MANAGEMENT ACCOUNTING & CONTROL

PROFIT PLANNING AND COST VOLUME PROFIT ANALYSIS

Learning Activity 8. BEP, sales with profit

Galera Company has analyzed the costs of producing and selling 5,000 units of its only
product to be as follows:

Direct Materials 60,000

Direct Labor 40,000
Variable Factory Overhead 20,000
Fixed Factory Overhead 30,000
Variable Marketing & Admin Expenses 10,000
Fixed Marketing & Admin Expenses 15,000

Required:
1. Compute the number of units needed to breakeven at a per unit sales price of Php
38.50.
2. Determine the number of units that must be sold to produce an Php 18,000 profit, at
a Php 40 per unit sales price.
3. Determine the price Galera must charge at a Php 5,000 unit sales level, to produce a
profit equal to 20% of sales.
ANSWERS AND SOLUTIONS:

1. Compute the number of units needed to breakeven at a per unit sales price of Php 38.50.

Direct Materials 60,000

Direct Labor 40,000
Variable Factory Overhead 20,000
Fixed Factory Overhead 30,000
Variable Marketing & Admin Expenses 10,000
Fixed Marketing & Admin Expenses 15,000
Producing and selling units 5,000 units

Unit price- P38.50

Unit for selling – 5,000 units

Unit variable Costs – P 26.00

=(P60,000 + 40,000 + 20,000 +10,000)/ 5,000 units

=130,000/5,000

= P26.00

Contribution per unit

Selling price P38.50

Less: Variable cost 26.00

Contribution margin per unit P12.50

Compute for Breakeven point (unit) using formula

=Total Fixed Cost/Contribution margin per unit

= P30,000 + 15,000/ 12.50

= P45,000/ 12.50

= 3,600 units

Galera Company must sold 3,600 units to come up with breakeven point, at P38.50 unit selling price.
To Prove:

Sales (3,600units x P38.50) P138,600

Less: Variable Costs (3,600 x P 26) P93,600

Contribution Margin 45,000

Less: Fixed Costs 45,000

Profit(loss) P0

2. Determine the number of units that must be sold to produce an Php 18,000 profit, at a Php 40 per
unit sales price.

Unit price- P40.00

Profit- P18,000

Total Fixed Cost (30,000 + 15,000) - P45,000

Unit variable Costs – P 26.00

=TVC/ units produced

=(P60,000 + 40,000 + 20,000 +10,000)/ 5,000 units

=130,000/5,000

= P26.00

Contribution per unit

Selling price P40.00

Less: Variable cost 26.00

Contribution margin per unit P14.00

Compute for Breakeven point (unit) using formula

=Total Fixed Cost + Profit/Contribution margin per unit

= P45,000 + 18,000/ 14.00

= P63,000/ 14.00

= 4,500 units

Galera Company must sold 4,500 units to earn an Php 18,000 profit, at a Php 40 unit selling price
To Prove:

Sales (4,500units x P40.00) P180,000

Less: Variable Costs (4,500 x P 26) P117,000

Contribution Margin 63,000

Less: Fixed Costs 45,000

Profit(loss) P 18,000

3. Determine the price Galera must charge at a Php 5,000 unit sales level, to produce a profit
equal to 20% of sales
Total Variable Cost P 130,000

(P60,000 + 40,000 + 20,000 +10,000)

Total Fixed cost 45,000

(30,000 + 15,000)

Total Cost P175,000

Profit Percentage 20%

Production units 5,000

Compute for Selling Price

=TC/(100%-Profit%))/ production units

= 175,000/ (100%-20%)/ 5,000

=175,000/ 80% / 5,000

= 218,750/ 5,000

= P43.75

Galera company must charge at P43.75 at a P 5,000 production units to produce a profit equal to 20% of
sales.