Strategic Cost Management (SCM)

Classroom Discussion Problems – 2.0 Cost Volume Profit Analysis

2.1 CONTRIBUTION INCOME STATEMENT.

1) At a volume of 15,000 units, Boston reported sales revenues of P600,000, variable costs of P225,000, and fixed
costs of P120,000. The company's contribution margin per unit is:
A. 17
B. 25
C. 47
D. 55

2) A tile manufacturer has supplied the following data:

Boxes of tiles produced and sold 240,000 units

Sales revenue P 1,128,000

Variable manufacturing expense 456,000
Fixed manufacturing expense 320,000
Variable selling and administrative expense 156,000
Fixed selling and administrative expense 96,000
Net operating income P 100,000
What is the company's unit contribution margin?
A. 4.70
B. 0.42
C. 2.15
D. 2.55
3) A recent income statement of Nixon Corporation reported the following data:

Sales revenue P 5,000,000

Variable costs 3,000,000
Fixed costs 1,600,000
If these data are based on the sale of 10,000 units, the contribution margin per unit would be:
A. 40
B. 140
C. 200
D. 460

4) Double Dragon Company produced 500 units of a product and incurred the following costs:

Direct materials P 8,000

Direct labor 10,000
Overhead (20% fixed) 45,000

If sales revenue of 500 units is P102,000, what is the contribution margin percentage?

A. 44%
B. 47%
C. 53%
D. 74%

5) The following is Addison Corporation's contribution format income statement for last month:
Sales P1,000,000
 Less variable expenses 700,000
Contribution margin 300,000
Less fixed expenses 180,000
Net income P 120,000
The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.
What is the company's contribution margin ratio?
A. 250%
B. 150%
C. 70%
D. 30%
6) Janet Company produces a game that sells for P17 per game. Variable expenses are P9 per game and
fixed expenses total P172,000 annually. The contribution margin ratio is closest to:
A. 47.1%
B. 2.1%
C. 1.9%
D. 52.9%

Use the following information for the next six (6) questions:
Given the following projected contribution income statement for the coming year:

Sales (100 units) P 10,000

Variable costs 3,000
Contribution margin 7,000
Fixed cost 4,000
Operating income 3,000
7) What is the unit contribution margin?
A. 70
B. 30
C. 60
D. 100

8) What is the contribution margin ratio?

A. 70%
B. 30%
C. 60%
D. 40%

9) How much is the operating income if only 80 units will be sold instead of 100 units?
A. 1,000
B. 2,400
C. 3,000
D. 1,600

10) How much is the increase in operating income if 150 units will be sold instead of 100 units?
A. 6,500
B. 3,500
C. 4,500
D. 1,500

11) How much is the operating income if the variable cost per unit is P32 and sold 100 units?
A. 2,800
B. 2,450
C. 3,200
D. 5,000

12) Tierra Company prepared the following preliminary forecast concerning Product X for 2021 assuming no
expenditure for advertising:

Selling price per unit P 10

Unit sales 100,000 units
Variable costs P 600,000
Fixed costs P 300,000
Based on a market study in December 2020, Tierra estimated that it could increase the units selling price by 15%
and increase the unit sales volume by 10% if P100,000 was spent in advertising. Assuming that Tierra
incorporated these changes in its 2021 forecast, what should be the operating income for Product X?
A. 175,000
B. 190,000
C. 205,000
D. 365,000
Use the following information for the next two (2) questions:
Stairway Company sells a single product. The company’s most recent income statement is given below:
Sales (5,000 units) 200,000
Less: Variable expenses 120,000
Contribution margin 80,000
Less Fixed overhead 48,000
Operating income 32,000
13) What is the contribution margin per unit?
A. 16 per unit
B. 6.4 per unit
C. 40 per unit
D. 24 per unit

14) If sales are doubled to P400,000, how much is the total expected variable cost?
A. 240,000
B. 200,000
C. 360,000
D. 300,000

15) If sales are doubled to P400,000, how much is the expected total fixed cost?
A. 96,000
B. 48,000
C. 116,000
D. 57,500

16) If 100 more units are sold, how much increase in profit is expected?
A. 1,600
B. 33,600
C. 6,000
D. 640

Use the following information for the next two (2) questions:
Basic Company incurred the following costs in the production of P10,000 units of its main product, product X:

Selling price per unit P 100

Direct material 15
Direct labor 12
Variable overhead 10
Variable selling and administrative expense 18
Total fixed overhead 220,000
Total fixed selling and administrative expense 88,000
17) Assuming all the 10,000 units produced was subsequently sold, the contribution margin of Basic Company is:
A. 692,000
B. 242,000
C. 410,000
D. 450,000

18) What is the contribution margin ratio of Basic Company?

A. 41%
B. 45%
C. 55%
D. 59%

19) What is the operating income of Basic Company?

A. 142,000
B. 322,000
C. 450,000
D. 230,000
Use the following information for the next two (2) questions:
Grip Company manufactured 10,000 units during the month. It incurred the following costs for production:

Direct materials 200,000

Direct labor 100,000
Variable overhead 50,000
Fixed overhead 150,000
Total 500,000
The company was able to sell 8,000 units for P100 each. It incurred selling and administrative expenses of P100,000,
P40,000 of which are variable.

20) What is the contribution margin of Grip Company?

A. 480,000
B. 410,000
C. 600,000
D. 390,000

21) What is the operating income of Grip Company?

A. 270,000
B. 330,000
C. 250,000
D. 230,000

Use the following information for the next two (2) questions:
Jumpman Corporation produces and sells a single product. The company has provided its contribution format income
statement for July:

Sales (3,200 units) P 238,080

Variable expenses 145,920
Contribution margin 92,160
Fixed expenses 74,400
Net operating income 17,760
22) If the company sells 3,000 units, its total contribution margin should be
A. 92,160
B. 108,000
C. 86,400
D. 96,600

23) If the company sells 4,000 units, its net operating income would be
A. 115,200
B. 92,160
C. 40,800
D. 17,760

24) Jo Company sells its only product for P60 per unit and incurs the following variable costs per unit:

Direct material P 16
Direct labor 12
Manufacturing overhead 7
Total variable manufacturing cost 35
Variable selling expenses 5
Total variable costs 40
Jo’s annual fixed costs are P880,000. If prime costs increased by 20% and all other values remained the same,
what would be Jo Company’s contribution margin ratio (to the nearest whole percentage)?
A. 75%
B. 30%
C. 24%
D. 20%

25) DSP Company earned P100,000 on sales of P1,000,000. It earned P130,000 on sales of P1,100,000. Contribution
margin as a percentage of sales is:
A. 30%
B. 40%
C. 70%
D. 90%
2.2 BREAK-EVEN POINT.

26) Miguel Corporation budgets fixed expenses of P250,000; variable expenses of P180,000 and sales of 15,000 units
for P28 each. The breakeven point in units is
A. 14,000 units
B. 15,625 units
C. 16,400 units
D. 16,625 units

27) A recent income statement of Fox Corporation reported the following data:

Sales revenue P3,600,000

Variable costs 1,600,000
Fixed costs 1,000,000

If these data are based on the sale of 10,000 units, the break-even point would be:

A. 2,000 units
B. 2,778 units
C. 3,600 units
D. 5,000 units
28) The following information pertains to Rica Company:
Variable Fixed
Manufacturing costs P340,000 P 70,000
Selling and administrative expenses 10,000 60,000
During the year, the company sold 50,000 units for P1,000,000. How much is Rica's break-even point in number of
units?
A. 9,848
B. 10,000
C. 26,000
D. 18,571
29) Budget data for the Bidwell Company are as follows:

Fixed Variable Total

Sales (100,000 units) P1,000,000
Expenses:
Raw materials P300,000
Direct labor 200,000
Overhead P100,000 150,000
Selling and administrative 110,000 50,000
Total expenses P210,000 P700,000 (910,000)
Net operating income P 90,000

Bidwell's break-even sales in units is:

A. 30,000 units
B. 91,000 units
C. 60,000 units
D. 70,000 units
30) Abet Company plans to market a new product. Based on its market studies, Abet estimates that it can sell P5,500
units in 2021. The selling price will be P2 per unit. Variable cost is estimated to be 40% of the selling price. Fixed
cost is estimated to be P6,000. What is the break even point?
A. 3,750 units
B. 5,000 units
C. 5,500 units
D. 7,500 units
31) DEF Company is a retailer for video disks. The projected net income for the current year is P200,000 based on
sales volume of 200,000 video disks. DEF has been selling the disk for P16 each. The variable cost consist of P10
unit purchase price of the disks and handling cost of P2 per disk.
DEF’s annual fixed costs are P600,000. What is the company’s break-even point for the current year in number of
video disks?
A. 152,000
B. 150,000
C. 155,000
D. 140,000
32) Asher Company manufactures fans with direct material costs of P10 per unit and direct labor of P7 per unit. A local
carrier charges Asher P5 per unit to make deliveries. Sales commissions are paid at 10% of the selling price. Fans
are sold for P100 each. Indirect factory costs and administrative costs are P6,800 and P37,200 per month,
respectively.

How many fans must Asher produce to break even?

A. 1,375
B. 647
C. 564
D. 530
33) What is the breakeven level of revenues for a firm with P4,000,000 in sales, variable costs of P2,800,000 and fixed
costs of P1,000,000?
A. 1,428,571
B. 3,333,333
C. 9,333,333
D. 13,333,333

34) Dynamic Company had sales of P1,500,000, fixed costs of P400,000 and variable costs of P900,000. What would
be the amount of the sales pesos at the break-even point?
A. 1,000,000
B. 1,200,000
C. 1,500,000
D. 1,800,000

35) The following is Allison Corporation's contribution format income statement for lastmonth:
Sales P800,000
Less variable expenses 300,000
Contribution margin 500,000
Less fixed expenses 400,000
Net income P100,000
The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.
What is the company's break-even sales in dollars?
A. P0
B. P640,000
C. P700,000
D. P400,000
36) The common-size income statement for BTS Company is presented below:

Revenue P 600,000
Cost of sales:
Variable 35%
Fixed 25%
Total 60%
Gross profit 40%
Operating expenses:
Variable 15%
Fixed 16% 31%
Operating income 9%
Determine the revenue needed to break even?
A. 360,000
B. 450,000
C. 485,000
D. 492,000
37) Barnes Corporation manufactures skateboards and is in the process of preparing next year’s budget. The
pro forma income statement for the current year is presented below.

Sales P1,500,000
Cost of sales:
Direct materials P 250,000
Direct labor 150,000
Variable overhead 75,000
Fixed overhead 100,000 575,000
Gross profit P 925,000
Selling and G&A
Variable P 200,000
Fixed 250,000 450,000
Operating income P 475,000

The breakeven point (rounded to the nearest dollar) for Barnes Corporation for the current year is
A. 146,341
B. 636,364
C. 729,730
D. 181,818
38) Given the selling price at P120 per unit; contribution margin ratio at 25% and fixed costs of P250,000, the total
variable expenses at the break-even point would be:
A. 350,000
B. 750,000
C. 450,000
D. 250,000

39) Hat Co. manufactures a western-style hat that sells for P10 per unit. This is its sole product and it has projected the
break-even point at 50,000 units in the coming period. If fixed costs are projected at P100,000, what is the projected
contribution margin ratio?
A. 80 percent
B. 20 percent
C. 40 percent
D. 60 percent

40) Apple Company has fixed costs of P200,000 and breakeven sales of P1,600,000. What is the projected profit at
P2,400,000 sales?
A. 600,000
B. 300,000
C. 800,000
D. 100,000

41) DSP Company earned P100,000 on sales of P1,000,000. It earned P130,000 on sales of P1,100,000. Contribution
margin as a percentage of sales is:
A. 30%
B. 40%
C. 70%
D. 90%

42) In planning its operations for 2021 based on a sales forecast of P6,000,000, Throne, Inc., prepared the following
estimated cost:
Variable cost Fixed cost
Direct material P1,600,000
Direct labor 1,400,000
Factory overhead 600,000 900,000
Selling expenses 240,000 360,000
Administrative expenses 60,000 140,000
3,900,000 1,400,000
What would be the amount of sales in pesos at the break-even point?
A. 2,250,000
B. 3,500,000
C. 4,000,000
D. 5,300,000
2.3 TARGET PROFIT.

43) Selling price is P50, unit variable cost is P34, and fixed costs are P200,000. Unit sales required to earn a P60,000
profit are

A. 5,200 units
B. 7,647 units
C. 13,700 units
D. 16,250 units

44) A recent income statement of East Corporation reported the following data:

Sales revenue (5,000 units) P5,000,000

Variable costs 3,000,000
Fixed costs 800,000
If the company desired to earn a target net profit of P820,000, it would have to sell:
A. 2,000 units
B. 2,050 units
C. 4,050 units
D. 6,750 units

45) How many units would have to be sold to yield a target operating income of P22,000, assuming variable costs are
P15 per unit, total fixed costs are P2,000, and the unit selling price is P20?
A. 4,800 units
B. 4,400 units
C. 4,000 units
D. 3,600 units

46) Everywhere Company provided the income statement for 2022:

Sales P 300,000
Variable costs (150,000)
Contribution margin P 150,000
Fixed costs (100,000)
Profit before taxes P 50,000

If the units sales price for Everywhere’s sole product was P10, how many units would it have needed to sell in 2022
to produce a profit of P40,000?

A. 27,500 units
B. 29,000 units
C. 28,000 units
D. 26,667 units

47) The following is Addison Corporation's contribution format income statement for last month:
Sales P1,000,000
Less variable expenses 700,000
Contribution margin 300,000
Less fixed expenses 180,000
Net income P 120,000
The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.
How many units would the company have to sell to attain target profits of P150,000?
A. 22,000 units
B. 37,500 units
C. 25,000 units
D. 26,667 units
48) Assume the following cost behavior data for Brooks Company:

Sales price P8.00 per unit

Variable costs P6.00 per unit
Fixed costs P10,000

What volume of sales dollars is required to earn a before-tax income of P12,000?

A. 44,000
B. 80,000
C. 88,000
D. 120,000
49) Archie sells a single product for P50. Variable costs are 60% of the selling price, and the company has fixed costs
that amount to P400,000. Current sales total 16,000 units. In order to produce a target profit of P22,000, Archie's
dollar sales must total:
A. 8,440
B. 21,100
C. 1,000,000
D. 1,055,000

50) Dynamic Company had sales of P1,500,000, fixed costs of P400,000 and variable costs of P900,000. How much
should the sales be in order to produce a net income of P30,000?
A. 2,500,000
B. 2,250,000
C. 2,000,000
D. 1,075,000
51) During March, Adams Company had sales of P5,000,000, variable expenses of P3,000,000, and fixed expenses of
P1,500,000. Assume that cost behavior and unit selling price remain unchanged during April. In order for
the company to realize net operating income of P300,000 for April, sales would have to be:
A. 3,750,000
B. 4,050,000
C. 4,500,000
D. 4,800,000

52) Yellow, Inc., sells a single product for P10. Variable costs are P4 per unit and fixed costs total P120,000
at a volume level of 10,000 units. What dollar sales level would Yellow have to achieve to earn a target net profit of
P240,000?
A. 400,000
B. 500,000
C. 600,000
D. 750,000
53) Merissa Company is planning to sell 100,000 units of Product Z for P12 per unit. Fixed cost is P280,000. In order to
realize a profit of P200,000, what would the variable cost be?
A. 480,000
B. 720,000
C. 300,000
D. 220,000

54) Assume the following cost behavior data for Brooks Company:

Sales price P8.00 per unit

Variable costs P6.00 per unit
Fixed costs P10,000
Tax rate 40%

What volume of sales dollars is required to earn an after-tax income of P18,000?

A. 8,600 units
B. 27,500 units
C. 14,000 units
D. 20,000 units
55) Stephanie’s Bridal Shoppe sells wedding dresses. The average selling price of each dress is P1,000,
variable costs P400, and fixed costs P90,000. How many dresses must the Bridal Shoppe sell in order to yield after-
tax net income of P18,000, assuming the tax rate is 40%?
A. 200 dresses
B. 170 dresses
C. 150 dresses
D. 145 dresses

56) Barney, Inc., is subject to a 40% income tax rate. The following data pertain to the period just ended when the
company produced and sold 45,000 units:

Sales revenue P1,350,000

Variable costs 810,000
Fixed costs 432,000

How many units must Barney sell to earn an after-tax profit of P180,000?

A. 42,000
B. 51,000
C. 45,000
D. 61,000

57) Madden Company has projected its income before taxes for next year as shown below. Madden is subject to a
40% income tax rate.

Sales (160,000 units) P8,000,000

Cost of Sales
Variable Costs P2,000,000
Fixed Costs 3,000,000 5,000,000
Income before Taxes P3,000,000

Madden’s net assets are P36,000,000. The peso sales that must be achieved for Madden to earn a 10% after-tax
return on assets would be
A. 8,800,000
B. 16,000,000
C. 12,000,000
D. 6,880,000

58) Buddy Company sells its single product for P40 per unit uses cost volume profit analysis in its planning.
The company’s after tax net income for the past year was P1,188,000 after applying an effective tax rate of 40%.
The projected costs for manufacturing and selling its single product in the coming year are in the next column:

Variable Costs Per Unit Fixed Costs

Direct material P 5.00
Direct labor 4.00
Manufacturing overhead 6.00 P6,200,000
Selling and administrative costs 3.00 3,700,000
Total P18.00 P9,900,000

The peso volume required in the coming to earn the same after tax profit as the past year is
A. 20,160,000
B. 21,600,000
C. 23,400,000
D. 26,400,000

59) Merchandisers, Inc. sells Product O to retailers for P200. The unit variable cost is P40 with a selling commission of
10%. Fixed manufacturing costs total P1,000,000 per month while fixed selling and administrative costs
total
P420,000. The income tax rate is 30%. The target sales if after tax income is P123,200 would be
A. 10,950 units
B. 15,640 units
C. 13,750 units
D. 11,400 units
 ABC Corporation has the following data for its operation for 2022:

Break-even sales 100,000

Fixed costs 50,000
Selling Price 80

60) What is the variable cost per unit?

61) Break-even points in units?
62) net profit if sold units is 1500 units