=.:> E 62 ) >.>:7 %E? C .3:*>>>D..:>

P4(*>>> P..:> =4*2>>

51

52

. "nswe$: " The Company p$o0ecte' &e$o p$ofit ase' on &e$o a'+e$tising e)pen'itu$e. "''itional C; 6->*>>> units O 1>7 P->>*>>>

8ess: Re<ui$e' p$ofit ;a)imum a'+e$tising cost

(>>*>>> P1>>*>>> 3*42>

. .

"nswe$: % Cash,flow $ea/e+en: (4>*>>> U 61>>,3>7 "nswe$: " C;R C %efo$e,ta) $etu$n on salesD;SR C 6>.>3 >.3>7 >.(2 %ES C -(>*>>> >..> Sales C :>>*>>> >.42

54

>..> o$ .>L P :>>*>>> P1*>33*334

55

. "nswe$: % The easie$ calculation of sales +alue of 3>*>>> units is to 'i+i'e the total annual costs y total cost $atio of :2L 61>>L , 12L7. Sales $e<ui$e' C P1*=1(*2>>D>.:2 P(*(2>*>>> ?nit selling p$ice C (*(2>*>>>D3>*>>> P-4.2> . "nswe$: # In'iffe$ence Point C Change in 9i)e' Cost U Change in Va$ia le Cost Inc$ease in fi)e' cost: ( O 12*>>> P->*>>> #ec$ease in +a$ia le cost 612L , 4.2L7 :> P3 In'iffe$ence point: ->*>>> U 3 2*>>> units

56

57

"nswe$: " 5"C; C 6>.(2 ) 27T6>.42 ) 47 C 3.2> %E? C =42*>>>D3.2> C 12>*>>>

58

. "nswe$: % The a''itional fi)e' costs of P1*(>>*>>> shoul' e fully co+e$e' y the same amount as a''itional sales 6also a''itional cont$i ution ma$gin7 th$ough an inc$ease in selling p$ice. Inc$ease' p$ice P1(> T61.(>;D:>*>>>7 P 1-2

59

"nswe$: " %$ea/e+en point: Ol' policy: P:>*>>>D4 Jew policy: P1>>*>>>D: Inc$ease in %$ea/e+en point

11*.(= 1(*2>> 1*>41

60

. "nswe$: % 5"C;R C 6.. ) .(7 T 6.2 ).-7 T 6.. ).27 C >..%ES C 1*(=>*>>> U ..- C P-*>>>*>>> . "nswe$: " Cont$i ution ma$gin 9i)e' costs 1(*>>> ) 61*2>> E =>>7 P4*(>>*>>> -*3>>*>>>

61

Ope$ating p$ofit #O8: 4.(D-.3 C ( times

P-*3>>*>>>

. "nswe$: % The in'iffe$ence point $efe$s to the le+el of sales that woul' gi+e e<ual p$ofit o$ total costs fo$ the two alte$nati+es 11.->) T 3>*>>> C :.=>) T :(*2>> (..>) C ((*2>> ) C =*-42 . "nswe$: C Va$ia le cost $atio C (.(2D4.2> C ->L Va$ia le cost ne)t yea$ C (.(2 ) 1.---- C Selling p$ice $e<ui$e' C -D>.-> C P1> . "nswe$: % Total 9i)e' Cost Ope$ating P$ofit Total Cont$i ution ;a$gin Selling p$ice Cont$i ution ma$gin pe$ unit 61:>*>>> U 1(*>>>7 ?nit +a$ia le cost P12.*>>> (3*>>> P1:>*>>> P (> 12 P 2 3>>*>>> 1(>*>>> 4(>*>>> 1.:> P..2>

63

64

65

"nswe$: C 9i)e' costs Ope$ating p$ofit Cont$i ution ma$gin ?nit cont$i ution ma$gin 4(>*>>> U .>>*>>> Selling p$ice 61.:> U >..>7

66

. "nswe$: % Cont$i ution ma$gin pe$ machine hou$: Cont$i ution ma$gin pe$ unit ) Jo. of units p$o'uce' pe$ machine hou$s P$o'uct " P(> ) 3 P1(> P$o'uct % P13 ) : P1(: . "nswe$: " ..>*>>> T 611>*.>>D>.317 C . E (.4> .:>*>>> P(.4>

67

Re+ise' +a$ia le cost: P(..> T 6P(.>> ) >.127

. "nswe$: # VC Ratio -42*>>D3(2*>>> C 3>L VC D unit -42*>>>D(2*>>> C P12 Jew VC C 12 T 6..2> E (.2>7C P14 SP C 14D>.3 C P(:.--

69

. "nswe$: % The le+el of sales that woul' gi+e e<ual costs: >.>3S C 6.> ) (.*>>>7T >.>(S >.>.S C =3>*>>> S C (.; . "nswe$: C "''itional fi)e' costDwee/: -1*(>>D2( C 3>> "''itional wee/ly sales to co+e$ a''itional fi)e' cost: 3>>D>.(2 C (*.>> Total Sun'ayAs sales 6whe$e (*.>> $ep$esents (2L7: (*.>>D>.(2 C =*3>> "lte$nati+e solution: 3>> C >.(2 ) >.(2S 3>> C >.>3(2S S C =*3>>

70

71

. "nswe$: " Jew %ES C :4-*3>>D1.> C 3*(.> Jew 9C C :.>*>>> ) 1.>. C :4-*3>> Jew C; C (2> E 1>> E61>> ) >.1>7 C 1.> Ol' %ES C :.>*>>>D12> C 2*3>> Inc$ease in %E? C 3*(.> E 2*3>> C 3.> . "nswe$: C Composite C; C .> T 6( ) (>7 C :> Composite %E C =1>*>>>D:> C 11*-42

72

73

. "nswe$: C Re<ui$e' new sales C (>>2 sales T 6P11(*2>>DC;R7 C P2; T6P11(*2>>D>..27 P2.(2; C;R C 6(2> E 1-4.2>7D(2> .2L

74

. "nswe$: " %$ea/e+en units C :>4*:.> U 2.-> 12(*.(Jew C;Dunit C (> E 1..4> C 2.-> Jew +a$ia le cost: 61. T 61. ).2 ) >.1>7 C 1..4> Jew 9C C 4=(*>>> T 64=(*>>> ).(>).1>7 C :>4*:.> . "nswe$: " In'iffe$ence point C #ec$ease in 9i)e' Cost Inc$ease in Va$ia le Cost

75

C :>*>>>D>.>2 C P1.3>;
76

. "nswe$: # P$ocessing hou$s pe$ unit: NK E 4: >.42D1 C >.42 o$ .2 minutes %# E .: >.(>D1 C >.(> o$ 1( minutes "''itional cont$i ution ma$gin using 1>>*>>> hou$s: NK E 4: 1>>*>>>D>.42 ) P1 C P1--*--%# E .: 1>>*>>>D>.(> ) P>.2> C P(2>*>>>

77

. "nswe$: % ?nits sol' to ea$n P1;: 61*>>>*>>> T 1*>>>*>>>7 D 2.(2 C -:>*=2( The use of P1; fi)e' costs will $e<ui$e -:>*=2( units which a$e within the fi$st $ange.

78

. "nswe$: " 9i)e' costs C 4=(*>>> T64=(*>>> ) >.(> ) >.1>7 C :>4*:.> ?C; C (> E 1. E61. ) >.2> ) >.1>7C 2.-> Computation C :>4*:.>D2.->

79

"nswe$: " Cost of one .Efoot piece of metal . ) 1-.3> 8ess p$ocee's f$om sale of sc$ap 3.. D 13 ) : Jet cost of one ., foot piece of metal Jet cost pe$ ounce P 21.(> U (2.3 o& Output pe$ one .,foot piece of metal 8a$ge . ) .o& Small . ) (..o& Sc$ap Total o&

2...> -.(> 21.(> P(.>> 13.>> =.3> 3..> -(.>>

80

"nswe$: % ;ate$ial cost pe$ unit 8a$ge: . ) P( ) 1.: Small (.. ) P( ) 1.42 "nswe$: " ?nit C; 8a$ge: (=.>> E 6:.2 ) 1.:7 C 1-.4> Small: 1..>> E 6 2.1 ) 1.427 C 2.>42 5"C; C 61-.4> T 2.>427 U ( C =.-:42 %$ea/e+en point C :3>*>>>D=.-:42 C =1*311

P1...> P :..>

81

82

"nswe$: C C; Dunit .>2*>>> U 1*:>> %EV C (.4*2>> U ((2

((2 1*1>> units

83

. "nswe$: " Ope$ating P$ofit: 6(*1>> ) ((27 E (.4*2>> C P((2*>>> "fte$Eta) p$ofit: ((2*>>> ) 3>L C 1-2*>>> . "nswe$: C Cont$i ution ma$gin Regula$ sales 1*2>> ) ((2 Special sale 12>> ) 142 Total Cont$i ution 9i)e' costs Ta)a le income Income ta) Jet income

84

--4*2>> (3(*2>> 3>>*>>> (.4*2>> -2(*2>> 1.1*>>> (11*2>>

85

. "nswe$: " "''itional 9CD Jew ?nit C; 31*2>> U (>> C ->4.2 tons "nswe$: # Jew SP C 2>> ) .=>.2>1>>LJew VC (42 T .>-124>LJew C;1-2->L Sales $e<ui$e':W 69i)e' costs T %efo$e Ta) p$ofit7 U C;R (.4*2>> T 6=.*2>> U 3>7 P1*-2>*>>> . "nswe$: " ?nit sales $e<ui$e': 6-13*:>> T .>*>>>7 U (4.(> C 1-*11: pai$s ?nit Cont$i ution ;a$gin* Tou$ing: :>.>> E 2(.:> P(4.(> . "nswe$: " In'iffe$ence point in peso sales: >..S E P-3=*3>> C >.-.S E P-13*:>> >.>3S C 2(*:>> S C P::>*>>> . "nswe$: # %$ea/e+en sales* ;ountainee$ing: -3=*3>> U -2.(> C Re<ui$e' cont$i ution ma$gin E Tou$ing -13*:>> U 1>*2>> C P$esent cont$i ution ma$gin E Tou$ing Re<ui$e' 'ec$ease in +a$ia le cost pe$ unit "nswe$: " Jew $ea/e+en point: -.:*.:> U -(..: .

86

87

88

89

1>*2>> ->.14 (4.(> (.=4 1>*4->

90

Jew ?C;* Tou$ing: (4.(> T 62(.:> ) >.17 Jew 9i)e' costs: -13*:>> ) 1.1
91

C -(..: C -.:*.:>

. "nswe$: C The in'iffe$ence point in num e$ of pai$s is 3*3>>. Inasmuch that the e)pecte' le+el is 1(*>>> units* it is ette$ to sell ;ountainee$ing ecause it has high le+e$age than the tou$ing mo'el. Once the in'iffe$ence point is e)cee'e'* the one with the highe$ cont$i ution ma$gin 6le+e$age7 has the a'+antage o+e$ the one with the lowe$ cont$i ution ma$gin. . "nswe$: % 9i)e' Costs: O+e$hea' ;a$/eting "'minist$ati+e Inte$est Total Cont$i ution ma$gin $atio: 1 , V64*(>>*>>> T (*.>>*>>>7D13;W C .>L %$ea/e+en ne)t yea$ with no change in commission: .*:>>*>>> U >.. C P1(*>>>*>>>

92

(*-.>*>>> 1(>*>>> 1*:>>*>>> 2.>*>>> .*:>>*>>>

93

. "nswe$: C If the commission $ate is inc$ease' y 2L* the cont$i ution ma$gin is 'ec$ease' y 2L o$ a new cont$i ution ma$gin $atio of -2L %$ea/e+en sales ne)t yea$. .*:>>*>>> D >.-2 C P1-*41.*(:3

94

"nswe$: " 9i)e' cost un'e$ 12L commission plan Inc$ease in 9i)e' cost #ec$ease in au'it fee Inc$ease' fi)e' costs

.*:>>*>>> (*.>>*>>> 6 42*>>>7 4*1(2*>>>

The commission $ate of 4.2L* instea' of 12L will $aise the cont$i ution ma$gin $atio to .4.2L 6.>L T 4.2L7. Re+ise' $ea/e+en sales 4*1(2*>>> D ..42 C P 12;
95

. "nswe$: " Re<ui$e' sales* with (>L commission an' p$ofit ta$get of P1*1(>*>>>: 6P.*:>>*>>> T 1*3>>*>>>7 U .-2 C 1:*(:2*41. . "nswe$: # The <uestion as/e' fo$ is the in'iffe$ence point. The peso sales $e<ui$e' to p$o'uce e<ual income can e easily calculate' y 'i+i'ing the net inc$ease in fi)e' costs y the inc$ease in cont$i ution ma$gin $atio: #iffe$ence in C;R C -2L , .4.2 C 1(.2L

96

Inc$ease in fi)e' costs C (*.>>*>>> E 42*>>> In'iffe$ence Point: (*-(2*>>> U >.1(2 "lte$nati+e Solution: .-22 E .*:>>*>>> C ..42S E 4*1(2*>>> .1(2S C (*-(2*>>> S C P1:*3;
97

P(*-(2*>>> P1:.3;

"nswe$: C %illing cha$ge pe$ patient 'ay Va$ia le cost pe$ patient 'ay Cont$i ution ma$gin Jum e$ of patient 'ays fo$ the yea$: P1>*343*(2>D32> Va$ia le cost pe$ patient 'ay: P(*.3-*32>U13*.(2

P32> 12> P2>> 13*.(2 P12> P.*1=>*>>> 4(>*>>> P.*=1>*>>>

98

"nswe$: % 9i)e' costs fo$ e' capacity Sala$y* supe$+iso$y nu$se Total

Jum e$ of patient 'ays $e<ui$e' to co+e$ fi)e' costs fo$ e' capacity an' sala$ies of supe$+iso$y nu$se .*=1>*>>> U 2>> =*:(>
99

. "nswe$: % In sol+ing fo$ the $ea/e+en le+el whe$e the$e a$e step fi)e' costs* the logical app$oach is to test the +ali'ity of the $anges of acti+ities. 9i$st Range: 9i)e' costs ase' on capacity.*1=>*>>> Sala$ies:"i'es (1 ) 2>*>>>1*>2>*>>>Ju$ses 11 ) 1->*>>>1*.->*>>>Supe$+iso$ . ) 1:>*>>> 4(>*>>>-*(>>*>>>Total4*-=>*>>> %$ea/e+en calculation: 4*-=>*>>> U 2>> 1.*4:> The calculate' $ea/e+en point of 1.*4:> is in+ali' ecause the num e$ falls un'e$ the secon' $ange whe$ein the amount of fi)e' costs that ha' een use' a$e not $ele+ant to that $ange. Secon' Range 69inal calculation7: Total fi)e' cost* lowest $ange "''itional fi)e' cost: 1 ai'e 1 nu$se Total %$ea/e+en in patient 'ays: 4*24>*>>> U 2>> 4*-=>*>>> 2>*>>> 1->*>>> 4*24>*>>> 12*1.>

100

."nswe$: "

"''itional $e+enues if (> e's a$e $ente': => 'ays O 14 patient 'ays ) 32>
101

==.*2>> ase' on a''itional patient 'ays fo$ => P((=*2>>

."nswe$: % Inc$ease in +a$ia le cost shoul' 'ays at P12> pe$ patient 'ay. 14 e's ) => 'ays ) P12>

e calculate'

102

."nswe$: " The inc$ease in fi)e' cost ase' on e' capacity: P.*1=>*(2> U 3> ) (> P1*-=3*42> ."nswe$: " Ta) shiel' in non cash e)penses .>L ) :>>*>>> ."nswe$: " %$ea/e+en in num e$ of pi&&as 6t$a'itional7 .*2-4*2>>D6(2> E 427 ?nits sol': P=*2>>*>>>D(2> ?nit +a$ia le cost 6cost of foo'7 (*:2>*>>> U -:*>>> 9i)e' cost C 4*-:4*2>> E (*:2>*>>>

103

C P-(>*>>>

104

C (2*=(= C -:*>>> C P42.>> P.*2-4*2>>

105

."nswe$: " Cash 9low %$ea/e+en: -*.14*2>> U 142 Total fi)e' cost: 8ess: Joncash fi)e' cost Ta) shiel' on noncash 9i)e' costs 9i)e' cash flow 6 6

1=*2(= P.*2-4*2>> :>>*>>>7 -(>*>>>7 P-*.14*2>>

106

."nswe$: " %$ea/e+en sales ase' on (>L commission: P1>>*>>> U >.(> P2>>*>>> Cont$i ution ma$gin $atio: 61>; E :;7 U 1>; (>L

107

."nswe$: # %$ea/e+en sales if the company employs its own salesmen: 6P-2>*>>> U >.-27 P1*>>>*>>> The new cont$i ution ma$gin $atio is 6(>L T 12L7 9i)e' costs a$e e)pecte' to e P-2>*>>> -2L

61>>*>>> T =>*>>> T 13>*>>>7

."nswe$: # The $e<ui$e' peso sales to ea$n net income of P1*-->*>>> if the commission is $aise' to (2L: 6P1>>*>>> T P1*=>>*>>>7 U >.12 P1-*---*---

109

."nswe$: % The in'iffe$ence point* the le+el of sales whe$e the alte$nati+es will ha+e e<ual p$ofits: .12S, 1>>*>>> C .-2S E -2>*>>> (S C (2>*>>> S C P1*(2>*>>> ."nswe$: C The p$o lem illust$ates a calculation of +a$ia le an' step fi)e' cost. Cont$i ution ;a$gin pe$ ?nit: 3>*>>> o$ less 6P-> E P1(.2>7 ?nits a o+e 3>*>>> 6P-> E P1..>>7 Total cont$i ution ma$gin f$om the fi$st 3>*>>> 63>*>>> ) P14.2>7 8et N C Jum e$ of units a o+e 13*>>> > C (:>*>>> T 13N ,-3>*>>> N C :>*>>> U 13 N C 2*>>> units %$ea/e+en units: 13*>>> T 2*>>> "lte$nati+e Solution: Total fi)e' costs 8ess Cont$i ution ma$gin f$om 3>*>>> units Remaining fi)e' costs to e co+e$e' y a''itional units* each with C; of P13 %$ea/e+en units: 13*>>> T 6:>*>>> U 137 P-3>*>>> (:>*>>> P :>*>>> (1*>>> (1*>>> $ea/e+en point fo$ a company with a step

110

P14.2> P13.>> P(:>*>>>

111

."nswe$: % The units that will gene$ate the 'esi$e' p$ofit of P12>*>>> fo$ the company* cont$i utes P13 each. These units a$e the e)cess of (1*>>> units to $ea/e+en. ?nit sales $e<ui$e': (1*>>> T 612>*>>> U P137 ->*-42

112

."nswe$: % The onus plan of P1.>> pe$ unit on sales ma'e in e)cess of $ea/e+en point 6(1*>>> units7 will necessa$ily 'ec$ease the cont$i ution ma$gin to P12.

The 'esi$e' p$ofit ase' on fi)e' cost: (2L ) P-3>*>>> P=>*>>> ?nits $e<ui$e': (1*>>> T 6P=>*>>> U 127
113

(4*>>>

."nswe$: % In 'ete$mining the minimum selling p$ice fo$ the :*>>> units shoul' consi'e$ the inc$ease' +a$ia le cost pe$ unit an' the a''itional fi)e' cost. "ny cost an' losses on the fi$st 13*>>> units a$e i$$ele+ant: Va$ia le cost pe$ unit P1..>> "''itional fi)e' cost pe$ unit 61>*>>> U :*>>>7 1.(2 ;inimum selling p$ice P12.(2 ."nswe$: " The net income fo$ the month if the new e<uipment is ac<ui$e': Cont$i ution ma$gin ase' on the p$esent systemP1-2*>>> "'' inc$ease in cont$i ution ma$gin 'ue to 'ec$ease in +a$ia le cost 612*>>> ) =7 1-2*>>> Inc$ease' cont$i ution ma$gin (4>*>>> 8ess Inc$ease' fi)e' costs ((2*>>> Jet income P .2*>>>

114

115

."nswe$: % The inc$ease in $ea/e+en point woul' e: 61(*2>> E 1>*>>>7 %$ea/e+en* p$esent 6P=>*>>> U P=7 %$ea/e+en* p$opose' 6P((2*>>> U P1:7 ."nswe$: C The 'eg$ee of ope$ating le+e$age 6#O87 'u$ing the month that the new e<uipment woul' e use': 6(4>*>>> U .2*>>>7 6Please see solution fo$ Jo. =.7

(*2>> units 1>*>>> units 1(*2>> units

116

3N

117

."nswe$: " %$ea/e+en units if the$e is a change in ma$/eting metho': P.:*>>> U 3 :*>>> units Cont$i ution ma$gin pe$ unit: 69i)e' cost T p$ofit7 U ?nits sol' 6P.:*>>> T P3>*>>>7 U 1:*>>> units P3.>>

118

."nswe$: % The pe$centage inc$ease in p$ofit can e calculate' y multiplying the 'eg$ee of ope$ating le+e$age 6#O87 y the pe$centage inc$ease in sales 'u$ing the secon' month.

The sales inc$ease' y ->L 6P.*2>> U P12*>>>7 an' the$efo$e the p$ofit pe$centage inc$ease' y 1:>L 63 ) ->L7. The e)pecte' p$ofit 'u$ing the ne)t month woul' e: P.2*>>> T 6P.2*>>> ) 1.:7
119

P1(3*>>>

."nswe$: C %$ea/e+en ?nits: 9i)e' Costs U ?nit Cont$i ution ;a$gin P3*>>>*>>> U ->> ."nswe$: % Cont$i ution ma$gin 6P1:*>>> ) ->>7 8ess 9i)e' costs Jet loss

(>*>>> pai$s P2*.>>*>>> 3*>>>*>>> P6 3>>*>>>7

120

121

."nswe$: " The $ea/e+en le+el fo$ the sales outlet is e)pecte' to $ise ecause of a''itional commission* a +a$ia le cost item* an' such a commission is eing pai' fo$ all pai$s of shoes sol'. %$ea/e+en in pai$s of shoes: 3*>>>*>>> U 6->> E 427 (3*334 pai$s

122

."nswe$: # Though an a''itional commission is pai' on pai$s of shoes sol'* the $ea/e+en point is not affecte' an' shall $emain at (>*>>> ecause the a''itional commission applies only to num e$ of pai$s of shoes sol' in e)cess of $ea/e+en le+el. The p$ofit cont$i ution y the 2*>>> pai$s is ase' on $e'uce' cont$i ution ma$gin pe$ pai$. P$ofit: 2*>>> ) 6->> E 2>7 "lte$nati+e Solution: Sales 6(2*>>> ) P:>>7 Va$ia le costs 6(.*>>> ) P2>>7 Total cont$i ution ma$gin 9i)e' costs P$ofit P1*(2>*>>> P(>*>>>*>>> 1(*42>*>>> 4*(2>*>>> 3>>*>>> P 1*(2>*>>>

123

."nswe$: " %ecause the $ea/e+en le+el is unchange'* the calculation of the num e$ of pai$s to ea$n P=>>*>>> is simple. The amount of the 'esi$e' p$ofit will e cont$i ute' y the num e$ of pai$s of shoes in e)cess of $ea/e+en* each cont$i uting P(2>. (>*>>> T6P=>>*>>> U (2>7 (-*3>> pai$s

124

."nswe$: % ->>N E P3*>>>*>>> 1.>N C P(*1.(*>>>

C ..>N E P:*1.(*>>>

N C 12*->> pai$s
125

."nswe$: " %$ea/e+en peso sales: P1*:>>*>>> U >.C;R C P1*422*>>> U P2*:2>*>>> ->L

P3*>>>*>>>

126

."nswe$: % "''itional cont$i ution ma$gin P:>>*>>> ) >.-> P(.>*>>> "''itional fi)e' cost 13>*>>> Inc$ease in p$ofit P :>*>>> ."nswe$: % Sales -=*>>> ) P(4> Va$ia le cost -=*>>> ) P(1> Cont$i ution ma$gin 9i)e' cost Jet loss ."nswe$: % O$iginal unit cont$i ution ma$gin 61*422*>>> U 1=*2>>7 8ess inc$ease in pac/aging cost Jew ?nit cont$i ution ma$gin ?nit sales $e<ui$e': 6P1*:>>*>>> T P=4*2>>7 U P:(.2> P1>*2->*>>> :*1=>*>>> (* -.>*>>> (*.>>*>>> P6 3>*>>>7

127

128

P=>.>> 4.2> P:(.2> (-*>>>

129

."nswe$: " %$ea/e+en units* "utomate' 6P1*:>>*>>> T P4(>*>>>7 U 6P=> T P->7 P(*2(>*>>> U => %$ea/e+en units* P$esent 6P1*:>>*>>> U =>7 Inc$ease in $ea/e+en units

(1*>>> (>*>>> 1*>>>

130

."nswe$: C The computation of the in'iffe$ence point fo$ the two p$ocesses can e 'ete$mine' y 'i+i'ing the inc$ease in fi)e' costs y the 'ec$ease in +a$ia le cost pe$ unit ecause the selling p$ice was unchange'. In'iffe$ence Point: P4(>*>>> U -> (.*>>>

131

."nswe$: % If the le+el of sales is highe$ than the in'iffe$ence point* the one with highe$ le+e$age* i.e.* highe$ fi)e' costs an' lowe$ unit +a$ia le cost* will p$o+i'e highe$ income. The automate' p$ocess has the highe$ le+e$age an' the$efo$e* it has highe$ income: #iffe$ence in income: 6(3*>>> E (.*>>>7-> P3>*>>>

132

."nswe$: C %$ea/e+en units C 9i)e' costs ?nit cont$i ution ma$gin P1>>*>>> 6P.>> E P(>>7

2>> units
133

."nswe$: # Step 1: Compute efo$e,ta) p$ofit: P(.>*>>> 61.> E >..7 ?nits sales $e<ui$e' to ea$n efo$e,ta) p$ofit: 6P1>>*>>> T P.>>*>>>>7 P(>> "lte$nati+e Solution: P$ofit C Sales E Va$ia le costs E 9i)e' costs P.>>*>>> C P.>>N E P(>>N E P1>>*>>> P2>>*>>> C P(>>N N C (*2>> units

P.>>*>>> (*2>> units

134

."nswe$: C Re+enue 6-2> ) P.>>7 T 6(*4>> ) P-3>7 Va$ia le costs 6-*>2> ) P(>>7 Cont$i ution ma$gin 9i)e' e)penses Ope$ating income Income ta) Jet income

P1*11(*>>> 31>*>>> 2>(*>>> 1>>*>>> P .>(*>>> 13>*:>> P (.1*(>>

135

."nswe$: " Re+enue 6-2> ) P.>>7 T 6(*(>> ) P-4>7 P =2.*>>> Va$ia le costs 6-2> ) P(>>7 T 6(*(>> ) P1427 .22*>>> Cont$i ution ma$gin .==*>>> 9i)e' e)penses 1>>*>>> Ope$ating income -==*>>> Income ta) 12=*3>> Jet income P (-=*.>> ."nswe$: % Re+enue 6-2> ) P.>>7 T 6(*>>> ) P-:>7 Va$ia le costs 6(*-2> ) P(>>7 Cont$i ution ma$gin 9i)e' costs Ope$ating p$ofit Income ta) Jet income P =>>*>>> .4>*>>> P .->*>>> =>*>>> -.>*>>> 1-3*>>> P (>.*>>>

136

137

."nswe$: # %efo$e ta) p$ofit o 0ecti+e 6(.>*>>> U >.37 P.>>*>>> 9i)e' costs 1>>*>>> Total cont$i ution ma$gin $e<ui$e' 2>>*>>> 8ess cont$i ution ma$gin ma'e on units sol' Fanua$y E ;ay 6-2> ) (>>7 4>*>>> "''itional cont$i ution ma$gin still nee'e' P.->*>>> "''itional cont$i ution ma$gin f$om (*2>> units 6(*2>> ) P1427 P.-4*2>>

8ess

a''itional

cont$i ution

ma$gin

;a)imum a'+e$tising cost

$e<ui$e' to meet .->*>>> P 4*2>>

p$ofit

o 0ecti+e