PROBLEM 1

The net cost per ounce of material is

A. P2.00 C. P1.70
B. P1.60 D. P1.80 Bobadilla
i
. The total variable costs per unit for the large and small discs, respectively, are
A. P10.20 and P8.60. C. P 9.10 and P5.30.
B. P14.40 and P8.40. D. P11.80 and P6.60. Bobadilla
ii
. If the material costs for large and small discs are P8.50 and P5.10, respectively, and the normal production
capacity is 100,000-unit level, what is the breakeven point?
A. 91,611. C. 79,816.
B. 87,216. D. 82,412. Bobadilla
i

1. Cost of one 4–foot piece of metal (4 x 13.60) 54.40

Less proceeds from sale of scrap (6.4 / 16 x 8) 3.20
Net cost of one 4- foot piece of metal 51.20
Divided by: Output per one 4-foot piece of metal
Large 4 x 4oz P 16.00
Small 4 x 2.4oz 9.60 25.6
Net cost per ounce P 51.20 ÷ 25.6 oz P2.00

2. Large: 4 x P2 x 1.8 P14.40

Small 2.4 x P2 x 1.75 P 8.40
ii
Large: 29.00 – (8.5 x 1.8) P 13.70
Small: 14.00 – ( 5.1 x 1.75) 5.075
Contribution margin P 18.775
Divided by: 2
Weighted average contribution margin 9.3875

Fixed cost P 860,000

Divided by: WACM 9.3875
Breakeven point 91,611

PROBLEM 2

.The breakeven volume in tons of product for the year is

A. 420 C. 1,100
B. 495 D. 550 Bobadilla

. If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and
amounts next year, the after-tax income that Davao can expect for next year is
A. P135,000 C. P110,250
B. P283,500 D. P184,500 Bobadilla

. Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao’s
costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this
order and rejected some business from regular customers so as not to exceed capacity?
A. P297,500 C. P211,500
B. P252,000 D. P256,500 Bobadilla

. Without prejudice to your answers to previous questions, and assume that Davao plans to market its product in a new
territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be
undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current
commission to the sales force in the new territory would be required. How many tons would have to be sold in the new
territory to maintain Davao’s current after-tax income of P94,500?
A. 307.5 C. 273.3
B. 1,095.0 D. 1,545.0 Bobadilla

. Without prejudice to preceding questions, assume that Davao estimates that the per ton selling price will decline 10%
next year. Variable costs will increase P40 per ton and the fixed costs will not change. What sales volume in pesos will
be required to earn an after-tax income of P94,500 next year?
A. P1,140,000 C. P1,500,000
B. P 825,000 D. P1,350,000 Bobadilla
 1. Contribution margin per unit (405,000 ÷ 1,800) 225
Fixed cost 247,500
Divided by: CM/unit 225
Breakeven volume 1,100 units

2. Operating Profit (2,100 x 225) 472,500

Less: Fixed cost 247,500
Total P225,000
Multiplied by: Rate (100%-40%) 60%
After–tax profit 135,000

3. Regular sales (1,500 x 225) 337,500

Special sale (1500 x 175) 262,500
Total Contribution 600,000
Less: Fixed costs 247,500
Taxable income 352,500
Less: Income tax (352,500x40%) 141,000
Net income 211,500

4. Additional FC 61,500
Divided by: New Unit CM 200
Tons to be sold 307.5

5.
New selling price (500 x .90) 450
Less: New variable cost (275 + 40) 315
New contribution margin 135

Fixed costs 247,500

Add: Before Tax profit (94,500 ÷ 60%) 157,500
Total 405,000
Divided by: New contribution margin ratio (135/450) 30%
Sales volume required P1,350,000

PROBLEM 3

. If Anilao Ski Company desires an after-tax net income of P24,000, how many pairs of touring model skis will the
company have to sell?
A. 13,118 C. 13,853
B. 12,529 D. 4,460 Bobadilla

. The total sales revenue at which Anilao Ski Company would make the same profit or loss regardless of the ski model it
decided to produce is
A. P880,000 C. P924,000
B. P422,400 D. P686,400 Bobadilla

. How much would the variable cost per unit of the touring model have to change before it had the same breakeven point
in units as the mountaineering model?
 A. P2.68/unit increase C. P5.03/unit decrease
B. P4.53/unit increase D. P2.97/unit decrease Bobadilla

. If the variable cost per unit of touring skis decreases by 10%, and the total fixed cost of touring skis increases by 10%,
the new breakeven point will be
A. 10,730 pairs
B. 13,007 pairs
C. 12,812 pairs Bobadilla
D. Unchanged from 11,648 pairs because the cost changes are equal and offsetting

. If the Anilao Ski Company sales department could guarantee the annual sale of 12,000 skis of either model, Anilao
would
A. Produce touring skis because they have a lower fixed cost.
B. Produce only mountaineering skis because they a lower breakeven point.
C. Produce mountaineering skis because they are more profitable.
D.Be indifferent as to which model is sold because each model has the same variable cost per unit.

1. Fixed cost of touring model (316,800 + 40,000) 356,800

Divided by: Unit Contribution Margin for touring (80.00 – 52.80) P27.20
Sales required 13,118 pairs

2. Decrease in fixed costs (369,600-316,800) 52,800

Divided by: Difference in CMR (40% - 34%) 6%
Indifference point in peso sales P880,000

3. Breakeven sales, Mountaineering (369,600 ÷ 35.20) 10,500

Required contribution margin – Touring (316,800 ÷ 10,500) 30.17
Less: Present contribution margin – Touring 27.20
Required decrease in variable cost per unit 2.97

4. New Fixed costs (316,800 x 1.1) 348,480

Divided by: New CM per unit, Touring: 27.20 + (52.80 x 0.1) 32.48
New breakeven point 10,730

5. It is better to sell Mountaineering because it has high leverage than the touring model. The one with the higher
contribution margin (leverage) has the advantage over the one with the lower contribution margin.

PROBLEM 4

. What is the breakeven point in pesos for next year assuming that the agents’ commission rate remains unchanged at
15%?
A. P10,650,000 C. P 9,000,000
B. P12,000,000 D. P10,750,000 Bobadilla

. What is the breakeven point in pesos for next year assuming that the agents’ commission rate is increased to 20%?
A. P13,171,000 C. P13,714,286
B. P15,000,000 D. P12,750,000 Bobadilla

. What is the breakeven point in pesos for next if the company employs its own sales force?
A. P15,000,000 C. P13,090,909
B. P12,954,545 D. P15,157,895 Bobadilla
. Assume that Pullman Company decides to continue selling through agents and pays the 20% commission rate. The
volume of sales that would be required to generate the same net income as contained in the budgeted income
statement for next year would be:
A. P18,285,714 C. P19,225,000
B. P18,368,421 D. P20,414,714 Bobadilla

. The volume of sales at which net income would be equal regardless of whether Pullman Company sells through agents
at a 20% commission rate or employs its own sales force:
A. P11,625,000 C. P19,200,000
B. P12,000,000 D. P18,600,000 Bobadilla

1. Fixed Costs:
Overhead 2,340,000
Marketing 120,000
Administrative 1,800,000
Interest 540,000
Total fixed cost 4,800,000

Variable manufacturing cost 7,200,000

Add: Commissions to agents 2,400,000 9,600,000
Divided by: Sales 16,000,000
Rate: 60%
Less: 100%
Contribution margin ratio 40%

Total fixed cost 4,800,000

Divided by: CMR 40%
Breakeven next year with no change in commission P12,000,000

2. Total fixed cost 4,800,000

Divided by: New CMR 35%
Breakeven sales next year P13,714,286

3. Fixed cost under 15% commission plan 4,800,000

Add: Increase in Fixed cost 2,400,000 7,200,000
Less: Decrease in audit fee ( 75,000)
Increased fixed costs 7,125,000
Divided by: New CMR 47.5%
Revised breakeven sales 15,000,000

4. Total fixed cost (4,800,000+1,600,000) 6,400,000

Divided by: New CMR 35%
Required sales 18,285,714

5. Increase in fixed costs (4,800,000– 7,125,,000) P2,325,000

Divided by: Difference in CMR (35% - 47.5%) 12.5%
Indifference Point P18.6M

PROBLEM 5

.How much is the estimated break-even point in peso sales for the year ending December 31, 2007, based on the budgeted
income statement prepared by the controller?
 A. P500,000 C. P250,000
B. P400,000 D. P125,000 Bobadilla

.How much is the estimated break-even point in peso sales for the year ending December 31, 2007, if the company employs
its own sales personnel?
A. P 542,857 C. P 875,000
B. P 742,857 D. P1,000,000 Bobadilla

.How much volume in peso sales would be required for the year ending December 31, 2007, to yield the same net income as
projected in the budgeted income statement, if Timex continues to use the independent sales agents and agrees to their
demand for a 25 percent sales commission?
A. P 8,000,000 C. P10,000,000
B. P 9,533,333 D. P13,333,333 Bobadilla

.How much is the estimated volume in peso sales that would generate an identical net income for the year ending December
31, 2007, regardless of whether Timex employs its own sales personnel or continues to use the independent sales
agents and pays them a 25 percent commission?
A. P1,000,000 C. P1,500,000
B. P1,250,000 D. P1,800,000 Bobadilla

1. Fixed cost P100,000

Divided by: CMR (10M – 8M) ÷ 10M) 20%
Break-even point in peso sales P500,000
2. Fixed cost (100,000 + 90,000 + 160,000) P350,000
Divided by: New CMR (20% + 15%) 35%
Break-even point in peso sales P1,000,000

3. Fixed cost (P100,000 + P1,900,000) P2,000,000

Divided by: Rate 15%
Required peso P13,333,333

6. Increase in fixed costs (100,000-350,000) P250,000

Divided by: Difference in CMR (35% - 15%) 20%
Indifference Point P1,250,000

PROBLEM 6

.The breakeven units for the new toy would be:

A. 20,000 C. 21,000
B. 18,000 D. 22,500 Bobadilla

.How many units should the company need to sell in order to earn a before-tax profit of P150,000?
A. 9,143 C. 31,875
B. 30,375 D. 35,000 Bobadilla

.If the sales manager receives a bonus of P1.00 for each unit sold in excess of the break-even point, how many units must
be sold each month to earn a return of 25% on the monthly investment in fixed costs?
A. 23,344 C. 29,833
B. 27,000 D. 30,000 Bobadilla
.Assuming that Step Company will just rent a manufacturing space for a month in order to produce special order for 8,000
toys. What is the acceptable minimum selling price to Step Company for the special sale?
A. P14.00 C. P22.00
B. P15.25 D. P24.00 Bobadilla

1. Total fixed costs P360,000

Less Contribution margin from 60,000 units 280,000
Remaining fixed costs to be covered by
additional units, each with CM of P16 P 80,000
Divided by: Units 16
Total 5,000
Add: Additional units 16,000
Breakeven units 21,000

2. Desired profit P150,000

Divided by: Contribution per unit P16
Total 9375
Add: Units 21,000
Unit sales required 30,375

3. Desired profit( 25% x P360,000) P90,000

Divided by: Contribution per unit P15
Total 6,000
Add: Units 21,000
Unit sales required 27,000

4. Variable cost per unit P14.00

Additional fixed cost per unit (10,000 ÷ 8,000) 1.25
Minimum selling price P15.25

PROBLEM 7

.How much income for the month would the company earn if the new equipment is purchased?
A. P45,000 C. P60,000
B. P30,000 D. P75,000 Bobadilla

.How many units are required as increase or decrease in breakeven point if the new equipment is purchased?
A. Zero C. 3,200 units
B. 2,500 units D. 4,000 units Bobadilla

.The degree of operating leverage during the month where the new equipment is used is:
A. 3.0 times C. 6.0 times
B. 4.5 times D. 9.0 times Bobadilla

.Refer to the original data. Rather than purchase a new equipment, the president is thinking about changing the company’s
marketing method. Under the new method, sales would increase by 20% each month and net income would increase by
one-third. Fixed costs could be slashed to only P48,000 per month. Compute the break-even point for the company after
the change in marketing method.
A. 8,000 units C. 9,000 units
B. 12,500 units D. 10,000 units Bobadilla
.Assuming that during the month following the month new equipment has been started in use, the unit sales increased by
4,500 units. The variable expenses per unit and the monthly fixed costs as affected by the acquisition of the new
equipment are expected to remain constant.

What is the expected profit of the company for that month?

A. P 81,000 C. P 85,500
B. P126,000 D. P 45,000 Bobadilla

1. Contribution margin P135,000

Add increase in contribution (15,000 x 9) 135,000
Increased contribution margin 270,000
Less Increased fixed costs 225,000
Net income P 45,000

2. Breakeven, proposed (P225,000 ÷ P18) 12,500 units

Less: Breakeven, present (P90,000 ÷ P9) 10,000 units
Increase in breakeven point 2,500 units

3. Increased contribution margin 270,000

Divided by: Net income P 45,000
Degree of operating leverage 6 times

4. Fixed cost P48,000

Divided by: CM/unit (P48,000 + P60,000) ÷ 18,000 units P6.00
Break-even point 8,000 units

5. Increased profit percentage (6 x 30%). 180%

Multiplied by: Net Income 45,000
Total: 81,000
Add: 45,000
Expected profit during the next month P126,000

PROBLEM 8

.How many units are required for the company’s Davao sales outlet to breakeven?
A. 12,000 pairs C. 20,000 pairs
B. 17,143 pairs D. 22,000 pairs Bobadilla

.If 18,000 pairs of shoes are sold in a year, what would be Davao sales outlet’s net income?
A. P 600,000 C. P 500,000
B. P(600,000) D. P(500,000) Bobadilla

.The company is considering paying the store manager of Davao sales outlet an incentive commission of P75 per pair of
shoes (in addition to the salesperson’s commission). If this change is made, what will be the new breakeven in pairs of
shoes?
A. 26,667 C. 20,000
B. 16,000 D. 22,000 Bobadilla

.Instead of paying the manager a straight P75 per pair of shoes commission on all pairs of shoes sold, the company is
considering paying the store manager P50 commission on each pair of shoes sold in excess of the breakeven point. If
 this change is made, what will be the sales outlet’s net income or loss if 25,000 pairs of shoes are sold?
A. P 250,000 C. P1,500,000
B. P 900,000 D. P1,250,000 Bobadilla

.If the company would pay the manager P50 commission on each pair of shoes sold in excess of the breakeven point, how
many pairs of shoes are required to earn P900,000 profit?
A. 23,600 C. 25,000
B. 23,000 D. 27,500 Bobadilla

.The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by P2,142,000
annually.

If this change is made, what will be the number of pairs of shoes to be sold by Davao outlet to be indifferent to
commission basis?
A. 25,300 C. 21,000
B. 15,300 D. 18,505 Bobadilla

1. Fixed Costs 6,000,000

Divided by: Unit Contribution Margin 30
Breakeven 20,000 pairs

2. Contribution margin (P18,000 x 300) P5,400,000

Less Fixed costs 6,000,000
Net loss P( 600,000)

3. Fixed Costs 6,000,000

Divided by: Unit Contribution Margin (300-75) 225
Breakeven in pairs of shoes 26,667 pairs

4. Sales (25,000 x P800) P20,000,000

Less: Variable costs (24,000 x P500) 12,750,000
Total contribution margin 7,250,000
Less: Fixed costs 600,000
Profit P 1,250,000

5. Desired profit P900,000

Divided by: Contribution 250
Total: 3,600
Add: 20,000
Required pair of shoes 23,600 pairs

6. Increase in fixed costs (P6,000,000 - P8,142,000) P2,142,000

Divided by: Difference in commission (440-300) 140
Indifference Point 15,300 pairs

PROBLEM 9

.The break even in peso sales for Salcedo Company is:

A. P6,000,000 C. P5,852,756
B. P2,571,429 D. P7,500,000 Bobadilla
.The president believes that a P160,000 increase in the monthly advertising budget, combined with an intensified effort by
the sales staff, will result in an P800,000 increase in monthly sales. If the president is right, what will be the effect on the
company’s monthly net income or loss?
A. P120,000 increase C. P120,000 decrease
B. P 80,000 increase D. P 80,000 decrease Bobadilla

.Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an
increase of P600,000 in the monthly advertising budget, will cause unit sales to double. What will the new profit or loss if
these changes are adopted?
A. P 60,000 C. P 45,000
B. P(60,000) D. P(45,000) Bobadilla

.Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would
help sales. The new package would increase packaging costs by P7.50 per unit. Assuming no other changes, how many
units would have to be sold each month to earn a profit of P97,500?
A. 21,818 C. 25,450
B. 23,000 D. 28,000 Bobadilla

.Refer to the original data. By automating certain operations, the company could reduce variable costs by P3 per unit.
However, fixed costs would increase by P72,000 each month.

How would the breakeven point in units change if the company automated the operations?
A. 1,000 units increase C. 3,000 units increase
B. 1,000 units decrease D. 3,000 units decrease Bobadilla

.At what level of production would the automation of the production process be indifferent to the present process?
A. 18,000 C. 24,000
B. 21,000 D. 28,000 Bobadilla

.Which of the two methods (the present or the automated) has higher income at the level of sales of 26,000 units?
A. Manual, P60,000 C. Manual, P240,000
B. Automated, P60,000 D. Automated, P240,000 Bobadilla

1. Fixed cost P1,800,000

Divided by: CMR(1,755,000 ÷ P5,850,000) 30%
Break-even in peso sales 6,000,000

2. Additional contribution margin (P800,000 x 0.30) P240,000

Less: Additional fixed cost 160,000
Increase in profit P 80,000

3. Sales ( 39,000 x P270) P10,530,000

Less: Variable cost (39,000 x P210) 8,190,000
Contribution margin 2, 340,000
Less: Fixed cost 2,400,000
Net loss P( 60,000)

4. Original unit contribution margin (1,755,000 ÷ 19,500) P90.00

Less: Increase in packaging cost 7.50
 New Unit contribution margin P82.50

Fixed cost 1,800,000

Add: Desired profit 97,500
Total 1,897,500
Divided by: New Unit contribution margin P82.50
Unit sales required 23,000

5. Breakeven units, Automated (P1,800,000 + P720,000) ÷ (P90 + P30) 21,000

Breakeven units, Present (P1,800,000 ÷ 90) 20,000
Increase in breakeven units 1,000

6. Increase in fixed 720,000

Divided by: Decrease in variable cost per unit 30
Indifference Point 24,000

7. Level of sales 26,000

Less: Indifference point 24,000
Difference 2,000
Multiplied by: 30
Difference in income P60,000

PROBLEM 10

.Assuming no changes were made to the selling price or cost structure, how many units must Almo sell to break even?
A. 167 C. 500
B. 250 D. 1,700 Bobadilla

.Assuming no changes were made to the selling price or cost structure, how many units must Almo sell to achieve its after-
tax profit objective?
A. 1,250 C. 2,000
B. 1,700 D. 2,500 Bobadilla

.If management decides to reduce the selling price by P40, what will Almo's after-tax profit be?
A. P157,200 C. P241,200
B. P160,800 D. P301,200 Bobadilla

.If the management can reduce the variable cost per unit by P25 through the use of less expensive materials and slightly
modified manufacturing techniques, with the sales price reduced by P30, and sales of 2,200 units for the remainder of
the year are forecast, the amount of expected income for the year was:
A. P239,400 C. P241,200
B. P204,000 D. P399,000 Bobadilla

.How much would be the expected income for the year if the management cut fixed costs by P10,000, and lower the sales
price by 5 percent, with variable costs per unit unchanged and sales of 2,000 units are expected for the remainder of the
year?
A. P239,400 C. P241,200
B. P204,000 D. P399,000 Bobadilla

.If the sales price is reduced by 6.25 percent starting June 1, an analysis indicates that 2,500 unit sales can be made if the
company has to spent for additional advertising. What is the maximum amount of advertising cost that the company can
spend and still the profit objective is achieved?
A. P35,000 C. P15,000
B.P22,500 D. P 7,500 Bobadilla

1. Fixed costs P100,000

Divided by: Unit contribution margin (P400 – P200) 200
Break-even point 500 units

2. After-tax profit 240,000

Divided by: Rate (100% – 40%) 60%
Before-tax profit: P400,000
Add: Budgeted fixed cost 100,000
Total 500,000
Divided by: VC per unit 200
Units sales required to earn before-tax profit 2,500 units

3. Revenue (350 x P400) + (2,700 x P360) P1,112,000

Less: Variable costs (3,050 x P200) 610,000
Contribution margin 502,000
Less: Fixed expenses 100,000
Operating income P 402,000
Less: Income tax (P 402,000x40%) 160,800
Net income P 241,200

4. Revenue (350 x P400) + (2,200 x P370) P 954,000

Less: Variable costs (350 x P200) + (2,200 x P175) 455,000
Contribution margin 499,000
Less: Fixed expenses 100,000
Operating income 399,000
Less: Income tax (399,000x40%) 159,600
Net income P 239,400

5. Revenue (350 x P400) + (2,000 x P380) P 900,000

Less: Variable costs (2,350 x P200) 470,000
Contribution margin P 430,000
Less: Fixed costs 90,000
Operating profit 340,000
Less: Income tax (340,000x40%) 136,000
Net income P 204,000

6. Before tax profit objective (240,000 ÷ 0.6) P400,000

Add: Fixed costs 100,000
Total contribution margin required 500,000
Less: Contribution margin made on units sold (350 x 200) 70,000
Additional contribution margin still needed P430,000

Additional contribution margin from 2,500 units (2,500 x P175) P437,500

Less: Additional contribution margin required to meet profit objective 430,000
Maximum advertising cost P 7,500