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MAS.M 1416
PROFIT PLANNING AND CVP ANALYSIS
STRAIGHT PROBLEMS
1. BASIC CVP RELATIONSHIPS. Ariel Company produe! a produ" "#a" #a! "#e
$ollo%in& da"a per annum'
(ni" !ale! prie P)** per uni"
(ni" +aria,le o!"! P-* per uni"To"al $i/ed o!"! P0.* MILLION
(ni"! !old 0**** uni"!
Re2uired'
a. (ni" on"ri,u"ion mar&in on"ri,u"ion mar&in ra"io and +aria,le o!" ra"io.
,. Brea3e+en poin" in uni"! and in pe!o!.. Mar&in o$ !a$e"y in uni"! in pe!o! and mar&in o$ !a$e"y ra"io.
d. Amoun" o$ pro$i" u!in& "#e mar&in o$ !a$e"y analy!i!.
e. Ne" pro$i" ra"io.
$. I$ !ale! inrea!e ,y P)4**** #o% mu# %ould you e/pe" pro$i" "o inrea!e5&. 6e&ree o$ opera"in& le+era&e5
An!%er'a. (CM7 1)* CMR7 849 VCR749
,. BEP(74**** BEPP7 -*M
. MS(7-**** uni"! MSP7:M MSR7-:409d. -:*****
e. 1*9$. 1404***&. 8.4"ime!
-. SALES WITH PROFIT. ABC Corpora"ion pre!en"ly !ell! produ" SIMPLE LANG %i"#
"#e $ollo%in& rela"ed da"a'
(ni" on"ri,u"ion mar&in P:*
Varia,le o!" ra"io 049
To"al $i/ed o!"! P: millionTa/ ra"e )*9
Re2uired' T#e !ale! in uni"! and in pe!o! ,e i$'
A. Pro$i" ,e$ore "a/ i! P8 million. E. (ni" pro$i" mar&in ,e$ore "a/ i! P:.
B. Pro$i" a$"er "a/ i! P8 million. ;. (ni" pro$i" mar&in a$"er "a/ i! P
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I"em Sale! in uni"! Sale! in pe!o!
a. 1804** ))******
,. 1-4** 4-******
. 10 48888888
d. 1
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(ni" !ale! prie P-** P 4* P1-*
(ni" +aria,le o!"! 1** -*
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Re2uired'
a. Con"ri,u"ion mar&in ra"io.
,. Brea3e+en pe!o!.
. I$ !ale! are e/pe"ed "o inrea!e ,y -49 in -*11 %#a" i! "#e peren"a&e inrea!e in pro$i"5d. I$ "o"al $i/ed o!"! and e/pen!e! are e/pe"ed "o inrea!e ,y -49 %#a" %ould ,e "#e ne% pe!o
,rea3e+en poin" in -*115
Answer:
a. )*9 . *.8888
,. 14*M d. 8**M
.OPERATING LEVERAGE.;la!# 6i!3 Corpora"ion di!lo!e! "#e $ollo%in& da"a rela"i+e "o
i"! produ" in -*1*'
CM ?)**** uni"! / P4*@ P-******
To"al ;CE 14*****CMR )*9
Re2uired'
a. 6e&ree o$ opera"in& le+era&e.
,. #a" %ould ,e "#e peren"a&e inrea!e in EBIT i$ !ale! are e/pe"ed "o inrea!e ,y -*9 in
-*115
. #a" %ould ,e "#e peren"a&e #an&e in EBIT i$ !ale! are e/pe"ed "o inrea!e ,y 8*9 in-*115
An!%er'
a. ) "ime! ,. :*9 . 1-*9
0.* INDIFFERENCE POINT. Manila Company #a! deided "o in"rodue a ne% produ". T#e
ne% produ" an ,e manu$a"ured ,y ei"#er a $ullyau"oma"ed proe!! or a !emiau"oma"ed
proe!!. T#e manu$a"urin& proe!! %ill no" a$$e" "#e 2uali"y o$ "#e produ". T#e e!"ima"ed uni"
manu$a"urin& o!"! ,y "#e "%o me"#od! $ollo%'
;ully Semi
Au"oma"ed Au"oma"ed
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Ma"erial! P 4.** P .**
6ire" la,our .** 0.**
Varia,le $a"ory o+er#ead 8.** ).**
6ire"ly "raea,le inremen"al $i/ed o+er#ead i! e/pe"ed "o ,e P -)***** i$ "#e $ully
au"oma"ed i! #o!en. Alloa"ed $i/ed o!"! and e/pen!e! are P1 million and P- million $or $ull
au"oma"ed and !emiau"oma"ed re!pe"i+ely. T#e ompany! mar3e" Re!ear# 6epar"men" #a!
reommended an in"rodu"ory uni" !ale! prie o$ P)*. Re&ardle!! o$ "#e manu$a"urin& proe!!
#o!en "#e inremen"al mar3e"in& e/pen!e! are e!"ima"ed "o ,e 4***** per year plu! P- $or
ea# uni" !old.
Re2uired'
a. T#e e!"ima"ed ,rea3e+en poin" $or "#e ne% produ" in annual uni"! o$ !ale! i$ "#e ompany
u!e! "#e'
1. $ullyau"oma"ed manu$a"urin& proe!!.
-. !emiau"oma"ed manu$a"urin& proe!!.
,. T#e annual !ale! uni"! a" %#i# "#e #oie ,e"%een "#e "%o manu$a"urin& proe!!e! %ould
no" ma3e a di$$erene i$
1. "#e uni" !ale! prie i! P4* $or ei"#er proe!!=
- "#e uni" !ale! prie i! P44 $or $ully au"oma"ed proe!! and P4* $or !emi au"oma"ed proe!!
. T#e annual !ale! in pe!o! in %#i# "#e pro$i" $or ei"#er o$ "#e al"erna"i+e! %ould ,e "#e !ame.
An!%er'
a.1. 1***** uni"! ,.-. 180-4*
a.-. -*** uni"! . 1))****,.1. 8***
M(LTIPLE CHOICE D(ESTIONS
1. A" ,rea3e+en $i/ed o!" i! al%ay!
A. Le!! "#an on"ri,u"ion mar&in.
B. E2ual "o on"ri,u"ion mar&in.
C. More "#an +aria,le a!".
6. More "#an "#e on"ri,u"ion mar&in.
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-. Co!"+olumepro$i" analy!i! i! a 3ey $a"or in many dei!ion! inludin& #oie o$ produ"
line! priin& o$ produ"! mar3e"in& !"ra"e&y and u!e o$ produ"i+e $aili"ie!. A alula"ion
u!ed in a CVP analy!i! i! "#e ,rea3e+en poin". One "#e ,rea3e+en poin" #a! ,een rea#ed
opera"in& inome %ill inrea!e ,y "#e
A. Gro!! mar&in per uni" $or ea# addi"ional uni" !old.
B. Con"ri,u"ion mar&in per uni" $or ea# addi"ional uni" !old.
C. Varia,le o!" per uni" $or ea# addi"ional uni" !old.
6. Sale! prie per uni" $or ea# addi"ional uni" !old.
8. T#e "erm rele+an" ran&eF a! u!ed in o!" aoun"in& mean! "#e ran&e o+er %#i#
A. o!" rela"ion!#ip! are +alid
B. produ"ion may +ary
C. o!"! may $lu"ua"e
6. rele+an" o!"! are inurred
). Co!"+olumepro$i" analy!i! a!!ume! "#a" o+er "#e rele+an" ran&e "o"al.
A. Re+enue! are linear.
B. Varia,le o!"! are nonlinear.
C. Co!"! are un#an&ed.
6. ;i/ed o!"! are nonlinear.
4. Brea3e+en analy!i! a!!ume! lineari"y o+er "#e rele+an" ran&e %i"# re!pe" "o
To"al o!"! To"al re+enue
A. e! No
B. e! e!C. No e!
6. No No
. An a!!em,ly plan" aumula"e! i"! +aria,le and $i/ed manu$a"urin& o+er#ead o!"! in a
!in&le o!" pool %#i# i! "#en applied "o %or3inproe!! u!in& a !in&le applia"ion ,a!e. T#e
a!!em,ly plan" mana&emen" %an"! "o e!"ima"e "#e ma&ni"ude o$ "#e "o"al manu$a"urin&
o+er#ead o!"! $or di$$eren" +olume le+el! o$ "#e applia"ion a"i+i"y ,a!e u!in& a $le/i,le ,ud&e"
$ormula. I$ "#ere i! an inrea!e in "#e applia"ion a"i+i"y ,a!e "#a" i! %i"#in "#e rele+an" ran&e o$
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a"i+i"y $or "#e a!!em,ly plan" %#i# one o$ "#e $ollo%in& rela"ion!#ip re&ardin& +aria,le and
$i/ed o!"! i! orre"5
A. T#e +aria,le o!" per uni" i! on!"an" and "#e "o"al $i/ed o!"! derea!e.
B. T#e +aria,le o!" per uni" i! on!"an" and "#e "o"al $i/ed o!"! inrea!e.
C. T#e +aria,le o!" per uni" and "#e "o"al $i/ed o!"! remain on!"an".
6. T#e +aria,le o!" per uni" inrea!e! and "#e "o"al $i/ed o!"! remain on!"an".
0. One o$ "#e maor a!!ump"ion! limi"in& "#e relia,ili"y o$ ,rea3e+en analy!i! i! "#a"
A. E$$iieny and produ"i+i"y %ill on"inually inrea!e.
B. To"al +aria,le o!"! %ill remain un#an&ed o+er "#e rele+an" ran&e.
C. To"al $i/ed o!"! %ill remain un#an&ed o+er "#e rele+an" ran&e.
6. T#e o!" o$ produ"ion $a"or! +arie! %i"# #an&e! in "e#nolo&y. ?ma@
:. #en an or&ani>a"ion i! opera"in& a,o+e "#e ,rea3e+en poin" "#e de&ree or amoun" "#a"
re+enue! may deline ,e$ore lo!!e! are inurred i! "#e
A. Re!idual inome ra"e.
B. Mar&inal ra"e o$ re"urn
C Mar&in o$ !a$e"y.
6. Tar&e" ?#urdle@ ra"e o$ re"urn
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Sale! ommi!!ion ?on !ale!@ 49
;i/ed o!"! and e/pen!e!'
Manu$a"urin& o+er#ead P44
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Sale! 1**9
Co!" o$ !ale!
Varia,le 4*9
;i/ed 1*9 *9
Gro!! pro$i" )*9
Opera"in& e/pen!e
Varia,le -*9
;i/ed 149 849
Opera"in& inome 49
To"al !ale! amoun"ed "o P8.* million a" %#a" le+el i! ,rea3e+en !ale!5
A. P804**** C. P1:04***
B. P1:4**** 6. P-4*****
1). T#e $ollo%in& in$orma"ion per"ain! "o No+a Company! o!"+olumepro$i" rela"ion!#ip!'
Brea3e+en poin" in uni"! !old 1***
Varia,le o!"! per uni" P 4**
To"al $i/ed o!"! P14****
Ho% mu# %ill ,e on"ri,u"ed "o pro$i" ,e$ore inome "a/e! ,y "#e 1**1!"uni" !old5
A.P4* C. P14*B. P4** 6. P *
6a"a $or 2ue!"ion! 14 and 1 are a! $ollo%!'
Tropial S"u$$ Toy! manu$a"ure! and !ell! doll!. opera"in& re!ul"! $or "#e la!" 2uar"er'
S"u$$ "oy! !old 1
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B.P8.*4 6. P *.
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-*. #i# o$ "#e $ollo%in& %ill re!ul" in rai!in& "#e ,rea3e+en poin"5
A. A derea!e in "#e +aria,le o!" per uni".
B. An inrea!e in "#e !emi+aria,le o!" per uni"
C. An inrea!e in "#e on"ri,u"ion mar&in per uni".
6. A derea!e in inome "a/ ra"e!.
-1. T#e on"ri,u"ion mar&in ra"io al%ay! inrea!e! %#en "#e
A. Brea3e+en poin" inrea!e!.
B. Brea3e+en poin" derea!e!.
C. Varia,le o!"! a! a peren"a&e o$ ne" !ale! derea!e.
6. Varia,le o!"! a! a peren"a&e o$ ne" !ale! inrea!e.
--. In a pro$i" +olume &rap# "#e o!"+olumepro$i" rela"ion!#ip! are repre!en"ed. T#e +er"ial
a/i! i! "#e pro$i" in pe!o! and "#e #ori>on"al a/i! i! "#e +olume in uni"!. T#e dia&onal line i! "#e
on"ri,u"ion mar&in line. T#e poin" a" %#i# are on"ri,u"ion mar&in line in"er!e"! "#e >ero
pro$i" line i! "#e poin"'
A. A" %#i# "#e +olume le+el i! >ero.
B. A" %#i# "#e "o"al o!"! e2ual "#e "o"al !ale!.
C. A" %#i# !ale! inrea!e.
6. A" %#i# "o"al +aria,le o!"! e2ual "o"al !ale!.
-8. #en u!in& "#e &rap# me"#od i$ uni" ou"pu"! e/eed "#e ,rea3e+en poin"
A. E/pen!e! are e/"remely #i rela"i+e "o re+enue!.
B' T#ere i! lo!! ,eau!e "#e "o"al o!" line e/eed! "#e "o"al re+enue line.
C. To"al !ale! e/eed "o"al o!".
6. T#ere i! pro$i" !ine "#e "o"al o!" line e/eed! "#e "o"al re+enue line.
-). T#e mo!" impor"an" u!e o$ "#e o!"+olumepro$i" &rap# i! "o !#o%
A. T#e ,rea3e+en poin".
B. T#e o!"mar&in ra"io a" +ariou! le+el! o$ !ale a"i+i"y.
C. T#e rela"ion!#ip!amon& +olume o!" re+enue! o+er %ide ran&e! o$ a"i+i"y.
6. T#e de"ermina"ion o$ ro!! o+er poin".
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-4. Mar!"on En"erpri!e! !ell! "#ree #emial!' pe"rol !ep"ine and "ridol. Pe"rol i! "#e ompany!
mo!" pro$i"a,le produ"= "ridol i! "#e lea!" pro$i"a,le. #i# one o$ "#e $ollo%in& e+en"! %ill
de$ini"ely derea!e "#e $irm! o+erall ,rea3e+en poin" $or "#e upomin& aoun"in& period5
A .T#e in!"alla"ion o$ a ne% ompu"eron"rolled ma#inery and !u,!e2uen" layo$$ o$
a!!em,ly line %or3er!.
B. A derea!e in "ridol! !ellin& prie.
C. An inrea!e in an"iipa"ed !ale! o$ pe"rol rela"i+e "o !ale! o$ !ep"ine and "ridol.
6. An inrea!e in pe"rol! ra% ma"erial o!".
Sales with profit
Due!"ion! - "#rou -0 are ,a!ed on "#e $ollo%in& in$orma"ion' Tri,al Corpora"ion i!
de+elopin& a ne% produ" !ur&e pro"e"or! $or #i+ol"a&e ele"rial $lo%!. T#e o!"
in$orma"ion ,elo% rela"e! "o "#e produ".
6ire" ma"erial! P8.-46ire" la,our ).**
6i!"ri,u"ion *.04
T#e ompany %ill al!o ,e a,!or,in& P1-**** o$ addi"ional $i/ed o!"! a!!oia"ed %i"# "#i! ne%
produ". A orpora"e $i/ed #ar&e o$ P-**** urren"ly a,!or,ed ,y o"#er produ"! %ill ,e
alloa"ed "o "#e ne% produ".
-. I$ "#e !ellin& prie i! P1) per uni" "#e ,rea3e+en poin" in uni"! ?rounded "o "#e neare!"
#undred@ $or "#e $or !ur&e pro"e"or! i!'
A. :** uni"! C. 14*** uni"!
B. 1**** uni"! 6. -**** uni"!
-0. Ho% many !ur&e pro"e"or! ?rounded "o "#e neare!" #undred@ mu!" Tri,al !ell a" a !ellin&
prie o$ P1) per uni" "o &ain P8**** addi"ional opera"in& inome ,e$ore "a/e!5
A. 1*0** uni"! C. -4*** uni"
B. -**** uni"! 6. -48** uni"!
-:. Ho% many !ur&e pro"e"or! ?rounded "o "#e neare!" #undred@ mu!" Tri,al !ell a" a !ellin&prie o$ P1) per uni" "o inrea!e a$"er "a/ inome ,y P8****5 Tri,al! e$$e"i+e ra"e i! )*9.
A. 1*0** uni"! C. -4*** uni"!
B. -**** uni"! 6. -:8** uni"!
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-
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B. P)-**** 6. P4))***
8). C#emial! In. $ormula"e! and !ell! "#ree maor #emial!' C1 C- and C8. I" !ell! "o
indu!"rial u!er! %#o u!e and ,uy "#e!e #emial! in "#e $ollo%in& ra"io' "#e!e ?8@ mea!ure! o$ C1$or one ?1@ mea!ure o$ C8 "%o ?-@ o$ C- $or one?1@ mea!ure o$ C1. T#e ompany ma3e! "#e
$ollo%in& on"ri,u"ion mar&in per mea!ure'
C1 P8*
C- P)4
C8 P
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Produ" A P1*.** P).** 14***
Produ" B 14.** :.** -****
Produ" C 1:.**
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Normal plan" apai"y -***** uni"!
Sale! 14**** uni"!
Sellin& prie P-4 per uni"
Varia,le manu$a"urin& o!"! P 14 per uni"
;i/ed o!"!'
Manu$a"urin& P :*****
Sellin& and admini!"ra"ion P 0*****
An ad+er"i!in& a&eny laim! "#a" an a&&re!!i+e ad+er"i!in& ampai&n %ould ena,le Birney "oinrea!e i"! uni" !ale! ,y -*9. #a" i! "#e ma/imum amoun" "#a" Birney an pay $or ad+er"i!in&
and o,"ain an opera"in& pro$i" o$ P-*****.
A. P 1***** C. P8*****
B. P-***** 6. P44****
Due!"ion! )8 and )) are ,a!ed on "#e $ollo%in& in$orma"ion.
6elp#i Company #a! de+eloped a ne% proe" "#a" %ill ,e mar3e"ed $or "#e $ir!" "ime durin& "#ene/" $i!al year. Al"#ou "#e mar3e"in& 6epar"men" e!"ima"e! "#a" 84*** uni"! ould ,e !old a"
P8 per uni". 6elp#i mana&emen" #a! alloa"ed only enou manu$a"urin& apai"y "o produe a
ma/imum o$ -4*** uni"! o$ "#e ne% produ" annually. T#e $i/ed o!"! a!!oia"ed %i"# "#e ne%produ" are ,ud&e"ed a" P)4**** $or "#e year %#i# inlude! P**** $or depreia"ion on ne%
manu$a"urin& e2uipmen".
6a"a a!!oia"ed %i"# ea# uni" o$ produ" are pre!en"ed ,elo%. 6elp#i i! !u,e" "o a )*9 inome
"a/ ra"e.
Varia,le Co!"!
6ire" ma"erial P 0.**
6ire" la,or 8.4*
Manu$a"urin& o+er#ead ).**
To"al +aria,le manu$a"urin& o!" 1).4*
Sellin& prie 1.4*
To"al +aria,le o!" P1.**
)8. T#e ma/imum a$"er "a/ pro$i" "#a" an ,e earned ,y 6elp#i Company $rom !ale! o$ "#e ne%
produ" durin& "#e ne/" $i!al year i!
A. P 8****
B. P 4****
C. P11****
6. P *** ?ma@
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)). 6elp#i Company! mana&emen" #a! !"ipula"ed "#a" i" %ill no" appro+e "#e on"inued
manu$a"ure o$ "#e ne% produ" a$"er "#e ne/" $i!al year unle!! "#e a$"er"a/ pro$i" i! a" lea!"
P04*** "#e $i!al year. T#e uni" !ellin& prie "o a#ie+e "#i! "ar&e" pro$i" mu!" ,e a" lea!"
A. P80.** C. P8).*
B. P8.* 6. P8
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A. P 0.4* C. P8*.**
B. P1.** 6. P-.4*
)
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Per uni"
Re+enue! ?14**** uni"! a" P8*@ P)4***** P8*
Varia,le o!"!'
6ire" ma"erial! 1*4**** P 0
6ire" la,our 14***** 1*
M$&. o+er#ead 8***** -
Sellin& J mar3e"in& 8**.*** -
?814****@ -1
Con"ri,u"ion mar&in P184**** P
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