CVP

AND

PROFIT
PLANNING

PROBLEMS
MARJ JULES LORAIN V. JUNTILLA, CPA
CONTRIBUTION MARGIN FORMULA
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑆𝑎𝑙𝑒𝑠 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑢𝑛𝑖𝑡 = 𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒 𝑢𝑛𝑖𝑡 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 𝑢𝑛𝑖𝑡

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 =
𝑆𝑎𝑙𝑒𝑠
CONTRIBUTION MARGIN FORMULA

Problem 1.
Ces Custom Jewelry sells a single product.
700 units were sold resulting in P7,000
sales revenue. P2,800 of variable costs
and P1,200 of fixed costs were incurred.
The contribution margin per unit is
CONTRIBUTION MARGIN FORMULA
Problem 1.
Ces Custom Jewelry sells a single product.
700 units were sold resulting in P7,000 sales
revenue. P2,800 of variable costs and P1,200
of fixed costs were incurred. The contribution
margin per unit is
Answer: P6.00
CONTRIBUTION MARGIN FORMULA

Problem 2.
Sahlee Co. sells a single product. 8,000
units were sold resulting in P80,000 of
sales revenue, P2.50 of variable costs per
unit, and P10,000 fixed costs. The
contribution margin percentage is
CONTRIBUTION MARGIN FORMULA
Problem 2.
Sahlee Co. sells a single product. 8,000 units
were sold resulting in P80,000 of sales
revenue, P2.50 of variable costs per unit, and
P10,000 fixed costs. The contribution margin
percentage is
Answer: 75%
BREAK-EVEN POINT FORMULA
For a single product:
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝐵𝐸𝑃 (𝑢𝑛𝑖𝑡𝑠) =
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 (𝑢𝑛𝑖𝑡)

𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝐵𝐸𝑃 (𝑝𝑒𝑠𝑜𝑠) =
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜
BREAK-EVEN POINT FORMULA
Problem 3.
Girly Co. sells a single product. 700 units were
sold resulting in P7,000 of sales revenue,
P2,800 of variable costs, and P1,200 fixed
costs.
a. The break-even point in units is
b. The break-even point in pesos is
BREAK-EVEN POINT FORMULA
Problem 3.
Girly Co. sells a single product. 700 units were
sold resulting in P7,000 of sales revenue,
P2,800 of variable costs, and P1,200 fixed
costs.
a. The break-even point in units is 200 units
b. The break-even point in pesos is P2,000
BREAK-EVEN POINT FORMULA
For a multiple products:
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝐵𝐸𝑃 (𝑢𝑛𝑖𝑡𝑠) =
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 (𝑢𝑛𝑖𝑡)

𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝐵𝐸𝑃 (𝑝𝑒𝑠𝑜𝑠) =
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜

Note: Weighted CM per unit is to be computed using the sales mix ratio (using sales
volume in units). Weighted CM ratio is to be computed using sales mix using the sales
volume in pesos.
 BREAK-EVEN POINT FORMULA
Problem 4.
The following information is for San Juan Corporation:
Product X: Revenue – P10; Variable Cost – P2.50
Product Y: Revenue – P15; Variable Cost – P5
Total Fixed Cost: P50,000
a. What is the break-even point (in units) assuming sales mix
consists of two units of Product X and one unit of Product Y?
b. What is the break-even point (in sales) assuming sales mix
consists of two units of Product X and one unit of Product Y?
 BREAK-EVEN POINT FORMULA
Problem 4.
The following information is for San Juan Corporation:
Product X: Revenue – P10; Variable Cost – P2.50
Product Y: Revenue – P15; Variable Cost – P5
Total Fixed Cost: P50,000
a. What is the break-even point (in units) assuming sales mix consists of two
units of Product X and one unit of Product Y? Y: 2,000; X: 4,000
b. What is the break-even point (in sales) assuming sales mix consists of
two units of Product X and one unit of Product Y? Y: P30,000; X: 40,000
PROFIT PLANNING FORMULA
 PROFIT PLANNING FORMULA
Problem 5.
Dr. Charles Hamada, MD, performs a certain outpatient procedure for
P1,000. His fixed costs are P20,000, while his variable costs are P500
per procedure. Dr. Hamada currently plans to perform 200 procedures
this month.
a. What is the budgeted revenue for the month assuming that Dr.
Hamada plans to perform this procedure 200 times?
b. What is the budgeted operating income for the month assuming
that Dr. Hamada plans to perform the procedure 200 times?
 PROFIT PLANNING FORMULA
Problem 5.
Dr. Charles Hamada, MD, performs a certain outpatient procedure for
P1,000. His fixed costs are P20,000, while his variable costs are P500
per procedure. Dr. Hamada currently plans to perform 200 procedures
this month.
a. What is the budgeted revenue for the month assuming that Dr.
Hamada plans to perform this procedure 200 times? P200,000
b. What is the budgeted operating income for the month assuming
that Dr. Hamada plans to perform the procedure 200 times?
P80,000
PROFIT PLANNING FORMULA
Problem 6.
Sahlee Co. sells a single product. 8,000
units were sold resulting in P80,000 of
sales revenue, P2.50 of variable costs per
unit, and P10,000 fixed costs. To achieve
P100,000 in operating income, sales must
total:
PROFIT PLANNING FORMULA
Problem 6.
Sahlee Co. sells a single product. 8,000
units were sold resulting in P80,000 of
sales revenue, P2.50 of variable costs per
unit, and P10,000 fixed costs. To achieve
P100,000 in operating income, sales must
total: P146,667
PROFIT PLANNING FORMULA
Problem 7.
Girly Co. sells a single product. 700 units were sold
resulting in P7,000 of sales revenue, P2,800 of variable
costs, and P1,200 fixed costs.
a. The number of units that must be sold to achieve
P6,000 of operating income
b. At the break-even point of 2,000 units, variable
costs total P4,000 and fixed costs total P6,000. The
2001st unit sold will contribute how much to the
profit?
PROFIT PLANNING FORMULA
Problem 7.
Girly Co. sells a single product. 700 units were sold
resulting in P7,000 of sales revenue, P2,800 of variable
costs, and P1,200 fixed costs.
a. The number of units that must be sold to achieve
P6,000 of operating income 1,200 units
b. At the break-even point of 2,000 units, variable
costs total P4,000 and fixed costs total P6,000. The
2001st unit sold will contribute how much to the
profit? P3.00
 PROFIT PLANNING FORMULA
Problem 8.
The following information is for San Juan Corporation:
Product X: Revenue – P10; Variable Cost – P2.50
Product Y: Revenue – P15; Variable Cost – P5
Total Fixed Cost: P50,000
a. What is the operating income, assuming actual sales
total 150,000 units and the sales mix is 2:1 of product
X and Y?
 PROFIT PLANNING FORMULA
Problem 8.
The following information is for San Juan Corporation:
Product X: Revenue – P10; Variable Cost – P2.50
Product Y: Revenue – P15; Variable Cost – P5
Total Fixed Cost: P50,000
a. What is the operating income, assuming actual sales
total 150,000 units and the sales mix is 2:1 of product
X and Y? P1,200,000
 PROFIT PLANNING FORMULA
Problem 9.
Selling Price – P120 per unit
Variable Costs – P80 per unit
Total Fixed Costs – P80,000
Tax Rate – 40%
a. What is the minimum volume of sales pesos is required to earn an
after tax net income of P30,000?
b. What is the number of units that must be sold to earn an after-tax
net income of P42,000?
 PROFIT PLANNING FORMULA
Problem 9.
Selling Price – P120 per unit
Variable Costs – P80 per unit
Total Fixed Costs – P80,000
Tax Rate – 40%
a. What is the minimum volume of sales pesos is required to earn an
after tax net income of P30,000? P390,000
b. What is the number of units that must be sold to earn an after-tax
net income of P42,000? 3,750 units
MARGIN OF SAFETY FORMULA
𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑆𝑎𝑓𝑒𝑡𝑦 𝑖𝑛 𝑝𝑒𝑠𝑜𝑠 = 𝑆𝑎𝑙𝑒𝑠 − 𝐵𝐸𝑃 𝑝𝑒𝑠𝑜𝑠

𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑆𝑎𝑓𝑒𝑡𝑦 𝑢𝑛𝑖𝑡 = 𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒 𝑢𝑛𝑖𝑡 − 𝐵𝐸𝑃 𝑢𝑛𝑖𝑡

𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑆𝑎𝑓𝑒𝑡𝑦
𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑆𝑎𝑓𝑒𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝑆𝑎𝑙𝑒𝑠
 MARGIN OF SAFETY FORMULA
Problem 10.
If a company’s present sales is 100,000 units (or
P500,000, because the selling price is P5), and the
break-even point is 60,000 units (or P300,000).
a. MOS in pesos:
b. MOS in units:
c. MOS Ratio:
 MARGIN OF SAFETY FORMULA
Problem 10.
If a company’s present sales is 100,000 units (or
P500,000, because the selling price is P5), and the
break-even point is 60,000 units (or P300,000).
a. MOS in pesos: P200,000
b. MOS in units: 40,000 units
c. MOS Ratio: 40%
DEGREE OF OPERATING LEVERAGE FORMULA

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛
𝐷𝑒𝑔𝑟𝑒𝑒 𝑜𝑓 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 (𝐷𝑂𝐿) =
𝐼𝑛𝑐𝑜𝑚𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥
DEGREE OF OPERATING LEVERAGE FORMULA

Problem 11.

𝑃20,000
𝐷𝑒𝑔𝑟𝑒𝑒 𝑜𝑓 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 𝐷𝑂𝐿 = = 2.50
𝑃8,000