PROBLEM 1.

Assume that as an investor, you are planning to enter the construction industry as a panel formwork supplier. The pot
of forthcoming projects, you forecasted that within two years, your fixed cost for producing formworks is P 300,000. T
unit cost for making one panel is P 15. The sale price for each panel will be P25. Your forcasted sale for the first mont
800,000.

Additional Questions:
1. Determine the break-even in units
2. Determine the breakeven point in pesos.
3. Determine the marging of safety.

Total Fixed Cost

Breakeven in units= Contribuiton Margin Ratio =
Selling Price - Variable Cost

300,000
=
(P25 - P15)

300,000
=
10

= 30000 units

* 800 000/25 = 32 000 units

*32 000 x 15 = P 480 000

Breakeven point in pesos =

 RECOMMENDATIONS:
el formwork supplier. The potential number The entity must sell 30,000 units for P25 each or a total of P750 000 in order to
ing formworks is P 300,000. The variable cover the fixed cost and avoid to incur any loses. Such forecasted sales shall no
rcasted sale for the first month is P decrease by more than 6.25%; 50,000 in amount or 2 000 units in order for the
company to cover the fixed cost. The entity may also consider to increase the
selling price by a reasonable margin or minimize cost related in manufacturing
the product in order to achieve better margin of safety since the margin of
safety is less than 10%.

Sales - Variable expenses Sales - breakeven point

buiton Margin Ratio = Margin of Safety =
Sales Sales x 100

(P800,000 - P480,000*) 800,000 - 750,000

= =
800,000 800,000 x 100

320,000 50,000
= =
800,000 800,000 x 100

= 40% = 6.25%

* 800 000/25 = 32 000 units expected to be sold. Margin of Safety = Sales - breakeven point
*32 000 x 15 = P 480 000 in pesos
= 800,000 - 750,000
= P 50 000
Total fixed cost
keven point in pesos =
Contribution Margin Safety Margin of Safety = Units to be sold - breakeven
in units
300,000 = 32,000 - 30,000
=
40% = 2000 units

= ₱750,000
or a total of P750 000 in order to
s. Such forecasted sales shall not
nt or 2 000 units in order for the
ay also consider to increase the
ze cost related in manufacturing
n of safety since the margin of
10%.

Sales - breakeven point

Sales x 100

800,000 - 750,000
800,000 x 100

50,000
800,000 x 100

6.25%

Sales - breakeven point

800,000 - 750,000
P 50 000

Units to be sold - breakeven in units

32,000 - 30,000
2000 units
Problem 2

Statement of Comprehensive Income

Items Amount Percent of income
Sales 300,000 100%
Less: Variable Cost 180,000 -60%
Contribution Margin 120,000 40%
Less: Fixed Expenses 105,000 -35%
Net Income 15,000 5%

Additional Info:
Selling price = P30

Question:
How much sales is required to achieve P105,000 net income?

Computation
Total Unit Sold = 10,000 300000/30 To check:
Variable cost per unit = 18 180000/10000 Statement of Comprehens
Items
Profit = Revenues - Variable cost - Fixed Cost Sales
Lets subsitute the given values Less: Variable Cost
105,000 = (Unit sold x30) - (Unit sold x18) - 105,000 Contribution Margin
Lets combine item with like terms Less: Fixed Expenses
105,000 +105 000 = (Unit sold) x (30-18) Net Income
Lets simplify the equation
210 ,000 = (Unit sold) x (12) Recommendation:
Lets combine item with like terms This analysis will help the entity to achie
210, 000/12 = (unit sold) income and determine if the target sale
for them to generate cash inflow. In ord
17 500 = unit sold achieve its desired net income of P105,
17 500 units with the amount of 525 00
total variable expenses of 315, 000.
 Statement of Comprehensive Income
Amount Percent of income
525,000 100% 17 500 units x P30
315,000 -60% 17 500 units x P18
210,000 40%
105,000 -20%
105,000 20%

sis will help the entity to achieve its desired net

nd determine if the target sales is profitable enough
to generate cash inflow. In order for the entity to
s desired net income of P105, 000 the entity must sell
its with the amount of 525 000 worth of sales and a
able expenses of 315, 000.
Problem 3.
ABC Company produces perfume that sells for P1200. The variable cost is P600 per unit. The units sold for
the month is 500 units. Assuming variable cost is still P600 and the fixed cost remain at P45000. The selling
price increased to P1350 what is the effect on CVP of the product.

Required:
1. Breakeven point in unit.
2. Compare with the old BEP, and determine its indication.

OLD NEW
Total Fixed Cost Total Fixed Cost
Breakeven in units= Breakeven in units=
Selling Price - Variable Cost Selling Price - Variable Cos

45,000 45,000
= =
1200-600 1350-600

45,000 45,000
= =
600 750

= 75 = 60
nit. The units sold for
at P45000. The selling

Analysis & Suggestions:

Total Fixed Cost BEP for the old price is 75 units and with new selling price the
Selling Price - Variable Cost BEP decreased to 60 units because of the increase in the
contribution margin due to increase in selling price. The new
selling price required15 less units to sell in order to cover the
45,000 fixed cost. Also, A lower break-even point leads to more profit,
1350-600 more cash and more room to maneuver in terms of product
development, new investments and R&D -- all activities that are
the lifeblood of companies determined to stay competitive.A
45,000 low break-even point and healthy profit margins open up the
750 potential of niche markets, attractive designs, high brand
recognition and better protection from competitors

60
Problem 4

A store sells t-shirts.  The average selling price is P15 and the average variable cost (cost price) is P9.  Thus,
every time the store sells a shirt it has P6 remaining after it pays the manufacturer.  This P6 is referred to
as the unit contribution.

(a) Suppose the fixed costs of operating the store (its operating expenses) are P100,000 per year.  Find Break-even
Total Fixed Cost
Breakeven in units=
Selling Price - Variable Cost

100,000 100,000
Breakeven in units= = = 16667
P15 - 9 6

(b) If the owner desired a profit of Php25,000, what will be the target sales?

Fixed cost + desired profit

Target Sales =
Contribution Margin Ratio

100,000 + 25,000 125,000

Target Sales = =
1 - (9/15) 0.4

(c) If the owner desired a profit of Php200,000, what will be the target sales?

Fixed cost + desired profit

Target Sales =
Contribution Margin Ratio

100,000 + 200,000 300,000

Target Sales = =
1 - (9/15) 0.4

(d) if the fixed cost is increased by 20,000 and variable cost to 12, how much is the break-even point?

Total Fixed Cost

Breakeven in units=
Selling Price - Variable Cost

120,000 120,000
Breakeven in units= = =
P15-12 3

(d) if the fixed cost is increased by 20,000 and variable cost to 12, but the selling price is increased to 20, how much

Total Fixed Cost

Breakeven in units=
Selling Price - Variable Cost

120,000 120,000
Breakeven in units= = =
P20-12 8
Suggestions and Analysis:
There are some ways for the entity to reduce breakeven point. First to lower the fixed cost, the entity can also redu
the break-even point by increasing the contribution margin per unit. The contribution margin will increase if there i
reduction in variable costs and expenses per unit. Last thing, similar to item (d) in order to lower break-even point
due to fluctuation on cost amounts the entity shall increase its selling price to increase its contribution margin.
ost price) is P9.  Thus,
his P6 is referred to

00 per year.  Find Break-even in units?

16667

= ₱312,500

= ₱750,000

eak-even point?

40000

is increased to 20, how much is the break-even point?

15000
d cost, the entity can also reduce
margin will increase if there is a
der to lower break-even point
e its contribution margin.