PRACTICE PROBLEMS in CVP ANALYSIS

Name: Jesseca Boter BSA-2C

Problem #1:
Contribution Margin Ratio= 1- Variable Expenses Ratio
Contribution Margin Ratio= 1 - 0.75
Contribution Margin Ratio= 0.25

BEP in sales= Fixed Expenses / Contribution Margin Ratio

₱ 1,012,500= Fixed Expenses / 0.25
Fixed Expenses= ₱ 1,012,500 x 0.25
Fixed Expenses= ₱ 253,125

Work back:
Loss (36,000)
Add: Fixed Expenses ₱ 253,125
Contribution Margin ₱ 217,125

Therefore,
0.25 x Sales = ₱ 217,125
Sales = ₱ 217,125 / 0.25
Sales= ₱ 868,500

To check:
Sales ₱ 868,500
Variable Expenses (75%) (651,375)
Contribution Margin ₱ 217,125
Fixed Expenses (253,125)
Loss ₱ (36,000)

Problem #2:
Contribution Margin Ratio= 1- Variable Expenses Ratio
Contribution Margin Ratio= 1 - 0.60
Contribution Margin Ratio= 0.40

BEP sales= Fixed Expenses / Contribution Margin Ratio

BEP sales= ₱ 375,000 / 0.40
BEP sales= ₱ 937,500

Margin of Safety (₱)= Actual Sales - BEP Sales

Margin of Safety (₱)=₱ 1,500,000 - 937,500
Margin of Safety (₱)=₱ 562,500

Problem #3:
Contribution Margin Ratio= 1- Variable Expenses Ratio
Contribution Margin Ratio= 1 - 0.60
Contribution Margin Ratio= 0.40

BEP (₱)= Fixed Expenses / Contribution Margin Ratio

₱ 500,000= Fixed Expenses / 0.40
Fixed Expenses= ₱ 500,000 x 0.40
Fixed Expenses= ₱ 200,000

Margin of safety (₱) = Total actual sales - BEP sales

Margin of safety (%) = Margin of safety (₱) ÷ Total actual sales
Margin of safety (%) = (Total actual sales − BEP sales) ÷ Total actual sales
Margin of safety (%) = 1 − BEP sales ÷ Total actual sales
BEP sales ÷ Total actual sales = 1 − Margin of safety (%)
Total actual sales = BEP sales ÷ (1 − Margin of safety (%)

Total actual sales= ₱ 500,000 / (1 - 20%)

Total actual sales= ₱ 500,000 / 80%
Total actual sales= ₱ 625,000

Actual Profit= (Contribution Margin Ration x Sales) - Fixed Expenses

Actual Profit= (0.40 x ₱ 625,000) - ₱ 200,000
Actual Profit= ₱ 250,000 - ₱ 200,000
Actual Profit= ₱ 50,000

Problem #4:
Contribution Margin= 75% of Sales
Contribution Margin= 75% x ₱ 400,000
Contribution Margin= ₱ 300,000

Operating Leverage = Contribution Margin / Net Operating Income

4 = ₱ 300,000 / Net Operating Income
Net Operating Income = ₱ 300,000 / 4
Net Operating Income = ₱ 75,000

Net Operating Income= Contribution Margin - Fixed Expenses

₱ 75,000 = ₱ 300,000 - Fixed Expenses
Fixed Expenses = ₱ 300,000 - 75,000
Fixed Expenses = ₱ 225,000

Problem #5:
        6,000 units 6,100 units
Sales (P520 per unit) ₱ 3,120,000 ₱ 3,172,000
Variable Expenses (P312 per unit) (1,872,000) (1,903,200)
Contribution Margin ₱ 1,248,000 ₱ 1,268,800
Fixed Expenses (P15,000 increase) (600,000) (615,000)
Net Operating Income ₱ 648,000 ₱ 653,800

₱ 653,800 - ₱ 648,000 = ₱ 5,800

Therefore, net operating income would increase by ₱ 5,800.