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Cara Company produces and sells a single product
Cara Company produces and sells a single product. The selling price is P 25 and the variable costs is P 15 per unit. The company's fixed costs is P 100,000 per month. Average monthly sales is 11,000 units
1. The company's contribution margin per unit and as a percentage of sales is
10 units; 40%
P 10 per unit; 40%
P40 per unit; 16%
P 10 per unit; 60%
2. The company's break-even point is
250,000 units
P 10,000
25,000 units
10,000 units or P 250,000
3. If the company desires to earn profit of P 20,000 before tax, it must generate sales of
P 12,000
300,000 units
10,000 units or P 250,000
12,000 units or P 300,000
4. If the company pays corporate income tax at the rate of 32% and it desires to earn after-tax profit of P 20,400, it must generate sales of
P 325,000 or 13,000 units
16,375 units or P 409,375
P 13,000 or 325,000 units
12,040 units or P 301,000
5. How much sales (in pesos) must be generated to earn profit that is 8% of such sales?
P 230,000
P 208,333.33
P 270,000
P 312,500
6. How many units must be sold to earn profit of P 2 per unit?
12500
10000
312500
8333.33
7. With an average monthly sales of 11,000 units, the company's margin of safety is
1,000 units or P 25,000
11,000 units or P 275,000
10,000 units or P 250,000
P 10,000 or 25,000 units
8. At the present average monthly sales of 11,000 units, the company's operating leverage factor (OLF) is
9.09
11
90.9
6
9. If fixed costs will increase by P 20,000, the break-even point in units will increase(decrease) by
2000
12000
50000
10000
10. If variable costs per unit will go up by P 5, the pesos break-even sales will increase(decrease) to
P500,000
P250000
-250000
-500000
11. If the selling price will increase to P 30, the break-even point in units will
decrease to 6,666.67
decrease by P 166,666.75
remain unchanged
decrease by 6,666.67
Expert Solution
1) Contribution Margin per Unit and as Percentage of Sales:
Contribution Margin per unit = Sales Price per Unit - Variable Cost per Unit
= 25 - 15
= P10
Contribution Margin Ratio (CMR) = (Contribution Margin per Unit / Sales Price per Unit) * 100
= (10 / 25) *100
= 40%
So Answetr is a. P10 per unit, 40%
2) Breakeven Pointin Units and Amount:
Break Even Point in Units = Fixed Costs / Contribution Margin
= 100,000 / 10
= 10,000 Units
Break Even point in Amount = Fixed Costs / Contribution Margin Ratio:
= 100,000 / 0.40
= P250,000
So, the answer is c. 10,000 units or P250,000
3) Required Sales to earn profit of P 20,000 before tax:
Required Sales in Units = (Fixed Costs + Desired Profit) / Contribution Margin per unit
= (100,000 + 20,000) / 10
= 12,000 Units
Required Sales in Amount = (Fixed Costs + Desired Profit) / Contribution Margin ratio
= (100,000 + 20,000) / 0.40
= P300,000
So, the answer is d. 12,000 units or P300,000
4) Computation of Required Sales to earn after-tax profit of P 20,400:
Desired Profit (Before Tax) = Desired Profit (After Tax) / (1 - Tax Rate)
= 21,000 / (1 - 0.30)
= 21000 / 0.70
= P30,000
Required Sales in Units = (Fixed Costs + Desired Profit) / Contribution Margin per unit
= (100,000 + 30,000) / 10
= 13,000 Units
Required Sales in Amount = (Fixed Costs + Desired Profit) / Contribution Margin ratio
= (100,000 + 30,000) / 0.40
= P325,000
So, the answer is d. 13,000 units or P325,000
5) Computation of Required Sales to earn profit that is 8% of such sales:
Desired Profit = 8% of Sales
Assume Sale = X
Assumed desired profit = 0.08X
Contribution Magin Ratio = 40%
Sales to get desired profit (Before tax) = Fixed Costs + Desired Profit / Contribution Margin ratio
X = ( 100,000 + 0.08X) / 0.40
0.40X = 100,000 + 0.08X
0.40X - 0.08X = 100,000
0.32X = 100,000
X = 100,000 / 0.32
X = P312,500
So, the answer is b.312,500
6) Computation of Number of units must be sold to earn profit of P 2 per unit:
Targeted Per Unit Profit = P2
Per Unit Sale price = P25
Targeted total per unit Cost = 25 -2 = P23 Per unit
Variable Cost per Unit = P15
Targeted Fixed Cost per Unit = 23 - 15= 8
Total Fixed Costs (As provided) = P100,000
Units to be Sold to get P2 per unit cost = Total Fixed Cost / Targeted fixed Cost per Unit
= 100,000 / 8
= P12,500
So, the answer is c. 12,500
7) Computation of Margin of Safety:
Margin of Safety in Units = Actual Sales - Breakeven Sales in Units
= 11,000 - 10,000
= 1,000 Units
Margin of Safety is Amount = 1,000 Units*P25 = P25,000
So, the correct option is A "1,000 units or P 25,000".
8) Computation of Operating Leverage Factor:
Operating Leverage Factor = Contribution Margin / Income
= (11,000*P10) / ((11,000*P10)-100,000)
= 110,000/10,000
Operating Leverage Factor = 11
So, the correct option is B "11".
9) Computation of Increase or Decrease in Breakeven Point in Units If fixed costs will increase by P 20,000:
Break Even Point in Units = Fixed Costs / Contribution Margin
= (100,000+20,000) / 10
= 12,000 Units
Breakeven Point in Units will increase by (12,000-10,000) 2,000 Units.
So, the correct option is A "2,000 units".
10) Computation of Increase or Decrease in Pesos Breakeven Sales If variable costs per unit will go up by P 5:
Variable Cost = P15+P5 = P20
Contribution Margin ratio = (P25 - P20)/P25 = P5/P25 = 20%
Break Even point in Amount = Fixed Costs / Contribution Margin Ratio:
= 100,000 / 0.20
= P500,000
Pesos Breakeven Sales will increase to P500,000
So, the correct option is A "P500,000".
11) Computation of Breakeven Point in Units If the Selling Price will increase to P30:
New Selling Price = P30
Contribution Margin per Unit = P30 - P15 = P15
Break Even Point in Units = Fixed Costs / Contribution Margin per Unit
= 100,000 / 15
= 6,666.67 Units
The break-even point in units will decrease to 6,666.67.
So, The correct option is A "decrease to 6,666.67".
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