Immaculate Conception Academy 10 Grant Street, Greenhills San Juan City HIGH SCHOOL DEPARTMENT

BUSINESS MATHEMATICS
First Semester SY 2019-2020

Exercise Sheet 4
Cost Volume Profit Analysis

Directions: Supply the answer and solution. Treat each item independently unless otherwise stated.

1. KG Company sells a single product. The company’s sales and expenses for the recent month are shown below:

Total Per Unit

Sales P 600,000 P 40
Less: Variable Expenses 420,000 28
Contribution Margin 180,000 P 12
Less: Fixed Expenses 150,000
Profit P 30,000

Required:
a. Breakeven point in units and in pesos
b. Contribution margin at breakeven point
c. Total fixed expenses at breakeven point
d. Margin of safety in units, in pesos, and in percentage
e. How many units must be sold to earn a minimum profit of P 12,000?

2. ANA Sorority is planning its annual A Night of Extravaganza. The committee in charge of this event would like to charge P
800 per pax for the activity and has assembled the following expected related costs:

Dinner per person P 250

Favors and programs per person 300
Band 25,000
Tickets and advertising 40,000
Venue rental 20,000
Floorshow 15,000

Required:
a. Breakeven point in terms of units and pesos
b. Assume that last year only 250 persons attended the event and the same number of attendees is expected this
year, what price per ticket must be charged to breakeven?
c. The committee has learned that a celebrity who is a former member of the sorority will make an appearance
during the evening. Accordingly, the committee has decided to raise the ticket price to P 1,050 per pax. Compute
the expected breakeven point in units and in pesos.

3. Highlands, Inc. sells camping equipment. One of the company’s products, a camp lantern, sells for P 150 per unit. Variable
expenses are P 120 per lantern, and fixed expenses associated with the lantern total P 450,000 per month.

Required:
a. Breakeven point in units and in pesos
b. At present, the company is selling 15,000 lanterns a month. The sales manager is convinced that a 10%
reduction in the selling price would result in a 25% increase in the number of lanterns sold each. How much is
the change in the net income if the sales manager’s expectations are correct?(168 750) Loss

4. Nagaraya Company sells a single product and presented below are data taken from its recent income statement.

Sales (135,000 units at P 20) P 2,700,000

Less: Variable Costs 1,890,000
Contribution Margin 810,000
Less: Fixed Costs 900,000
Loss P (90,000)

Required:
a. The sales manager feels that a P 110,000 increase in monthly advertising budget, combined with an
intensified effort by the sales staff will result in a P 840,000 increase in monthly sales. Considering these
changes, what will be the company’s increase or decrease in profit?
b. The president is convinced that a 10% reduction in the selling price, combined with an increase of P 35,000 in
the monthly advertising budget, will cause unit sales to double. Considering these changers, how much is the
company’s expected profit?
 c. A new package for the product is being considered to induce sales. This package costs P 0.60 per unit. Considering
the new package cost, how many units would have to be sold each month to earn a profit of P 90,000?

5. Consider the following:

Fixed Expenses P 78,000

Unit Contribution Margin 12
Target net profit 42,000

How many unit sales are required to earn the target net profit?

6. An organization’s breakeven point is 4,000 units at a sales price of P 50 per unit, variable cost of P 30 per unit, and total
fixed costs of P 80,000. If the company sells 500 additional units, by how much will its profit increase?

7. Cielo’s Hotdog Stand sells hotdogs for P 25 each. The variable costs per hotdog are P 10. Cielo’s fixed costs are currently P
8,000 per month. Cielo’s is considering expanding his business to three hotdog stands which will increase fixed costs per
month by P 12,000.

If Cielo does expand his business to three stands, how many additional hotdogs will need to be sold per year in order to
break even?

8. Carribean Company produces a product that sells for P 60. The variable costs are P 30 per unit. The fixed cost is P 10 per
unit based on the current level of activity, and fixed selling and administrative costs are P 8 per unit. A selling commission
of 10% of the selling price is paid on each unit sold.

The contribution margin per unit is:

9. Seal Yard Ornaments sells lawn ornaments for P 15 each. Seal’s contribution margin ratio is 40%. Fixed costs are P 32,000.
Should fixed costs increase by 30%, how many additional units will Seal have to produce and sell without affecting the
current amount of profit?

10. At breakeven point of 5,000 units sold, variable expenses were P 10,000 and fixed expenses were P 50,000. The
profit from the 5,001st unit would be:

11. Galactica Company has fixed costs of P 100,000 and breakeven sales of P 800,000. Based on this relationship, what is its
projected profit at P 1,200,000 sales?

12. An entity has fixed costs of P 200,000 and variable costs per unit of P 6.00. It plans on selling 40,000 units in the
coming year. If the entity pays income taxes on its income at a rate of 40%, what sales price must the firm use to
obtain an after-tax profit of P 24,000 on the 40,000 units?

13. Bulusan Company has sales of P 400,000 with variable costs of P 300,000, fixed costs of P 120,000, and a net loss of P
20,000. How much increase in sales would Bulusan need to make in order to achieve a target operating income of 10%
of sales?

14. Bolton Company’s income statement (in contribution margin format) for the month is given below:

Sales (15,000 units @ P 30 per unit) PhP 450,000

Variable expenses 315,000
Contribution margin 135,000
Fixed expenses 90,000
Net income PhP 45,000

The industry in which Bolton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits
vary considerably from year to year according to general economic conditions. The company has a large amount of
unused capacity and is studying ways of improving profits.

A new equipment has come onto the market that would allow Bolton Company to automate a portion of its operations.
Variable costs would be reduced by PhP 9.00 per unit. However, fixed costs would increase to a total of PhP 225,000
each month.

a. How much income for the month would the company earn if the new equipment is purchased?
b. How many units are required as increase or decrease in breakeven point if the new equipment is purchased?