Basadre, Jessa G.

BSA 3rd yr

Managerial Accounting
Assignment no. 2 - CVP Relationship

True or False
1. True 6. False
2. False 7. True
3. False 8. True
4. True 9. True
5. False 10. True

Exercises
1. Limiting assumptions for breakeven analysis:
a. The price of the product is assumed to be constant.
b. Costs are linear and can be accurately divided into variable and fixed element.
c. The fixed element is constant in total over the entire relevant range.
d. In multiproduct companies, the mix of products sold remains constant.
e. The variable element is constant per unit.

2. 6.
Sales $ 250,000 Breakeven point in sales dollars
Prime cost (108,000) = $104,130 / 0.37*
Variable factory overhead + (31,000) = $281,432.43
Contribution margin $ 111,000
*Contribution margin ratio
3. = 22/60
Contribution margin $ 111,000 = 0.366667
Fixed expenses (37,500)
Net operating income $ 73,500 7.
Units sales to attain the target profit:
Degree of operating leverage: = Fixed costs + Target profit
= 111,000 / 73,500 Weighted average contribution margin
= 1.51
= $ 104,130 + $ 26,130
4. ($9 x 5/11) + ($5 x 5/11) + ($8 x 1/11)
Sales (250,000 + (250,000)15%) $ 287,500
Prime cost (108,000) = 130,260
Variable factory overhead + (31,000) 7.09
Contribution margin 148,500 = 18,372. 35 or 18,373 units
Fixed expense (37,500)
Net operating income $ 111,000 Product D : 18,373 x 5/11 = 8,352
Product E : 18,373 x 5/11 = 8,352
5. Product F : 18,373 x 1/11 = 1,671
Breakeven point in units
= $104,130 / 22* 8.
= 4,733.18 or 4,734 Incremental sales revenue
(36,000 x $9) $ 324,000
*Unit sales price (14 + 36 + 10) = 60 CM ratio x 58%
Unit variable costs (5 + 31 + 2) = (38) Incremental contribution margin 187,920
Unit contribution margin 22 Less: incremental salaries expense 40,000
Increased net operating income $ 147,920

There is an increase in profit of $ 147,920. Therefore,

Andrade Manufacturing Co. should implement the
changes.
 9.
120,000 Price 150,000 Price
units sold per unit units sold per unit
Sales
$1,200,000 10 $1,350,000 9
revenue
Variable cost 504,000 4.2 630,000 4.2
CM 696,000 5.8 720,000 4.8
Fixed cost 400,000 440,000
Profit $ 296,000 $ 280,000

There is a difference (loss) of $16,000. Therefore, the change to increase sales volume by
25% should not be made.

Matching

C. 1 - Variable cost ratio Contribution margin ratio

E. FC/CMR Breakeven in dollars
F. USP - UVC Contribution margin per unit
A. S - VC Contribution margin
B. FC/CMPU Breakeven in units

Multiple Choice

1. Fixed expense: 5. Sales (20,000 x $0.50) $ 10,000

Leasing cost $ 2,000 Variable costs:
Salaries 1,000 $ 3,000 Cones and Cups (20,000 x $0.06) (1,200)
Ice cream (100 x 8) (800)
Unit CM ($ 0.50 - 0.16) ÷ 0.34 Fixed expenses (3,000)
Breakeven point in units 8,823.53 Profit $ 5,000
ANSWER: C. 8,824 SCOOPS ANSWER; C. $5,000

2. Fixed expense: 6. Unit selling price $ 0.50

Leasing cost $ 2,000 Variable cost ($0.24 + 0.04) 0.28
Salaries 1,000 $ 3,000 ANSWER: A. $0.22

CM ratio ($0.16/0.50) ÷ 0.32 7. Unit sales price $ 20

Breakeven point in sales dollars $ 9,375 Unit variable cost 15
ANSWER: C. $ 9,375 Unit CM $5

3. Profit $ 4,000 Breakeven point in units

Fixed expenses 3,000 = $ 100,000 / $ 5
7,000 = 20,000 units
Unit CM ÷ 0.34 ANSWER: D. NONE OF THE ABOVE
20,588.24
ANSWER: D. 20,588 SCOOPS 8. Target profit $ 50,000
Fixed costs 100,000
4. Required number of scoops 20,588 $ 150,000
Selling price x $ 0.50
Monthly sales $ 10,294 Required units before tax
ANSWER: A. $10,294 = $ 150,000 / 5
= 30,000 units
ANSWER: D. NONE OF THE ABOVE
9. Target profit (w/ tax)
(60,000 / 1-40%) $ 100,000
Fixed costs 100,000
$ 200,000
Required units after tax
= $200,000 / 5
= 40,000
ANSWER: 40,000 UNITS

10. ANSWER: A. INCREASE $ 3 PER UNIT SOLD