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CVP ANALYSIS

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THEORY 1
It is a method that is to determine how many units must
be sold , or how much sales revenue must be generated
to earn a particular target income?

ANSWER: CVP ANALYSIS 1:00


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End
PROBLEM 1A
Clarity Company is planning to sell
100,000 units of Product Q for P12 a unit.
The fixed costs are P280,000. In order to
realize a profit of P200,000, What would
be the variable costs?

ANSWER: P720,000
PROBLEM 1B
Singsing Inc manufactures and sells key rings embossed with
college names and slogans. Last year the key rings sold for P75
each, and the variable costs to manufacture them were P22.50
per unit. The company needed to sell 20,000 key rings to
breakeven. The net income last year was P50,400.
The company expects the following for the coming year: the selling
price of the key rings will be P90; manufacturing costs per unit will
increase by 1/3; fixed costs will increase by 10%; the income tax
rate will remain the same. For the company to breakeven the
coming year, the company should sell(units)?

ANSWER: 19,250
THEORY 2
It is the units sold or the revenue
earned above the break-even volume

ANSWER: MARGIN OF SAFETY 1:00


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End
PROBLEM 2A
Olango Sports Corporation is the distributor in the
Philippines of two premium baseballs – the Type A and
Type B. Monthly sales, expressed in Pesos (P) , and the
contribution margin ratios for the two products are as
follows: Type A – (Sales – P150,000; CM ratio -36%);
Type B – (Sales – P250,000; CM Ratio – 80%). Total
fixed expenses total to P183,750 per month. Compute
the Total Breakeven Sales in pesos?
ANSWER: P289,370
PROBLEM 2B
Bert Company desires a net income after
taxes of P165,000. The contribution
margin ratio is 40% and the company’s
breaks even at a sales volume level of
P1,250,000. Income taxes are 25% of the
net income before taxes. How much should
the sales revenue?
ANSWER: P1,800,000
THEORY 3
This is the point where the total
contribution margin equals to total
fixed cost.

ANSWER: BREAKEVEN POINT 1:00


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End
PROBLEM 3A
Simon Company sells products A, B and C. Simon sells
three units of A for each unit of C and two units of B for
each unit of A. The contribution margins are P1 per unit
for A, P1.50 for B and P3 per unit for C. Fixed costs are
P600,000. How many units of A would Simon sell at
breakeven point?

ANSWER: 120,000 UNITS


PROBLEM 3B
Wilson Company prepared the following preliminary forecast
concerning product L for next year assuming no expenditure
for advertising: Selling price – P10/unit; Unit sales – 100,000;
Variable cost – P600,000; Fixed Costs - P300,000. Based on
the marketing study in the previous year, Wilson estimated that
it could increase the unit selling price by 15% and increase the
sales unit by 10% if P100,000 were spent for advertising.
Assuming that Wilson incorporates these changes in next year’s
forecast. What would be operating income from Product L?

ANSWER: P205,000
THEORY 4
If the variable cost per unit goes
down, the effect of Contribution
Margin and Breakeven Point WILL
BE?

ANSWER: INCREASE AND


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End
PROBLEM 4A
The Ship Company is planning to produce two products,
Alt and Tude. Ship is planning to sell 100,000 units of
Alt at P4 a unit and 200,000 units of Tude at P3 a unit.
Variable costs are 70% of sales for Alt and 80% of
sales for Tude. In order to realize a total profit of
P160,000. What must total fixed costs be?

ANSWER: P80,000
PROBLEM 4B
Danny Company has total fixed costs of P122,000 and
variable cost of 75% of sales. The company desires a net
income after taxes of P87,200. Income taxes are 20%.
Sales returns are averaging 25% of gross sales. How
much should be the gross sales?

ANSWER: P1,232,000
THEORY 5
It is the horizontal axis of CVP graph

ANSWER: NO. OF UNITS SOLD 1:00


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End
PROBLEM 5A

The TeamHawk Company is planning to sell 200,000 units


of Product P. The fixed costs are P400,000 and variable
costs are 60% of selling price. In order to realized a profit
of P100,000, the selling price per unit would have to be?

ANSWER: P6.25/ UNIT


PROBLEM 5B
How many units must be sold to earn a net income of
8% of sales using the following information: Selling
price – P20; Variable manufacturing cost – P11;
Variable operating expense – P5; Fixed manufacturing
costs – P590,000; Fixed operating expenses –
P130,000; Maximum capacity units – 800,000.

ANSWER: 300,000 UNITS