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Units Sold To Attain Target Profit Target Profit + Fixed Expenses/Unit Contribution Margin

This document discusses the calculation of break-even point, target profit, and margin of safety for a company. It shows that the break-even point is 12,500 units, and the target profit of P18,000 is achieved at 14,000 units. The margin of safety in pesos is P100,000 and as a percentage of total sales is 16.7%. It also calculates that if sales increase by P80,000 and the contribution margin ratio stays at 30%, the increased contribution margin would be P24,000.

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86 views2 pages

Units Sold To Attain Target Profit Target Profit + Fixed Expenses/Unit Contribution Margin

This document discusses the calculation of break-even point, target profit, and margin of safety for a company. It shows that the break-even point is 12,500 units, and the target profit of P18,000 is achieved at 14,000 units. The margin of safety in pesos is P100,000 and as a percentage of total sales is 16.7%. It also calculates that if sales increase by P80,000 and the contribution margin ratio stays at 30%, the increased contribution margin would be P24,000.

Uploaded by

Ki xxi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Exercise 6

Requirement 1:

Profit = unit CM x Q - Fixed expenses

0 = (P40 - 28) x Q - 150,000

0 = P12 X Q - 150,000

12Q = 150,000Q

12Q/12 = 150,000/12 per unit

Q = 12,500 units, or at P40 per unit, P500,000

Unit sales to break even = Fixed expenses/Unit contribution margin

= P150,000/P12 per unit

= 12,500 units or P500,000 at P40 per unit.

Requirement 2:

The contribution margin at the break-even points is P150,000 it is because the point
must equal to the fixed expenses.

Requirement 3:

Total Unit

Sales (14,000 units X P40 per unit) P560,000 P40

Variable Expenses (14,000 units x P28 per unit) 392,000 28

Contribution Margin (14,000 units x P12 per unit) 168,000 P12

Fixed expenses 150,000

Net operating income P18,000

Units sold to attain target profit = Target Profit + Fixed Expenses/Unit Contribution Margin

=18,000 + 150,000/12 per unit

= 14,000 units

Requirement 4:

Margin of safety in pesos terms


Margin of safety in pesos = Total Sales - Break-even sales

=P600,000 - 500,000

= P100,000

Margin of safety in % terms

Margin of safety % = Margin of safety in pesos/ Total Sales

=P100,000/600,000

= 16.7%

Requirement 5:

The CM ratio is 30%

Expected total contribution margin: P680,000 x 30% 204,000

Present total contribution margin: P600,000 x 30% 180,000

Increased contribution margin P24,000

P80,000 incremental sales x 30% CM ratio = P24,000

The company's fixed expenses will not change and the monthly net operating income
will increase by the increase contribution amount margin of P24,000.

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