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THEORY ANSWERS:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

A

B

C

B

A

C

D

B

A

D

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

D

A

D

C

D

D

B

D

C

A

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

D

D

B

A

D

A

C

C

B

B

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

A

D

C

C

A

A

C

C

D

B

A

A

C

B

C

C

C

B

B

A

A

A

B

A

61.

62.

63.

64.

65.

66.

67.

68.

69.

70.

71.

72.

73.

74.

A

B

C

B

C

B

A

D

B

C

A

C

C

A

41.

42.

43.

44.

45.

46.

47.

48.

49.

50.

C

C

A

D

B

B

C

D

D

D

51.

52.

53.

54.

55.

56.

57.

58.

59.

60.

C

D

B

C

B

C

A

C

C

A

61.

62.

63.

64.

65.

66.

67.

68.

69.

A

C

D

D

D

A

D

A

B

101.

102.

103.

104.

105.

106.

107.

108.

109.

110.

111.

112.

113.

114.

B

A

A

A

A

A

D

D

B

C

B

B

B

A

121.

122.

123.

124.

125.

126.

127.

128.

129.

130.

131.

132.

133.

134.

A

D

A

B

A

B

B

B

A

C

B

C

D

C

PROBLEM ANSWERS:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

B

C

A

B

A

A

A

A

A

A

B

C

C

A

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

C

C

A

B

A

A

B

B

A

B

B

B

D

A

41.

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

167

81.

82.

83.

84.

85.

86.

87.

88.

89.

90.

91.

92.

93.

94.

A

C

A

C

A

D

A

A

D

A

C

B

C

A

Suggested Answers and Solutions

15. B

35.

16. A

36.

17. A

37.

18. C

38.

19. A

39.

20. C

40.

Solutions:

1.

B

A

C

B

D

A

55.

56.

57.

58.

59.

60.

B

D

A

B

A

B

75.

76.

77.

78.

79.

80.

A

D

B

A

A

B

95.

96.

97.

98.

99.

100.

A

D

C

B

B

A

115.

116.

117.

118.

119.

120.

B

C

A

B

C

B

135. A

136. B

137. D

Answer: B

Contribution Margin = Fixed costs

= P15,000

(Contribution Margin/Unit Sales) + Variable cost per unit

= Desired Minimum Sales Price

(P15,000 3,000) + (P7,500 3,000)

2.

7.50

Answer: C

Unit contribution margin (P50 - P30)

P 20.00

P10,000

After the break-even level, the amount of profit equals the unit

contribution margin multiplied by the number of units sold in

excess of break-even units.

The candidates should remember that the profit increases by the

amount of contribution margin brought by additional units sold.

3.

Answer: A

Cost of dinner

Favors and program

P 70.00

30.00

168

Suggested Answers and Solutions

Fixed costs

(15,000 + 7,000 + 48,000 + 10,000)/250

320.00

Cost to be charged

P420.00

4.

Answer: B

5.

the sum of fixed expenses and the target profit divided by the unit

contribution margin. The number of units required to earn the

target net profit is:

(P78,000 + P42,000) P12

10,000

Answer: A

6.

Selling Price

Less: Variable Manufacturing Cost

10% Commission

P 60

( 30)

( 6)

P 24

Answer: A

Current break-even:

Pesos: (P32,000 0.40)

Units: [P32,000 P6)

Contribution margin per unit: P15 x 0.40

P80,000

5,333

P 6.00

(P32,000 x 0.3) P6

1,600

Alternative solution:

New breakeven units (P32,000 x 1.3) P6

Less current breakeven units

6,933

5,333

1,600

169

Suggested Answers and Solutions

7.

Answer: A

The amount of contribution margin per unit is constant within a

relevant range. The amount of profit is increased by the amount

of unit contribution margin.

Contribution margin per unit:

fixed cost breakeven unit sales

50,000 5,000 P10.00

At breakeven point, the profit is zero. Therefore, the profit at a

level of 5,001 units will be P10 which is the amount of

contribution provided by the unit (one unit) in excess of

breakeven point.

8.

Answer: A

CMR

= Fixed cost/Sales

= 100,000/800,000 = 12.50%

P50,000

The amount of sales that provides profit should be the sales

revenues above the break even sales.

Alternative solution:

Total contribution margin 1,200,000 x 0.125

Fixed costs

Profit

P150,000

100,000

P 50,000

170

Suggested Answers and Solutions

9.

Answer: A

Current unit contribution margin (P32 P24)

Current break-even units (P400,000 P8)

New unit contribution margin (P40 - P24)

New break-even units (400,000 16)

Net decrease in breakeven units

(50,000 25,000)

10.

P8

50,000

P16

25,000

25,000

Answer: A

CM per unit: 220,000 / (100,000 80,000)

11.00

Fixed costs:

P880,000

80,000 x 11

Therefore: TCM Units = UCM

11.

Answer: B

TCM Sales = CMR

Change in TCM: (600,000*0.2) (360,000*0.1)

CMR: Increase in TCM Increase in Sales

84,000 240,000

Breakeven sales

12.

90,300 0.35

Answer: C

171

84,000

35%

258,000

Suggested Answers and Solutions

Add fixed cost

Total contribution margin

40,000

200,000

240,000

Selling Price = 6 + (240,000 40,000)

13.

12.00

Answer: C

The company's degree of operating leverage is determined as follows:

Degree of operating leverage = Contribution margin Net income

Degree of operating leverage = P600,000 P240,000 = 2.50

14.

Answer: A

Increase in sales

Less variable costs and expenses

0.90 x 125,000

Additional profit before tax

Less additional tax 0.40 x 12,500

Additional profit

15.

125,000

112,500

12,500

5,000

7,500

Answer: B

Additional profit UCM = additional unit sales

= (40,000 + 8,000) (80-60)

= 2,400 units

172

Suggested Answers and Solutions

16.

Answer: A

Total peso sales required

800,000*

Less prior sales

400,000

400,000

(ROS):

S = [FC + (ROSS)] CMR

(CMR S) = [FC + (ROSS)]

(CMR S) - (ROSS) = FC

(CMR ROS) S = FC

S = FC (CMR ROS)

17.

Answer: A

Contribution margin 50,000 x (5-3.50)

Less: Additional profit (250,000 x 0.10)

Additional fixed costs

Selling price

18.

= P3.50 0.70

75,000

25,000

50,000

P5.00

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

173

Suggested Answers and Solutions

Profit margin = 20% x 40%

8%

Sales = Profit Profit margin

Sales (60,000 0.08)

19.

P750,000

Answer: A

Peso sales = FC/(CMR - ROS)

= P210,000/(0.40 - 0.10)

P700,000

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

S = P210,000/(0.40 0.10)

S = P700,000

20.

Answer: C

Current number of units required to earn the target net profit:

[(P200,000 + P70,000) P9]

30,000

the number of units required to earn the target

net profit will be:

((P250,000 + P70,000) P12)

26,667

Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales

174

Suggested Answers and Solutions

21.

Answer: C

CMR= 100% - (3.9 6.0) = 35%

BES = 1,400,000 .35

22.

4,000,000

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)

23.

38,000

33,500

4,500

4,500

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

24.

Answer: B

Peso sales required to earn 10% of sales;

FC/(CMR ROS)

175

Suggested Answers and Solutions

= P36,000/(0.30-0.10)

= 180,000

25.

Answer: A

26.

Fixed cost (105,000 + 19,200)

Revised profit

Prior profit

Decrease in profit

Answer: A

138,000

124,200

13,800

35,000

21,200

Margin of Safety: P400,000 P40,000

P360,000

27.

Answer: B

DOL at P90,000 sales:

Sales

Variable costs

Total Contribution margin

Fixed costs

Profit

DOL

90,000

50,000

40,000

30,000

10,000

= TCM/OP

= 40,000/10,000

4 times

4 x 20% = 80%

28.

Answer: B

2006 DOL = 275,000/75,000

176

3.67

Suggested Answers and Solutions

2007 Profit = 75,000 +(75,000 x 1.10)

29.

P157,500

Answer: A

Peso sales 12,000/(0.40 0.1)

P40,000

Unit sales P40,000/10

4,000

Increased units 4,000 x 1.25

5,000

Revised contribution margin 5,000 x (9 6)

Less fixed cost

Revised profit

30.

P15,000

12,000

P 3,000

Answer: B

Projected cost of sales:

P800,000 + (P3,000,000 x 0.65)

31.

P2,750,000

Answer: B

Unit CM = Change in Profit Change in Sales

= 200,000 (100,000 75,000)

=8

Fixed costs = Breakeven units x UCM

75,000 x 8 =

600,000

32.

110%

Answer: B

Unit cost:

Materials (P36,000 24,000)

Labor (P54,000 24,000)

177

P1.50

2.25

Suggested Answers and Solutions

Variable unit cost

Required profit (2,250 1,500)

Required minimum selling price

33.

0.35

P4.10

1.50

P5.60

Answer: D

Composite ratio:

X: 640,000 (720,000 + 640,000)

Y: 720,000 (720,000 + 640,000)

47.059%

52.941%

(.52941 .60) + (.47059 .40)

0.505882

(505,881 0.505882)

P1,000,000

34.

Answer: A

Sales (500,000 x 1.10)

Variable cost

Contribution margin

550,000

300,000

250,000

Original fixed costs:

500,000 300,000 150,000 = 50,000

New fixed cost = 50,000 x 0.80 = 40,000

Breakeven sales = 40,000/0.4545 = P88,000

178

P 470,590

Suggested Answers and Solutions

35.

36.

Answer: B

Before-tax profit (24,000 0.6)

Add fixed costs

Total contribution margin

P 40,000

200,000

P240,000

Variable cost per unit

Selling price

P 6.00

6.00

P12.00

Answer: A

DOL

37.

= CM/OP

= 275,000/75,000

= 3.67 times

Answer: C

Peso sales : FC (CMR - Profit Margin)

= P210,000 (0.55 - 0.15)

= P525,000

CMR

38.

Answer: B

CMR: Change in Fixed Costs Change in Breakeven Sales

78,750 (975,000 750,000)

0.35

179

Suggested Answers and Solutions

750,000 x 0.35

262,500

contribution margin in order to continue at breakeven sales.

39.

40.

Answer: D

UCM

= (70,000 x 1.20)+(40,000 x 3)

70,000 40,000

= P6.80

FC

= 70,000(6.80 1.20)

= P392,000

BEU

= 392,000/6.80

= 57,647

Answer: A

Margin of safety in peso sales = Budgeted sales Breakeven sales

Margin of safety = P1M P.7M

41.

Answer: A

2006 Sales

Advertising Cost (75000 .6)

Required 2007 peso sales

42.

P300,000

Answer: A

180

1,000,000

125,000

1,125,000

Suggested Answers and Solutions

Original WACM (0.4 x 1.50) + (0.6 x 2)

Revised Breakeven units

12,600/1.75

Original Breakeven units

12,600/1.80

1.75

1.80

7,200

7,000

43.

200

Answer: C

WACM = (30 x 0.6) + (60 x 0.4)

Breakeven units: 630,000/42

Breakdown:

Product Standard

Product Deluxe

44.

P42

15,000

15,000 x 0.6

15,000 x 0.4

9,000

6,000

Answer: B

WACM = (4/7 x 0.40)+(3/7 x 0.93 = P0.62857

BE units = 7,600/0.62857 = 12,091

Baubles = 12,091 x 4/7 = 6,909

Trinkets = 12,091 x 3/7 = 5,182

45.

Answer: C

Total sales revenue per composite sales:

(12 x P5.25) + (10 x P7.50) + (6 x P12.25)

Total variable cost per composite sales:

(12 x P4.85) + (10 x P6.95) + (6 x P10.35)

Total contribution margin per composite sales

(P211.50 - P189.80)

181

P211.50

P189.80

P 21.70

Suggested Answers and Solutions

P75,950 P21.70

3,500

46.

Answer: C

WACMR = (.6 x .4) + (.4 x .15)

Fixed Costs = 225000 x 1.3

Sales (292500 + 48000) .3

47.

Answer: C

UCM

60,000 45,000

= 6.75

48.

P360,000

Answer: B

BEV =

49.

30%

P 292,500

P1,135,000

600,000

16 12

P150,000

Answer: B

CMR

M/S Ratio

= (0.06 0.6) .25

= 40%

Annual FC = 36,000 x 12

P432,000

182

Suggested Answers and Solutions

50.

Answer: A

Profit

Profit

Fixed

Fixed

51.

= 400,000 x 2% = 8,000

Costs = CM - Profit

Costs = (400,000 x 20%) 8,000

Answer: A

Revised UCM = 25 19.80 (5 x 0.08)

BEU = 468,000/4.80

52.

P72,000

P4.80

97,500

Answer: A

The Company projected zero profit based on zero advertising

expenditure.

Additional CM (30,000 units @ 10)

P300,000

Less: Required profit

200,000

Maximum advertising cost

P100,000

53.

Answer: B

Cash-flow breakeven: 270,000 (100-60)

54.

6,750

Answer: A

CMR

BES

= (0.06 0.60) 0.25

0.40 or 40%

= 320,000 0.40

P 800,000

183

Suggested Answers and Solutions

Sales

55.

= 800,000 0.75

P1,066,667

Answer: B

The easier calculation of sales value of 60,000 units is to divide

the total annual costs by total cost ratio of 85% (100% - 15%).

56.

Sales required

= P1,912,500/0.85

P2,250,000

= 2,250,000/60,000

P37.50

Answer: D

Indifference Point = Change in Fixed Cost Change in Variable

Cost

Increase in fixed cost: 2 @ 15,000

P30,000

Decrease in variable cost (15% - 7.5%) 80

P6

Indifference point: 30,000 6

57.

Answer: A

WACM = (0.25 x 5)+(0.75 x 7)

= 6.50

BEU

58.

= 975,000/6.50

= 150,000

Answer: B

184

5,000 units

Suggested Answers and Solutions

by the same amount as additional sales (also additional

contribution margin) through an increase in selling price.

Increased price

59.

P120 +(1.20M/80,000)

Answer: A

Breakeven point:

Old policy: P80,000/7

New policy: P100,000/8

Increase in Breakeven point

60.

P 135

11,429

12,500

1,071

Answer: B

WACMR = (.4 x .2) + (.5 x.3) + (.4 x.5) = 0.43

BES = 1,290,000 .43 = P3,000,000

61.

Answer: A

Contribution margin

Fixed costs

Operating profit

P7,200,000

3,600,000

P3,600,000

62.

Answer: B

The indifference point refers to the level of sales that would give

equal profit or total costs for the two alternatives

185

Suggested Answers and Solutions

2.40x = 22,500

x = 9,375

63.

Answer: C

Variable cost ratio

= 2.25/7.50 = 30%

Selling price required = 3/0.30 = P10

64.

65.

Answer: B

Total Fixed Cost

Operating Profit

Total Contribution Margin

P154,000

26,000

P180,000

Selling price

Contribution margin per unit

(180,000 12,000)

Unit variable cost

P 20

15

P 5

Answer: C

Fixed costs

Operating profit

Contribution margin

600,000

120,000

720,000

186

1.80

Suggested Answers and Solutions

Selling price

66.

(1.80 0.40)

P4.50

Answer: B

Contribution margin per machine hour: Contribution margin per

unit x No. of units produced per machine hours

67.

Product A

P20 x 6

P120

Product B

P16 x 8

P128

Answer: A

440,000 + (110,400/0.61) = 480,000

4 2.70

Revised variable cost: P2.40 + (P2.00 x 0.15)

68.

Answer: D

VC Ratio 375,00/625,000 = 60%

VC / unit 375,000/25,000 = P15

New VC = 15 + (4.50 2.50)= P17

SP = 17/0.6 = P28.33

69.

Answer: B

187

P2.70

Suggested Answers and Solutions

0.06S = (40 x 24,000)+ 0.02S

0.04S = 960,000

S = 24M

70.

Answer: C

Additional fixed cost/week:

31,200/52 = 600

Additional weekly sales to cover additional fixed cost:

600/0.25 = 2,400

Total Sundays sales (where 2,400 represents 25%):

2,400/0.25 =9,600

Alternative solution:

600 = 0.25 x 0.25S

600 = 0.0625S

S = 9,600

71.

Answer: A

New BES = 873,600/140 = 6,240

New FC = 840,000 x 1.04 = 873,600

New CM = 250 100 (100 x 0.10) = 140

Old BES = 840,000/150 = 5,600

Increase in BEU = 6,240 5,600 = 640

188

Suggested Answers and Solutions

72.

Answer: C

Composite CM = 40 + (2 x 20)

= 80

Composite BE = 910,000/80

= 11,375

73.

Answer: C

Required new sales

= P5M +(P112,500/0.45)

P5.25M

74.

45%

Answer: A

Breakeven units = 807,840 5.30

152,423

New variable cost: (14 + (14 x.5 x 0.10) = 14.70

New FC = 792,000 + (792,000 x.20x.10) = 807,840

75.

Answer: A

Indifference point

189

Suggested Answers and Solutions

= 80,000/0.05

= P1.60M

76.

Answer: D

Processing hours per unit:

XY 7:

0.75/1 = 0.75 or 45 minutes

BD 4:

0.20/1 = 0.20 or 12 minutes

XY 7:

100,000/0.75 x P1 = P133,333

BD 4:

100,000/0.20 x P0.50 = P250,000

77.

Answer: B

Units sold to earn P1M:

(1,000,000 + 1,000,000) / 5.25 = 380,952

The use of P1M fixed costs will require 380,952 units which are

within the first range.

78.

Answer: A

Fixed costs

= 807,840

Computation = 807,840/5.30

79.

Answer: A

190

Suggested Answers and Solutions

Less proceeds from sale of scrap 6.4 / 16 x 8

Net cost of one 4- foot piece of metal

54.40

3.20

51.20

P2.00

Large 4 x 4oz

Small 4 x 2.4oz

Scrap

Total oz

80.

Answer: B

81.

Large: 4 x P2 x 1.8

Small 2.4 x P2 x 1.75

Answer: A

16.00

9.60

6.40

32.00

P14.40

P 8.40

Unit CM

Large: 29.00 (8.5 x 1.8)

Small: 14.00 ( 5.1 x 1.75)

= 13.70

= 5.075

Breakeven point

= 860,000/9.3875

= 91,611

82.

Answer: C

CM /unit 405,000 1,800

BEV = 247,500 225

83.

225

1,100 units

Answer: A

Operating Profit: (2,100 x 225) 247,500 = P225,000

191

Suggested Answers and Solutions

84.

Answer: C

Contribution margin

Regular sales 1,500 x 225

Special sale 1500 x 175

Total Contribution

Fixed costs

Taxable income

Income tax

Net income

85.

337,500

262,500

600,000

247,500

352,500

141,000

211,500

Answer: A

Additional FC/ New Unit CM

61,500 200 = 307.5 tons

86.

Answer: D

New SP = 500 x .90

New VC 275 + 40

New CM

450

315

135

100%

70%

30%

Sales required:]

(Fixed costs + Before Tax profit) CMR

247,500 + (94,500 60)

87.

Answer: A

192

P1,350,000

Suggested Answers and Solutions

(316,800 + 40,000) 27.20 = 13,118 pairs

Unit Contribution Margin, Touring:

80.00 52.80

P27.20

88.

Answer: A

Indifference point in peso sales:

0.4S P369,600 = 0.34S P316,800

0.06S = 52,800

S = P880,000

89.

Answer: D

Breakeven sales, Mountaineering:

369,600 35.20

=

10,500

Required contribution margin Touring

316,800 10,500

=

30.17

Present contribution margin Touring

27.20

Required decrease in variable cost per unit

2.97

90.

Answer: A

New breakeven point: 348,480 32.48

New UCM, Touring: 27.20 + (52.80 x 0.1)

New Fixed costs: 316,800 x 1.1

91.

10,730

= 32.48

= 348,480

Answer: C

The indifference point in number of pairs is 6,600. Inasmuch

that the expected level is 12,000 units, it is better to sell

Mountaineering because it has high leverage than the touring

model. Once the indifference point is exceeded, the one with

193

Suggested Answers and Solutions

the one with the lower contribution margin.

92.

Answer: B

Fixed Costs:

Overhead

Marketing

Administrative

Interest

Total

2,340,000

120,000

1,800,000

540,000

4,800,000

1 - [(7,200,000 + 2,400,000)/16M] = 40%

Breakeven next year with no change in commission:

4,800,000 0.4 = P12,000,000

93.

Answer: C

If the commission rate is increased by 5%, the contribution

margin is decreased by 5% or a new contribution margin ratio of

35%

Breakeven sales next year.

4,800,000 / 0.35

94.

P13,714,286

Answer: A

Fixed cost under 15% commission plan

Increase in Fixed cost

Decrease in audit fee

Increased fixed costs

194

4,800,000

2,400,000

( 75,000)

7,125,000

Suggested Answers and Solutions

contribution margin ratio to 47.5% (40% + 7.5%).

Revised breakeven sales 7,125,000 / .475 = P 15M

95.

Answer: A

Required sales, with 20% commission

and profit target of P1,120,000:

(P4,800,000 + 1,600,000) .35 = 18,285,714

96.

Answer: D

The question asked for is the indifference point. The peso sales

required to produce equal income can be easily calculated by

dividing the net increase in fixed costs by the increase in

contribution margin ratio:

Difference in CMR = 35% - 47.5 = 12.5%

Increase in fixed costs = 2,400,000 75,000

P2,325,000

P18.6M

Alternative Solution:

.355 4,800,000 = .475S 7,125,000

.125S = 2,325,000

S = P18,6M

97.

Answer: C

Billing charge per patient day

Variable cost per patient day

Contribution margin

Number of patient days for the year:

195

P650

150

P500

Suggested Answers and Solutions

98.

P10,676,250/650

16,425

P2,463,65016,425

P150

Answer: B

Fixed costs for bed capacity

Salary, supervisory nurse

Total

P4,190,000

720,000

P4,910,000

for bed capacity and salaries of supervisory nurse

4,910,000 500

99.

9,820

Answer: B

In solving for the breakeven level where there are step fixed

costs, the logical approach is to test the validity of the ranges of

activities.

First Range:

Fixed costs based on capacity

Salaries:

Aides 21 x 50,000

1,050,000

Nurses 11 x 130,000

1,430,000

Supervisor 4 x 180,000

720,000

Total

Breakeven calculation: 7,390,000 500

196

4,190,000

3,200,000

7,390,000

14,780

Suggested Answers and Solutions

number falls under the second range wherein the amount of

fixed costs that had been used are not relevant to that range.

Second Range (Final calculation):

Total fixed cost, lowest range

Additional fixed cost:

1 aide

1 nurse

Total

Breakeven in patient days:

7,570,000 500

100. Answer: A

7,390,000

50,000

130,000

7,570,000

15,140

90 days @ 17 patient days x 650

994,500

101. Answer: B

Increase in variable cost should be calculated

based on additional patient days for 90 days at

P150 per patient day.

17 beds x 90 days x P150

P229,500

102. Answer: A

The increase in fixed cost based on bed capacity:

P4,190,250 60 x 20

P1,396,750

103. Answer: A

197

Suggested Answers and Solutions

40% x 800,000

= P320,000

104. Answer: A

Breakeven in number of pizzas (traditional)

4,537,500/(250 75) = 25,929

Units sold: P9,500,000/250 = 38,000

2,850,000 38,000 = P75.00

P4,537,500

105. Answer: A

Cash Flow Breakeven:

3,417,500 175

19,529

Less: Noncash fixed cost

Tax shield on noncash

Fixed costs

Fixed cash flow

P4,537,500

( 800,000)

( 320,000)

P3,417,500

106. Answer: A

Breakeven sales based on 20% commission:

P100,000 0.20

P500,000

198

Suggested Answers and Solutions

(10M 8M) 10M

20%

107. Answer: D

Breakeven sales if the company employs its own salesmen:

(P350,000 0.35)

P1,000,000

The new contribution margin ratio is (20% + 15%)

35%

(100,000 + 90,000 + 160,000)

108. Answer: D

The required peso sales to earn net income of P1,330,000 if the

commission is raised to 25%:

(P100,000 + P1,900,000) 0.15

P13,333,333

109. Answer: B

The indifference point, the level of sales where the alternatives

will have equal profits:

.15S- 100,000 = .35S 350,000

2S = 250,000

S = P1,250,000

110. Answer: C

199

Suggested Answers and Solutions

company with a step variable and step fixed cost.

Contribution Margin per Unit:

60,000 or less (P30 P12.50)

Units above 60,000 (P30 P14.00)

Total contribution margin from the first

60,000 (60,000 x P17.50)

P17.50

P16.00

P280,000

0 = 280,000 + 16X -360,000

X = 80,000 16

X = 5,000 units

Breakeven units: 16,000 + 5,000

21,000

Alternative Solution:

Total fixed costs

Less Contribution margin from 60,000 units

Remaining fixed costs to be covered by

additional units, each with CM of P16

P360,000

280,000

21,000

111. Answer: B

200

P 80,000

Suggested Answers and Solutions

The units that will generate the desired profit of P150,000 for

the company, contributes P16 each. These units are the excess

of 21,000 units to breakeven.

Unit sales required:

21,000 + (150,000 P16)

30,375

112. Answer: B

The bonus plan of P1.00 per unit on sales made in excess of

breakeven point (21,000 units) will necessarily decrease the

contribution margin to P15.

The desired profit based on fixed cost:

25% x P360,000

Units required: 21,000 + (P90,000 15)

P90,000

27,000

113. Answer: B

In determining the minimum selling price for the 8,000 units

should consider the increased variable cost per unit and the

additional fixed cost. Any cost and losses on the first 16,000

units are irrelevant:

Variable cost per unit

P14.00

Additional fixed cost per unit (10,000 8,000)

1.25

Minimum selling price

P15.25

114. Answer: A

The net income for the month if the new equipment is acquired:

Contribution margin based on the present

system

P135,000

Add increase in contribution margin due to

decrease in variable cost (15,000 x 9)

135,000

201

Suggested Answers and Solutions

Less Increased fixed costs

270,000

225,000

Net income

115. Answer: B

P 45,000

(12,500 10,000)

2,500 units

10,000 units

12,500 units

116. Answer: C

The degree of operating leverage (DOL)

during the month that the new

equipment would be used: (270,000 45,000)

6X

117. Answer: A

Breakeven units if there is a change in marketing method:

P48,000 6

8,000 units

(Fixed cost + profit) Units sold

(P48,000 + P60,000) 18,000 units

118. Answer: B

202

P6.00

Suggested Answers and Solutions

multiplying the degree of operating leverage (DOL) by the

percentage increase in sales during the second month.

The sales increased by 30% (P4,500 P15,000) and therefore

the profit percentage increased by 180% (6 x 30%).

The expected profit during the next month would be:

P45,000 + (P45,000 x 1.8)

P126,000

119. Answer: C

Breakeven Units:

Fixed Costs Unit Contribution Margin

P6,000,000 300

20,000 pairs

120. Answer: B

Contribution margin (P18,000 x 300)

Less Fixed costs

Net loss

P5,400,000

6,000,000

P( 600,000)

121. Answer: A

The breakeven level for the sales outlet is expected to rise

because of additional commission, a variable cost item, and

such a commission is being paid for all pairs of shoes sold.

Breakeven in pairs of shoes:

6,000,000 (300 75)

122. Answer: D

203

26,667 pairs

Suggested Answers and Solutions

the breakeven point is not affected and shall remain at 20,000

because the additional commission applies only to number of

pairs of shoes sold in excess of breakeven level.

The profit contribution by the 5,000 pairs is based on reduced

contribution margin per pair.

Profit: 5,000 x (300 50)

P1,250,000

Alternative Solution:

Sales (25,000 x P800)

Variable costs (24,000 x P500)

Total contribution margin

Fixed costs

Profit

P20,000,000

12,750,000

7,250,000

600,000

P 1,250,000

123. Answer: A

Because the breakeven level is unchanged, the calculation of the

number of pairs to earn P900,000 is simple. The amount of the

desired profit will be contributed by the number of pairs of

shoes in excess of breakeven, each contributing P250.

20,000 +(P900,000 250)

23,600 pairs

124. Answer: B

300X P6,000,000

140X

X

= 440X P8,142,000

= P2,142,000

= 15,300 pairs

125. Answer: A

Breakeven peso sales: P1,800,000 0.3

204

P6,000,000

Suggested Answers and Solutions

30%

126. Answer: B

Additional contribution margin

P800,000 x 0.30

Additional fixed cost

Increase in profit

P240,000

160,000

P 80,000

127. Answer: B

Sales 39,000 x P270

Variable cost 39,000 x P210

Contribution margin

Fixed cost

Net loss

P10,530,000

8,190,000

2, 340,000

2,400,000

P(

60,000)

128. Answer: B

Original unit contribution margin

(1,755,000 19,500)

Less increase in packaging cost

New Unit contribution margin

P90.00

7.50

P82.50

(P1,800,000 + P97,500) P82.50

23,000

129. Answer: A

205

Suggested Answers and Solutions

(P1,800,000 + P720,000) (P90 + P30)

P2,520,000 90

Breakeven units, Present

(P1,800,000 90)

Increase in breakeven units

21,000

20,000

1,000

130. Answer: C

The computation of the indifference point for the two processes

can be determined by dividing the increase in fixed costs by the

decrease in variable cost per unit because the selling price was

unchanged.

Indifference Point: P720,000 30

24,000

131. Answer: B

If the level of sales is higher than the indifference point, the one

with higher leverage, i.e., higher fixed costs and lower unit

variable cost, will provide higher income.

The automated

process has the higher leverage and therefore, it has higher

income:

Difference in income: (26,000 24,000)30

P60,000

132. Answer: C

Breakeven units = Fixed costs Unit contribution margin

P100,000 (P400 P200)

500 units

206

Suggested Answers and Solutions

133. Answer: D

Step 1: Compute before-tax profit:

P240,000 (1.0 0.4)

P400,000

(P100,000 + P400,0000) P200

2,500 units

Alternative Solution:

Profit = Sales Variable costs Fixed costs

P400,000 = P400X P200X P100,000

P500,000 = P200X

X = 2,500 units

134. Answer: C

Revenue

(350 x P400) + (2,700 x P360)

Variable costs (3,050 x P200)

Contribution margin

Fixed expenses

Operating income

Income tax

Net income

P1,112,000

610,000

502,000

100,000

P 402,000

160,800

P 241,200

135. Answer: A

Revenue (350 x P400) + (2,200 x P370)

Variable costs (350 x P200) + (2,200 x P175)

Contribution margin

Fixed expenses

Operating income

Income tax

Net income

207

P 954,000

455,000

499,000

100,000

399,000

159,600

P 239,400

Suggested Answers and Solutions

136. Answer: B

Revenue (350 x P400) + (2,000 x P380)

Variable costs (2,350 x P200)

Contribution margin

Fixed costs

Operating profit

Income tax

Net income

P 900,000

470,000

P 430,000

90,000

340,000

136,000

P 204,000

137. Answer: D

Before tax profit objective (240,000 0.6)

Fixed costs

Total contribution margin required

Less contribution margin made on units sold

January May (350 x 200)

P400,000

100,000

500,000

P430,000

(2,500 x P175)

Less additional contribution margin required to

meet profit objective

Maximum advertising cost

70,000

P437,500

430,000

P

208

7,500

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