7 February 2022

DAVIS, MONICA M.
BSAC 1-2

Cost Accounting and Control

Week 3: Homework
Cost-Volume-Profit Relationship

Problems: Show your solution

1. ANGEL Company’s most recent income statement is shown below:

Total Per Unit

Sales (30,000 units) P 150,000 P 5
Less: Variable expenses 90,000 3
Contribution Margin 60,000 2
Less: Fixed expenses 50,000
Net operating income 10,000

Required: (20 points)

Prepare a new income statement under each of the following conditions or a total of
4 new income statements (consider each case independently)

(a) The sales volume increases by 15%

Total Per Unit
Sales (34,500 units) P 172,500 P 5
Less: Variable expenses 103,500 3
Contribution Margin 69,000 2
Less: Fixed expenses 50,000
Net operating income 19,000

(b) The sales price decreases by 0.50 per unit, and the sales volume increases by
20%
Total Per Unit
Sales (36,000 units) P 162,000 P 4.5
Less: Variable expenses 108,000 3
Contribution Margin 54,000 1.5
Less: Fixed expenses 50,000
Net operating income 4,000

(c) The selling price increases by 0.50 per unit, fixed expenses increase by P10,000,
and the sales volume decreases by 5%
Total Per Unit
Sales (28,500 units) P 156,750 P 5.5
Less: Variable expenses 85,500 3
Contribution Margin 71,250 2.5
Less: Fixed expenses 60,000
Net operating income 11,250

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(d) Variable expenses increase by 0.20 per unit, the selling price increases by 12%,
and the sales volume decreases by 10%

Total Per Unit

Sales (27,000 units) P 151,200 P 5.6
Less: Variable expenses 86,400 3.2
Contribution Margin 64,800 2.4
Less: Fixed expenses 50,000
Net operating income 14,800

2. JING Company plans to sell 10,000 motorcycle helmets at P1,000 each in the coming
year. Variable cost is P500 which includes direct materials, direct labor, variable
factory overhead, variable selling, and variable administrative. Total fixed cost equals
P150,000 which includes fixed factory overhead, and fixed administrative expenses.

Required: (3 points)
(a) Compute the break-even point in number of helmets
BEPu = FC / CMU = P150,000 / 500 = 300
(b) Compute for break-even sales
BEPp = FC / CMR = P150,000 / 50% = P300,000
(c) Check your answer by preparing a contribution margin statement based on the
break-even sales
Total Per Unit
Sales (300 units) P 300,000 P 1,000
Less: Variable expenses 150,000 500
Contribution Margin 150,000 500
Less: Fixed expenses 150,000
Net operating income 0

3. Data for JAZZ Corporation are shown below:

Per Unit Percentage of Sales

Selling price P 75 100%
Variable expenses 45 60%
Contribution Margin 30 40%

Fixed expenses are P75,000 per month and the company is selling 3,000 units per
month.

Required: (4 points)
(a) The marketing manager argues that an P8,000 increase in the monthly advertising
budget would increase monthly sales by P15,000. Should the advertising budget
be increased? Explain your answer.

Original With additional

Sales (3,200 units) P 225,000 P 240,000
Less: Variable expenses 135,000 144,000
Contribution Margin 90,000 96,000
Less: Fixed expenses 75,000 83,000
Net operating income 15,000 13,000

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It is true that the Sales would increase by P15,000 but it is not recommendable to be
implement because it will only decrease the net operating income.

(b) Refer to the original data. Management is considering using higher-quality

components that would increase the variable cost by P3 per unit. The marketing
manager believes the higher-quality product would increase sales by 15% per
month. Should the higher-quality components be used? Explain your answer.

Original With additional

Sales (3,450 units) P 225,000 P 258,750
Less: Variable expenses 135,000 165,600
Contribution Margin 90,000 93,150
Less: Fixed expenses 75,000 75,000
Net operating income 15,000 18,150

The result shows that using higher quality components would increase the net
operating income, it is recommendable to implement.

4. RICH Company has the following revenue and cost budgets for the two products it
sells:

Plastic Frames Glass Frames

Sales price P 10 P 15
Direct materials (2) (3)
Direct labor (3) (5)
Fixed overhead (3) (4)
Net income per unit 2 3

Budgeted units sales 100,000 300,000

The budgeted unit sales equal the current unit demand, and total fixed overhead for
the year is budgeted at P975,000. Assume that the company plans to maintain the
same proportional mix.

Required: Compute for: (3 points)

(a) The total number of units RICH needs to produce and sell to break even
BSV = TBI / NIu = P975k / (5x1) + (7x3) = P975k / 26 = P37,500

1:3 (37.5kx1) + (37.5kx3) = P150,000

(b) The total number of units needed to break even if the budgeted direct labor costs
are P2 for plastic frames instead of P3
BSV = TBI / NIu = P975k / (6x1) + (7x3) = P975k / 27 = P36,111

1:3 (36.1kx1) + (36.1kx3) = P144,444

(c) The total number of units needed to break even if sales are budgeted at 150,000
units of plastic frames and 300,000 units of glass frames with all other costs
remaining constant.
BSV = TBI / NIu = P975k / (5x1) + (7x2) = P975k / 19 = P51,316

1:2 (51.3kx1) + (51.3kx2) = P153,948

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