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In 2006 Lucia Company had a net loss of P8,000. The company sells one product with a selling price of P80 and a variable cost per unit of P60. In 2007, the company would like to earn a before-tax profit of P40,000. How many additional units must the company sell in 2007 than it sold in 2006? Assume that the tax rate is 40 percent. A. 1,600 C. 2,000 B. 2,400 D. 5,400 Bobadilla Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000, and an operating loss of P20,000. How much increase in sales would Bulusan need to make in order to achieve a target operating income of 10% of sales? A. P400,000 C. P500,000 B. P462,000 D. P800,000 Bobadilla The following data apply to Diva Corporation for the year 2006: Total variable cost per unit P3.50 Contribution margin/sales 30% Breakeven sales (present volume) P1,000,000 Diva wants to sell an additional 50,000 units at the same selling price and contribution margin per unit. By how much can fixed costs increase to generate a gross margin equal to 10% of the sales value of the additional 50,000 units to be sold? A. P 50,000 C. P 67,500 B. P 57,500 D. P125,000 Bobadilla Marsman Company had a margin of safety ratio of 20%, variable costs of 60% of sales, fixed costs of P240,000, a break-even point of P600,000, and an operating income of P60,000 for the current year. What are the current year's sales? A. P 500,000 C. P 750,000 B. P 600,000 D. P 900,000 Bobadilla Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the variable costs are 60% of the selling price. What would be the amount of sales if Regal is to realize a profit of 10% of sales? A. P700,000 C. P525,000 B. P472,500 D. P420,000 Bobadilla The following economic data were provided by the corporate planning staff of Heaven, Inc.: Sales volume 30,000 units Sales price per unit P30 Unit variable costs: Variable manufacturing P13 Other variable costs 8 Unit variable costs P21 Unit contribution margin P 8 Fixed costs: Manufacturing P150,000 Other fixed costs P 50,000 Total fixed costs P200,000 The management is considering installing a new, automated manufacturing process that will increase fixed costs by P50,000 and reduce variable manufacturing cost by P3 per unit. The management set a target a profit of P70,000 before and after the acquisition of the automated machine. After installation of the automated machine, what will be the change in the units required to achieve the target profit?

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## C. 3,333 unit decrease D. 4,333 unit decrease

Bobadilla

In planning its operations for next year based on a sales forecast of P6,000,000, Herran, Inc. prepared the following estimated costs and expenses: Variable Fixed Direct materials P1,600,000 Direct labor 1,400,000 Factory overhead 600,000 P 900,000 Selling expenses 240,000 360,000 Administrative expenses 60,000 140,000 P3,900,000 P1,400,000 What would be the amount of peso sales at the breakeven point? A. P2,250,000. C. P4,000,000. B. P3,500,000. D. P5,300,000. Bobadilla The Expressive Company currently has fixed cost of P770,500. This cost is expected to increase by P103,500 if the company expands its production facilities. Currently, it sells its product for P47. The product has a variable cost per unit of P24. How many more units must the company sell to break even, at the current sales price per unit, than it did to break even prior to the increase in fixed cost? A. 3,500 C. 4,500 B. 4,000 D. 6,000 Bobadilla The Tanker Company estimated the following data for the coming year: Fixed manufacturing costs Variable production costs per peso of sales Materials Direct labor Variable overhead Variable selling costs per peso of sales Tanker estimates its sales for the coming year to be P2,000,000. The expected cost of goods sold for the coming year is A. P1,265,000 C. P1,565,000 B. P1,115,000 D. P 700,000 P565,000 P 0.125 0.150 0.075 0.150

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Bobadilla

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At a sales volume level of 2,250 units, Baluarte Companys contribution margin is one and one-half of the fixed costs of P36,000. Contribution margin is 30% How much peso sales should the Baluarte Company sell to earn 10 percent of sales? A. P270,000 C. P360,000 B. P180,000 D. P540,000 Bobadilla The Alpine Companys year-end income statement is as follows: Sales (20,000 units) Variable costs Contribution margin Fixed costs Net income P360,000 220,000 P140,000 105,000 P 35,000

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Alpines management is unhappy with the results and plans to make some changes for next year. If management implements a new marketing program, fixed costs are expected to increase by P19,200 and variable costs to increase by P1 per unit. Unit sales are expected to increase by 15 percent. What is the effect on income if the foregoing changes are implemented? A. decrease of P21,200 C. increase of P 1,800 B. increase of P13,800 D. increase of P14,800
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## Bobadilla P400,000 160,000 40,000 Bobadilla

Mercado, Inc. had the following economic data for 2007: Net sales Contribution margin Margin of safety What is Mercados breakeven point in 2007? A. P360,000 C. P320,000 B. P288,000 D. P 80,000

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Marquez Co. manufactures a single product. For 2006, the company had sales of P90,000, variable costs of P50,000, and fixed costs of P30,000. Marquez expects its cost structure and sales price per unit to remain the same in 2007; however total sales are expected to jump by 20%. If the 2007 projections are realized, net income in 2007 should exceed net income in 2006 by A. 100% C. 20% B. 80% D. 50% Bobadilla Below is the income statement for Harpo Co. for 2006: Sales P400,000 Variable costs ( 125,000) Contribution margin P275,000 Fixed costs ( 200,000) Profit before tax P 75,000 Assuming that the fixed costs are expected to remain at P200,000 for 2007, and the sales price per unit and variable cost per unit are also expected to remain constant, how much profit before tax will be produced if the company anticipates 2007 sales rising to 130% of the 2006 level? A. P 97,500 C. P195,000 B. P157,500 D. P180,000 Bobadilla Almos Corporation produces a product that sells for P10 per unit. The variable cost per unit is P6 and total fixed costs are P12,000. At this selling price, the company earns a profit equal to 10% of total peso sales. By reducing its selling price to P9 per unit, the manufacturer can increase its unit sales volume by 25%. Assume that there are no taxes and that total fixed costs and variable cost per unit remain unchanged. If the selling price were reduced to P9 per unit, the companys profit would have been A. P3,000. C. P5,000. B. P4,000. D. P6,000. Bobadilla Information concerning the 2007 financial projections of the Silver Company is as follows: Net sales of P3,000,000. Fixed costs of P800,000. P0.65 increase in cost of sales for each peso increase in net sales. What is the projected cost of sales for 2007? A. P 950,000 C. P1,050,000 B. P2,750,000 D. P1,850,000 Bobadilla

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Answer: B Additional profit UCM = additional unit sales = (40,000 + 8,000) (80-60) = 2,400 units 800,000* 400,000 400,000

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. Answer: A Total peso sales required 120,000 (0.25 0.1) Less prior sales Required increase in sales *Peso sales required to earn profit stated as percentage of sales (ROS): S = [FC + (ROSS)] CMR (CMR S) = [FC + (ROSS)] (CMR S) - (ROSS) = FC (CMR ROS) S = FC S = FC (CMR ROS)

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. Answer: A Contribution margin 50,000 x (5-3.50) Less: additional profit (250,000 x 0.10) Additional fixed costs Selling price = P3.50 0.70

## 75,000 25,000 50,000 P5.00

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. Answer: C A shorter calculation of finding the amount of sales is to divide breakeven sales by (1 MSR) Sales = P600,000 (1 0.2) P750,000 An alternative solution to find sales is to compute the profit margin. Profit margin = Contribution margin ratio x margin of safety ratio. Profit margin = 20% x 40% Sales = Profit Profit margin Sales (60,000 0.08) 8% P750,000

. Answer: A Peso sales = FC/(CMR - ROS) = P210,000/(0.40 - 0.10) CMR = 40% A long computation of required sales uses the following equation: S = P210,000 + 0.10S 0.40 0.40S = P210,000 + 0.10S 0.40S - 0.10S = P210,000

P700,000

## S = P210,000/(0.40 0.10) S = P700,000

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. Answer: C Current number of units required to earn the target net profit: [(P200,000 + P70,000) P9] After the automated machine is placed into service, the number of units required to earn the target net profit will be: ((P250,000 + P70,000) P12) Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales

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26,667

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. Answer: C CMR= 100% - (3.9 6.0) = 35% BES = 1,400,000 .35 . Answer: C New break-even point: P874,000 P23 Current break-even point in units: P770,500 P23 Increase in units: 38,000 - 33,500 Alternative solution: (P103,500 P23)

## 4,000,000 38,000 33,500 4,500 4,500

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. Answer: A The estimated cost of goods sold = P565,000 + 0.35S* *Sum of all percentages for variable production costs = P565,000 + (P2,000,000 x 0.35) = P1,265,000

. Answer: B Peso sales required to earn 10% of sales; FC/(CMR ROS) = P36,000/(0.30-0.10) = 180,000 . Answer: A Revised contribution margin 20,000 x 1.15 x (7-1) Fixed cost (105,000 + 19,200) Revised profit Prior profit Decrease in profit . Answer: A Margin of Safety = Budgeted sales Breakeven sales Margin of Safety: P400,000 P40,000 . Answer: B 138,000 124,200 13,800 35,000 21,200

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P360,000

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DOL at P90,000 sales: Sales Variable costs Total Contribution margin Fixed costs Profit DOL = TCM/OP = 40,000/10,000 % increase in sales x DOL = % increase in profit 4 x 20% = 80%
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## 90,000 50,000 40,000 30,000 10,000 4 times

. Answer: B 2006 DOL = 275,000/75,000 Percentage Increase in profit, 2007 = 3.67 x 30% 2007 Profit = 75,000 +(75,000 x 1.10) . Answer: A Peso sales 12,000/(0.40 0.1) Unit sales P40,000/10 Increased units 4,000 x 1.25 Revised contribution margin 5,000 x (9 6) Less fixed cost Revised profit . Answer: B Projected cost of sales: P800,000 + (P3,000,000 x 0.65)

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P2,750,000