PART 2

1. An organization's break-even point is 4,000 units at a sales price of P50 per unit, variable cost of P30
per unit, and total fixed costs of P80,000. If the company sells 500 additional units, by how much will its
profit increase?

A. P25,000
B. P15,000
C. P10,000
D. P12,000

Answer: C
Solution:
CM/U=P20/u (50-30)
Additional profit: P10,000 (500x20)
Profit increases by the amount of contribution margin brought by additional units sold.

2. An entity has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000 units
in the coming year. If the entity pays income taxes on its income at a rate of 40%, what sales price must
the firm use to obtain an after-tax profit of P24,000 on the 40,000 units?

A. P11.60
B. P11.36
C. P12.00
D. P12.50

ANSWER: C
Solution:
Profit before tax: P40,000 (24,000/60%)
Target Contribution Margin: P240,000 (200,000+40,000)
Selling Price=VC/u + CM/u
(6 + (240,000/40,000) = 12

3. Galactica Company has fixed costs of P100,000 and breakeven sales of P800,000. Based on this
relationship, what is its projected profit at P1,200,000 sales?

A. P50,000
B. P200,000
C. P150,000
D. P400,000

ANSWER: A
Solution:
CMR= (100,000/800,000) = 12.5%
CM: (1,200,000x12.5%) = P150,000
Profit: 150,000 -100,000 = P50,000
(Contribution margin – Fixed costs)
At break-even point, total fixed cost is equal to total contribution margin

4. At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses were
P50,000. The profit from the 5,001st unit would be?

A. P10
B. P50
C. P15
D. P12

ANSWER: A
Solution:
CM/u= (50,000/5000) = P10
Profit increases by the amount of contribution margin brought by additional units sold.

5. Regal, Inc. sells Product M for P5 per unit. The fixed costs are P210,000 and the variable costs are 60%
of the selling price. What would be the amount of sales if Regal is to realize a profit of 10% of sales?

A. P700,000
B. P472,500
C. P525,000
D. P420,000

ANSWER: A
Solution:
Peso Sales= (FC/CMR-ROS)
=210,000/(40%-10%)
=P700,000

6. Food Factory, Inc. sells loose biscuits for P5 per unit. The fixed costs are P210,000 and the variable
costs are 45% of the selling price. What would be the amount of sales if Food Factory, Inc. were to
realize a profit of 15% of sales?

A. P700,000
B. P472,500
C. P525,000
D. P420,000

ANSWER: C.
Solution:
Peso Sales= (FC/(CMR-Profit Margin)
=210,000/(55%-15%)
=P525,000

7. At 40,000 units of sales, Benevolent Corporation had an operating loss of P3.00 per unit. When sales
were 70,000 units, the company had a profit of P1.20 per unit. The number of units to breakeven is

A. 35,000
B. 52,500
C. 57,647
D. 45,000

ANSWER: C
Solution:
CM/u= (increase in profit/increase in units)
= 204,000/30,000
=P6.80

FC=units x (CM/u – profit per unit)

FC= 70,000 x (6.80 – 1.20)
or 40,000 x (6.80-(-3))
FC=P392,000

BEPunits=(392,000/6.80)
=57,647

8. Tally Corp. sells software during the recruiting seasons. During the current year, 10,000 software
packages were sold resulting in $470,000 of sales revenue, $130,000 of variable costs, and $48,000 of
fixed costs. If sales increase by $80,000, operating income will increase by ________. (Round interim
calculations to two decimal places and the final answer to the nearest peso.)

A. P30,588
B. P32,000
C. P48,000
D. P57,872

Answer: D
Solution:
Price = 470,000 / 10,000
= 47.00

Sales in software packages

= 80,000 / $47.00 = 1,702.13 software packages
Operating income increase
= 1,702.13 software packages × 34.00 per
= 57,872

9. Sparkle Jewelry sells 800 units resulting in 9,000 of sales revenue, 3,000 of variable costs, and 1,500 of
fixed costs. Contribution margin per unit is ________.
A. 13.75
B. 11.25
C. 7.50
D. 5.00

ANSWER: C
Solution:
(9,000 − 3,000) / 800 units = 7.50 per unit

10. Sparkle Jewelry sells 500 units resulting in 10,000 of sales revenue, 4,000 of variable costs, and 1,500
of fixed costs. Calculate the variable cost per unit.
A. 12.00
B. 6.00
C. 2.00
D. 8.00

ANSWER: D
Explanation: 4,000 / 500 = 8.00