STCM 04 Ge CVP

STRATEGIC COST MANAGEMENT (STCM) increase (decrease) to
GUIDED EXERCISES l. If selling price will increase to P30, the break-even point in units will
STCM 04 : COST-VOLUME-PROFIT ANALYSIS Case 3
Prepared by : R. Pascual Kuku Corporation expects the following operating results for next year
Sales P400,000
Assumptions: Margin of safety P100,000
• All costs are either variable or fixed Contribution margin ratio 75%
• Total cost and total revenues are predictable and linear Degree of operating leverage 4
• Fixed cost remain constant What is Kuku’s total fixed expenses at year end?
• Unit variable cost remain constant Case 4
• Unit Selling Price remain constant Jumpman Corporation produces and sells a single product. The company has
• FG and WIP inventories do not change significantly provided its contribution format income statement for July:
CVP TERMS Sales (3,200 units) Php 238,080
• Margin of Safety (MOS) and MOS Ratio Variable expenses 145,920
• Degree of operating leverage (DOL) Contribution margin 92,160
• Contribution margin (CM) Fixed expenses 74,400
• CM per unit (CMu) and CM Ratio (CMR) Net operating income 17,760
• Breakeven in units (X) or sales If the company sells 4,000 units, its net operating income would be
• Sales Mix Case 5
The total sales in units of a company are made up of 40% of Product X and 60%
Case 1 Product Y. The selling prices are P8 and P6 for X and Y respectively. Unit variable
Mabuhay sells its products at P160 per unit with the unit variable cost of P110. Its cost for X is P5 while for Y, it is P3.50. Fixed costs for the company are P67,500.
fixed cost is P162,000. How many units must be sold to achieve the following (tax Case 6
rate is 40%) A Company’s sales mix consists of a composite unit of 50 units of Product M, 10 units
a. Breakeven of Product N and 40 units of Product O. The company’s fixed costs are P492,000.
b. A minimum pre-tax income of P52,000 Unit selling price and unit variable costs are as follows: P20 and P10 for M, P12 and
P8 for N and P9 for O.
c. A minimum pre-tax income of 20% of sales
Case 7
d. A minimum after tax income of P10,000
The following data pertain to the three products produced by BB Corporation:
e. A minimum after tax income of 15% of sales
A B C
Case 2
Selling price Php 16.00 Php 22.40 Php 19. 20
Rohi Corporation produces and sells a single product. The selling price is P25 and
Variable cost 12.80 16.00 9.60
the variable cost is P15 per unit. The corporation’s fixed costs is P100,000 per
month. Average monthly sales is 11,000 units. CM 3.20 6.40 9.60
a. The corporation’s contribution margin per unit and as a percent of sales (CMR) is Fixed costs are Php90,000 a month. 60% of all units sold are Product A, 30% are
b. The corporation’s break even point is Product B, and 10% are Product C.
c. If the corporation desires to earn profit of P20,000 before tax, it must generate sales a. How many units of Product A must be sold in order to breakeven?
of b. If the Company wishes to earn a profit of Php60,000, how many units of
d. If the corporation pays corporate income tax at the rate of 30%, and it desires to Product B must it sell
earn after-tax profit of P21,000, it must generate sales of Case 8
e. How much sales (in pesos) must be generated to earn profit that is 8% of such ABC Company's variable expenses are 75% of sales. At a sales level of
sales? Php400,000, the company's degree of operating leverage is 8. At this sales level,
f. How many units must be sold to earn profit of P2 per unit? fixed expenses are:
g. With an average monthly sale of 11,000 units the corporation’s margin of safety is
h. The margin of safety ratio (MSR) and the break-even sales ratio (BESR) are
i. At the present average monthly sales level of 11,000 units the corporation’s
operating leverage factor (OLF) is
j. If fixed costs will increase by P20,000, the break even point in units will
increase (decrease) by
k. If variable costs per unit will go up by P5, the peso break-even sales will
Case 9
Larger Company had originally expected to earn operating income of Php130,000 in
the coming year. Its degree of operating leverage is 2.4. Recently, Larger revised its
plan and now expects to increase sales by 20% next year. 85. What is the
percentage change in operating income expected by Larger in the coming year?
Case 10
Mimi Co. and Yu Co. sell the same product in a competitive industry. Thus,
the selling price of the product for each company is the same. Other data
about the two companies are as follows:
Mimi Co. Yu Co.

Fixed costs P 50,000 P 70,000
CM ratio 40% 52%
a. The companies’ break-even points for Mimi and Yu respectively are?

b. The indifference point in terms of peso sales volume where the peso
profits of the two companies are equal is c. At indifference point, the
companies’ profit amounts to
- END -

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STRATEGIC COST MANAGEMENT (STCM) increase (decrease) to

Mimi Co. Yu Co.

a. The companies’ break-even points for Mimi and Yu respectively are?

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