MANAGEMENT ACCOUNTING & CONTROL

PROFIT PLANNING AND COST VOLUME PROFIT ANALYSIS

Learning Activity 3. CMR, BEP, Sensitivity Analysis

Villarosa Company’s income statement is shown below.

Total Per Unit

Sales (30,000 units) 150,000 5.00
Less: Variable Costs 90,000 3.00
Contribution Margin 60,000 2.00
Less: Fixed Costs 50,000
Net Income 10,000

Required:
1. Compute the contribution margin ratio, breakeven point in pesos, and operating
income.
Total CM 60,000
CM Ratio = = =40 %
Total Sales 150,000
BEP = Sales = (Variable expenses in percentage) (x) + Fixed Expenses + Profit
= x = 0.60(x) + 50,000 +0
0.40 x 50,000
=
0.40 0.40
X = P 125,000.00

Operating income = 10,000

2. Calculate the new contribution margin ratio, breakeven point in pesos and operating
profit under each of the changes below:
a. Unit sales price increases by 15%

Total Per Unit

Sales (30,000 units) 172,500 5.75
Less: Variable Costs 90,000 3.00
Contribution Margin 82,500 2.75
Less: Fixed Costs 50,000
Net Income 10,000
CM -

b. Unit variable costs decrease by 25%

Total Per Unit

Sales (30,000 units) 150,000 5.00
Less: Variable Costs 67,500 2.25
Contribution Margin 82,500 2.75
Less: Fixed Costs 50,000
Net Income 10,000

c. Total fixed costs increase to Php 80,000

Total Per Unit

Sales (30,000 units) 150,000 5.00
Less: Variable Costs 90,000 3.00
Contribution Margin 60,000 2.00
Less: Fixed Costs 80,000
Net Income 10,000

d. Unit sales price decreases by 20% and the sales volume increases by 20%

Total Per Unit

Sales (36,000 units) 144,000 4.00
Less: Variable Costs 108,000 3.00
Contribution Margin 36,000 1.00
Less: Fixed Costs 50,000
Net Income 10,000

e. The selling price increases by Php0.50 per unit, fixed costs increase by Php
10,000 and the sales volume decreases by 5%.

Total Per Unit

Sales (28,500 units) 156,750 5.50
Less: Variable Costs 85,500 3.00
Contribution Margin 71,250 2.50
Less: Fixed Costs 60,000
Net Income 10,000
 f. Variable costs increase by Php 0.20 per unit, the selling price increases by
12%, and the sales volume decreases by 10%.

Total Per Unit

Sales (27,000 units) 151,200 5.60
Less: Variable Costs 86,400 3.20
Contribution Margin 64,800 2.40
Less: Fixed Costs 50,000
Net Income 10,000