COST-VOLUME-PROFIT ANALYSIS H101 MR. ALBERT D.

CRUZ, CPA, CMA

Problem 1. YinYan Company, a manufacturer of cellphones, sells them to wireless providers for $240 each.
YinYan Company’s variable cost is $180 per phone.

1. The unit contribution margin is: ___________________

2. If YinYan Company sells 60,000 phones, the total contribution margin is: ____________________
3. YinYan Company’s Contribution Margin Ratio using unit amounts is: __________________
4. If the company sells 60,000 phones, YinYan Company’s Contribution Margin Ratio using totals
is: _____________________

Problem 2. Baby Boy Corp. sells its product for $500 per unit. Fixed costs are $420,000, and the variable cost
is $360 per unit. The following shows how the contribution margin increases as sales volume increases and
more of the fixed assets are recovered, and operating income goes from negative to positive:
Sales Volume: 1,000 2,000 3,000 4,000 5,000
Revenues
Variable Costs
Contribution Margin
Fixed Costs
Operating Income

Problem 3. James Corp. manufactures cellphones and sells them to wireless providers for $240 each. James
Corp.’s variable cost is $180 per phone and its fixed costs is $750,000.
1. James Corp.’s breakeven point in units is:
2. James’ breakeven point in revenue is:

Problem 4. Given a selling price of $75 and variable cost of $60, what is the breakeven point in units if fixed
costs is $22,500?
1. Contribution Margin Ratio is:
2. Breakeven point in revenue is:

Problem 5. A company manufactures a single product. Estimated cost data regarding this product and other
information for the product and the company are as follows:

Sales price per unit $160

Total variable production cost per unit $137
Sales commission (on sales) 5%
Fixed costs and expenses:
Manufacturing overhead $10,320,000
General and Administrative $4,740,000
Effective income tax rate 40%

1. The number of units the company must sell in the coming year in order to reach its breakeven
point is: [CIA Adapted]

Problem 6. A company sells a single product at a price of $80 per unit. The company has budgeted to sell
450,000 units in the coming year. The company’s budgeted income statement for the coming year is as follows:

Sales ($80x450,000) $36,000,000

Cost of Sales $14,000,000
Gross Profit $22,000,000
Sales, general & administrative expense $ 7,500,000
Operating Income $14,500,000

Cost of sales is 75% variable cost and 25% fixed cost. Sales, general and administrative expense is 40% variable
cost and 60% fixed cost. Management wants to know how low sales volume can go without the company
suffering an operating loss.

1. Based on the budgeted information, what is the company’s breakeven point in units?
2. What is the company’s breakeven point in revenue?

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 MR. ALBERT D. CRUZ, CPA, CMA

Problem 7. Total production costs of prior periods for a company are listed as follows. Assume that the same
cost behavior patterns can be extended linearly over the range of 3,000 to 35,000 units and that the cost driver
for each cost is the number of units produced.

The company is concerned about its current operating performance that is summarized as follows:
Sales ($25per unit) $1,200,000
Variable costs $720,000
Net operating loss ($160,000)

1. How many additional units should have been sold in order for the company to breakeven?
[CIA Adapted]

Problem 8. MLBA Corp. has the following partial contribution income statement at a sales volume of 1,500,000
units for its single product:

Sales Revenue $150,500,000

Variable Cost $119,000,000
Contribution Margin $31,500,000

MLBA’s controller has calculated that the company’s breakeven point is 550,000 units.
1. What is MLBA’s total fixed costs?

Problem 9. The selling price is $75, variable cost is $60, and fixed costs are $22,500, and the company must
achieve a minimum pre-tax profit of $5000.
1. What is the required sales level (volume) to achieve a pre-tax profit of $15,000?
2. The target sales revenue is:

Problem 10. The selling price is $75, variable cost is $60, and fixed costs are $22,500, and the company must
achieve a minimum pre-tax profit of 15% of sales.
1. What is the required sales level to achieve a pre-tax profit of 15% of sales?
2. What is the target revenue?

Problem 11. For a company with a sale price per unit of $90.00, variable cost of $66, fixed cost of $15,000, and
a tax rate of 40%, an after-tax net income of $30,000 is required. Compute the following:
1. Contribution margin per unit:
2. Target pre-tax net income:
3. Target sales volume in units:
4. Contribution margin ratio:
5. Target revenue:

Problem 12. For a company with a sale price per unit of $90.00, variable cost of $66, fixed cost of $15,000, a
tax rate of 20%, and an after-tax net income requirement of 20% of revenue. Compute for the following:
1. What is the target sales volume?
2. What is the target revenue?

Problem 13. A company has sales of $750,000, variable costs of $450,000, and pre-tax profit of $250,000.
Assume the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable
cost per unit unchanged.
1. What would be the new breakeven point in sales dollars?
[CMA Adapted]

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 MR. ALBERT D. CRUZ, CPA, CMA

Problem 14. Ben has developed a new project that will be marketed for the first time in the next fiscal year.
Although the marketing department estimates that 28,000 units could be sold at $72 per unit, Ben’s
management has only allocated enough manufacturing capacity to manufacture 22,000 units of the new
product annually. The fixed costs that are associated with the new product are budgeted at $940,000 for the
year, which includes $260,000 of depreciation on new manufacturing equipment. Data for each unit of product
is below and Ben is subject to a 40% tax rate.
Variable Costs
Direct Material $10.00
Direct Labor $8.50
Manufacturing Overhead $4.00
Total Variable Manufacturing Costs $22.50
Selling Expenses $2.50
Total Variable Costs $25.00

1. The number of units of the new product that Ben must sell in order to break even the next fiscal
year is?

2. The maximum after-tax profit that can be earned by Ben from sales of the new product during
the next fiscal year is?

3. Ben’s management has stipulated that it will not approve the continued manufacture of the new
product after the next fiscal year unless the after-tax profit is at least $89,400 in the first year.
The unit selling price to achieve this target profit must be at least?
[CMA Adapted]

Problem 15. Harry Potter Company produces two products. Fixed manufacturing cost is applied at a rate of
$2.50 per machine hour.
Per Unit Cellphones Tablets
Selling Price $80.00 $36.00
Variable Manufacturing Cost $32.50 $12.50
Fixed Manufacturing Cost $12.50 $10.00
Variable Selling Cost $20.50 $14.50

The sales manager has had a $162,000 increase in the budget for advertising. The products are not substitutes
for one another in the eyes of the company’s customers.

1. Suppose the sales manager chooses to devote the entire $162,000 to increase advertising for
cellphones. The minimum increase in sales units of cellphones required is?

2. Suppose the sales manager chooses to devote the entire $162,000 to increase advertising for
tablets. The minimum increase in sales dollars of tablets required to offset the increased
advertising would be?
[CMA Adapted]

Problem 16. The total sales in units of a company are made up of 40% of Product Ace and 60% of Product Best.
The selling prices are $20.00 for Product Ace and $15.00 for Best. Variable costs are $12.50 and $8.75 for
Products Ace and Best, respectively. Fixed costs for the company are $371,250.

1. Determine how many of each product needs to be sold to break even.

Problem 17. Assume that the sales revenue of a company is made up of 40% of Product Ace and 60% of Product
Best. The selling prices are $20.00 for Product Ace and $15.00 for Product Best. Variable costs are $12.50, and
$8.75 for Products Ace and Best, respectively. Fixed costs for the company are $371,250.

1. Calculate the weighted average contribution margin ratio.

2. Determine the breakeven revenue of each product.

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 MR. ALBERT D. CRUZ, CPA, CMA

Problem 18. A company’s sales mix consists of a composite unit of 75 units of Product A, 15 units of Product
B, and 60 units of Product C. The company’s fixed costs are $877,500. Selling prices and variable costs are as
follows:
Item A Item B Item C
Selling Price/unit $100.00 $60.00 $85.00
Variable cost/unit $90.00 $40.00 $70.00
Contribution Margin/unit $10.00 $20.00 $15.00

1. Calculate the breakeven number of composite units.

Problem 19. Belle Corporation has the following revenue and cost budgets for the two product it sells.
Ball pens Pencils
Budgeted Unit Sales 150,000 450,000
Sales Price $20.00 $30.00
Direct Materials (4.00) (6.00)
Direct Labor (6.00) (10.00)
Fixed Overhead (3.90) (5.20)
Net Income per unit $6.10 $8.80

The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at
$2,925,000. Assume the company plans to maintain the same mix ratio. In numerical calculations, Belle rounds
to the nearest cent and unit.

1. The total number of units that Bells needs to produce and sell to breakeven is:
2. The total number of units needed to breakeven if the budgeted direct labor costs were $4 for
ball pens instead of $6 is:
3. The total number of units needed to breakeven if sales were budgeted at 200,000 units of ball
pens and 400,000 units of pencils with all other costs remaining constant is:
[CMA Adapted]

Problem 20. Donald Company sells two products with the following characteristics.
Product 1 Product 2
Contribution Margin Ratio 30% 40%
Percentage of sales dollars 45% 55%
Fixed Costs $365,450 $848,650

1. Donald’s breakeven point in dollars is: [ICMA Adapted]

Problem 21. Pan Company produces three distinct products as follows:

Product Percentage of Total Sales in Units Sale Price
Oreon 50% $2.00
Reesie 30% $2.00
Cadmury 20% $4.00
The contribution margin for the Oreon is 30% of sales. Reesie and Cadmury both have a 40% contribution
margin.
1. Calculate the breakeven point in units if Pan’s fixed costs are $506,325.
2. Calculate the breakeven point in dollars if Pan’s fixed costs– are $506,325.
[ICMA Adapted]

Problem 22. The Blackbeard Company produces two products: Delta and Charlie. Delta’s accounts for 35% of
Blackbeard’s total sales revenue while Charlie accounts for the remainder. The variable cost for Delta is 45%
of its selling price, while Charlie’s variable cost is 55% of its selling price.
1. If Blackbeard’s fixed costs are $500,000, what is the company’s total breakeven revenue?

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