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ACCCOB3 CVP Analysis Case Problems Instructions:: Ryan - Roque@dlsu - Edu.ph

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1) This document provides instructions and details for 3 case problems involving CVP analysis. The cases provide income statements and other financial data for companies and require calculating metrics like contribution margin, break-even point, degree of operating leverage, and effects of changes in sales levels, costs, prices, and product mix. 2) Case 1 involves a company that makes plastic balls and provides last year's income statement. It asks questions about changing variable costs and selling prices, and the impact of a new automated manufacturing plant. 3) Case 2 provides projected income for a company making a single product. It asks questions about contribution margin, break-even point, margin of safety, and operating leverage. 4)

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ACCCOB3 CVP Analysis Case Problems Instructions:: Ryan - Roque@dlsu - Edu.ph

Uploaded by

danii yaah
226 views2 pages
1) This document provides instructions and details for 3 case problems involving CVP analysis. The cases provide income statements and other financial data for companies and require calculating metrics like contribution margin, break-even point, degree of operating leverage, and effects of changes in sales levels, costs, prices, and product mix. 2) Case 1 involves a company that makes plastic balls and provides last year's income statement. It asks questions about changing variable costs and selling prices, and the impact of a new automated manufacturing plant. 3) Case 2 provides projected income for a company making a single product. It asks questions about contribution margin, break-even point, margin of safety, and operating leverage. 4)

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1) This document provides instructions and details for 3 case problems involving CVP analysis. The cases provide income statements and other financial data for companies and require calculating metrics like contribution margin, break-even point, degree of operating leverage, and effects of changes in sales levels, costs, prices, and product mix. 2) Case 1 involves a company that makes plastic balls and provides last year's income statement. It asks questions about changing variable costs and selling prices, and the impact of a new automated manufacturing plant. 3) Case 2 provides projected income for a company making a single product. It asks questions about contribution margin, break-even point, margin of safety, and operating leverage. 4)

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© All Rights Reserved
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226 views2 pages

ACCCOB3 CVP Analysis Case Problems Instructions:: Ryan - Roque@dlsu - Edu.ph

Uploaded by

danii yaah
1) This document provides instructions and details for 3 case problems involving CVP analysis. The cases provide income statements and other financial data for companies and require calculating metrics like contribution margin, break-even point, degree of operating leverage, and effects of changes in sales levels, costs, prices, and product mix. 2) Case 1 involves a company that makes plastic balls and provides last year's income statement. It asks questions about changing variable costs and selling prices, and the impact of a new automated manufacturing plant. 3) Case 2 provides projected income for a company making a single product. It asks questions about contribution margin, break-even point, margin of safety, and operating leverage. 4)

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ACCCOB3 CVP Analysis Case Problems

Instructions:

1. Answer all the questions in each case using MS Excel. Use 1 sheet for the summary of answers.
Use separate sheets for the solution per case.
2. File name should be Section, Surname, First Name CVP Analysis
3. Submit your answers to [email protected] on or before December 14, 2021; 11:59PM.

Case 1

A company manufactures plastic balls. It has a ball that sells for P25. At present, the ball is
manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high,
totaling P15 per ball, of which 60% is direct labor.
Last year, the company sold 30,000 units of these balls, with the following results:

Sales (30,000 balls) P750,000


Variable costs 450,000
Contribution margin P300,000
Fixed costs 210,000
Profit P 90,000
REQUIRED:
1. Compute (a) the CM ratio and the breakeven point in balls, and (b) the degree of operating
leverage at last year’s sales level.
2. Due to an increase in labor rates, the company estimates that variable costs will increase by P3 per
ball next year. If this change takes place and the selling price per ball remains constant at P25,
what will be new CM ratio and breakeven point in balls?
3. Refer to the data in (2) above. If the expected change in variable costs takes place, how many
balls would have to be sold next year to earn the same profit as last year?
4. Refer again to the data in (2) above. The president feels that the company must raise the selling
price of its plastic balls. If the company wants to maintain the same CM ratio as last year, what
selling price per ball must it charge next year to cover the increased labor costs?
5. Refer to the original data. The company is discussing the construction of a new, automated
manufacturing plant. The new plant would slash variable costs per ball by 40%, but it would cost
fixed cost per year to double. If the new plant is built, what would be the company’s new CM ratio
and new breakeven point in balls?
6. Refer to the data in (5) above.
a. If the new plant is built, how many balls will have to be sold next year to earn the same profit
(P90,000) as last year?
b. Assume the new plant is built and that next year the company manufactures and sells 30,000
balls (the same number as sold last year). Compute the profit and degree of operating
leverage.

Case 2

Zacarello Company produces a single product. The projected income statement for the coming year is as
follows:

Sales (50,000 units @ P50) P2,500,000


Less: Variable costs 1,440,000
Contribution margin P1,060,000
Less: Fixed costs 816,412
Operating income P 243,588

1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that
30,000 units are sold above the breakeven. What is the profit?
2. Compute the contribution margin ratio and the break-even point in pesos. Suppose that revenues
are P200,000 more than expected. What would the total profit be?
3. Compute the margin of safety.
4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than
expected.
5. How many units must be sold to earn a profit equal to 10 percent of sales?
6. Assume that the tax rate is 40 percent. How many units must be sold to earn an after-tax profit of
P180,000?

Case 3

Gosnell Company produces two products: squares and circles. The projected income for the
coming year, segmented by product line, follows:
Squares Circles Total
Sales P300,000 P2,500,000 P2,800,000
Less: Variable expenses 100,000 500,000 600,000
Contribution margin P200,000 P2,000,000 P2,200,000
Less: Direct fixed expenses 28,000 1,500,000 1,528,000
Product margin P172,000 P 500,000 P 672,000
Less: Common fixed expenses 100,000
Operating expenses P 572,000

The selling prices are P30 for squares and P50 for circles.

1. Compute the number of units of each product that must be sold for Gosnell Company to break even.
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is
three squares to five circles. Repeat Requirement 1
3. Refer to the original data. Suppose that Gosnell can increase the sales of squares with increased
advertising. The extra advertising would cost an additional P45,000, and some of the potential
purchasers of circles would switch to squares. In total, sales of squares would increase by 15,000
units, and sale of circles would decrease by 5,000 units. Would Gosnell be better off with this
strategy?

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