i. In 2006 Lucia Company had a net loss of P8,000.

000. The company sells one product with a selling price of P80
and a variable cost per unit of P60. In 2007, the company would like to earn a before-tax profit of P40,000. How
many additional units must the company sell in 2007 than it sold in 2006? Assume that the tax rate is 40
percent.
A. 1,600 C. 2,000
B. 2,400 D. 5,400 Bobadilla

ii. Bulusan Company has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000, and an
operating loss of P20,000. How much increase in sales would Bulusan need to make in order to achieve a
target operating income of 10% of sales?
A. P400,000 C. P500,000
B. P462,000 D. P800,000 Bobadilla

iii. The following data apply to Diva Corporation for the year 2006:
Total variable cost per unit P3.50
Contribution margin/sales 30%
Breakeven sales (present volume) P1,000,000
Diva wants to sell an additional 50,000 units at the same selling price and contribution margin per unit. By how
much can fixed costs increase to generate a gross margin equal to 10% of the sales value of the additional
50,000 units to be sold?
A. P 50,000 C. P 67,500
B. P 57,500 D. P125,000 Bobadilla

iv. Marsman Company had a margin of safety ratio of 20%, variable costs of 60% of sales, fixed costs of P240,000,
a break-even point of P600,000, and an operating income of P60,000 for the current year. What are the current
year's sales?
A. P 500,000 C. P 750,000
B. P 600,000 D. P 900,000 Bobadilla

v. 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 C. P525,000
B. P472,500 D. P420,000 Bobadilla

vi. The following economic data were provided by the corporate planning staff of Heaven, Inc.:
Sales volume 30,000 units
Sales price per unit P30
Unit variable costs:
Variable manufacturing P13
Other variable costs 8
Unit variable costs P21
Unit contribution margin P 8

Fixed costs:
Manufacturing P150,000
Other fixed costs P 50,000
Total fixed costs P200,000
The management is considering installing a new, automated manufacturing process that will increase fixed costs
by P50,000 and reduce variable manufacturing cost by P3 per unit. The management set a target a profit of
P70,000 before and after the acquisition of the automated machine. After installation of the automated machine,
what will be the change in the units required to achieve the target profit?
 A. 6,667 unit increase C. 3,333 unit decrease
B. 5,667 unit decrease D. 4,333 unit decrease Bobadilla

vii. In planning its operations for next year based on a sales forecast of P6,000,000, Herran, Inc. prepared the
following estimated costs and expenses:
Variable Fixed
Direct materials P1,600,000
Direct labor 1,400,000
Factory overhead 600,000 P 900,000
Selling expenses 240,000 360,000
Administrative expenses 60,000 140,000
P3,900,000 P1,400,000
What would be the amount of peso sales at the breakeven point?
A. P2,250,000. C. P4,000,000.
B. P3,500,000. D. P5,300,000. Bobadilla

viii. The Expressive Company currently has fixed cost of P770,500. This cost is expected to increase by P103,500 if
the company expands its production facilities. Currently, it sells its product for P47. The product has a variable
cost per unit of P24. How many more units must the company sell to break even, at the current sales price per
unit, than it did to break even prior to the increase in fixed cost?
A. 3,500 C. 4,500
B. 4,000 D. 6,000 Bobadilla

ix. The Tanker Company estimated the following data for the coming year:
Fixed manufacturing costs P565,000
Variable production costs per peso of sales
Materials P 0.125
Direct labor 0.150
Variable overhead 0.075
Variable selling costs per peso of sales 0.150
Tanker estimates its sales for the coming year to be P2,000,000.

The expected cost of goods sold for the coming year is

A. P1,265,000 C. P1,565,000
B. P1,115,000 D. P 700,000 Bobadilla

x. At a sales volume level of 2,250 units, Baluarte Company’s contribution margin is one and one-half of the fixed
costs of P36,000. Contribution margin is 30% How much peso sales should the Baluarte Company sell to earn
10 percent of sales?
A. P270,000 C. P360,000
B. P180,000 D. P540,000 Bobadilla

xi. The Alpine Company’s year-end income statement is as follows:

Sales (20,000 units) P360,000
Variable costs 220,000
Contribution margin P140,000
Fixed costs 105,000
Net income P 35,000
 Alpine’s management is unhappy with the results and plans to make some changes for next year. If
management implements a new marketing program, fixed costs are expected to increase by P19,200 and
variable costs to increase by P1 per unit. Unit sales are expected to increase by 15 percent.

What is the effect on income if the foregoing changes are implemented?

A. decrease of P21,200 C. increase of P 1,800
B. increase of P13,800 D. increase of P14,800 Bobadilla

xii. Mercado, Inc. had the following economic data for 2007:
Net sales P400,000
Contribution margin 160,000
Margin of safety 40,000
What is Mercado’s breakeven point in 2007?
A. P360,000 C. P320,000
B. P288,000 D. P 80,000 Bobadilla

xiii. Marquez Co. manufactures a single product. For 2006, the company had sales of P90,000, variable costs of
P50,000, and fixed costs of P30,000. Marquez expects its cost structure and sales price per unit to remain the
same in 2007; however total sales are expected to jump by 20%. If the 2007 projections are realized, net
income in 2007 should exceed net income in 2006 by
A. 100% C. 20%
B. 80% D. 50% Bobadilla

xiv. Below is the income statement for Harpo Co. for 2006:
Sales P400,000
Variable costs ( 125,000)
Contribution margin P275,000
Fixed costs ( 200,000)
Profit before tax P 75,000
Assuming that the fixed costs are expected to remain at P200,000 for 2007, and the sales price per unit and
variable cost per unit are also expected to remain constant, how much profit before tax will be produced if the
company anticipates 2007 sales rising to 130% of the 2006 level?
A. P 97,500 C. P195,000
B. P157,500 D. P180,000 Bobadilla

xv. Almos Corporation produces a product that sells for P10 per unit. The variable cost per unit is P6 and total fixed
costs are P12,000. At this selling price, the company earns a profit equal to 10% of total peso sales. By
reducing its selling price to P9 per unit, the manufacturer can increase its unit sales volume by 25%. Assume
that there are no taxes and that total fixed costs and variable cost per unit remain unchanged. If the selling price
were reduced to P9 per unit, the company’s profit would have been
A. P3,000. C. P5,000.
B. P4,000. D. P6,000. Bobadilla

xvi. Information concerning the 2007 financial projections of the Silver Company is as follows:
Net sales of P3,000,000.
Fixed costs of P800,000.
P0.65 increase in cost of sales for each peso increase in net sales.
What is the projected cost of sales for 2007?
A. P 950,000 C. P1,050,000
B. P2,750,000 D. P1,850,000 Bobadilla
i . Answer: B
Additional profit ÷ UCM = additional unit sales
= (40,000 + 8,000) ÷ (80-60)
= 2,400 units

ii . Answer: A
Total peso sales required 120,000 ÷ (0.25 – 0.1) 800,000*
Less prior sales 400,000
Required increase in sales 400,000

*Peso sales required to earn profit stated as percentage of sales (ROS):

S = [FC + (ROSS)]  CMR
(CMR S) = [FC + (ROSS)]
(CMR S) - (ROSS) = FC
(CMR – ROS) S = FC

S = FC  (CMR – ROS)

iii . Answer: A
Contribution margin 50,000 x (5-3.50) 75,000
Less: additional profit (250,000 x 0.10) 25,000
Additional fixed costs 50,000

Selling price = P3.50 ÷ 0.70 P5.00

iv . Answer: C
A shorter calculation of finding the amount of sales is to divide breakeven sales by (1 – MSR)
Sales = P600,000  (1 – 0.2) P750,000

An alternative solution to find sales is to compute the profit margin.

Profit margin = Contribution margin ratio x margin of safety ratio.

Profit margin = 20% x 40% 8%
Sales = Profit ÷ Profit margin

Sales (60,000 ÷ 0.08) P750,000

v . Answer: A
Peso sales = FC/(CMR - ROS)
= P210,000/(0.40 - 0.10) P700,000
CMR = 40%

A long computation of required sales uses the following equation:

S = P210,000 + 0.10S
0.40

0.40S = P210,000 + 0.10S

0.40S - 0.10S = P210,000
 S = P210,000/(0.40 – 0.10)
S = P700,000

vi . Answer: C
Current number of units required to earn the target net profit:
[(P200,000 + P70,000) ÷ P9] 30,000

After the automated machine is placed into service,

the number of units required to earn the target
net profit will be:
((P250,000 + P70,000) ÷ P12) 26,667

Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales

vii . Answer: C
CMR= 100% - (3.9 ÷ 6.0) = 35%
BES = 1,400,000 ÷ .35 4,000,000

viii . Answer: C
New break-even point: P874,000 ÷ P23 38,000
Current break-even point in units: P770,500 ÷ P23 33,500
Increase in units: 38,000 - 33,500 4,500
Alternative solution: (P103,500 ÷ P23) 4,500

ix . Answer: A
The estimated cost of goods sold
= P565,000 + 0.35S*
*Sum of all percentages for variable production costs

= P565,000 + (P2,000,000 x 0.35)

= P1,265,000

x . Answer: B
Peso sales required to earn 10% of sales;
FC/(CMR – ROS)
= P36,000/(0.30-0.10)
= 180,000

xi . Answer: A
Revised contribution margin 20,000 x 1.15 x (7-1) 138,000
Fixed cost (105,000 + 19,200) 124,200
Revised profit 13,800
Prior profit 35,000
Decrease in profit 21,200

xii . Answer: A
Margin of Safety = Budgeted sales – Breakeven sales
Margin of Safety: P400,000 – P40,000 P360,000

xiii . Answer: B
 DOL at P90,000 sales:
Sales 90,000
Variable costs 50,000
Total Contribution margin 40,000
Fixed costs 30,000
Profit 10,000

DOL = TCM/OP
= 40,000/10,000 4 times

% increase in sales x DOL = % increase in profit

4 x 20% = 80%

xiv . Answer: B
2006 DOL = 275,000/75,000 3.67
Percentage Increase in profit, 2007 = 3.67 x 30% 110%
2007 Profit = 75,000 +(75,000 x 1.10) P157,500

xv . Answer: A
Peso sales 12,000/(0.40 – 0.1) P40,000
Unit sales P40,000/10 4,000
Increased units 4,000 x 1.25 5,000
Revised contribution margin 5,000 x (9 – 6) P15,000
Less fixed cost 12,000
Revised profit P 3,000

xvi . Answer: B
Projected cost of sales:
P800,000 + (P3,000,000 x 0.65) P2,750,000