Problem 1.

Vince's Pizza delivers pizzas to dormitories and apartments near a major state university.
The company's annual fixed costs are P 48,000. The sales price averages P 9, and it costs
the company P 3 to make and deliver each pizza.

Required:
a. How many pizzas must Vince's sell to break even?
b. How many pizzas must the company sell to earn a target net profit of P 54,000?
c. If budgeted sales total 9,900 pizzas, how much is the company's safety margin?
d. Vince's assistant manager, an accounting major, has suggested that the firm should try
to increase the contribution margin per pizza. Explain the meaning of "contribution
margin" in layman's terms.

Problem 2.
Thompson Company is considering the development of two products: No. 65 or No. 66.
Manufacturing cost information follows.

No. 65 No. 66
Annual fixed costs P 220,000 P 340,000
Variable cost per 33 25
unit

Regardless of which product is introduced, the anticipated selling price will be P 50 and the
company will pay a 10% sales commission on gross peso sales. Thompson will not carry an
inventory of these items.

Required:
a. What is the break-even sales volume (in pesos) on product No. 65 and No. 66?
b. Which of the two products will be more profitable at a sales level of 25,000 units?
c. At what unit-volume level will the profit/loss on product no. 65 equal the profit/loss on
product no. 66?

Problem 3.
Oakmark recently sold 70,000 units, generating sales revenue of P 4,900,000. The
company's variable cost per unit and total fixed cost amounted to P 20 and P 2,800,000,
respectively. Management is in the process of studying the peso impact of various
transactions and events, and desires answers to the following independent cases:

Case no. 1: Management wants to lower the firm's break-even point to 52,000 units. All
other things being equal, what must happen to fixed costs to achieve this objective?

Case no. 2: The company anticipates a P 2 hike in the variable cost per unit. All other
things being equal, if management desires to keep the firm's current break-even point,
what must happen to Oakmark's selling price? If selling price remains constant, what must
happen to the firm's total fixed costs?

Required:
a. Answer the two cases raised by management.
b. Determine the impact (increase, decrease, or no effect) of the following operating
changes on the items cited:
1. An increase in variable selling costs on net income.
2. A decrease in direct material cost on the unit contribution margin.
3. A decrease in the number of units sold on the break-even point.