Management Accounting Services Problems and Solutions

Topics: Variable cost, Costs, Total cost Pages: 18 (3415 words) Published: September 29, 2012
CVP Analysis
1.Xavier Biadnes Company has the following budgeted data for the coming year: Selling price per unitP15.00
Budgeted sales800,000
Fixed expenses200,000
Variable cost per unit10.00
a.What is the breakeven in sales in units?
b.What is the margin of safety ratio in per cent?
a.Contribution margin= (15-10)
BEP (units) = fixed cost/unit contribution margin
= 200000/5
= 40,000 units
b.MSR= margin of safety/actual (or budgeted) sales
Budgeted salesP 800,000
Less: Breakeven sales (40,000 units x 15) 600,000
Margin of safety P 200,000
MSR = 200,000/800,000
= 25%

2.Given the selling price at P 200 per unit; contribution margin ratio at 25% and fixed cost at P 500,000, the total variable expenses at the breakeven point would be: SOLUTION:
BEP (P 500,000/25%)P 2,000,000
x VC ratio (100%-25%)75%
Variable expenses P 1,500,000

Or variable expenses (500,000/25%x75%)P 1,500,000

3.Joy Hapi Stuff Toys manufactures and sells dolls. The following information relates to the operating results for the last quarter: Stuff toys sold 18,375
Breakeven point in number of toys 14,500
Breakeven point in peso sales P 85,865
Total fixed cost P 49,285
a.What was Joy’s variable cost per doll?
b.What was the margin of safety percentage for the last quarter of Joy? SOLUTION:
a.Unit sales price (P 85,865/14500) P 5.32
-Unit contribution margin (49,285/14500)3.39
Unit variable cost P 1.93

b.Actual sales (18,375 x 5.32) P 97,755
-Breakeven sales 85,865
Margin of safety P 11,890

MSR = (11,890/97,755)
= 12%
4.Mailene Corporation has a contribution margin ratio of 0.38. it aims to have a net income of P 920,000 with a sales volume of P5 million. It’s total fixed cost amount to: SOLUTION:
Contribution margin (P 5 million x .38) P 1,900,000
-Income before income tax 920,000
Total fixed cost and expenses P 980,000

5.XYZ Co. has monthly fixed costs of $200,000. They sell a single product for $60 each. Variable costs are $40 per unit. They sell about 20,000 units per month. XYZ is facing fierce competition from a new company, and management decides to lower the selling price of their product to $50 per unit. They also decide to take out advertising at a cost of $10,000 per month. Required:

1.Contribution margin using original and new information.
2.BE in units using the original information.
3.BE in units using the new information.
4.Profit/loss using the new information.

1.Selling price$60
Variable costs 40
Contribution margin 20

BE in units = total fixed costs/unit contribution margin
= $200,000/20
= 10,000 units

2.Selling price$50
Variable costs 40
Contribution margin 10

BE in units = 210,000/10
= 21,000 units

3.Contribution margin 20000 @10$200,000
Less: total fixed costs 210,000
Loss (10,000)

Short term non- routine
Special sales order
1.Seven Dwarves Company sells product A at a selling price of P 21 per unit. Seven’s cost per unit on the full capacity 500,000 units are as follows: Direct materialsP 8
Direct labor 10
Overhead (2/3 of which is fixed) 12
A special order offering to buy 40,000 units was received from a foreign distributor. The only selling cost that would be incurred in this order would be P6 per unit for shipping. Seven has sufficient existing capacity to manufacture the additional units. Seven should consider that the minimum selling price per unit should be:

Direct materials P 8
Direct labor 10
Variable overhead (1/3 x P12) 4
Variable shipping cost 6
Total incremental cost P 28

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