04 CVP Answer

Cost- Volume- Profit Analysis
Suggested Answers and Solutions
Cost Volume Profit Analysis
THEORY ANSWERS:
1. A 11. D 21. D 31. A 41. C 51. C 61. A

2. B 12. A 22. D 32. D 42. C 52. D 62. C
3. C 13. D 23. B 33. C 43. A 53. B 63. D
4. B 14. C 24. A 34. C 44. D 54. C 64. D
5. A 15. D 25. D 35. A 45. B 55. B 65. D
6. C 16. D 26. A 36. A 46. B 56. C 66. A
7. D 17. B 27. C 37. C 47. C 57. A 67. D
8. B 18. D 28. C 38. C 48. D 58. C 68. A
9. A 19. C 29. B 39. D 49. D 59. C 69. B
10. D 20. A 30. B 40. B 50. D 60. A
PROBLEM ANSWERS:
1. B 21. C 41. A 61. A 81. A 101. B 121. A

2. C 22. C 42. A 62. B 82. C 102. A 122. D
3. A 23. A 43. C 63. C 83. A 103. A 123. A
4. B 24. B 44. B 64. B 84. C 104. A 124. B
5. A 25. A 45. C 65. C 85. A 105. A 125. A
6. A 26. A 46. C 66. B 86. D 106. A 126. B
7. A 27. B 47. C 67. A 87. A 107. D 127. B
8. A 28. B 48. B 68. D 88. A 108. D 128. B
9. A 29. A 49. B 69. B 89. D 109. B 129. A
10. A 30. B 50. A 70. C 90. A 110. C 130. C
11. B 31. B 51. A 71. A 91. C 111. B 131. B
12. C 32. B 52. A 72. C 92. B 112. B 132. C
13. C 33. D 53. B 73. C 93. C 113. B 133. D
14. A 34. A 54. A 74. A 94. A 114. A 134. C
15. B 35. B 55. B 75. A 95. A 115. B 135. A
16. A 36. A 56. D 76. D 96. D 116. C 136. B
17. A 37. C 57. A 77. B 97. C 117. A 137. D
18. C 38. B 58. B 78. A 98. B 118. B
19. A 39. D 59. A 79. A 99. B 119. C
20. C 40. A 60. B 80. B 100. A 120. B
167
Solutions:
1. Answer: B
Contribution Margin = Fixed costs

= P15,000
(Contribution Margin/Unit Sales) + Variable cost per unit

= Desired Minimum Sales Price
(P15,000 ÷ 3,000) + (P7,500 ÷ 3,000) 7.50
2. Answer: C
Unit contribution margin (P50 - P30) P 20.00
Additional profit (500 x P20) P10,000
After the break-even level, the amount of profit equals the unit
contribution margin multiplied by the number of units sold in
excess of break-even units.
The candidates should remember that the profit increases by the

amount of contribution margin brought by additional units sold.
3. Answer: A
Cost of dinner P 70.00

Favors and program 30.00
Fixed costs
(15,000 + 7,000 + 48,000 + 10,000)/250 320.00
Cost to be charged P420.00
4. Answer: B
The number of units required to earn the target profit is equal to

the sum of fixed expenses and the target profit divided by the unit
contribution margin. The number of units required to earn the
target net profit is:
(P78,000 + P42,000) ÷ P12 10,000
168
5. Answer: A
Selling Price P 60
Less: Variable Manufacturing Cost ( 30)
10% Commission ( 6)
Unit Contribution Margin P 24
6. Answer: A
Current break-even:
Pesos: (P32,000 ÷ 0.40) P80,000
Units: [P32,000 ÷ P6) 5,333
Contribution margin per unit: P15 x 0.40 P 6.00
Additional units to cover additional fixed costs:

(P32,000 x 0.3)  P6 1,600
Alternative solution:
New breakeven units (P32,000 x 1.3) ÷ P6 6,933
Less current breakeven units 5,333
Increase in breakeven units 1,600
7. Answer: A
The amount of contribution margin per unit is constant within a

relevant range. The amount of profit is increased by the amount
of unit contribution margin.
Contribution margin per unit:

fixed cost ÷ breakeven unit sales 50,000 ÷ 5,000 P10.00
At breakeven point, the profit is zero. Therefore, the profit at a
level of 5,001 units will be P10 which is the amount of
contribution provided by the unit (one unit) in excess of
breakeven point.
169
8. Answer: A
CMR = Fixed cost/Sales

= 100,000/800,000 = 12.50%
Profit = (1,200,000 – 800,000)0.125

P50,000
The amount of sales that provides profit should be the sales

revenues above the break even sales.
Total contribution margin 1,200,000 x 0.125 P150,000
Fixed costs 100,000
Profit P 50,000
9. Answer: A
Current unit contribution margin (P32 – P24) P8

Current break-even units (P400,000 ÷ P8) 50,000
New unit contribution margin (P40 - P24) P16
New break-even units (400,000 ÷ 16) 25,000
Net decrease in breakeven units
(50,000 – 25,000) 25,000
10. Answer: A
CM per unit: 220,000 / (100,000 – 80,000) 11.00
Fixed costs: 80,000 x 11 P880,000
The contribution margin per unit is linear or constant per unit.

Therefore: TCM  Units = UCM
170
11. Answer: B
TCM  Sales = CMR

Change in TCM: (600,000*0.2) – (360,000*0.1) 84,000
CMR: Increase in TCM ÷ Increase in Sales
84,000 ÷ 240,000 35%
Breakeven sales 90,300 ÷ 0.35 258,000
12. Answer: C
Before-tax profit 24,000 ÷ 0.6 40,000

Add fixed cost 200,000
Total contribution margin 240,000
Selling price = UVC + UCM

Selling Price = 6 + (240,000 ÷ 40,000) 12.00
13. Answer: C
The company's degree of operating leverage is determined as

follows:
Degree of operating leverage = Contribution margin ÷ Net income
Degree of operating leverage = P600,000 ÷ P240,000 = 2.50
14. Answer: A
Increase in sales 125,000

Less variable costs and expenses
0.90 x 125,000 112,500
Additional profit before tax 12,500
Less additional tax 0.40 x 12,500 5,000
Additional profit 7,500
171
15. Answer: B
Additional profit ÷ UCM = additional unit sales

= (40,000 + 8,000) ÷ (80-60)
= 2,400 units
16. Answer: A
Total peso sales required 120,000 ÷ (0.25 – 0.1)

800,000*
Less prior sales 400,000
Required increase in sales 400,000
*Peso sales required to earn profit stated as percentage of sales

(ROS):
S = [FC + (ROSS)]  CMR
(CMR S) = [FC + (ROSS)]
(CMR S) - (ROSS) = FC
(CMR – ROS) S = FC
S = FC  (CMR – ROS)
17. Answer: A
Contribution margin 50,000 x (5-3.50) 75,000

Less: Additional profit (250,000 x 0.10) 25,000
Additional fixed costs 50,000
Selling price = P3.50 ÷ 0.70 P5.00
18. Answer: C
A shorter calculation of finding the amount of sales is to divide

breakeven sales by (1 – MSR)
Sales = P600,000  (1 – 0.2) P750,000
172
An alternative solution to find sales is to compute the profit margin.
Profit margin = Contribution margin ratio x margin of safety ratio.

Profit margin = 20% x 40% 8%
Sales = Profit ÷ Profit margin
Sales (60,000 ÷ 0.08) P750,000
19. Answer: A
Peso sales = FC/(CMR - ROS)

= P210,000/(0.40 - 0.10) P700,000
CMR = 40%
A long computation of required sales uses the following equation:
S = P210,000 + 0.10S
0.40
0.40S = P210,000 + 0.10S

0.40S - 0.10S = P210,000
S = P210,000/(0.40 – 0.10)
S = P700,000
20. Answer: C
Current number of units required to earn the target net profit:
[(P200,000 + P70,000) ÷ P9] 30,000
After the automated machine is placed into service,

the number of units required to earn the target
net profit will be:
((P250,000 + P70,000) ÷ P12) 26,667
Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales
173
21. Answer: C
CMR= 100% - (3.9 ÷ 6.0) = 35%
BES = 1,400,000 ÷ .35 4,000,000
22. Answer: C
New break-even point:

P874,000 ÷ P23 38,000
Current break-even point in units:
P770,500 ÷ P23 33,500
Increase in units: 38,000 - 33,500 4,500
Alternative solution: (P103,500 ÷ P23) 4,500
23. Answer: A
The estimated cost of goods sold

= P565,000 + 0.35S*
*Sum of all percentages for variable production costs
= P565,000 + (P2,000,000 x 0.35)

= P1,265,000
24. Answer: B
Peso sales required to earn 10% of sales;
FC/(CMR – ROS)
= P36,000/(0.30-0.10)
= 180,000
25. Answer: A
Revised contribution margin 20,000 x 1.15 x (7-1) 138,000

Fixed cost (105,000 + 19,200) 124,200
Revised profit 13,800
174
Prior profit 35,000

Decrease in profit 21,200
26. Answer: A
Margin of Safety = Budgeted sales – Breakeven sales

Margin of Safety: P400,000 – P40,000 P360,000
27. Answer: B
DOL at P90,000 sales:
Sales 90,000
Variable costs 50,000
Total Contribution margin 40,000
Fixed costs 30,000
Profit 10,000
DOL = TCM/OP
= 40,000/10,000 4 times
% increase in sales x DOL = % increase in profit

4 x 20% = 80%
28. Answer: B
2006 DOL = 275,000/75,000 3.67
Percentage Increase in profit, 2007 = 3.67 x 30% 110%
2007 Profit = 75,000 +(75,000 x 1.10) P157,500
29. Answer: A
Peso sales 12,000/(0.40 – 0.1) P40,000

Unit sales P40,000/10 4,000
Increased units 4,000 x 1.25 5,000
Revised contribution margin 5,000 x (9 – 6) P15,000
Less fixed cost 12,000
Revised profit P 3,000
175
30. Answer: B
Projected cost of sales:

P800,000 + (P3,000,000 x 0.65) P2,750,000
31. Answer: B
Unit CM = Change in Profit ÷ Change in Sales

= 200,000 ÷ (100,000 – 75,000)
=8
Fixed costs = Breakeven units x UCM

75,000 x 8 = 600,000
32. Answer: B
Unit cost:
Materials (P36,000 ÷ 24,000) P1.50
Labor (P54,000 ÷ 24,000) 2.25
Variable selling expense 0.35
Variable unit cost P4.10
Required profit (2,250 ÷ 1,500) 1.50
Required minimum selling price P5.60
33. Answer: D
Composite ratio:
X: 640,000 ÷ (720,000 + 640,000) 47.059%
Y: 720,000 ÷ (720,000 + 640,000) 52.941%
Weighted-Average Contribution Margin:

(.52941 × .60) + (.47059 × .40) 0.505882
Breakeven sales in pesos:

(505,881 ÷ 0.505882) P1,000,000
Y’s peso sales at breakeven P1M x 0.47059 P 470,590
176
34. Answer: A
Sales (500,000 x 1.10) 550,000

Variable cost 300,000
Contribution margin 250,000
CMR = 250 ÷ 550 = 45.45%

Original fixed costs:
500,000 – 300,000 – 150,000 = 50,000
New fixed cost = 50,000 x 0.80 = 40,000
Breakeven sales = 40,000/0.4545 = P88,000
35. Answer: B
Before-tax profit (24,000 ÷ 0.6) P 40,000

Add fixed costs 200,000
Total contribution margin P240,000
Contribution margin per unit (P240,000 ÷ 40,000) P 6.00

Variable cost per unit 6.00
Selling price P12.00
36. Answer: A
DOL = CM/OP
= 275,000/75,000
= 3.67 times
37. Answer: C
Peso sales : FC ÷ (CMR - Profit Margin)

= P210,000 ÷ (0.55 - 0.15)
= P525,000
CMR = 100% - 45% = 55%
177
38. Answer: B
CMR: Change in Fixed Costs ÷ Change in Breakeven Sales
78,750 ÷ (975,000 – 750,000)

0.35
Fixed costs before an increase of 78,750:

750,000 x 0.35 262,500
The increase in fixed costs of P78,750 equals the increase in

contribution margin in order to continue at breakeven sales.
39. Answer: D
UCM = (70,000 x 1.20)+(40,000 x 3)

70,000 – 40,000
= P6.80
FC = Units(UCM – profit per unit)

= 70,000(6.80 – 1.20)
= P392,000
BEU = 392,000/6.80
= 57,647
40. Answer: A
Margin of safety in peso sales = Budgeted sales – Breakeven sales
Margin of safety = P1M – P.7M P300,000
41. Answer: A
2006 Sales 1,000,000

Advertising Cost (75000 ÷ .6) 125,000
Required 2007 peso sales 1,125,000
178
42. Answer: A
Revised WACM (0.5 x 1.50) + (0.5 x 2) 1.75

Original WACM (0.4 x 1.50) + (0.6 x 2) 1.80
Revised Breakeven units 12,600/1.75 7,200
Original Breakeven units 12,600/1.80 7,000
Increase in breakeven units 200
43. Answer: C
WACM = (30 x 0.6) + (60 x 0.4) P42

Breakeven units: 630,000/42 15,000
Breakdown:
Product Standard 15,000 x 0.6 9,000
Product Deluxe 15,000 x 0.4 6,000
44. Answer: B
WACM = (4/7 x 0.40)+(3/7 x 0.93 = P0.62857
BE units = 7,600/0.62857 = 12,091
Baubles = 12,091 x 4/7 = 6,909
Trinkets = 12,091 x 3/7 = 5,182
45. Answer: C
Total sales revenue per composite sales:

(12 x P5.25) + (10 x P7.50) + (6 x P12.25) P211.50
Total variable cost per composite sales:
(12 x P4.85) + (10 x P6.95) + (6 x P10.35) P189.80
Total contribution margin per composite sales
(P211.50 - P189.80) P 21.70
Composite breakeven point
P75,950 ÷ P21.70 3,500
179
Note: Total breakeven units: 3,500 x 28 = 98,000
46. Answer: C
WACMR = (.6 x .4) + (.4 x .15) 30%

Fixed Costs = 225000 x 1.3 P 292,500
Sales (292500 + 48000) ÷ .3 P1,135,000
47. Answer: C
UCM = (60,000 x 0.75)+(45,000 x 1.25)

60,000 – 45,000
= 6.75
Fixed cost = (60,000 x 6.75)-(60,000 x 0.75) P360,000
48. Answer: B
BEV = 600,000 P150,000

16 – 12
49. Answer: B
CMR = Before Tax Profit Margin

M/S Ratio
= (0.06 ÷ 0.6) ÷ .25
= 40%
FC = (120,000 x .40) – (120,000 x .10) = P36,000
Annual FC = 36,000 x 12 P432,000
50. Answer: A
Profit Margin = 20% x 10% = 2%

Profit = 400,000 x 2% = 8,000
Fixed Costs = CM - Profit
Fixed Costs = (400,000 x 20%) – 8,000 P72,000
180
51. Answer: A
Revised UCM = 25 – 19.80 – (5 x 0.08) P4.80
BEU = 468,000/4.80 97,500
52. Answer: A
The Company projected zero profit based on zero advertising

expenditure.
Additional CM (30,000 units @ 10) P300,000
Less: Required profit 200,000
Maximum advertising cost P100,000
53. Answer: B
Cash-flow breakeven: 270,000 ÷ (100-60) 6,750
54. Answer: A
CMR = Before-tax return on sales/MSR

= (0.06  0.60)  0.25 0.40 or 40%
BES = 320,000  0.40 P 800,000
Sales = 800,000  0.75 P1,066,667
55. Answer: B
The easier calculation of sales value of 60,000 units is to divide

the total annual costs by total cost ratio of 85% (100% - 15%).
Sales required = P1,912,500/0.85 P2,250,000
Unit selling price = 2,250,000/60,000 P37.50
181
56. Answer: D
Indifference Point = Change in Fixed Cost ÷ Change in Variable

Cost
Increase in fixed cost: 2 @ 15,000 P30,000
Decrease in variable cost (15% - 7.5%) 80 P6
Indifference point: 30,000 ÷ 6 5,000 units
57. Answer: A
WACM = (0.25 x 5)+(0.75 x 7)

= 6.50
BEU = 975,000/6.50
= 150,000
58. Answer: B
The additional fixed costs of P1,200,000 should be fully covered

by the same amount as additional sales (also additional
contribution margin) through an increase in selling price.
Increased price P120 +(1.20M/80,000) P 135
59. Answer: A
Breakeven point:
Old policy: P80,000/7 11,429
New policy: P100,000/8 12,500
Increase in Breakeven point 1,071
60. Answer: B
WACMR = (.4 x .2) + (.5 x.3) + (.4 x.5) = 0.43
BES = 1,290,000 ÷ .43 = P3,000,000
182
61. Answer: A
Contribution margin 12,000 x (1,500 – 900) P7,200,000

Fixed costs 3,600,000
Operating profit P3,600,000
DOL: 7.2/3.6 = 2 times
62. Answer: B
The indifference point refers to the level of sales that would give
equal profit or total costs for the two alternatives
11.30x + 60,000 = 8.90x + 82,500

2.40x = 22,500
x = 9,375
63. Answer: C
Variable cost ratio = 2.25/7.50 = 30%
Variable cost next year = 2.25 x 1.3333 = 3
Selling price required = 3/0.30 = P10
64. Answer: B
Total Fixed Cost P154,000

Operating Profit 26,000
Total Contribution Margin P180,000
Selling price P 20
Contribution margin per unit
(180,000 ÷ 12,000) 15
Unit variable cost P 5
183
65. Answer: C
Fixed costs 600,000

Operating profit 120,000
Unit contribution margin 720,000 ÷ 400,000 1.80
Selling price (1.80 ÷ 0.40) P4.50
66. Answer: B
Contribution margin per machine hour: Contribution margin per

unit x No. of units produced per machine hours
Product A P20 x 6 P120
Product B P16 x 8 P128
67. Answer: A
440,000 + (110,400/0.61) = 480,000

4 – 2.70
Revised variable cost: P2.40 + (P2.00 x 0.15) P2.70
68. Answer: D
VC Ratio 375,00/625,000 = 60%
VC / unit 375,000/25,000 = P15
New VC = 15 + (4.50 – 2.50)= P17
SP = 17/0.6 = P28.33
184
69. Answer: B
The level of sales that would give equal costs:

0.06S = (40 x 24,000)+ 0.02S
0.04S = 960,000
S = 24M
70. Answer: C
Additional fixed cost/week:

31,200/52 = 600
Additional weekly sales to cover additional fixed cost:

600/0.25 = 2,400
Total Sunday’s sales (where 2,400 represents 25%):

2,400/0.25 =9,600
600 = 0.25 x 0.25S
600 = 0.0625S
S = 9,600
71. Answer: A
New BES = 873,600/140 = 6,240
New FC = 840,000 x 1.04 = 873,600
New CM = 250 – 100 –(100 x 0.10) = 140
Old BES = 840,000/150 = 5,600
Increase in BEU = 6,240 – 5,600 = 640
185
72. Answer: C
Composite CM = 40 + (2 x 20)
= 80
Composite BE = 910,000/80
= 11,375
73. Answer: C
Required new sales = 2005 sales + (P112,500/CMR)

= P5M +(P112,500/0.45)
P5.25M
CMR = (250 – 137.50)/250 45%
74. Answer: A
Breakeven units = 807,840 ÷ 5.30 152,423
New CM/unit = 20 – 14.70 = 5.30
New variable cost: (14 + (14 x.5 x 0.10) = 14.70
New FC = 792,000 + (792,000 x.20x.10) = 807,840
75. Answer: A
Indifference point = Decrease in Fixed Cost

Increase in Variable Cost
= 80,000/0.05
= P1.60M
76. Answer: D
Processing hours per unit:

XY – 7: 0.75/1 = 0.75 or 45 minutes
BD – 4: 0.20/1 = 0.20 or 12 minutes
186
Additional contribution margin using 100,000 hours:

XY – 7: 100,000/0.75 x P1 = P133,333
BD – 4: 100,000/0.20 x P0.50 = P250,000
77. Answer: B
Units sold to earn P1M:

(1,000,000 + 1,000,000) / 5.25 = 380,952
The use of P1M fixed costs will require 380,952 units which are
within the first range.
78. Answer: A
Fixed costs = 792,000 +(792,000 x 0.20 x 0.10)

= 807,840
UCM = 20 – 14 –(14 x 0.50 x 0.10)= 5.30
Computation = 807,840/5.30
79. Answer: A
Cost of one 4–foot piece of metal 4 x 13.60 54.40

Less proceeds from sale of scrap 6.4 / 16 x 8 3.20
Net cost of one 4- foot piece of metal 51.20
Net cost per ounce P 51.20 ÷ 25.6 oz P2.00
Output per one 4-foot piece of metal

Large 4 x 4oz 16.00
Small 4 x 2.4oz 9.60
Scrap 6.40
Total oz 32.00
80. Answer: B
Material cost per unit
187
Large: 4 x P2 x 1.8 P14.40

Small 2.4 x P2 x 1.75 P 8.40
81. Answer: A
Unit CM
Large: 29.00 – (8.5 x 1.8) = 13.70
Small: 14.00 – ( 5.1 x 1.75) = 5.075
WACM = (13.70 + 5.075) ÷ 2 = 9.3875

Breakeven point = 860,000/9.3875
= 91,611
82. Answer: C
CM /unit 405,000 ÷ 1,800 225

BEV = 247,500 ÷ 225 1,100 units
83. Answer: A
Operating Profit: (2,100 x 225) – 247,500 = P225,000
After–tax profit: 225,000 x 60% = 135,000
84. Answer: C
Contribution margin
Regular sales 1,500 x 225 337,500
Special sale 1500 x 175 262,500
Total Contribution 600,000
Fixed costs 247,500
Taxable income 352,500
Income tax 141,000
Net income 211,500
85. Answer: A
Additional FC/ New Unit CM

61,500 ÷ 200 = 307.5 tons
188
86. Answer: D
New SP = 500 x .90 450 100%

New VC 275 + 40 315 70%
New CM 135 30%
Sales required:]
(Fixed costs + Before Tax profit) ÷ CMR
247,500 + (94,500 ÷ 60) P1,350,000
87. Answer: A
Unit sales required:

(316,800 + 40,000) ÷ 27.20 = 13,118 pairs
Unit Contribution Margin, Touring:
80.00 – 52.80 P27.20
88. Answer: A
Indifference point in peso sales:
0.4S – P369,600 = 0.34S – P316,800

0.06S = 52,800
S = P880,000
89. Answer: D
Breakeven sales, Mountaineering:

369,600 ÷ 35.20 = 10,500
Required contribution margin – Touring
316,800 ÷ 10,500 = 30.17
Present contribution margin – Touring 27.20
Required decrease in variable cost per unit 2.97
90. Answer: A
New breakeven point: 348,480 ÷ 32.48 10,730
New UCM, Touring: 27.20 + (52.80 x 0.1) = 32.48
189
New Fixed costs: 316,800 x 1.1 = 348,480
91. Answer: C
The indifference point in number of pairs is 6,600. Inasmuch

that the expected level is 12,000 units, it is better to sell
Mountaineering because it has high leverage than the touring
model. Once the indifference point is exceeded, the one with the
higher contribution margin (leverage) has the advantage over the
one with the lower contribution margin.
92. Answer: B
Fixed Costs:
Overhead 2,340,000
Marketing 120,000
Administrative 1,800,000
Interest 540,000
Total 4,800,000
Contribution margin ratio:

1 - [(7,200,000 + 2,400,000)/16M] = 40%
Breakeven next year with no change in commission:

4,800,000 ÷ 0.4 = P12,000,000
93. Answer: C
If the commission rate is increased by 5%, the contribution

margin is decreased by 5% or a new contribution margin ratio of
35%
Breakeven sales next year.

4,800,000 / 0.35 = P13,714,286
94. Answer: A
Fixed cost under 15% commission plan 4,800,000

Increase in Fixed cost 2,400,000
Decrease in audit fee ( 75,000)
Increased fixed costs 7,125,000
190
The commission rate of 7.5%, instead of 15% will raise the

contribution margin ratio to 47.5% (40% + 7.5%).
Revised breakeven sales 7,125,000 / .475 = P 15M
95. Answer: A
Required sales, with 20% commission

and profit target of P1,120,000:
(P4,800,000 + 1,600,000) ÷ .35 = 18,285,714
96. Answer: D
The question asked for is the indifference point. The peso sales
required to produce equal income can be easily calculated by
dividing the net increase in fixed costs by the increase in
contribution margin ratio:
Difference in CMR = 35% - 47.5 = 12.5%

Increase in fixed costs = 2,400,000 – 75,000 P2,325,000
Indifference Point: 2,325,000 ÷ 0.125 P18.6M
Alternative Solution:
.355 – 4,800,000 = .475S – 7,125,000
.125S = 2,325,000
S = P18,6M
97. Answer: C
Billing charge per patient day P650

Variable cost per patient day 150
Contribution margin P500
Number of patient days for the year:

P10,676,250/650 16,425
Variable cost per patient day:

P2,463,650÷16,425 P150
191
98. Answer: B
Fixed costs for bed capacity P4,190,000

Salary, supervisory nurse 720,000
Total P4,910,000
Number of patient days required to cover fixed costs

for bed capacity and salaries of supervisory nurse
4,910,000 ÷ 500 9,820
99. Answer: B
In solving for the breakeven level where there are step fixed
costs, the logical approach is to test the validity of the ranges of
activities.
First Range:
Fixed costs based on capacity 4,190,000
Salaries:
Aides 21 x 50,000 1,050,000
Nurses 11 x 130,000 1,430,000
Supervisor 4 x 180,000 720,000 3,200,000
Total 7,390,000
Breakeven calculation: 7,390,000 ÷ 500 14,780
The calculated breakeven point of 14,780 is invalid because the

number falls under the second range wherein the amount of
fixed costs that had been used are not relevant to that range.
Second Range (Final calculation):
Total fixed cost, lowest range 7,390,000

Additional fixed cost:
1 aide 50,000
1 nurse 130,000
Total 7,570,000
Breakeven in patient days:
192
7,570,000 ÷ 500 15,140

100. Answer: A
Additional revenues if 20 beds are rented:
90 days @ 17 patient days x 650 994,500
101. Answer: B
Increase in variable cost should be calculated

based on additional patient days for 90 days at
P150 per patient day.
17 beds x 90 days x P150 P229,500
102. Answer: A
The increase in fixed cost based on bed capacity:
P4,190,250 ÷ 60 x 20 P1,396,750
103. Answer: A
Tax shield in non cash expenses

40% x 800,000 = P320,000
104. Answer: A
Breakeven in number of pizzas (traditional)

4,537,500/(250 – 75) = 25,929
Units sold: P9,500,000/250 = 38,000
Unit variable cost (cost of food)

2,850,000 ÷ 38,000 = P75.00
Fixed cost = 7,387,500 – 2,850,000 P4,537,500
193
105. Answer: A
Cash Flow Breakeven:

3,417,500 ÷ 175 19,529
Total fixed cost: P4,537,500

Less: Noncash fixed cost ( 800,000)
Tax shield on noncash
Fixed costs ( 320,000)
Fixed cash flow P3,417,500
106. Answer: A
Breakeven sales based on 20% commission:

P100,000 ÷ 0.20 P500,000
Contribution margin ratio:

(10M – 8M) ÷ 10M 20%
107. Answer: D
Breakeven sales if the company employs its own salesmen:

(P350,000 ÷ 0.35) P1,000,000
The new contribution margin ratio is (20% + 15%) 35%
Fixed costs are expected to be P350,000

(100,000 + 90,000 + 160,000)
108. Answer: D
The required peso sales to earn net income of P1,330,000 if the

commission is raised to 25%:
(P100,000 + P1,900,000) ÷ 0.15 P13,333,333
194
109. Answer: B
The indifference point, the level of sales where the alternatives

will have equal profits:
.15S- 100,000 = .35S – 350,000
2S = 250,000
S = P1,250,000
110. Answer: C
The problem illustrates a calculation of breakeven point for a

company with a step variable and step fixed cost.
Contribution Margin per Unit:

60,000 or less (P30 – P12.50) P17.50
Units above 60,000 (P30 – P14.00) P16.00
Total contribution margin from the first

60,000 (60,000 x P17.50) P280,000
Let X = Number of units above 16,000
0 = 280,000 + 16X -360,000

X = 80,000 ÷ 16
X = 5,000 units
Breakeven units: 16,000 + 5,000 21,000
Total fixed costs P360,000

Less Contribution margin from 60,000 units 280,000
Remaining fixed costs to be covered by
additional units, each with CM of P16 P 80,000
Breakeven units: 16,000 + (80,000 ÷ 16) 21,000
195
111. Answer: B
The units that will generate the desired profit of P150,000 for
the company, contributes P16 each. These units are the excess
of 21,000 units to breakeven.

21,000 + (150,000 ÷ P16) 30,375
112. Answer: B
The bonus plan of P1.00 per unit on sales made in excess of

breakeven point (21,000 units) will necessarily decrease the
contribution margin to P15.
The desired profit based on fixed cost:

25% x P360,000 P90,000
Units required: 21,000 + (P90,000 ÷ 15) 27,000
113. Answer: B
In determining the minimum selling price for the 8,000 units

should consider the increased variable cost per unit and the
additional fixed cost. Any cost and losses on the first 16,000
units are irrelevant:
Variable cost per unit P14.00
Additional fixed cost per unit (10,000 ÷ 8,000) 1.25
Minimum selling price P15.25
114. Answer: A
The net income for the month if the new equipment is acquired:
Contribution margin based on the present
system P135,000
Add increase in contribution margin due to
decrease in variable cost (15,000 x 9) 135,000
Increased contribution margin 270,000
Less Increased fixed costs 225,000
196
Net income P 45,000

115. Answer: B
The increase in breakeven point would be:

(12,500 – 10,000) 2,500 units
Breakeven, present (P90,000 ÷ P9) 10,000 units
Breakeven, proposed (P225,000 ÷ P18) 12,500 units
116. Answer: C
The degree of operating leverage (DOL)

during the month that the new
equipment would be used: (270,000 ÷ 45,000) 6X
(Please see solution for No. 94)
117. Answer: A
Breakeven units if there is a change in marketing method:
P48,000 ÷ 6 8,000 units
Contribution margin per unit:

(Fixed cost + profit) ÷ Units sold
(P48,000 + P60,000) ÷ 18,000 units P6.00
118. Answer: B
The percentage increase in profit can be calculated by

multiplying the degree of operating leverage (DOL) by the
percentage increase in sales during the second month.
The sales increased by 30% (P4,500 ÷ P15,000) and therefore
the profit percentage increased by 180% (6 x 30%).
The expected profit during the next month would be:
P45,000 + (P45,000 x 1.8) P126,000
197
119. Answer: C
Breakeven Units:
Fixed Costs ÷ Unit Contribution Margin
P6,000,000 ÷ 300 20,000 pairs
120. Answer: B
Contribution margin (P18,000 x 300) P5,400,000

Less Fixed costs 6,000,000
Net loss P( 600,000)
121. Answer: A
The breakeven level for the sales outlet is expected to rise

because of additional commission, a variable cost item, and
such a commission is being paid for all pairs of shoes sold.
Breakeven in pairs of shoes:

6,000,000 ÷ (300 – 75) 26,667 pairs
122. Answer: D
Though an additional commission is paid on pairs of shoes sold,

the breakeven point is not affected and shall remain at 20,000
because the additional commission applies only to number of
pairs of shoes sold in excess of breakeven level.
The profit contribution by the 5,000 pairs is based on reduced
contribution margin per pair.
Profit: 5,000 x (300 – 50) P1,250,000
Sales (25,000 x P800) P20,000,000
Variable costs (24,000 x P500) 12,750,000
Total contribution margin 7,250,000
Fixed costs 600,000
Profit P 1,250,000
198
123. Answer: A
Because the breakeven level is unchanged, the calculation of the

number of pairs to earn P900,000 is simple. The amount of the
desired profit will be contributed by the number of pairs of
shoes in excess of breakeven, each contributing P250.
20,000 +(P900,000 ÷ 250) 23,600 pairs
124. Answer: B
300X – P6,000,000 = 440X – P8,142,000

140X = P2,142,000
X = 15,300 pairs
125. Answer: A
Breakeven peso sales: P1,800,000 ÷ 0.3 P6,000,000
CMR = P1,755,000 ÷ P5,850,000 30%
126. Answer: B
Additional contribution margin

P800,000 x 0.30 P240,000
Additional fixed cost 160,000
Increase in profit P 80,000
127. Answer: B
Sales 39,000 x P270 P10,530,000

Variable cost 39,000 x P210 8,190,000
Contribution margin 2, 340,000
Fixed cost 2,400,000
Net loss P( 60,000)
199
128. Answer: B
Original unit contribution margin

(1,755,000 ÷ 19,500) P90.00
Less increase in packaging cost 7.50
New Unit contribution margin P82.50

(P1,800,000 + P97,500) ÷ P82.50 23,000
129. Answer: A
Breakeven units, Automated

(P1,800,000 + P720,000) ÷ (P90 + P30)
P2,520,000 ÷ 90 21,000
Breakeven units, Present
(P1,800,000 ÷ 90) 20,000
Increase in breakeven units 1,000
130. Answer: C
The computation of the indifference point for the two processes

can be determined by dividing the increase in fixed costs by the
decrease in variable cost per unit because the selling price was
unchanged.
Indifference Point: P720,000 ÷ 30 24,000
131. Answer: B
If the level of sales is higher than the indifference point, the one
with higher leverage, i.e., higher fixed costs and lower unit
variable cost, will provide higher income. The automated
process has the higher leverage and therefore, it has higher
income:
Difference in income: (26,000 – 24,000)30 P60,000
200
132. Answer: C
Breakeven units = Fixed costs  Unit contribution margin
P100,000  (P400 – P200)

500 units
133. Answer: D
Step 1: Compute before-tax profit:

P240,000  (1.0 – 0.4) P400,000
Units sales required to earn before-tax profit:

(P100,000 + P400,0000)  P200 2,500 units
Profit = Sales – Variable costs – Fixed costs
P400,000 = P400X – P200X – P100,000

P500,000 = P200X
X = 2,500 units
134. Answer: C
Revenue (350 x P400) + (2,700 x P360) P1,112,000

Variable costs (3,050 x P200) 610,000
Fixed expenses 100,000
Operating income P 402,000
Income tax 160,800
Net income P 241,200
135. Answer: A
Revenue (350 x P400) + (2,200 x P370) P 954,000

Variable costs (350 x P200) + (2,200 x P175) 455,000
Fixed expenses 100,000
Operating income 399,000
201
Income tax 159,600

136. Answer: B
Revenue (350 x P400) + (2,000 x P380) P 900,000

Variable costs (2,350 x P200) 470,000
Contribution margin P 430,000
Fixed costs 90,000
Operating profit 340,000
Income tax 136,000
137. Answer: D
Before tax profit objective (240,000 ÷ 0.6) P400,000

Fixed costs 100,000
Total contribution margin required 500,000
Less contribution margin made on units sold
January – May (350 x 200) 70,000
Additional contribution margin still needed P430,000
Additional contribution margin from 2,500 units

(2,500 x P175) P437,500
Less additional contribution margin required to
meet profit objective 430,000
Maximum advertising cost P 7,500
202

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Cost- Volume- Profit Analysis

Suggested Answers and Solutions

Cost Volume Profit Analysis

1. A 11. D 21. D 31. A 41. C 51. C 61. A

1. B 21. C 41. A 61. A 81. A 101. B 121. A

Contribution Margin = Fixed costs

(Contribution Margin/Unit Sales) + Variable cost per unit

(P15,000 ÷ 3,000) + (P7,500 ÷ 3,000) 7.50

Unit contribution margin (P50 - P30) P 20.00

Additional profit (500 x P20) P10,000

The candidates should remember that the profit increases by the

Cost of dinner P 70.00

Cost to be charged P420.00

The number of units required to earn the target profit is equal to

Unit Contribution Margin P 24

Additional units to cover additional fixed costs:

Increase in breakeven units 1,600

The amount of contribution margin per unit is constant within a

Contribution margin per unit:

CMR = Fixed cost/Sales

Profit = (1,200,000 – 800,000)0.125

The amount of sales that provides profit should be the sales

Current unit contribution margin (P32 – P24) P8

CM per unit: 220,000 / (100,000 – 80,000) 11.00

Fixed costs: 80,000 x 11 P880,000

The contribution margin per unit is linear or constant per unit.

TCM  Sales = CMR

Breakeven sales 90,300 ÷ 0.35 258,000

Before-tax profit 24,000 ÷ 0.6 40,000

Selling price = UVC + UCM

The company's degree of operating leverage is determined as

Degree of operating leverage = Contribution margin ÷ Net income

Degree of operating leverage = P600,000 ÷ P240,000 = 2.50

Increase in sales 125,000

Additional profit ÷ UCM = additional unit sales

Total peso sales required 120,000 ÷ (0.25 – 0.1)

Required increase in sales 400,000

*Peso sales required to earn profit stated as percentage of sales

Contribution margin 50,000 x (5-3.50) 75,000

Selling price = P3.50 ÷ 0.70 P5.00

A shorter calculation of finding the amount of sales is to divide

An alternative solution to find sales is to compute the profit margin.

Profit margin = Contribution margin ratio x margin of safety ratio.

Sales (60,000 ÷ 0.08) P750,000

Peso sales = FC/(CMR - ROS)

A long computation of required sales uses the following equation:

0.40S = P210,000 + 0.10S

Current number of units required to earn the target net profit:

[(P200,000 + P70,000) ÷ P9] 30,000

After the automated machine is placed into service,

Change in units: 30,000 - 26,667 = 3,333 decrease in unit sales

CMR= 100% - (3.9 ÷ 6.0) = 35%

BES = 1,400,000 ÷ .35 4,000,000

New break-even point:

Increase in units: 38,000 - 33,500 4,500

Alternative solution: (P103,500 ÷ P23) 4,500

The estimated cost of goods sold

= P565,000 + (P2,000,000 x 0.35)

Peso sales required to earn 10% of sales;