04 Cost Volume Profit Analysis KEY PDF

Preview

Summary

Chapter 4 Cost Volume Profit Analysis 1 TRUE 1 1 TRUE 2 1 FALSE Answer Key 2 FALSE 1 2 FALSE 2 2 TRUE 3 TRUE 1 3 FALSE 2 3 TRUE 4 TRUE 1 4 FALSE 2 4 TRUE I TRUE OR FALSE 5 TRUE 1 5 TRUE 2 5 TRUE 6 FALSE 1 6 FALSE 7 TRUE 1 7 TRUE 8 FALSE 1 8 FALSE 9 TRUE 1 9 FALSE 1 0 FALSE 2 0 FALSE 1 C 1 3 B 2 5 D ...

Description

Chapter 4 Cost Volume Profit Analysis 1 TRUE 1 1 TRUE 2 1 FALSE Answer Key 2 FALSE 1 2 FALSE 2 2 TRUE 3 TRUE 1 3 FALSE 2 3 TRUE 4 TRUE 1 4 FALSE 2 4 TRUE I TRUE OR FALSE 5 TRUE 1 5 TRUE 2 5 TRUE 6 FALSE 1 6 FALSE 7 TRUE 1 7 TRUE 8 FALSE 1 8 FALSE 9 TRUE 1 9 FALSE 1 0 FALSE 2 0 FALSE 1C13B25D 2B14B26C 3D15B27C 4 A 1 6 A2 8 B II MULTIPLE CHOICE THEORY 5B17D29B 6D18C30A 7A19D 8A20B 9B21B 10C22B 11B23D 12C24C III MULTIPLE CHOICE PROBLEMS 1 C 6,200 units fixed costs P74,400 / P12 = 6,200.00 2 D P6,000 Sales 40,000.00 x CMR (100% - 30% ) 0.70 Contribution margin 28,000.00 - Advertising expense 22,000.00 = Increase in net income 6,000.00 3 A 62.50% Selling price per unit 200.00 Variable cost per unit 75.00 CM per unit 125.00 CMR = (SP / CM) 62.5% 4 B P540.00 CM / unit = P60,000 - P24,000 = P36,000 / 2,000 units 18.00 increase in units sold 30.00 Increase in contribution margin 540.00 5 B P350,000 CMR = Total CM / Total Sales Total Sales = P150,000 / .30 = 500,000.00 Variable cost ( at VCR of 70% = P500,000 x .70) 350,000.00 6 A P60,000 (SP per unit - VC per unit ) X = FC + Profit (P10 - P8)X = P80,000 + P40,000 = P2X = P120,000 = P60,000 7 C P450,000 CM = FC + Target income CM = P100,000 + P80,000 = P180,000 Total sales = CM / CMR = P180,000 / 40% = 450,000.00

8 D P160,000 CM - FC = Target income = P240,000 - P80,000 = 160,000.00 1 0 D 70% SP - VC = CM CMR = CM / S 9 A P550,000 Sales - Variable Cost - Fixed Cost = Net income S - VCR -FCR = NI 100% - 60% P200,000 = P20,000 1 1 A P700 CMR = (P20 - P6) / P20 = 70% 40% x = P220,000 P220,000 / .40 = 550,000.00

1 2 B it decreases about 12 units P20 - P6 = P14 P14 / P20 = 0.70

Decrease in number of units in BEP 1 2 CMR x increase in sales = P1,000 x 70% = 700.00

1 3 A P5,000 increase CM = P50 increase in sales = 100 units BEP in units before decrease = P4,200 / (P20 - P6 ) = 300 BEP in units after decrease = P4,200 / (P20 - P5.40* ) = 288 1 4 A P71.25 Increase in Profit = CMR x Sales = 75% x P95 = 71.25 * New VC = P6 x .90 = P5.40 P20-5.40 = P14.60 1 5 D P8,000 Monthly Contribution margin = 2,000 x P10 20,000.00 Increase in profit = 1,00 x P50 = 5,000.00

1 6 A P43.50 (BEP units x SP) - VC - FC = 0 Monthly expenses 12,000.00 Monthly profit 8,000.00 1 7 A 2,200 cats Total fund 32,000.00 2,000 X - P55,000 - P32,000 = 0 X = P87,000 / 2,000 = 43.50

Total fixed costs 10,000.00 Total Contribution margin 22,000.00 Variable cost to capture per cat 10.00 total cats that can be captured 2,200.00

1 8 C P8.00 P60 - P40 - (P60 x 20%) = P8 8.00 1 9 C 13.33% P8 / P60 = 13.33% 0.1333 2 0 D 15,000 units P120,000 / P8 = 15,000.00 2 1 C 18,000 units CM per unit x Total Sales in units = FC + Target net income 2 2 C 26,000 units CM per unit x Total Sales in units = FC + Target net income P8X = P120,000 + P24,000 = X = P144,000 = 18,000 2 3 B 32,000 units Sales 100.0% 1,920,768 P8X = P160,000 + P48,000 = X = P208,000 = 26,000 FC now is now P160,000 as units needed is more than 20,000

Variable cost ratio 86.7% 1,664,730

CMR 13.3% 256,038 Target net income 5.0% 96,038 Fixed cost ratio 8.3% 160,000.00

OR P60x -P52x - P120,000 = .05(P60)x P60x -P52x - P120,000 = P3.00x P60x - P52x -P3x = P120,000 X = P120,000/ P5.00 24,000 since its more than 20,000 , FC is P160,000 P60x -P52x - P160,000 = .05(P60)x P60x -P52x - P160,000 = P3.00x 2 4 C P0.50 CM = P200 / 400 0.50 P60x - P52x -P3x = P160,000 X = P160,000/ P5.00 2 5 C P16,000 Sales 50,000.00 x 1.2 x 1.2 72,000.00 32,000 units

Variable costs 25,000.00 x 1.2 x 1.2 36,000.00 Contribution margin 25,000.00 36,000.00 Fixed costs 20,000.00 20,000.00 Net income 5,000.00 16,000.00 To use the Operating Leverage factor, OLF for Feb. must be computed first. 2 6 A Sales increase by 10%, net income will increase by 20% 2 7 D P6.25 Sales = Fixed costs + Variable cost + Profit OLF x Increase in sales = 2 x 10% = 20%

200,000x = P400,000 + 200,000x (60%) + P100,000 2 8 D P5.00 per unit S - VC - FC = Target net income 200,000x = P400,000 +120,000x + P100,000 200,000x - 120,000x = P400,000 + P100,000 80,000x = P500,000 X = P500,000 / 80,000 = 6.25 2 9 A P1,120 audio video Sales = P20,000 + 10,000(P2.00) +P10,000 Sales = P20,000 + 20,000 +P10,000 Sales = P50,000 SP per unit = P50,000 / 10,000 = 5.00 3 0 C 200 units Fixed costs / wcm = P224,000 / P1,120 = 200 CM 800.00 1,600.00 Sales mix 0.60 0.40

3 1 C 120 units BEP units is 200 ; audio sales mix is 60% = 200 x .60 = 120 weighted average cm 480.00 640.00 1,120.00 3 2 C P224,000 At BEP, CM is equal to FC, therefore , CM = 224,000.00 3 3 C P27 Chip A Chip B Sales price 40.00 55.00 3 4 A 24,000 units Sales mix of pops = (40,000 units sales / [ 40,000 + 60,000] = 40% Variable cost 20.00 25.00 Contribution margin 20.00 30.00 Sales mix 0.30 0.70 WACM 6.00 21.00 27.00 mix of pops = 0.40 BEP in units of Pops 24,000.00 3 5 C P1,200,000 FC = P1,800,000 WCM = P30 per unit Expected sales in units 40000 + 60,000 = 100,000.00 BEP in units = P1,800,000 / P30 per unit = 60,000 Sales 3 6 A 44% Sour salad Sweet salad WACM per unit 30.00 Total WACM 3,000,000.00 Total fixed costs 1,800,000.00 Expected net income 1,200,000.00

sales mix 60% 40% CMR 40% 50% WACM 24% 20% 44% 3 7 D P5,500,000 FC = P2,420,000 / 44% = 5,500,000.00 3 8 D P3,300,000 Total sales = P5,500,000 x Sales mix 60% = 3,300,000.00 3 9 A 15% Sales 500,000.00 Variable cost 425,000.00 Contribution margin 75,000.00 4 0 C 6 DOL Sales 500,000.00 CMR = CM / Sales P75,000 / P500,000 = 0.15

Variable cost 200,000.00 Contribution margin 300,000.00 Fixed cost 250,000.00 Net income 50,000.00 DOL = CM / NI 6.00

PROBLEMS 4.1 sales mix CM / unit WACM BEP in units tapa 0.15 120.00 18.00 12,750.00 tocino 0.60 60.00 36.00 51,000.00 hotdog 0.25 40.00 10.00 21,250.00 1.00 220.00 64.00 85,000.00 Combined units = FC / WACM = P5,440,000 / P64 = 85,000.00

4.2 1 sales mix CMR WACM BEP in units Accounting 0.60 0.30 0.18 13,500,000.00 Tax 0.40 0.45 0.18 9,000,000.00 1.00 0.36 22,500,000.00 Combined units = FC / WACM = P8,100,000 / .36 = 22,500,000.00 2 Fixed costs 8,100,000.00 Desired net income 1,800,000.00 Total CM required 9,900,000.00 WACM rate 0.36 Total sales required 27,500,000.00 x % of sales mix of tax 0.40 Total sales for tax 11,000,000.00 4.3 total sales sales mix total CM CMR WACM BEP in units Chips 800,000.00 0.80 320,000.00 0.40 0.32 480,000.00 Crackers 200,000.00 0.20 60,000.00 0.30 0.06 120,000.00 1,000,000.00 1.00 0.38 600,000.00 Combined units = FC / WACM = P228,000 / .38 = 600,000.00

4.4 1 Eight Nine Contribution margin 350,000.00 560,000.00 Net income 150,000.00 150,000.00 DOL = CM / NI 2.33 3.73 CMR 0.50 0.80 2 Eight Nine Sales P700,000 x .80 560,000.00 P700,000 x .80 560,000.00 CMR 0.50 0.80 Contribution margin 280,000.00 448,000.00 Fixed cost 200,000.00 410,000.00 Net income 80,000.00 38,000.00 using the percentage change and the degree of operating leverage, net income are: Decrease in sales 0.20 0.20 Degree of operating leverage 2.33 3.73 Percentage decrease in net income 0.47 0.75 Net income before the decrease 150,000.00 150,000.00 New net income = (NI x 1 - % change in NI) 80,100.00 38,100.00 difference of P100 is due to rounding off Investment A Investment B 4.5 Contribution margin 400,000.00 750,000.00 Net income 200,000.00 200,000.00 DOL = CM / NI 2.00 3.75 1 decrease in sales by 10% Decrease in sales 0.10 0.10 Degree of operating leverage 2.00 3.75 Percentage decrease in net income 0.20 0.38 Net income before the decrease 200,000.00 200,000.00 New net income = (NI x 1 - % change in NI) 160,000.00 125,000.00 to check Old net income 200,000.00 200,000.00 Percentage decrease in net income 0.200 0.375 Decrease in net income 40,000.00 75,000.00 New net income 160,000.00 125,000.00 1 increase sales by 20% Increase in sales 0.20 0.20 Degree of operating leverage 2.00 3.75 Percentage increase in net income 0.40 0.75 Net income before the increase 200,000.00 200,000.00 New net income = (NI x 1 + % change in NI) 280,000.00 350,000.00 to check Old net income 200,000.00 200,000.00 Percentage increase in net income 0.400 0.750

Increase in net income 80,000.00 150,000.00 New net income 280,000.00 350,000.00 4.6 1 FILMS REFRESHMENTS TOTALS Revenue from admissions 1,500.00 180.00 1,680.00 Variable costs (P1,500 * 50% = P750.00) 750.00 108.00 858.00 Contribution margins 750.00 72.00 822.00 Fixed costs: Auditorium 220.00 Labor 290.00 510.00 Operating income 312.00 Refreshments revenue = P1,500 x 12% = 180.00 Refreshments variable cost = P180 x 60% = 108.00 2 FILMS REFRESHMENTS TOTALS Revenue from admissions 900.00 108.00 1,008.00 Variable costs (P900*50% =P450 min is P500.) 500.00 64.80 564.80 Contribution margins 400.00 43.20 443.20 Fixed costs: Auditorium 220.00 Labor 290.00 510.00 Operating income (66.80) Refreshments revenue = P900 x 12% = 108.00 Refreshments variable cost = P108 x 60% = 64.80

4.7 1 Let T be the amount of additional fixed costs for advertising (1,100,000 x P13 ) + P300,000 - .30(1,100,000 x P13) - P6,000,000 + T ) = 0 P14,300,000 + P300,000 - P4,290,000 - P6,000,000 + T = 0 T = P14,300,000 +P300,000 - P4,290,000 - P6,000,000 -0 T = 4,310,000.00 2 Let S be the total number of seats sold P13S + P300,000 - .30(P13)S - P8,000,000 = P500,000 P13S + P300,000 - P3.90S - P8,000,000 = P500,000 P9.10S = P500,000 - P300,000 +P8,000,000 S = 8,200,000 / 9.10 901,099 seats 4.8 1 Average revenue per person P3.00 + 3(P1.50) = P7.50 Total revenue, 200 at P7.50 = 1,500.00 Rent expense 600.00 Total available for prizes and operating income 900.00 The club could award P900 and breakeven. 2 number of persons attended at 100 at 200 at 300 Total revenues at P7.50 750.00 1,500.00 2,250.00 Less, fixed costs and prizes (P600 + P900) 1,500.00 1,500.00 1,500.00 Operating income (loss) (750.00) - 750.00 Note how "leverage" works. Being highly leveraged means having relatively high fixed costs. In this case, there are no variable costs. Therefore, the revenue is the same as the contribution margin. As volume departs from the breakeven point, operating incofme is affected at a significant rate of P7.50 per person. 3 number of persons attended at 100 at 200 at 300 Total revenues at P7.50 750.00 1,500.00 2,250.00 Less, variable costs P2 per person 200.00 400.00 600.00 Contribution margin 550.00 1,100.00 1,650.00 Less, fixed costs and prizes (P200 + P900) 1,100.00 1,100.00 1,100.00 Operating income (loss) (550.00) - 550.00 Note that the risk now is lower because of less leverage. Fixed costs are less, and some of the risk has been shifted to the hotel. Note also that lower risk brings lower rewards and lower punishments. The income and losses are P550 instead of P750 as in the No. 2. 4.9 1 Let N be the number of persons helped P900,000 - P5,000N - P290,000 = 0 P5,000 N = P900,000 - 290,000

N = P610,000 / P5,000 122 persons N = P475,000 / P5,000 9 5 persons 2 Let N be the number of persons helped Revenue now is P900,000 x .85 = 765,000.00 P765,000 - P5,000N - P290,000 = 0 P5,000 N = P765,000 - 290,000 Percentage decrease (122 - 95 ) / 122 0.221 or 22.10% 3 Let P be the amount of supplement per person helped Revenue now is P900,000 x .85 = 765,000.00 P765,000 - 122P - P290,000 = 0 122P = P765,000 - 290,000 P = P475,000 / 122 3,893 per person Percentage decrease (P5,000 - P3,893) / P5,000 0.221 22.10% 4.10 1 Total variable costs: economy regular super Popcorn cost per box 0.13 0.13 0.13 cost of each box 0.08 0.08 0.08 other variable costs per box 0.22 0.14 0.05 0.43 0.35 0.26 Let N be the volume in boxes that would earn same profit P8,000 + P.43N = P11,200 +P.35N P.08N = P11,200 - P8,000 N = P3,200 / .08 40,000 boxes 2 As volume increase, the bigger capacity models would generate more profits. Let us compare regular and super models: Let N be the volume in boxes that would earn same profit P20,200 + P.26N = P11,200 +P.35N P.09N = P20,200 - P11,200 N = P9,000 / .09 100,000 boxes

Therefore, the decision rule could be shown below: Abticipated Annual Sales between model to use - to 40,000 economy 40,000 to 100,000 regular 100,000 and above super The decision rule places volume well within the capacity of each model. 3 No, management cannot use the theater capacity or average boxes sold because the number of seats per theater does not indicate the number of patarons attending nor the popcorn-buying habits in different geographic locations. Each theater may have a different "boxes sold per seat" average with significant variations. The decision rule does not take into account variations in demand that could affect the model choice. 4.11 1 Present breakeven point Total fixed costs 200,000.00 4,000 units Unit CM (P100 - P50 ) present variable cost per unit NI = Sales - Total Fixed costs - Total variable costs P50,000 = P100(5,000) -

P200,000 -VC(5,000) P50,000 = P500,000 - P200,000 -VC(5,000) VC(5,000) = P500,000 -P200,000 - P50,000 VC = P250,000 / 5,000 units VC per unit = 50.00 2 Net income if change is effected NI = Sales - Total Fixed costs - Total variable costs NI = P95(7,000) P250,000 - P40(7,000) NI = P665,000 - P250,000 - P280,000 NI = 135,000.00 Based on the new computation, net income will increase to P135,000; the company must make the change. 3 Degree of operating leverage before DOL = CM / NI CM 5,000 ( P100 - P50) 250,000.00 5 NI [5,000 (P100 - P50)] - P200,000 50,000.00 Degree of operating leverage before DOL = CM / NI CM 7,000 ( P95 - P40) 385,000.00 2.85 NI [7,000 (P95 - P40)] - P250,000 135,000.00

This indicates that operating incofme will be less sensitive to changes in sales if the production process is changed; thus the change would reduce risks. However, the change would increase the breakeven point. Still, with lower sales price, it might be easier to achieve the higher new BEP. 4 Yes there is a change in BEP. Higher BEP New breakeven point Total fixed costs 250,000.00 4,545 units Unit CM (P95 - P40 )

4.12 1 Selling price - Variable costs = Contribution margin P1,000 - [P450 + (P1,000 x 5%)] = P1,000 - (P450 + P50) = 500.00

2 At less than 12,000 cameras BEP (P3,500,000 + P1,000,000) / P500 9,000 At more that 12,000 cameras BEP (P6,000,000 + P1,000,000) / P500 14,000 At 12,000 at 14,400

3 Sales new sp (P1,000 x .90 = P900) 12,000,000.00 12,960,000.00 Less, Variable costs: cost of sales 5,400,000.00 6,480,000.00 Selling costs at 5% 600,000.00 648,000.00 Total variable costs 6,000,000.00 7,128,000.00 Contribution margin 6,000,000.00 5,832,000.00 Less, Fixed costs 4,500,000.00 7,000,000.00 Net income (Loss) 1,500,000.00 (1,168,000.00) No, the company should not reduce the selling price because it will incur a net loss

4.13 weighted (cu x sm) BEP in sales Products unit cm sales mix ave. cm BEP in units Total CM A 4.00 5 20.00 3,500 14,000.00 B 10.00

1 10.00 700 7,000.00 30.00 21,000.00 Combined units = Fixed costs / WACM Combined units = P21,000 / P30 = 700 times

4.14 selling Total Products price units CMR CM Alf 4.00 100,000 30% 120,000.00 Tarf 3.00 200,000 20% 120,000.00 Total contribution margin 240,000.00 Desired net income 160,000.00 Required Fixed costs 80,000.00 4.15 old new 1 Selling price per unit 3.10 3.10 Unit variable costs 2.10 1.10 Unit contribution margin 1.00 2.00 Units sold 600,000 600,000 Total Contribution margin 600,000.00 1,200,000.00 Less, Fixed costs 585,000.00 1,140,000.00 Budgeted profit 15,000.00 60,000.00 2 Budgeted breakeven point: Fixed costs 585,000.00 1,140,000.00 Divided by the CM per unit 1.00 2.00 Break even point in units 585,000.00 570,000.00 3 A fall in volume will be more devastating under the new system because the high fixed costs will not be affected by the fall in volume. Unit contribution margin 1.00 2.00 Units sold 500,000 500,000 Total Contribution margin 500,000.00 1,000,000.00 Less, Fixed costs 585,000.00 1,140,000.00 Budgeted profit (loss) (85,000.00) (140,000.00)

4 Unit contribution margin 1.00 2.00 Units sold 700,000 700,000 Total Contribution margin 700,000.00 1,400,000.00 Less, Fixed costs 585,000.00 1,140,000.00 Budgeted profit (loss) 115,000.00 260,000.00 5 Changes in volume affect profits in the new process ( a high fixed cost, low variable cost set up) more than they affect profits in the old process. Therefore, profits in the old are more stable and less risky. The higher risk new process promises greater rewards when conditions are favorable, but the opposite if unfavorable.

4.16 Product A Product B 1 Fixed costs a 450,000.00 50,000.00 Contribution margin b 7.50 15.00 Break even point (a / b) 60,000 3,333 2 P35x = P50,000 + P20x + (P35 x .20)x P35x = P50,000 + P20x + P7.00x P35x -P20x - P7.00x = P50,000 7.00 X = P50,000 / P8.00 = 6,250 units 3 90,000x = P450,000 +90,000(P7.50) 90,000x = P450000 + P675,000 X = P1,125,000 / 90,000 = 12.50 per unit 4.17 Cost present Structure 1 Sales 500,000.00 1.00 Variable expenses 300,000.00 0.60 Contribution margin 200,000.00 0.40 Fixed costs 150,000.00 0.30 Net income 50,000.00 0.10

2 P500,000 x 15% = P75,000 x 40% = P20,000 OR P200,000 x 85% = P170,000 - P150,000 = P20,000 3 Operating leverage factor P200,000 / P50,000 = 4 times 4 Net income increase 4 x 5% = 20% 20%

5 present 5 (a) 5 (b ) Sales 500,000.00 600,000.00 500,000.00 Variable expenses 300,000.00 360,000.00 600,000.00 Contribution margin 200,000.00 240,000.00 (100,000.00) Fixed costs 150,000.00 195,000.00 125,000.00 Net income 50,000.00 45,000.00 (225,000.00)

4.18 weighted (cu x sm) BEP in sales 1 Products unit cm sales mix ave. cm BEP in units Total CM P. 3.00 3 9.00 120,000 360,000.00 B. 6.00 1 6.00 40,000 240,000.00 15.00 160,000 600,000.00 Combined units = Fixed costs / WACM Combined units = P600,000 / P15 = 40,000 times weighted (cu x sm) BEP in sales 2 Products unit cm sales mix ave. cm BEP in units Total CM P. 3.00 1 3.00 40,000 120,000.00 B 6.00 2 12.00 80,000 480,000.00 15.00 600,000.00 Combined units = Fixed costs / WACM = P600,000 / P15 = 40,000 times No. 5

3 weighted (cu x sm) BEP in sales Products unit cm sales mix ave. cm BEP in units Total CM P. 3.00 1 3.00 73,334 220,002.00 B 6.00 2 12.00 146,668 880,008.00 15.00 1,100,010.00 Combined units = ( Fixed costs + Desired Profit ) / WACM Combined units = (P600,000 + P500,000) / P15 = 73,334 times 4 WACM = P15.00 5 total CM 1,100,010.00

4.19 1 BEP = P10,000 / (P20 - P15) 2,000 units 40,000.00 Sales at 3,000 units 3,000 units 60,000.00 Margin of safety 1,000 20,000.00 Sales at 4,000 units 4,000 80,000.00 Margin of safety 2,000 40,000.00 3 at 3,000 units at 4,000 units Sales 60,000.00 80,000.00 Less, Variable costs 45,000.00 60,000.00 Contribution margin 15,000.00 20,000.00 Less, Fixed costs 10,000.00 10,000.00 Net income 5,000.00 10,000.00 2 Operating leverage factor (cm / ni) 3 2 4 Margin of safety = increases Operating leverage factor = decreases 4.20 Sales (P10 x 1.15) x (100,000 x 1.10) 1,265,000.00 Less, Variable costs 110,000 x (P600,000/100,000) 660,000.00 Contribution margin 605,000.00 Less, Fixed costs 400,000.00 Net income 205,000.00...