GROUP

BAGAAN REYES
5
DIZON
VALDEZ
NICOLAS
PROBLEM 7: Sales Mix; Break-Even Analysis; Margin of Safety

HUN YUN
Selling price per unit P400 P600
Variable expenses per unit P240 P120
Number of units sold monthly 200 units 80 units
Fixed expenses per month P66,000

HUN

YUN

Jenni Fey manufactures and sells two products, Hun and Yun.
 REQUIRED Contribution margin
HUN YUN TOTAL
HUN YUN
Selling price per unit P400 P600 % % %
Variable expenses per unit P240 P120 Sales 80,000 100 48,000 100 128,000 100
Number of units sold monthly 200 units 80 units
Variable cost (48,000) 60 (9,600) 20 (57,600) 45
Fixed expenses per month P66,000
Contribution margin 32,000 40 38,400 80 70,400 55

Assuming the sales mix above, do the following: Fixed cost (66,000)
Net operating income 4,400
a. Prepare a contribution format
income statement showing both peso
and percent columns for each product Break-even point
and for the company as a whole
Margin of safety
b. Compute the break-even point in BREAK-EVEN
pesos for the company as a whole and
the margin of safety in both pesos Fixed Cost 66,000
= = P120,000
and percent of sales Contribution Margin .55

MARGIN OF SAFETY
Actual 128,000 %
Margin of Safety 8,000
(Break-even) = (120,000) Actual
= = 6.25%
128,000
xx P8,000
REQUIRED
The company has developed another product, HY143, that the company plans to sell for P800
each. At this price, the company expects to sell 40 units per month of the product. The
variable expense would be P600 per unit. The company’s fixed expenses would not change.

a. Prepare another contribution format income b. Compute the company’s new break-even point
statement, including sales of HY143 (sales of in pesos for the company as a whole and the new
the other two products would not change). margin of safety in both pesos and percent of
sales

Contribution margin Break-even point

Margin of safety
HUN YUN HY143 TOTAL
BREAK-EVEN
% % % %
Fixed Cost = 66,000 = P134,693.88
Sales 80,000 100 48,000 100 32,000 100 160,000 100 Contribution Margin .49
Variable cost (48,000) 60 (9,600) 20 (24,000) 75 (81,600) 51
MARGIN OF SAFETY
Contribution margin 32,000 40 38,400 80 8,000 25 78,400 49
Actual 160,000
Fixed cost (66,000)
(Break-even) = (134,693.88)
Net operating income 12,400 xx P25,306.12

Margin of Safety 25,306.12

% Actual
=
160,000
= 15.82%
REQUIRED

The president of the company was puzzled by your analysis. He did not
understand why the break-even point has gone up even though there has been no
increase in fixed expenses and the addition of the new product has increased
the total contribution margin. Explain to the president what has happened.

Break-even point

Average contribution
margin ratio

25

you must be very careful of your

assumptions regarding sales mix
when making decisions such as
adding or deleting products!
 It should be pointed out to the president that even though the
break-even point is higher with the addition of the third product,
the company’s margin of safety is also greater.

Sir, this is
what
happened