IX Pricing to Break-Even

The township of Cagayan Vallley is inaugurating a youth soccer program. Estimates are that 70
children between the ages of 7 and 9 will and that six teams will be formed. The program will be
staffed by volunteer coaches, referees, and administrative personnel, so the only out-of-pocket
costs involve the following:
Shirts P4.10 per shirt plus P20 screening charge
Balls P85 (total for all teams)
Goals P120 (total for all teams)
Cones P70 (total for all teams)
Shin guards P9.50 per pair (i.e., P9,50 per player)
The price obtained for the shirts presume two colors (short color and lettering). The program
director, Joey, would like very colorful shirts. He has learned that a rainbow pattern having
several additional colors would cost P1 per extra shirt plus and additional P100 screening charge.
The townships recreation director has asked Joey to deter mine how much to charge each child so
that the soccer program fully covers its costs.
Required: If the rainbow patter shirt is selected, what fee per child should Joey suggest to the
recreation director?
X - Determining a Selling Price
Eileen Stewart and her brother, Ralph, would like to make extra money when they have time away
from their studies at Wisconsin State University. They are skilled in carpentry and plan to build and
sell rustic lawn chairs. Estimates of the cost to make and sell each chair are as follows:
Lumber and other materials P 30
Labor (wages to student helpers) 15
Commission to stores selling the chairs 8% of selling price
Radio and direct mail advertising is estimated at P5,000. A pickup trust to transport the chairs can
be rented for P1,000. Ellen and Ralph each plan to earn a profit of P4,500 for their efforts. This
amount was calculated by considering what they could earn if they used their time in another way.
Eileen believes that 800 units can be made and sold. Ralph is more optimistic and believes that 900
units can be made and sold. Both agree that the price must be less than the commercial price of
P98 per chair.
Required:
1. Compute a selling price to obtain the desired profit if 800 chairs are sold.
2. Compute a selling price to obtain the desired profit if 900 chairs are sold.
3. Assume that the selling price is based on the sale of 800 chairs but that 900 chairs are
actually sold. How much additional profit will each of them make?
4. Assume that the selling price is based on the sale of 800 chairs but that only 700 chairs are
actually sold. Will Eileen and Ralph achieve their profit objectives? Explain.
XI - Effects of Changes in Volume and Costs
Marnies Boutique sells umbrellas that have a contribution margin ratio of 35 percent of P440,000
annual sales (40,000 units). Annual fixed expenses are P95,000.
Required:
1. Calculate the change in net income if sales were to increase by 850 units.
2. The store manager, Laura Romain, believes that of the advertising budget were increased by
P18,000, annual sales would increase by P75,000. Calculate the additional net income (or
loss) if the advertising budget is increased.
3. Laura Romain believes that the present selling price should be cut by 15 percent and the
advertising budget should be raised by P12,000. She predicts that these changes would
boost unit sales by 30 percent. Calculate the predicted additional net income (or loss) if
these changes are implemented.
XII Segregation of Fixed and Variable Cost
Data for the past 10 months were collected for Forecasts, Inc. to estimate variable and fixed
manufacturing overhead: (X = direct labor hours; Y = supplies cost)
X Y XY X2
20 P 50
40 110
60 150
20 70
30 80
40 100
50 150
10 60
30 110
50 120 __________ ___________

Required: Determine the variable cost per hour and the fixed cost portion using:
1. High-low method 2. Least Squares regression method 3.
Scattergraph or Visual Fit

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