shared via CourseHero com This study resource was This study source was downloaded by 100000821881429 from CourseHero com on 08 27 2021 20 15 27 GMT 05 00 https www coursehero com file 104133952 strat cost 911docx Problem 3 adapted Cagayan Company sells three products Planned results for next year are as follows A B C Unit Selling Price P10 P8 P4 Unit Variable Costs P4 P6 P1 Contribution MarginP6P2P3Sales Mix in pesos 25 25 50 Total Fixed Costs P500 000 Required 1 Compute the weighted contribution margin percentage CM Unit Selling Price Unit Variable Costs CMP Contribution Margin x Unit Selling Price WA CMP x Sales Mixed in Pesos2 Compute the sales in pesos required to earn a P100 000 profit TFC Desired Profit WCMP P500 000 P100 000 58 75 or 0 5875 P1 021 2773 Supposed now that the sales mix in units is 25 25 50 Determine the weighted contribution margin per unit CMPU Contribution Margin x Unit Selling Price WA CMP x Sales Mixed in Pesos4 Determine the total unit sales needed to earn a P100 000 profit TFC Desired Profit WCMP P500 000 P100 000 3 50 P171 429Problem 1 adapted Abigail Corporation is a distributor of a sun umbrella used at resort hotels Data concerning the next month s budget appear below Selling Price P25 per unit Variable expense P15 per unit Fixed expense P8 500 per month Unit sales 1 000 units per month Required 1 Compute the company s margin of safety P3 750Profit Unit CM x Q Fixed ExpensesP0 P25 P15 x Q P8 500P0 P10 x Q P8 500P10Q P8 500Q P8 500 P10Q 850 units or at P25 per units P21 250Sales at the budgeted volume of 1 000 units P25 000Less break even sales at 1 214 units 30 350Margin of safety in pesos P3 7502 Compute the company s margin of safety as a percentage of its sales 15 ABCTotalContribution Margin Percentage60 25 75 Sales Mixed in Pesos25 25 50 Weighted Average15 6 25 37 5 58 75 ABCTotalContribution Margin Per UnitP6 00P2 00P3 00Sales Mixed in Pesos25 25 50 Weighted AverageP1 50P0 50P1 50P3 50 shared via CourseHero com This study resource was This study source was downloaded by 100000821881429 from CourseHero com on 08 27 2021 20 15 27 GMT 05 00 https www coursehero com file 104133952 strat cost 911docx Margin of safety in pesos Sales Margin of safety percentage3 750 25 000 0 15 or 15 Problem 2 adapted Victoria Company sells a single product The company s sales and expenses for a recent month follow Total Per Unit Sales P600 000 P40 Less variable expenses P420 000 P28 Contribution margin P180 000 P12 Fixed expense P150 000 Net operating income P 30 000 Number of units of Sales 600 000 40 15 000 unitsRequired 1 What is the monthly break even point in units sold and in sales pesos 12 500 unitsBEP in Units Fixed Costs Contribution Per Unit 150 000 P12 12 500 unitsBEP in Pesos BEP in Units x Selling Price Per Unit 12 500 units x P40 P 500 0002 Without resorting to computations what is the total contribution margin at the break even point The total contribution margin at BEP will be equal to the fixed expense worth P150 000 3 How many units would have to be sold each month to earn a minimum target profit of P18 000 Use the contribution method Verify your answer by preparing a contribution income statement at the target level of sales 14 000 unitsRequired Sales at Desired Profit Fixed Costs Desired Profit Contribution Margin per Unit P150 000 P 18 000 P12 14 000 unitsContribution Income Statement for Sales of 14 000 UnitsParticularsTotal Pesos Per UnitsSalesP560 000P40Less Variable ExpensesP392 000P18Contribution MarginP168 000P12Less Fixed ExpenseP150 000Net Operating IncomeP18 0004 Refer to the original data Compute the company s margin of safety in both peso and percentage terms Margin of Safety Total Sales Sales at BEPParticularsSales UnitsSales In peso Total Sales15 000600 000Break even Sales12 500500 000Margin of Safety2 500100 000Margin of Safety In Current Sales Break even Sales Current Sales Level x 100Margin of Safety In P600 000 P500 000 P600 000 x 100Margin of Safety In 16 6666 or 16 67 5 What is the company s CM ratio 0 167CM Ratio Total Sales Revenue Variable Costs Total Sales RevenueCM Ratio P600 000 P500 000 P600 000 Company s CM Ration 0 1666 or 0 167 shared via CourseHero com This study resource was This study source was downloaded by 100000821881429 from CourseHero com on 08 27 2021 20 15 27 GMT 05 00 https www coursehero com file 104133952 strat cost 911docx Powered by TCPDF www tcpdf org 6 If monthly sales increase by P80 000 and there is no change in fixed expenses by how much would you expect monthly net operating income to increase P54 000Problem 3 adapted Davao Company sells its only product at P30 per unit Variable costs are P22 per unit and fixed costs are P100 000 per month Required 1 Suppose Davao is selling 20 000 units per month at P30 What is its margin of safety a in units and b in pesos Selling Price P 30 Variable Cost P 22 CMPU P8 Fixed Cost P100 000 CMPU P8 12 500 unitsBEP in units 12 500 units x Selling Price P30 Break even sales of 375 000Current Sales in units 20 000 BEP in units 12 500 Margin of safety in units 7 500 Current Sales in pesos 600 000 Break even sales 375 000 Margin of safety in pesos P225 000 2 Suppose Davao is selling 20 000 units per month at P30 What is the degree of operating leverage Current SalesP600 000 20 000 units x P30 Less Variable CostP440 000 20 000 units x P22 Contribution MarginP160 000Less Fixed CostP100 000Operating ProfitP60 000Contribution MarginP160 000 20 000 units x P8 Divided by Operating ProfitP60 000Degree of operating leverage2 6666666667 or 2 66673 Davao currently pays its salespeople salaries that total to P40 000 per month but no commissions The vice president for sales is considering a plan whereby the salespeople would receive a 5 percent commission but their salaries would fall to a total of P25 000 per month a drop of P15 000 At what sales level is the company indifferent between the two compensation plans Profit Sales A 30x 22x P40 000 Let x the number of units to be sold Profit Sales B 30x 23 5x P25 000 P30 x 5 1 5 P22 VC 23 5 30x 22x P40 000 30x 23 5x P25 000 8x P40 000 6 5x P40 000 8x 6 5x P40 000 25 000 1 5x P15 000X P15 000 1 5X 10 000 units P420 000 P600 000 x P680 000ParticularsTotal Pesos SalesP680 000Less Variable ExpensesP476 000Contribution MarginP204 000Less Fixed ExpenseP150 000Net Operating IncomeP54 000