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Exercise 1

(a) Contribution Margin


Volume (units) 60000
Total Sales Revenue 45000000
Total Fixed Costs 8000000
Total Variable Costs 15000000

Contribution Margin pi + F = (P - V)X


pi 22000000
(P-V) 500

(b) Operating Profit


22000000

(c) Break-even point F=(P-V)X


16000

(d) Operating profit given 80000 units sold


32000000

(e) Target volume in units if the company is to make an operating profit of 25000000 for the year
66000

(f) Target volume in units if the company is to make 16250000 for the year, net of tax. (Tax Rate = 35%
pi 25000000
66000

Exercise 2
Contribution Margin 15000
Fixed Cost 12000000
Sales Profit Margin 10%

(a) Volume to be sold to achieve total sales of 108000000


Net Profit (pi) 10800000
1520

(b) What is the price per unit of the computers at the level of sales in (a)?
71,052.63

(c) What is the variable cost per units?


pi+F=(P-V)X
pi+F=PX-VX
VX=PX-pi-F
V=(PX-pi-F)/X
56,052.63
(d) What is the number of units to be sold if the sales profit margin is 20% instead of 10%?
21600000
2240

Exercise 3
Using the data from Exercise 1
(a) The impact on operating profit if sales price decreased by 10%
Sales Price 750
New Sales Price (-10%) 675
Total Fixed Costs 8000000
Total Variable Costs 15000000
Volume (units) 60000
Operating Profit 17,500,000.00

(b) The impact on operating profit if variable cost per unit decreases by 10%
Variable Cost 250
New Variable Cost (-10%) 225
Total Fixed Costs 8000000
Total Sales Revenue 45000000
Volume (units) 60000
Operating Profit 23,500,000.00

(c) The impact on operating profit if fixed costs were 10% lower while variable costs per unit were 20%
Variable Cost 250
New Variable Cost (+20%) 300
Fixed Cost 8000000
New Fixed Cost 7200000
Total Sales Revenue 45000000
Volume (units) 60000
Operating Profit 19,800,000.00

(d) Suppose that the company can only produce 50000 units (instead of 60000) but still wants to achi
Increase the selling price or lower the variable costs or fixed costs. =selling price has the

Exercise 5
A B
Selling Price per unit 12 15
Variable costs per unit 2.5 5
Contribution Margin 9.5 10
Total Fixed Cost 1500000
Volume (units) 300000 100000

(a) What is the expected level of operating profits for the expected sales volumes?
Operating Profit 2,350,000.00
(b) What is the break-even point if only A are sold? If only product B are sold?
If product A only 157894.7368421
If product B only 150000

(c) Assuming the same product mix at the break-even point, compute the break-even point for each p
pi = (P-V)A + (P-V)B - F
A=3B
9.5A+10B=1500000 B 38961.04
A 116883.1

(d) 1:1 (A=B) 76923.07692308


1500000 = 9.5A + 10A
Exercise 6
000 for the year

f tax. (Tax Rate = 35%)


d of 10%?

sts per unit were 20% higher

ut still wants to achieve the same level of operating profit (22000000). How can this be achieved?
=selling price has the greatest effect in the operating profit (change in sales)
even point for each product
e achieved?
Company A
Sales 1500 300 450,000.00
Less: Var Cost 1500 120 180,000.00 CMR CM
Contribution Margin 270,000.00 0.6 180
Less: Fix Cost 250,000.00
Operating Inc 20,000.00

Company B Higher Variable Costs


Sales 1500 300 450,000.00
Less: Var Cost 1500 220 330,000.00 CMR CM
Contribution Margin 120,000.00 0.266667 80
Less: Fix Cost 100,000.00
Operating Inc 20,000.00

Company A - Higher Fixed Costs - higher operating leverage -> good for higher sales level
Cost structure depends on expected sales levels

CM/Unit 10
Fixed Cost 1000
Target Operating Income = just add target income in the Fixed Costs in the denominator

Volume 200 300 400


CM 2000 3000 4000
Operating Profit 1000 2000 3000
DOL 2 1.5 1.333333333
Same Company but different DOL's; hence need to use the first formula that uses % change
Volume
BE (units) BE (pesos) Sales
1388.8888888889 416,666.67 Fixed Costs
Variable Costs

Contribution M
Contribution M
Contribution M
BE (units) BE (pesos) BE Point (units
1250 375,000.00 BE point (pesos

higher sales level Year 2 for Company A and B


Company A
Sales 2000 300 600,000.00
Less: Var Cost 2000 120 240,000.00
Contribution Margin 360,000.00
he denominator Less: Fix Cost 250,000.00
Operating Inc 110,000.00

Company B Higher Variable Costs


Sales 2000 300 600,000.00
hat uses % change Less: Var Cost 2000 220 440,000.00
Contribution Margin 160,000.00
Less: Fix Cost 100,000.00
Operating Inc 60,000.00

DOL (A) 13.50 -> means 10% increase/decrease, yo


DOL (B) 6.00 -> means 20% increase/decrease, yo
-> in reality, 2 is the average level
-> when should you choose high? If y
200 400
5000 10000
2000 2000
3000 6000

2000 4000
10 10
40% 40%
200 200
5000 5000

CMR CM
0.6 180

CMR CM
0.2666666667 80

ncrease/decrease, you expect operating income to increase by 135%


ncrease/decrease, you expect operating income to increase by 135%
s the average level
you choose high? If you expect your sales level to exceed your break-even point