MS-02:

COST-VOLU
ME-PROF|T
AilALYSfS
is usbful for profit planning by way of a systematic analysis of the interrelationship among
costs, volume (unit sales) and proftt.

CVP analysis -

FACTORS
If there is an increase in ...
2. UNIT VARIABLECOST

NOTE:tn mirltl-proO,

IX may also affct company profit.

Undertying C#F asumptions (timitatiqns):

1. Relevant range, time and linearity assumptionsin MS - 0l are also assumed in CVPanellrsis.
2. Unlessindicated otherwise, unit selling price is constant even if sales volume changes.
3. There is no change in the inventory levefs during the period.
, 4. In case qf a rnulti-produqt cqmpany, the proportions (sales mir) Of units.s6ld will *ot change.
5. Labor prodgttivity, proditction technology and market conditions remaln cgnstant and stabte.
CVP.REL./ATED
TffiIfiII.OGIIg
Gontrlbstioa l|ff9ln
'

(CM) - is the difference between sales and variable cost. It ts otherwise knourn
aslnarginq! income, profit contributioO, contribution b fix& cost or incremenbl

coiEFiffiffi

.
CM Ratio = CM + Sales = Unit CM + Unit Selling Price
r CMRatio=ACM+ASales
NOTE:The sign'A'is uged to mean change or difference.
Brcak'Evcn Polnt (Aep) - a level of activity, in ufrits (break-even votume) or in pesos (brcak-even
sdles), at which total rvenues equal total costs. At the break-even point, thcrt

ilrr$rr

of.llS:f,y,,-

BEP peos*tcs

FirGd Co;ts + Ctf Ratio

Unit'Saler with Target Prefit = (Fixed Costs + ProlTt*) + Cfrl per unit

Peso.Selee with Targct Rsturn.gn Salgrs=

Fixed Costs

CM,latto : Return on Sales

t Profit nilrst b expressd beforctax: Profit dtr tD(+ (lmlqb - tax r.te)
ttre diliarence between actual sals and break-even sales. It indicates the
maximum anrount by whicfi sales couH decline without incurring a loss.
SaLtt
r
Margii of Sdaty '* 5lg - Sreakgven Sales
r

PrvPblA

()t
r-tstHfrrt Lrt
_JotELy Ratho
Maryin
of Safety
r\s|'rrt, = Margin
r!|argfit
of Safety
T Sales
+
Jatlg[y
>AlgS
-

haq-

vF fnCfficrc*oc poilt - the ftvl of volurneat whiclr two alterndives being analyzedwould vl"ia
'6mount of total costs or Profits.
"qr",
Attern*tve A
AlternativeB
. (llnit 9!! x Q) - FixedCoct sr
{Unit CM x e) - FixedCost
o Fixed Cost +
cost + (unit VCx

?r,'$".+

ffirE: a - nurn-nei
$alec trltx *

llaaraa
E Y E .v!

af
v.

6pffiO

*"

the relative combination of qtr,ntitts of sbles of varitrus products that make up

the total sales of a company.
.
Over-all BEPun;g5= Fixed Costs + Weighted Average CM per unit
.
Over-all BEPpesos61ss= Fixild Costs + Weighted Average CM Ratio
Opcrating Levcrage (DOL) :, medsures how a percentage change in sales will affct
company profits. It iridicates how sensitive the company is to sales volume
increases and decreases. It is also known as'a'peratlng leverage factor,
..
.

DOL = Contribution Margin + Profit before tax

h, o/osales x DOL = A o/oprofit before tax
Pagelof3paqes

ReSA

- ?h Retaeru
Scnoda{ Ace.aa'ta*ert

[ils-02

ME-PROFITANALYSIS
COST"VOLU
AII{ALYSIS
: COST-VOLUME-PRQFIT
EXERCISES

1. Gentleman Company manufacture5 and sells a singfe prcduct. The company's salei and expenses for a
recent month follows:
P @O,OO0
Sales(15,000 units)
450,000
Less: Variable Costs
P 150,000
Contribution Margin
145.000
[ess: Fixed Costs
Profit
BrugO
REQUIRED:
1. Determinethe followinq:

LtN/,
2^1

?-f fo1

-"#l'i"rr'"i p.ii" pet'unit?+o

costperunitp
"Bi,viiuSri
cfcluRatioa6.r,

trmwt'fsooo
WotofUcoo
{ry-to)-Qo

2. What is the rnonthly break-even point in units sold and in sales pesos?

0u?r:l$nd[
2. RockCompanysells its gbLIgJ,"&%irtlT\",
mo-nE)
amountedto P 100,000F-er

unit. variabtecostsare p 24 per unit and fixed costs

S

U gD

* REQUIRJED:

wilt be the profit if R<icksells 15,000 units in a particularmonth? trn' g

4tOemtTlmat
)rr.l.
*
ffm,if Cr62{Vhat
is the unit break-even point? breat-even peso sales?wtft1,
--rl-)
f?.59 l.,z$rlnat unit stfes arc required to earn P 40,000 for the.month?
tj n'mfi
?5lpOco 4..;y'ltnat pesq scles are.required to earn an after-tax proftt of P 32,0OO(assuming"tax rate is ZOqb)?fm
Assume that Rock is currer*ly 3elling 10,000 units per month. The company president belteve that
i".i.n'r\A -, S.
gcles have
_5aLes would increase lf advertbing werc incremd by P 5,m0. 8y how much would unlt
you krrew
(Althat1glh
give
qfTBsqD!!1qis
income
Rock
samc
currently
earning?
fhcrease
to
the
,
Wollg.n(to
\\-| -0.';' .t:rrwmany unifs are now being rcH, yw dotlp- problem.)
wnat is the margin of safety if Rock sells 2O,0OOunits at P 32?
?'I+r@n
*^^to
' I 2 7. Rock cur,rntly plys its saleipeople salaries @ a total of P-4lXOOjg mon!!r, but no cornrnissions.
receive a 596
'r
. The sates dipartment is ionsioering a plan whereby=IF-Gl$frp:ffwould
commission, but their salarieswould fall to a tsital of P 25,@0 per month. At what sales level is the
company indifferent between the two compcnftbn plans?
(W:
t',nag,erial Accountiflg by Louffi*,
et.C.)
(2r tz^soo units

Sales
Costs
tess: Vatr,ifiFle
Contributionf'largin
Lss: FixGdCosts
Profit (Loss)

twqtw'

(3) 17.5o0 untts

(5) 10,0@ units

'

RequircqrotZ
cost decreasesby F rs,oo0 under the proposal(P 40,000 ) P 25,000).
ffiffi.-tud
r' Unlt idfibe,dst increassby P 1-6O(5% of P 32)

ff i= ,

(-!0o,0@'+'24 x * 85,@Qt 25.6K\

3.*ryW'

15,000= 1.6X
. X = J , l? B u ilt t r

lnft Uu=f

o:f**

/"**.n

Contrtbuthn margin ratio x margin of safety ratio = net profit ratio

margih + Sate$
Where:ContributioirntarganratiQ- Contrib-ution
Marginof safety ratio = t{arSlinof safiety+ Sates
*^ /
f" | "
Net profit ratiO= Pfoftt + Sates
LWf
.-\__the profit
salggbreP 528,0007
4. Catl-Me-Maybe
Company'sftreat]ffin
E\--' The variable.ort l'"ti6Ooogrin,,u
ratio is 8olo.
rl k q
arn rcr.bo
!-+ lI
frE
rr.r
t.
r ,
^lttf'ro
l{
ft'
theronowins:
RE1nTRED;
Determj4e

fr
^-j]'lF;:ifltiff-fi-"-""''';ll--',

i. i""%f"l4*; fto,orr,.,
i
s. Marsinof SafetyRatio?'1.
'

,C/*r
I

Cts- Bas)
Page2 of 3 Pages

7l

| x - zttt;r -''l8I
.ltt'- Zfl?dl)
/; (1sc tsD

ReSA

*748 Ra*ar Sahol at lfu4na

MS-02

COST-VOLUMEJPROFIT ANALYSIS
5. MahjongCompany producesand sells two
budget:

Following is next month's income

1;,I

Sales in Units

sales

VariableCosts

1.050.00
, 112.50 .. , IJOZ5Q
Marsin'
:,i?T'3::,iJ fiw"r' G:&*''"3;:33
Profit
F=UlIJg

*'of:ff.Imany

/1.\
Ld\
W/vxrnt-- 1ow
-, - ,\

units
or chairsrilSf;*S^,f.ne*t
montttobreak-eve
n't /4o,^

Vtlt^',s + l.l4 r*h

?*1-Y*t
-ffi

2. How many unitsof tabtesshould

besold to earn a profttofP 150? lhnq,,'
(Adapted: Manageriat Accounting by Garrison, et^al.)

SOLUTION
9UIDE(item no.-5)

(CM)perunit
:iontvtargin
SalesMix (4:1 ) 8096:2006)

weighted
Averase
CMperunit:
6. Ms. Rita has recentlyopenedtfre@itness

ffiE.-ffi
8006

-t,

f.

Gym prffirr"O

20oA

'
.

.t-

D\\'

1 S.i

ExOuJvelyfoi malnqrished individuals.

The results for the gym:s first year of operations are presented'asfdllowg:
Ssles
Variable Costs

,.d

= -

tli

tl,

fF
"

M5. Rita is unhappy about the results ot his gym's fi.rst year of operatlons. She observed that despite the
very high contribution margin, profit was still low becasse of the very high fixed costs. She conchrdes ttrt
an increase in sales would not yield a satifactory ItnrEE
incrxc rrr
in pto{tt.
l'rL'I*'
r rjr
"alrrroLr('ry
9;{
|n'REo,rrRGo,
1.- eipfain to Ms. Rita that what he feets is not right by computihg the operating t&8."ge factor. Wlt5
Z. If sales increase Fy 10Yo,then how many percent wuld profit increas, cetens paribus?
(Determine the percentage A by using the operating lwergge fxtor.)
9.f,
(Adapted: llanagerlat Accouging by Garrison, et.al.)
t

,/

WRAP-UPEXERCISES(TRUEoR FALSETMULfIP{-E-CFOfCE}
At the break-eyen point, total conffiution margin is
c. Equal to total costs
t g. Zelro

bn-'o)
ratbreduce,
$; ff:ii$"T'il;il'"r?;'Shpco^i,r^
#/^":re**91"':"Tl3#ffi'nfr::n,"
^?#
I
ri $r" t"iEte
incrcases, then the break-even point also increases.
W
'4.

An increasein the incornetax rate

a. Raisesthe break-even point
b. Lowers the breek'vcn point
Decreasessales required to earn a particular after-tax profit
*
Increases
sals required to carn a particular after-tcx profit
1
,,r'(b
in
actual
sales also increasds the marglrl of grfrty.
\
ryiincrease
-{
has
gWany that
a negative margin of safety necessarily operates at a.loss.
\'' 4
7/{nder CVPanalysis, which of the following is not assumedto be constant?
:
Unit variable cost
c.' Uni,tseHingprice
k
Unit fixed cost
d. Sale6mix
-/r$l
leveragefactor is equalto
dtnYoperating
a. Gross margin-+ profit after tax
c,. Contribution margin + profit after tax
| ,l ,
piofit
margin
+
profit
Gross
before
tax
Contribution
margin
+
tax
before
/,
{q
Y*
K94f -{ the degree of operatlng leverage is 2, then-a 3olochange in quantity sold should result in a SoE
'
changg:in profit before tax.
l0.IJ;ffientories are expected to change, the type of costing that provides the best informafion for
4reakeven analysis is
r; Job-order costing
c. Joint costing
Variable costing
d. Absorptioncosting

*
ReSAReview School,Ing"'.;_a 7359807| 7343989r 09104391320lO9239I24t2l / 09164383834h( resareview@hotmail.com

A. Lee

MANAGEMENT SERVICES

Quizzer:M902
i'E-PROF
ff ANALYSIS
COST.VOLU
test banks
Sources:CM /ClA/RPCPA/AICPAA/arious
1. Allelseconstant,if the selling@arrs,
a. Totalvariablecostswill be lowerthan expected
b. Contributbnmarginpercentagewlll be higherthan expected
marginwill be higherthanexpected
c. Totaldontribution
marginwill be lpwerthanexpected
Pdr.unitcontribution
-{'
of a contributionincomestatement?
2 Whichof the followingis a characteristic
combinedas one line
expenses'are
variaH
Fixed
and
B
?
from variableexpensec
listed
are
separately
fixeAexpenses
@
c. Fixedand,vailate firanuf*turing costs are combinedanione line item,but filed operating
,
expensesareshorvnsepardely frorn variabb oprali?gexpenseg
d. Fixed and vari*h operating expenses are cqrrlliined as one line ibm, but fixed
are shownseparatelyftom variablemanufrcluringexpenses
manufacturingexpefises

most?

which of the fdlinrirq vrdulcl

T5%-oecr*sein vaftrbti eleenses

A 15%incteasetn fixedexpenses

4. At the breekewh point,,thcortrbution marginequds total

costs
c. Sellingand administrative
a. Variablecosts
Fixedcosts
b. $ales rpvefiues
/d
.EirHa.ao6te pcr u6tt:
Jo eofrrpary sff$,.ils,mty,FEductff.P 60 pGrunit md indno the *oflorfng
-P 1 6
,.'.-^tDiiCtifialerial
r F\'12
A Directtaoor
'
7
ovurhead
I
Uanufacturing
? ;t
G
u
Totalvari*brn nuffiriqg overtread P 35
5
Sellingexpenss
Total vsiable costs
P_40
Jo's annual ftxed cotts are P ffi,O@; and Jo is subiect to a 30% incom tax rate. lf pnme cosfs
ir*rseld.Sy 9096iad af, sttEr rshrcs rsmained ths tafi16, Jo Conrpany'sootiUutbn.margin (to the
neaild@pcrceng wouldbe
k tr'6
.
E. .O.24
e. 0.7S

d. o.20
b. 0.s
Abst Companypbns b martet a rw product. Bryqd on its marketstudies,Abet estimatesthatjlcan
t_o_99*10%)of
unit. VariableosJ is e-stiryated
sn5,500unitsin 2013. Ttrc @!g
- --_ \--/
what is-thebreak-evenponta
Fixedoost bffim-aied to Erf@
ihe sefmg@.
-
' 9c
5,5O0ur*ts
a. 3,73Oul$
cmlu,I.L
d. 7,SO0ur*ts
-V 5,000units
a'/i r , buc0qa;k
7. ln ptanningits operationsfor 2013 basedon a sales fsreca$ of P 6,000,000,Anne, Inc. preparedthe

followingestimabddata:
_@
Vari#llc
P1,s0,0m
1,400,000
600,000

Directmaterials .
Directlabor
Factoryoverhead
expenses
Administrative

'

60.000

ffioa't

140.000

hYl''l
fr{u.r,}s

F. P 4,000,000
d. P 5,300,000

P agelof8pages

kL'rlooo
hq.w@)

900,000

B3gg$0g P-lgoo.ooo

What would be the amount of peso sales at the break-evenpoint?

a. P 2;250,000
b. P 3,500,000

Fixed

,d

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j.r,rt

- ?fe Rer/i&t,Sclaol a( 4caaata'tctl

MSQ-02

ANALYSiS
E-PROFIT
COST-VOLUM
g. to.r *" periodjust ended,t"[:f".il:"ny

resultsin percentages:
generatedthe fonowing/ooperating

Costof sales:
Variable

50o/o

dnR
\o'l't
sales?
Totalsalesamountedto P 3 million.Howmuchwas the break-even
P
2,850,000
c.
a. P 1,875,000
d. P 3,750,000
P2,soo,fi)o

zX

g. Once the breakeren Fointtuesbeen reached,operatingincotnewill increaseby the

a. Grossmarginper unitfoi eactradditionalunitsold
jr contributionmarginper unitfor eachadditionalunit sold
c. , Fixedcostsper unitfor eachadditionalunitsob
d. Variablecostsper unitfor eachadditionalunitsold

ftc
,ffi
Ffru

10. The foflowingdata refer tb cost*volu$*.profit rdationchlpdAbert Co.

1,000
Break-evenPointin units
P 250
Variaile ctst Per unit
P 75'000
Totalfixedcost
1,001'r
unitsold?
byJhe
irrcome
to
opfating
contributed
willbe
much
How
a . P250
-d P 7 5
d. Zerp
b. P 325

sas or eartgConporKi-Faffib
i 1 TtEtoc**t OreR-evan

tF. .

' lo c F
7e/

Vot

,T".,TTfry
will go up by P 60,000,the 3sb3 rccnfturo-wu*-cuen wlll also incfeaseto

"*pense
wiifroutany changein,inesetlingpriceper unit and on the varisbb expenses.

theinccase
benore
Howrxrchisthetotetfixcdexpensc
c. P 280,000
".;;;
a. p 200,000

T'

*#t*

_-P 330,000
,E p 220,000
JA^l t1l)
12. A compEnyrne*fthtros a ,nng|. produa. F*ndard oort c*a regnrdinghisffiano
and the compnnyare as follouts:
in6nnigon tor tho potluct
'
P 40
,
{o
$r*es price Pcr unit
til*

;tAY=ld

(0 /.
Ll{t[ z t- ' .,

ot|rer(&opill

t*.4,
*rc.{"ffi,"#R$TffiffiS,li,Tluc
:"lilt'+
' Fixedc_tsandexPengcs:
y'-'
:
\WffiffiSm?,**Jnc F3:?3!,1"$
40%
-

=-j*:'i1':--:

fiective irmm tbx rate

breakevenpoint is
The nurnberof rmitBtre companymust sell in the cofFir|gyear in irrder to reach its
'
/E 583,2S units
a. 388,6O0unitis
d. 972,000units
units
518,400
b.
13.The'mostliltelystr#gy to reducethe breakevenpoint,would.beto
a. lncreaie boththe fixedcost and the contributionmargin
b. Decreaseboththe ftxedcostsand the contributionmargin
Decreasethe fixedcostsand incrgasethe contributionmargin
.s

A
| t|
/lV.
I
t J,

tn"n"J.o.tl a;ao""r"*li;;;;i;ifiti"";"l1'i;
d. Increase

X"t o

t TC

of brea[evenanalysisis that
limitingthe reliability
Oneof the majorassumptions
a.Efficiency,andproductivitywil|continual|yincreaseLLsvvt!^^4|
range
oveqlgant
b. tffi-f${bble costswillremainunchanged

;. ritri ni"J

unchanged
*irlremain
@

.,.,\

( rn'w-rv ;
production
factorsvarieswithchangesin technologY
d. The costof"*t.

WH

l,frw
'o ,l,p
uf

-,

ReSA

- 7/c Rericn,S/4oo(( 4uwtaaq

MSQ-02

j
- ',*

ANALYSIS
cosT-volu ME-PRpFIT
X
Tt

'

pointto change?
15. Whichof the followingwouldcausethe'break-even
a. Satesincreased(Vno)
dedrasd
b. Totalproduction
c. Totalvariablecostsincreasedas a functionof higherproduction
in physicalplant
*d- Fixedcostsincreasedouringto additionalequipment

f\A

pff
ri
ItX t
.1,fi.c = .f [rY
is

in threedifferentmonths.Whichof the folfowing true?

eachof thosemonths.

16.

/
b. The cost is bothfixedand variable.
c. -Thecompanyis operatingat its break-evenpoint.
d. The companyis achievingits targetlevelofprofit.

data?
17. HowmuchwilfincAfne&hang!}ifa companymakesan advertisingcampaigngiventte fiofiowing
Cpstof adve(isingcampaign
**
(
e 25,,0^0j
..,"
.""
'
i,zx 5('l'cr"e-,
variableexpens6asad"i&nr"geofsalesB

in sales
Increase
a. .-P 200increase
P 9,800increase

P 60.000
p
15,@0increasc
c.
d. P 25,S0 incrsese

a. P 480,000
K P 720,000

c. P 3@,000
d. F 220,000

glc,,r,
1 ii I
-=-:;

.%
'/
18.Francis
Companyis planningto sell 100,000uqitsof ProductA forSAQ-.a-unit me nxea-tK
'amounted
whd uvould
thevari$le costbe?
to P48Qp,00ln orderto realizea profltdf P 200,000,
B

'

q@{i6
iiot-

-{N)

19. Yolly Companyrlsqhnningto sell200,000unitsof PtoductF. The fbd cost ie q 4m,q90 and the
variabb cost i{OOV}f the sellingprice. In order to realizea profttof P 100,000,th}lling price per
.'-r .
unitwou&ltravettebrd
a. P 3.75

.d p a.zs

concerningProductD for 2013 asrrrlitt

20. DalenCornpanypreparedthe b$owirg pref*nifysrucad
no etFenditurefor adve,rtieirq:_
P 10 \{.
S||ingprice per unit
Unitsales
Variablecosts
P 300,0@.
Fixedcosts

,133:333
#a,

1.{

esed oo a madrd

that it could i

Dabn.

recast,
ffi-etghurld
b fic rp.r"trrglltmrfr,flffiCI ot

ffio

a. P {?3,01h

,4

v&

P ?05,m

d. P 365"000

b. F' 190,000
21.

and
tftd Dahn

PJ00,0qJ|v6 rycrt in

/ttott\)o

Theff*a-aos$Cf 210,000andthevariablecost
aneytoy$Qunit.
Companyg1&Product
prie.
*otrtd$e-ttfe
amq,rnt
of sEE if *;btaeon@T,,Srp relize a profit
Vtltnt
seilir
fir
q!
sabs?
0f
>i
'an'.r
P 7ffi,F8"

,' n

'

tr\r'

eqtXimentused in the
Atice Corp. aims to eam a ASValCum on its P 500/m-iOrrestrnent'in
Y nextyear,thecost
Dnits
of
Produet
Be64
sales
of;l0O0
dh estlmated
of ProductY.
manufacture
per unitwere estimatedas.f6llo.ws:
.
Variablemanufaetlringcost

Pzs

t^.o0u>

10
I tl-Uu{
5 rooo/,,_ ,4t?
FiXi$il"j'#"1?jnffii5,*1***'
, , :--6fi

-c

ProductY shouldbe pricedat:

a. P 45.00
b. P 50.00
23. Teny Companyhas fiXed
profitat P 1,200,000
a" P 50,000
b, P 150,000

p sz.so
d. P 55.00

/^&-

1v

*[l,in",

marginratio)
the conslanfcontribution
c. P 200,000
h ,f
P 400.000
d
l1 '.'- l'ir),

5"'lPr
r
*9!::

i? rt_l.
"U*
"
I'Jt c-- ltsN,'

is its projected

,1 n'*taa-rq
RreSA - ?/e R**n Sc&oat

MSQ-02 , . ,* 1,

,,_,..i
'':' I

COS'T-VOLUME.
PROFITANALYSIS

.1 -=e?T[e-qg!-variablecost
producttoretailersfor\Q.!Q$

tb " 9:*'W'u
-!4 u aselling

tVllt'
24 DetfinCompany-glg a
E@irts
wrr-iffixed sellingand '?XC
i,0O-OE-0pet,rngn!b,
cost to-i-ars'p
commissionof 10%. Fixedmanqtqc'Lurirtg
incometax rate is 3Qlo. What will be the requiredsales to i
aliministrativec,ostequals8-dffiQglh,e
1-y[ qyq rudtuo+' f.rf{.lt" */
achievean after-taxprotitot:FlE;ZOOe
*n-{'
c' 15,640units
a. i.tg,g50units
+.1
11,400
units
{ }*f " ''TeI
b. 18,750units
-{
'
25. l-lethfitectronicsCompanyis developinga I rew product,surge protectorsfor hlgh-voltageelectrical
ftnws. The cost informationfor this productis a ts follcffvs:

'

Unitco,st$

H-g--bu 't"

Directmaterials
Directlabor

associated with this naw

also be

The'company

producl.I

effective int

this new

must Heth Electronicssell at a selllngprice-of

Horlr-m&(Isurgeprotectors(roundedto
P-ta W-Onit to increasea&r-'El[i!9em
fl4@i1{ingpese
a. 10,700
b. 12,100units

is40%.

fiX*t

lxoRd

(Hint contidarwily tdd.;tonalftedoost)

,000units
'

28,300units

llP"n*'

26.A companyhas just comptetedthe final deveiopmentof its only product,_general.rec$yfl}|*{l

3 ye*n
to kill rnostinsects hefot" dying themrelvcr. The produtt [g;J{w
which
for tle
te are expissd to bt incuncd
f he ner,vpluduct:

b,

d'

'14;000000 pounds

poumts
?5,60O,0C10

:i-

\ I,"
byconsidoingonly
profitrelationshigthatarcqrrvilinearmaybc andyz.edlinasrly
1\L
-27. Cost-votumg
c- lelenantvarrabke.s\
costs
andsemi-variabte
;. Fixec1
/lft-I \ o
Relevantrafr1rcof(g{!/
costs
b. Retervant,fixed
4
for the firsttime-duriig$:"t3:
a new proiecttha!.wittbe^msrkete'C
haqdevetoped
28.Delphi'C"ompany

eatimbbs
Departrnent
ye,ar.huriough
sla{r*arketids
fiscet
9q 3i,0c9lllf,::{9^*:"y-i:5,*1"J:i

*qff

h,iT#;EH;i;iJl'il#"1;{;jiil;!*il;fi,il-r'ilt:spc'tytoplg,*ama1mYl-oJ
j.i:1"11'il;
v'r ffi
ffi*'il
i--^,TH
P*ffi tr lffil"#Jf'
-:*6$''t''w*"v"
whK'

budgettld
atry

",il-o rm

;ff];llffi.,.,
rate.

Directmateriat
Directmaleflat
-

tax
bGJsdrncome
iesugcct
Dirph,'

VariableCosts
P
rr.uu
7.00

350
-==-J-9+
P 14.50
cost
manufacturing
Totalvariable

il;;;iffi;;
overhead
Mapufacturing

,.

ao.)
( qdo
4rTJrggry_,

4g
Seuing.expenses
,aot
lg**n
fiT,
Toratv a r ia b t e c o s t
if
.
W
t)o-lj$3ntf3tyt:j
thatit willnotiIFIove-{ne
hasstipulated
managpfnent
Delphiccimpunyrs
firstyear'
year
thesser:tax-.prof,t^ig.-atteqi{-P-7irq0q.:be
unless
fiscal
afterthe*next
thenew,product
"
profitmustbj?ij!l-Tst
thisfarget
trie o*ltieffingpricetoachieve
t?,5"t\)
:
p
c. p s700
a. s4.Sb
1fiw)
, b' P $660
,{ P 39'oo
:#.
y'\''

/,'1q\

/./ n"s^\!\

ReSA

- 7{z Rec,dea,
Sa/4ial al 4(riuuta"rcrf
'

cosT.voLUME-pRoFIT,ANALySIS

'r

MSQ-o2

&

'*\
29. Julie Company,which is su$iect,folygfarlcometax rate, had the followihgoperatingdata for the period
just ended:
a rt

32t-,
i:1iTflJ:::,'S,",1,i:,
::.',"'
'
+)f,tw
Fixedcosts
@r

o)

w(-tuYEpOv

Managementplans to improvethe qualityof its sole productby way of imgementingffilowing

chaqges:
(1) deflacinga componentthatcostsP 3.50witha higher-grade
unitthatcostsP 5.50,and
period
the machineover a 1O-year
(2) Acquiringa P 180,000packagi4gmachine.Juliewill depreciate
with no estimatedsalvagevalueby the strai$hflinemethodof depreciation.

thecomingyear,it must
selr
wantsto earnafter-tax ffti@n
lf thecompany
"t
22,500
units
units
a. 10,300
JfgODD-7
units
d. 27,000
units
b. 21,316

+yt'-nnry
lyr{{.n'
0v

uniB of
30. DanilyrlleQ.is planningto producetwo products,A and B. Danilynis planningto sell lOO,OOd
foa.ooo e ayf'q a,Lnit and 200,000units of B at P4l! unit. Variablecost is TOohot setesbr.A and 80% of
--what mustth totalfixadcost be?
sdteH-r g. tn ordeffi6o,ooo,
P
c.
240,000
P
A
8o,ooo
-{
d. P,600,000
b. P 90,000

*'T6TJ2;-"

31. The follnwingdata pertainto th two productsmanufacturedby Gkrry, Inc.:

PerUnit
o^b"
Products
A
-.---* B

rne
Fixed
ccattotabe,Eqg,opoAi""rrv.

riii
e,.1""

"iileo
t@htr
ProductB. l.lowfnany units of the two products

*itt

mfi Glpryscll

z z,ooa

a. '857
b. 1,111

d. 2,459

gZ. tf tne sales mix shifts toyvardhighercontributinnnfl*r pfoducls,the break-evenpoint

c. Remainsconstant
Decreases
irl
'b.
d. ls zero
zero
Increases
b. lncreases
fA ,

..

twounitsof T
"l*aenil P-Tperunit
for eecll ufiit of $. Thc cffitributionmargilrsere P l*pffiit of S, P 1.5Operunitl/T,
of D. FixedcostsareP 600,000.Honrmbnyunitsof S rrouHKrissellat nd OrX-ewnpoint?_
D
S
c. 240,009units
a. .10;00U
unie
T
b
I
z
4o0,ooo
d.
units
16,ooo
units
aV
,
=lA@l0Xl
34. Thereare so manyalsumptionsinhtrer* in C\lP analrsis. t ftHt of tf followingis npt one of these
assumdfrms?
(,
',Csst
It
t
xe p,*teble f,$ are frear overthcftlevant range
a.,
and'fenrcf-rues
2\
propoftb'r$S
witstvokme
b. Variat*ee68tsfluctuate
I
D. Kris
Kris *nq@)!$og5
PrcducF s,
S, T end
and D
scfl{frreg&gibgsfor for eacfi
eacfr u"(Jt
selb Produetr
33. Kris
Kris eqrpny
Cqrpany sei,ts

ln fiG

e*d' cfitrg inveriory sg itprlFillcant in .irnount

fixed costs increasebeyondthe relevantrange

ItoI

| " il1,

L)l,

35. A corlpanyselb two producls,X and Y. The seEs mix con$stsof a oompositeunit of two unitsof X for
(2:5). Fixedcoots are P 49,500. Tl uhil,"cp.$ribution
marginsfor X and Y are,
everyfive r*titrof
-Y
Jilt
resoeoiivafr
P25OsdP1.20.
2.5Otrd P 1.20.
respe$W$,
P
^ .4

a"{

Consideringthe companyas a whole,the numberof composi{eunrfsto breakevenis

/\
c. 9,900
,{ 4,500
| 'r.'"i
7-q'6
d. 31,500
b. 8,250
uni$;o
fttOTE:Usual ryIstakeis letter D. Th
(s to compute"the number* *ffi*
"a
qlloulglbedlvr@_lyZlnits
is
coffised
offi(vo
since
unit
unitg
composite
so\315Q
break-even"
,fi;i6;
unitsof X for eve.ryfiuOunltsof Y (2:5)JT6nsidertheTollowing:
36. Assumingsamedatain No.35, tf the companyhada profitof P 22,000,the unitsalesmusthavebeen
c. ProductX: 23,800;ProductY: 59,500
a. ProductX: 5,000;ProductY: 12;500
d. ProductX: 28,600;ProductY: 71,5@
. b. ProductX: 13,000;ProductY: 32,500
Page5of8pages

"b

ReSA

- ?4* fPe*ial Scfiol a( /flean@raq&l

,.-"',.",:,.'&

ME-PROFiT ANI\LYSI5
COST-VOLU

ttrl$
saresresurts
rnc hadrheforowing
37 Emproyee,

MSQ-02

rQg-Blayer. Badios

0.40
0,30
0.30
Peeosalescomponentratio
0.60
0 40
0.40
marginratio
Qgntribution
in pesoofor Employee,lnc.are:
The breakeveR,$alea
Employee,l',rc.hbi fixedcostsoi p 2,+00,000,

IlLrreF'
a . P 1 .8 M,
b. P1,8M

C'PpLqy_er Badioe
P3.6M
P 1 .8 M
P1.BM

P16M

c.
d

ry-$elg

CDplayer

Radios

P 2M
P 1 . 5M
P1.5M
P 1 . 5 3 1 . 9 1 5 P 1 , 5 3 1 , 9 1 5P 2 , 0 4 2 , 5 6 3

company,the amountby whichsalescan declinebeforelossesoccuris l(nownas the

38.'Fora prcfitable,
Variablesalesratio
a. fiales volumevariance
D
b. r{urdlerate
.F Marglnof safety
{

Themarginofsafetyis
CVPanalysis.
39. The.mrtrqglnpf
safetyisakeyconceptof

rc

maryinrate
a. . Thecontribution
margin
coritribution
margin'rand
breekeven
contribution
budgreted
b. Thedifferencabetwebn
sales
broakevert
saftssiand
budgeted
between
The
difftrence
\
pointin salesandcs$hflowbreakeven
betweenthebreakeven
d. Thedifference

fixedcostcsf P ,SS00,enda prontolf 10,000 Whatis lriah

lris,nCompahyhassale+.efP 100$00,
I
&"')D)
Inios+
mbrginof safety?
companyJs
:

;'713,33?

3 F33:333ffi-': ,qi

'ffi.I
f"q.FB"25g a set' lf the
41. VivianCorooratlonsells sets of encvclopediasVivian soHqqqO 6sbvariablecost pe.rset was P 175,anOtre rrxedcosts for V'ivianwere F-1qo,000.'whatis the Mvian's
degreeof operatingleverage(DOL)?
a. 0.67
-d 3.0
b. 0.75

e.trs

42, The percentagecl'rangein earningsbeforeinterestsand tetxesassobiatedwith the percentagechangc

in gatesvolumeis the degreeof
c. Brggt<ewn ftrverage
1
d Operatingl,everage
d. Com$ned leverqe
b. Financhl le verage
\ 4, 'B
3

v.
oF
B

A(higherd6greeof rrperatingleveragecomparedwith ino'ustryaverageimplbs that the firm

a. Hashigher variabteeosts
Has protitst h*t are moresensitiveto changesin salesvolum
x
c. ls morprofi.table
d. ls leesrisky
++. operatingleveragei: i greatestin companiesthat have:
a. Lorrfixedcos t and low per unitvariabfecost
Higrhfixedcosit and low per unitvaiable cost
\
c. low nieO-.* r ana highper unitvariablecost
d. Highfixedcot;t Andhighper unitvariablecost

n,.T,rD

'ffi..
operating
oefrJLL'Yt
tte
level,
P
sales
At
a
300,000
vai'iabtecostsa/e iq,"A:4-saps.45. TuayCompany's
be
will
leverage
operating
degree
of
the
teveiageis f O. lf sat es increasenVgSA;600,
cr 6
D
a. 12
b .1o
{4

lO:'Uii.Cgmpany'svarial'le costs are7lYoofsales At a saleslevelof P 400,000,the company'sdegreeof

\
operating
-'-".- leveregeis t.l' At this level,fixedcostsequal

Fez,god

b. p 100,000

c l:g,ggg r,vl. tinon

d. P 75,000 '-) '

S?Tvt

4 7 'lfuse dincost-vr:lume-p:rofit a n a |y s is , s e n s it iv it v a n a |y s is -r7 ' o _ .

the'rrlostproiitabiemix of producisto be sold
a. Determines
L
in the evaluationof decisi6nalternatives
b. Allowsthe decision makerto useprobabilities
ls done throughv ariouspossiblescenariosand computesthe impacton profttof varioqs ,
/
:
'
predictions
of future events
d ,|slirnite,dbecausqincos t * v o lu me . p ro f it a n a ly s is , c o s t s a re n o t s e p a ra te d i r r t o i i x e d a
.
variablecomPonents

-*

- ?42 Reaaez,
ScQiat( A<aa-daa4

ReSA

MSQ-02

ANALYSIS
E-PROFIT
COST-VOLUM
48. The indifferencepoint is the levelof volumeat whicha company fi

',db.
;.
d.

Earnsthe eameprofitunderdifferentoperatinggchemes
Earnsno profit
.Earns
its iargt profit
Earnslargeamountof profit

and a variablecostof P20. MachineYYY hasfixedcostsof

49. MachineXXX hasfixedcostsof P 225,00O
pointin units?
P 300,000and a variablecostof P 14. Whatis the indifference

a.-, 11,25o
M

1 2.5 00

*l.t(
lzsoao
I' oaox
-rvvv
w 4 =
- ?pgD

/"'
a}f$tr)
l*x tYl';?lsl}
21''429
'
' rrithout
thbie itlformation.
d. An amountthat cannotbe,determined

50 A pointsf indifferenceis reachedwhen

a. Thesaviqgsin fixedcoatis equalto tha decreesein variabb cost
,
h'c. The savingsin variablecost is equel to tho hsace in ftxedot
fixeil eostis morethanthe irrcreasein vaiaUe#
The:savingp.ta
,
d The savrlgs in vaHablecost is lesstheri'theincreasgln,Ogq!
.
ycar.
5 1 .Twg companiesare expectedto'have annual sabs bf 1,000,000elk* of phyirry-c{*^next
I "a.
,;
":
l
-e
.t
'.
Estimatesfor rext year are presentedbelow:zlr^
l'
.b,
CgttlFr.ry1 ComW2 -.
i1'
P 3.00
P 3.00
Silingpricepr deck
I , ' , N . -a ' ' -'

t',.

' Printing
inkperdeck
Laborperdeck
overhead
Berdeck
,Variable
Fbd6st3

.A

tsfeetevn'pointfor
. Cofnipnv 1
800,000

b.

s00,m0

c.
ct.

533,334
533.334

O.trfil
0.7t -l ' 0.3V/
P 960,000

Breakevenpoint h
Carmgv 2

,120.000
iEO,@0
105,000
105.000

.\

: rr:

0.651
0.15|
1;25| I

0.35-l
P 252,000

Volumeat whic{rCo.l
d2 oro{itsge eoud

. 1,180,0001,@O,0oo1,000,ffi
1,180,0@

s'G't\)
cy1-I'C '- (l/^ -16
e,,ir

percorrrcdto mgtrt its lin d ecooomy4# _-H+fts.The average

is.conr[ering
Bora frnoftors
is ped to the gr
(
pa
salarv
ruordd
thd
a
3?f,009Der
a charEp to e
x lD
monthpftraI csnm*ecion.d 2% of Src sales made by that sabsperson.

52.Bom ilobra.
car sefigfo

'"'
Thearnountof'tdetcrJ:lr-at
a. P 30,m0,000
P 24,000,000
/r

-'':--''-'

ufiich EofialilotorsyvTqi'!!!ry$Iryto

c. P 22,5O0,Qp0., r
d. P 12,m0,m0

*,ffi1

wttrchpl

--4'

?gov?''*zfoN'
7t.zzl '
e,l,x,, pt tD t,;Xx

SOLUTION:.
,
= 24,000
2% conrmissbn:1.2M(2o/o\
6"/6ornnbebr l.2ilt (e%)= 72,@O vB.
=
=
+
=
+
20
units
(40)
[
960,000
48,s0
72,000X !4,000 X 24;000
lndifierenesPoint:20 unltsx P 1,200,000per unit
.
53. Jon gorpqafiOn submlted to ygy.thefor|fowittgcondensgdincomc sEbrhefit
P 390,000
Sales(807ocapacity)
P 180,000
Variablecosts
82.5@ : 262.p00
Fixedcosts
gSegaa
Netincome
percentage
of
capacity?
a
as
What:isthe break-even'Point

Qlnv = >tw

ryb: ??tr9u{

ts

a. , 45o/o

o/ ssoto

.c.
d.

67.850/o
68J50/o

;
SOLUTION:
'": ";:':
300,000+80% = P 375,000
lffiYo,capacity:
Variablecostratio:180,000+ 300,000= 60% (CMR'=a0%)
sales:82,500+ 4|olo= P 206,250
' Breakeven
206,250t 375,000
point(basedon 100%capacity):
Breakeven

.",t

.:,,
:":

..\

'.

'+h

{.

.3,;tt:'i[\A 1'1
i

{'

-r- tlt'l

ReSA -?Ae Resarc

Sclad a(r4crn4nt4e4 ,^ t*
ANALYsIs
cosr-voLUME-PRoFIT

qo'"V)
I

MSQ-02

='-qq-

SrA

It
^l

-rl

lfo$"{'
r,{N tr
54. Thefollowingis TamsCompany'scostbehavio
btd;lrn C.,argorr
More
5.000rlnits__lk^, ( Z *tt)
than
4,@_untscrlet
.P35,000-."."
Fixedcosts
t
'
)aip]"contriortionmarginratio
d.Silr,tl,
Selling'price,P4O
5
&
7e
?rul.lmanyrihildmustbe sofdtg realizea profitof P 25,000?
How
":-;:i
c 12,s00(#
iA' r;i;')'=w v /4^,n A^*Mqr, a,, 4t11t
' u- n
14;ooo.
11,ooo
d.
.f
f,"(" u,rn/"k*
'' /*4l
' ':
. f55. Contributionmarginratiomuttipfiedby ttrg marginof safetyratioequals'
c. Breake\ien sr$ei rdio
D
a. Variablecost ratio
b. Fixedcost ratio
Net profit ratb
.d

fe

mgnr.rfactrysand.geils'T{hirtsimprintedwithcottrgenadris anolsh{Ans.Lastyear,
lvy Corporation
the shirts sold for P(75+-oacFHfd the variablecct to manufacturethem wa{ P 2.25-bs,.uqit. The

to breakeven.ThenetaJter-tax
incomelst yearwaqf5,040.)vy'S
companyneededto safr30pO0$hirts
expdctaiontq st" com
ltnap \-Z
W'4.]g14t q{rk
}d
p@
.' The
priceofitre
I rilr' iarn'
r'!c'.:.:aT
T:shirt$willbe l
salespr'.,rrur
\?&V
I { v .'
tu.7v"^",, .x,l
:W*:,otrr"D
K0oD :Jv?_*r{.
::::::*"
-Aw'Nl.
o VariaHecoststo manufacftJre
will increaseby onathird.
'''lo'/ '-f..,
. Fix6dcostswill increasqbp{Oolo.
r,
"r*
Theincometaxr&of{0% lrfll beunchatrgpd
' 'l L?
r
56. ThesgHing.price
natwot*Omaintain
thesaneofrtrb$nomx$n rate6s htyer'a
Yl
CPr
P 1o.oo
c. P 9.oo
-t

ol p a.is

b., Ps.7s

!b,

fl

'Jt- '+ ' , ""

i

tI ' ll5 fw57. The numberor r-snirts lvy Corporatimmustsellto bncd(evenin ttre comingyear is
l.t;:tr'
c. 20,000
B
a. 17,500
19,250
22,AM
cl.
-b.
56. Sdes b the oomdrgycar ere ExpccDd b Gxcud bd yurs b/ 1,000 uni&s.tf tfits occurs, lny's gfi
volurnein the caning y*f will b
a. 23.400units
c. 21.9& units
d 21.@0units
{ 22,600unfrs
,

ll^::--"11x:][-ff
volurne
in Fesos',tfrltfibc
a. P 207,000
b. P 213.750

-,-f
i*"for
to 68mP 22.5004"t

w'
44,/

71

theconrins

/pzzgsw

'd.

"

P 2s7.62s

.t
a
fl

tr

d RheaGonrpanyperhrrnodcoststudiesanOprc4e13,
60. The rnsfiagemeffi
ba!doh 40,@0unitsdryudi{sbrdjrab*:
Td#prn$d eosts , % of Wiable
P 400,000
:Dirctlsbsr
360,m0
300,m0
Factoryoverhead
gelling srd sdrninlrilrativeexpenee
ZW,Wr/rr,
$,
Whatunit-scstngpricewill yielda 10oAprofrtftom sa6e'o:t4O,0@units?
c. P 40.00
a. P 33.50
, rl

Direct.m#blai'

,{

P3s.oo

costs to totala.osts
100%
75Ys
40%
25o/o

ltu'l.s

4p'l' c

w'1.?

d. P 50.00
.:

soluTtoNcuroe:
Directmaterials,'
Birectlabor
Factory.overhead
Selfingand administrativeexpense
Total

S-r-

{oo$X
t-{

TotalCosts
P 400,000
360,000
300,000
200,000

@h6-r#

VariableCosts

FixedCogts

?"f
l$r

/\D

'{:t'c

l{,oar

(/./q/ofr