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Exercises CVP Analysis

The document contains 4 problems involving calculation of break-even points, contribution margin ratios, operating leverage, and choice of manufacturing processes. Problem A involves calculation of CMR, BEP, and profit for a company given price, cost, and sales volume information. Problem B involves calculation of BEP and expected profit given sales and cost data. Problem C involves calculation of degree of operating leverage and percentage change in profit given contribution margin ratio and sales change. Problem D involves calculation of BEP for two manufacturing processes of a new product and determining the sales volume where the choice of process would not make a difference.

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Meeka Calimag
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176 views2 pages

Exercises CVP Analysis

The document contains 4 problems involving calculation of break-even points, contribution margin ratios, operating leverage, and choice of manufacturing processes. Problem A involves calculation of CMR, BEP, and profit for a company given price, cost, and sales volume information. Problem B involves calculation of BEP and expected profit given sales and cost data. Problem C involves calculation of degree of operating leverage and percentage change in profit given contribution margin ratio and sales change. Problem D involves calculation of BEP for two manufacturing processes of a new product and determining the sales volume where the choice of process would not make a difference.

Uploaded by

Meeka Calimag
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem A:

LAN Corporation manufactures and sells a single product that has a retail price of P150, unit variable cost of P120, and total fixed
costs of P900,000. It expects to sell 50,000 units in the upcoming period.
Required:
a. The CMR, BEP in units, and expected profit in the upcoming period.
b. The new CMR, BEP in units, and operating profit for the next period if:
1. Unit sales price increases by 10%.
2. Unit variable cost decreases by 20%.
3. Total fixed costs increase to P1,440,000.
4. The number of units sold increases to P65,000.
5. Unit sales price decreases by P4, unit variable cost decreases by 10%, and total fixed costs increase by P100,000.
Problem B:
Charmaine Company reported the following operating data for its 2022 and 2023 business results:
(in thousands of pesos)
2022 2023 Change
Sales P90,000 P98,000 P8,000
Less: Costs and expenses 70,000 74,960 4,960
Operating profit P20,000 P23,040 P3,040
Required:
a. BEP in pesos.
b. If sales are expected to reach P122,000,000, what would be the expected profit before tax in 2023?
c. If total fixed costs and expenses are expected to increase by 20%, what would be the new breakeven point in 2024?
Problem C:
David Corporation discloses the following data relative to its product Girata for its 2023 opeations:
Contribution margin (40,000 units x P50) P2,000,000
Total fixed costs and expenses 1,200,000
CM Ratio 40%
Required:
a. Degree of operating leverage.
b. What would be the percentage increase in profit before tax if sales are expected to increase by 40% in 2023?
c. If the firm wants to increase its DOL to 4.0 in 2023, how much should be the needed increase in fixed costs assuming the
contribution margin remains the same?
Problem D:
Kiko Company has decided to introduce a new product. The new product can be manufactured by either a fully-automated
process or a semi-automated process. The manufacturing process will not affect the quality of the product. The estimated unit
manufacturing costs by the two methods follow:
Fully-automated Semi-automated
Materials P5.00 P6.00
Direct labor 6.00 7.00
Variable factory overhead 3.00 4.00
Directly traceable incremental fixd factory overhead is expected to be P2,380,000 if the flly-automated process is chosen and
P1,285,000 if the semi-automated process is chosen. The company’s Market Research Department has recommended an
introductory unit sales price of P40. Regardless of the manufacturing process chosen, the incremental marketing expenses are
estimated to be P500,000 per year plus P2 for each unit sold.
Required:
a. Calculate the estimated breakeven point for the new product in annual units of sales if the company uses the:
1. Fully-automated manufacturing process.
2. Semi-automated manufacturing process.
b. Determine the annual unit sales volume at which the choice between the two manufacturing processes would not make a
difference.

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