Problem 1

Candace Company
Contribution Income Statement
For the coming year
=
Total Per Unit CM Ratio
Sales ₱ 600,000.00 ₱ 60.00 100%
=
Less: Variable cost ₱ 360,000.00 ₱ 36.00 60%
Contribution margin ₱ 240,000.00 ₱ 24.00 40%
=
Less: Fixed cost ₱ 192,000.00
Net operating income ₱ 48,000.00

1. Variable Cost Ratio= 60%

Total Variable Cost/Total Sales
= P360,000/P600,000 = 0.6 or 60%

2. Contribution Ratio= 40%

Total CM/Total Sales
= P240,000/P600,000 = 0.4 or 40%

3. Break-even points in units= 8,000 units

Total fixed cost/CM per unit
= P192,000/P24 = 8,000 units

4. Break-even sales in pesos= P 480,000

BEP in units x Selling price/unit
= P8,000 x P60 = P 480,000
Problem 2

1. Break-even point in number of helmets= 495 units

Total Fixed Cost
Selling Price per unit - Variable cost per unit
P148,500
P1,000 - P700
P148,500
P300
= 495 units

2. Break-even sales= P495,000

BEP in units x Selling Price per unit
= 495 units x P1,000
= P495,000

3. CM Statement based on Break-even sales

Total
Sales ₱ 495,000.00
Variable cost (495 x P700) ₱ 346,500.00
Contribution margin ₱ 148,500.00
Less: Fixed cost ₱ 148,500.00
Net operating income ₱ -

Monet Company
Contribution Income Statement
For the coming year
Total Per Unit CM Ratio
Sales (10,000 x 1,000) ₱ 10,000,000.00 ₱ 1,000.00 100%
Less: Variable cost (10,000 x 700) ₱ 7,000,000.00 ₱ 700.00 70%
Contribution margin ₱ 3,000,000.00 ₱ 300.00 30%
Less: Fixed cost ₱ 148,500.00
Net operating income ₱ 2,851,500.00
 Problem 3
Reno Company
Contribution Income Statement
For the coming year
Total
Sales (1,500 x 1,050) ₱ 1,575,000.00
Less: Variable cost (1,500 x 630) ₱ 945,000.00
Contribution margin ₱ 630,000.00
Less: Fixed cost ₱ 630,000.00
Net operating income ₱ -

1. Contribution margin per unit= P420 per unit

Total CM/Units sold
= P630,000/P1,500= 420 per unit

2. Contribution Margin Ratio= 40%

Total CM/Total Sales
= P630,000/P1,575,000= 0.4 or 40%

3. Break-even point in number of helmets= 1,500 units

Total Fixed Cost
=
Selling Price per unit - Variable cost per unit

= P630,000
P1,050 - P630

= P630,000
P420
= 1,500 units

Break-even in pesos= P1,575,000

BEP in units x Selling Price per unit
= 1,500 units x P1,050 = P1,575,000

CM Statement based on Break-even sales

Total
Sales ₱ 1,575,000.00
Variable cost (1,500 x P630) ₱ 945,000.00
Contribution margin ₱ 630,000.00
Less: Fixed cost ₱ 630,000.00
Net operating income ₱ -

4. Units sales= 1,725 units

Unit sales to attain the target profit= Target Profit + Fixed Expenses
CM per unit
= P94,500 + P630,000
P420
= 1,725 units
 Problem 4
MODEL SELLING
PRICE
X100 ₱ 8,800.00
Per Unit CM Ratio X950 ₱ 14,800.00
₱ 1,050.00 100% C800 ₱ 24,000.00
₱ 630.00 60% Total ₱ 47,600.00
₱ 420.00 40%
Contribution margin per unit for all products.
X100 CM per Unit=8,800 – 7,600 = 1,200
X950 CM per Unit=14,800 – 12,000 = 2,800
C800 CM per Unit =24,000 – 20,000 = 4,000

Weighted CM per unit

∑(CM per unit x Unit sales mix ratio)
X100 (1,200 x 30%) = 360
X950 ( 2,800 x 50%) = 1,400
C800 ( 4,000 x 20%) = 800
= 2,560

1. Break-even point in units= 422 units

= Total Fixed Cost

Weighted CM per unit

= P1,080,000
360 + 1,400 + 800
P1,080,000
=
2,560
= 422 units

Weighted average CM ratio

∑(CMR x Sales revenue ratio)
X100 (13.6% x2,640/14,840) = 2.42%
X950 (18.9% x7,400/ 14,840) =9.42%
C800 (16.6% x 4,800/ 14,840) =5.37%
17.21%

X100 (13.6% x2,640/14,840) = 2.42%

X950 (18.9% x7,400/ 14,840) =9.42%
C800 (16.70% x 4,800/ 14,840) =5.40%
17.24%
 Break-even point in peso= P6,264,501
Total fixed costs
=
Weighted average CM ratio
P1,080,000
=
17.21%
= P6,275,421

Total fixed costs

=
Weighted average CM ratio
P1,080,000
=
17.24%
= P6,264,501

2. Target sales in units for all products.

Target Sales in Units X100 = (1,080,000 + 1,000,000) ÷ 2,560 × 0.30 = 244 units
Target Sales in Units X950 = (1,080,000+ 1,000,000) ÷ 2,560× 0.50 = 406 units
Target Sales in Units C800 = (1,080,000+ 1,000,000) ÷ 2,560× 0.20 = 163 units
 Problem 5
VARIABLE CONTRIBUTION CM SALES SALES Cost
COST MARGIN RATIO MIX RATIO MIX Barber's Salary
₱ 7,600.00 ₱ 1,200.00 13.60% 2,640 30% Barber's Commission
₱ 12,000.00 ₱ 2,800.00 18.90% 7,400 50% Advertising
₱ 20,000.00 ₱ 4,000.00 16.70% 4,800 20% Rent
₱ 39,600.00 ₱ 8,000.00 49.20% 14,840 100% Barber Supplies
Utilities
Utilities
Magazines
Cleaning Supplies

Sales
Less: Variable cost
Contribution margin
560 × 0.30 = 244 units
60× 0.50 = 406 units
60× 0.20 = 163 units
 Amount Type
P13,000(10,000 + P3,000) Fixed Cost
=
20 Variable Cost
1,000 Fixed Cost
=
4,000 Fixed Cost
400 Fixed Cost
1,750 Fixed Cost
25 Variable Cost
250 Fixed Cost =
15 Variable Cost

=
per unit CM Ratio
₱ 100.00 100%
₱ 60.00 60%
₱ 40.00 40%
1. Break-even point in number of helmets= 510 units
Total Fixed Cost
Contribution margin per unit
P20,400
40
=510 units

Break-even in pesos= P51,000

Total Fixed Cost
Contribution margin ratio
P20,400
40%
= P51,000

2. Net Income
Candace Company
Contribution Income Statement
For the coming year
Total per unit CM ratio
Sales (1,400xP100) ₱ 140,000.00 ₱ 100.00 100%
Less: Variable cost (1,400xP60) ₱ 84,000.00 ₱ 60.00 60%
Contribution margin ₱ 56,000.00 ₱ 40.00 40%
Less: Fixed cost ₱ 20,400.00
Net income ₱ 35,600.00

3. Units sales= 1,135 units

Unit sales to attain the target profit= Target Profit + Fixed Cost
CM per unit
= P25,000 + P20,400
P40
= 1,135 units

4. Amount charged per haircut= P 100.27

CM per unit= Target Profit + Fixed Cost
Desired number of haircuts
= P40,000 + P20,400
1,500
= P 40.27

Service Charge= Variable cost + CM per unit/haircut

=P 60 + P 40.27= P100.27
 Problem 6
Guiller Company
Contribution Income Statement
For the coming year
Total Per Unit CM Ratio
Sales ₱ 2,480,000.00 ₱ 20.00 100%
Less: Variable cost ₱ 1,488,000.00 ₱ 12.00 60%
Contribution margin ₱ 992,000.00 ₱ 8.00 40%
Less: Fixed cost ₱ 626,400.00
Net operating income ₱ 365,600.00

1. Break-even point in units= 78,300 units

Total Fixed Cost
=
Contribution margin per unit
P626,400
=
P8
= 78,300 units

2. Break-even points in pesos= P1,566,000

Total Fixed Cost
= Contribution margin ratio
P626,400
= 40%
= P1,566,000

CM Statement based on Break-even in pesos

Total
Sales ₱ 1,566,000.00
Variable cost ( 78,300 x P12) ₱ 939,600.00
Contribution margin ₱ 626,400.00
Less: Fixed cost ₱ 626,400.00
Net operating income ₱ -

3. Contribution Ratio= 40%

Total CM/Total Sales
P992,000/P2,480,000= 0.4 or 40%

4. Margin of Safety= P914,000

Margin of Safety Ratio= 37%

Margin of Safety= Current Sales-BEP Sales

2,480,000 - 1,566,000= P914,000

Margin of Safety Ratio= Margin of Safety

 Actual Sales
= P914,000
P2,480,000
= 0.37 or 37%

Break-even sales Actual sales

Total Total
Sales ₱ 1,566,000.00 ₱ 2,480,000.00
Less: Variable cost ₱ 939,600.00 ₱ 1,488,000.00
Contribution margin ₱ 626,400.00 ₱ 992,000.00
Less: Fixed cost ₱ 626,400.00 ₱ 626,400.00
Net operating income ₱ - ₱ 365,600.00
 Problem 7
Brooklyn Company
Contribution Income Statement
For the coming year
Total
Sales ₱ 750,000.00
Less: Variable cost ₱ 600,000.00
Contribution margin ₱ 150,000.00
Less: Fixed cost ₱ 100,000.00
Net operating income ₱ 50,000.00

1. Break-even point in units= 0.67units

Total Fixed Cost
=
Contribution margin per unit
P100,000
=
P150,000
= 0.67 units

Break-even points in pesos= P500,000

Total Fixed Cost
=
Contribution margin ratio
P100,000
=
20%
= P500,000

2. Margin of Safety= P250,000

Current sales – BEP in pesos
= P750,000 - P500,000
= P250,000

3.Margin of safety of ratio= 33%

Margin of Safety/Total Sales
= P250,000/P750,000
= 0.33 or 33%

4. Degree of operating leverage= 3

Contribution Margin/Operating Income
= P150,000/P50,000
=3

5. Percentage Change in Profits= 28%

Old Sales = P750,000
P750,000 x 30% = P225,000
[New Sales]
P750,000 + P225,000 = P975,000

New Operating Income

New Sales - Variable Cost - Fixed Cost
= P975,000 – 600,000 – 100,000= P275,000
= P275,000 / P975,000 = 0.28 or 28%