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10 Cost Volume Profit Analysis-Solution Undiscussed Problems October 2012

IV SOLUTION:

a. 10,000 (P120,000/12)

b. 14,167 [(P120,000 + P30,000/60%)/12]

c. P29.00 {P20 + [(P120,000 + P36,000/60%)/20,000]}

VIIISOLUTION
a. CM = (3  P2) + (4  P.75) = P9
SP = (3  P5) = (4  P2.50) = P25

BE = P72,000 = P200,000
P9/P25

b. A = P36,000 = P90,000 B = P36,000 = P120,000

.4 .3

c. CM = (5  P2) + (4  P.75) = P13

SP = (5  P5) + (4  P2.50) = P35

BE = P72,000 + P9,700 = P219,962

P13/35

OLD NEW
CM A = 30,000  P2 = P60,000 CM A = 40,000  P2 = P 80,000
B = 40,000  P.75 = 30,000 B = 32,000  P.75 24,000
P90,000 P104,000
- FC (72,000) - FC (81,700)
OI P18,000 OI P 22,300

At current sales levels increase advertising.

IX SOLUTION
A B C
1. SP P10 P20 P40
- VC (7) (12) (16)
= CM P 3 P 8 P24
CMR 30% 40% 60%

CMR = (.2  30%) + (.6  40%) + (.2  60%) = 42%

BE = P840,000/.42 = P2,000,000

2. A (P2,000,000  .20)/P10 = 40,000 units

B (P2,000,000  .60)/P20 = 60,000 units

C (P2,000,000  .20)/P40 = 10,000 units

X Solution
A SP P1,200 B SP P240
- VC (480) - VC (160)
CM P 720 CM P 80

Weighted CM = (3  P720) + (5  P80) = P2,560

a. P1,800,000 = 703.125 A = 704  3 = 2,112 units

P2,560 B = 704  5 = 3,520

b. P1,800,000 + P800,000 = 1,015.625 A = 1,016  3 = 3,048 units

P2,560 B = 1,016  5 = 5,080

c. P800,000/1 - .3 = P1,142,857

P1,800,000 + P1,142,857 = 1,149.55 A = 1,150  3 = 3,450 units

P2,560 B = 1,150  5 = 5,750

d. SP = (3  P1,200) + (5  P240) = P4,800

X = P1,800,000 + P.12X = P4,354,839

P2,560/P4,800
 A = (P4,354,839  .75)/P1200 = 2,722 units
B = (P4,354,839  .25/P240 = 4,537

e. X = P1,800,000 + P.12X
1 - .3 = P4,973,684
P2,560/P4,800

A = (P4,973,684  .75)/P1,200 = 3,109 units

B = (P4,973,684  .25/P240 = 5,181

XII
1. The contribution margin per person would be:

Price per ticket................................................................................................................ P35

Less variable expenses:

Dinner........................................................................................................................ P18

Favors and program.................................................................................................... 2 20

Contribution margin per person........................................................................................ P15

The fixed expenses of the dinner-dance total P6,000. The break-even point would be:

Sales = Variable expenses + Fixed expenses + Profits

P35Q = P20Q + P6,000 + P0

P15Q = P6,000

Q = P6,000 ÷ P15 per person

Q = 400 persons; or, at P35 per person, P14,000

Alternative solution:

Break-even point = Fixed expenses

in unit sales Unit contribution margin

$6,000
= = 400 persons
$15 per person

or, at P35 per person, P14,000.

$20,000
Total Sales
$18,000
2. Variable cost per person (P18 + P2)..........................................................................
Break-even point: Total P20
T o t a l S a le s

$16,000 400 persons or Expenses

Fixed cost per person (P6,000 ÷ 300
$14,000 persons)...........................................................
total sales 20
$14,000
Ticket price per person to break even........................................................................ P40
$12,000

3.
$10,000 Cost-volume-profit graph:
$8,000

$6,000 Total
Fixed
$4,000 Expenses

$2,000

$0
0 100 200 300 400 500 600 700
Number of Persons

XIII Solution
1. The contribution margin per sweatshirt would be:

Selling price......................................................................................................
P13.50
Variable expenses:
Purchase cost of the sweatshirts....................................................................
P8.00
Commission to the student salespersons.........................................................
1.50 9.50
Contribution margin..........................................................................................
P 4.00

Since there are no fixed costs, the number of unit sales needed to yield the desired P1,200 in
profits can be obtained by dividing the target P1,200 profit by the unit contribution margin:
 Target profit $1,200
= =300 sweatshirts
Unit contribution margin $4.00 per sweatshirt

300 sweatshirts × $13.50 per sweatshirt = $4,050 in total sales.

2. Since an order has been placed, there is now a “fixed” cost associated with the purchase price of
the sweatshirts (i.e., the sweatshirts can’t be returned). For example, an order of 75 sweatshirts
requires a “fixed” cost (investment) of P600 (75 sweatshirts × P8.00 per sweatshirt = P600). The
variable cost drops to only P1.50 per sweatshirt, and the new contribution margin per sweatshirt
becomes:

Selling price......................................................................................................
P13.50
Variable expenses (commissions only)................................................................
1.50
Contribution margin..........................................................................................
P12.00

Since the “fixed” cost of P600 must be recovered before Mr. Hooper shows any profit, the break-
even computation would be:
Break-even point = Fixed expenses
in unit sales Unit contribution margin

$600
= =50 sweatshirts
$12.00 per sweatshirt

50 sweatshirts × $13.50 per sweatshirt = $675 in total sales

XIV Solution
1. The total annual fixed cost of the Pediatric Department can be computed as follows:
Annual Supervising Other Fixed
Patient-Days Aides Nurses Nurses Total Personnel Cost Total Fixed Cost
@ P18,000 @ P26,000 @ P36,000

10,000-14,000 P378,000 P286,000 P144,000 P808,000 P454,000 P1,262,000

14,001-17,000 396,000 312,000 144,000 852,000 454,000 1,306,000

17,001-23,725 396,000 338,000 144,000 878,000 454,000 1,332,000

23,726-25,550 450,000 364,000 180,000 994,000 454,000 1,448,000

25,551-27,375 468,000 364,000 180,000 1,012,000 454,000 1,466,000

27,376-29,200 522,000 416,000 216,000 1,154,000 454,000 1,608,000

2. The “break-even” can be computed for each range of activity by dividing the total fixed cost for
that range of activity by the contribution margin per patient-day, which is P80 (=P130 revenue -
P50 variable cost).

(b)
Annual (a) Contribution “Break-Even” Within Relevant
Patient-Days Total Fixed Cost Margin (a) ÷ (b) Range?
10,000-14,000 P1,262,000 P80 15,775 No
14,001-17,000 1,306,000 80 16,325 Yes
17,001-23,725 1,332,000 80 16,650 No
23,726-25,550 1,448,000 80 18,100 No
25,551-27,375 1,466,000 80 18,325 No
27,376-29,200 1,608,000 80 20,100 No
While a “break-even” can be computed for each range of activity (i.e., relevant range), all but one
of these break-evens is bogus. For example, within the range of 10,000 to 14,000 patient-days, the
computed break-even is 15,755 patient-days. However, this level of activity is outside this relevant
range. To serve 15,755 patient-days, the fixed costs would have to be increased from P1,262,000
to P1,306,000 by adding one more aide and one more nurse. The only “break-even” that occurs
 within its own relevant range is 16,325. This is the only legitimate break-even.
3. The level of activity required to earn a profit of P200,000 can be computed as follows:
(a) (b) Activity to Attain Target
Annual Total Fixed Cost Contributio Profit
Patient-Days Total Fixed Cost Target Profit + Target Profit n Margin (a) ÷ (b) Within Relevant Range?
10,000-14,000 P1,262,000 P200,000 P1,462,000 P80 18,275 No

14,001-17,000 1,306,000 200,000 1,506,000 80 18,825 No

17,001-23,725 1,332,000 200,000 1,532,000 80 19,150 Yes

23,726-25,550 1,448,000 200,000 1,648,000 80 20,600 No

25,551-27,375 1,466,000 200,000 1,666,000 80 20,825 No

27,376-29,200 1,608,000 200,000 1,808,000 80 22,600 No

In this case, the only solution that is within the appropriate relevant range is 19,150 patient-days.

1 C 7 D 13 D
2 C 8 C 14 C
3 D 9 A 15 B
4 B 10 A 16 A
5 C 11 A 17 A
6 B 12 C 18 B