Immaculate Conception Academy 10 Grant Street, Greenhills San Juan City HIGH SCHOOL DEPARTMENT

BUSINESS MATHEMATICS
First Semester SY 2019-2020

Case Study 2
Cost Volume Profit Analysis

Timex Sporting Goods Company, a wholesale supply company, engages independent sales agents to market the company’s
products throughout the country. These agents currently receive a commission of 20 percent of sales, but they are demanding
an increase to 25 percent of sales made during the year ending December 31 2018. The controller already prepared the 2018
budget before learning of the agents’ demand for an increase in commission.

The budgeted 2018 income statement is shown below. Assume the cost of goods sold is 100 percent variable costs.

Sales PhP 10,000,000

Cost of goods sold (a)akdf
Gross profit 4,000,000
Operating expenses:
Commissions P (b)
Other expenses (fixed) 100,000 (c)ssjdg
Income before taxes PhP (d)
Income tax (30%) 570,000
Net income (e) dfvd

Timex’s management is considering the possibility of employing full-time sales personnel to replace the independent sales
agents. Three (3) individuals would be required, at an estimated annual salary of PhP 30,000 each, plus commissions of five
percent (5%) of sales. In addition, a sales manager would be employed at a fixed annual salary of PhP 160,000. All other fixed
costs, as well as the other variable costs, would remain the same as the estimates in the 2018 budgeted income statement.

Requirements:

1. Fill up the missing items (a-e).

a. PhP 6,000,000
b. PhP 2,000,000
c. PhP 2,100,000
d. PhP 1,900,000
e. PHP 1,330,000

2. Based on the budgeted 2018 income statement, how much is the total amount of variable costs? PhP 8,000,000

3. Based on the budgeted 2018 income statement, what is the contribution margin rate? 20%

4. Based on the budgeted 2018 income statement, how much is the estimated breakeven point in peso sales for the year
ending December 31 2018? PhP 500,000

5. How much is the estimated breakeven point in peso sales for the year ending December 31 2018, if the company opts
to employ its own sales personnel? PhP 1,000,000

6. How much volume in peso sales would be required for the year ending December 31 2018 to yield the same net income
as projected in the budgeted income statement, if Timex continues to use the independent sales agents and agrees to
their demand for a 25 percent sales commission? PhP 13,333,333

7. How much is the estimated volume in peso sales that would generate an identical net income for the year ending
December 31 2018, regardless of whether Timex employs its own sales personnel or continues to use the independent
sales agents and pays them a 25 percent commission? PhP 1,250,000