Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1112
E-mail Address: vpaa@g.batstate-u.edu.ph | Website Address: http://www.batstate-u.edu.ph
College of Accountancy, Business, Economics, and International Hospitality Management
COMPREHENSIVE PROBLEMS WITH SOLUTIONS
In Partial Fulfillment of the Requirements for the Course
ACC 308 – Strategic Business Analysis
Submitted by:
DIOKNO, JAYMHE N.
BSA 3101
Submitted to:
MRS. EUNIZE ESCALONA, CPA
December 9, 2022
Cost-Volume-Profit Analysis
Problem 1
Dianne Company makes a product that sells for P160 per unit. Variable costs are P104 per unit, and
fixed costs total P1,568,000 annually. The company sold 35,000 units during the current year.
Required:
a. Unit contribution margin, contribution margin ratio, and variable cost ratio
Selling Price
Less: Variable Costs
Unit contribution margin
₱160
(104)
56
Unit contribution margin
Divided by: Selling Price
Contribution Margin Ratio
56
160
35%
Variable Costs
Divided by: Selling Price
Variable Costs Ratio
104
160
65%
b. Break-even point in units and in pesos
Fixed Costs
Divided by: Unit Contribution Margin
BEP in units
1,568,000
56
28,000
Fixed Costs
Divided by: Contribution Margin Ratio
BEP in pesos
1,568,000
35%
4,480,000
c. Margin of safety in units and in pesos
Actual Sales (units)
Less: Break-even Sales (units)
Margin of safety (units)
Multiply by: Selling Price
Margin of safety (pesos)
35,000
(28,000)
7,000
160
₱1,120,000
d. Margin of safety ratio
Margin of safety (units)
Divided by: Actual Sales (units)
Margin of safety ratio
7,000
35,000
20%
Problem 2
The following information is for a product manufactured and sold by Richards Corporation:
Selling price per unit
Variable cost per unit
Total fixed costs
Profit
70
40
600,000
30,000
Required:
a. How many units did Richards sell last year?
b. Richards' managers are considering decreasing the sales price to ₱60 in an effort to increase
market share. Also, the company wants a profit of ₱60,000. How many units would it have to sell at
the lower selling price to achieve this target?
Net Income
Fixed Costs
Contribution Margin
Last Year
600,000
30,000
630,000
Next Year
600,000
60,000
660,000
Per unit:
Selling Price
Less: Variable Costs
Contribution Margin
70
40
30
60
40
20
21,000
33,000
Units Required
Short-term Budgeting
Problem 3
Zamboanga Company is now in the process of preparing a production budget in the third quarter.
Past experience has shown that the end-of-month inventories of finished goods must equal 40% of the
next month’s sales. The inventory at the end of June was 10,000 units. The company’s budgeted sales are
shown below:
Units
30,000
45,000
60,000
50,000
July
August
September
October
Required: Prepare a production budget for the third quarter per month and in total.
Zamboanga Company
Production Budget
For the Third Quarter, July-September, 200X
Budgeted Sales
Add: Finished goods – end.
(40% × next month's sales)
Total goods available for sale
Less: Finished goods – beg.
Budgeted production
July
30,000
18,000
August
45,000
24,000
September
60,000
20,000
Total
135,000
62,000
48,000
10,000
38,000
69,000
18,000
51,000
80,000
24,000
56,000
197,000
52,000
145,000
Responsibility Accounting and Segment Evaluation
Problem 4
The Ladies Belt Division of Leather Goods Corp. is classified as an investment center. For the
month of November, it had the following operating statistics:
Sales
Cost of Goods Sold
Operating Expenses
Total Assets
Weighted average cost of capital
675,000
400,000
237,500
750,000
4%
Leather Goods' Corp’s average stockholder’s equity is 300,000. It is subject to an income tax rate of
40%.
Required:
1. What is its return on investment?
ROI = Operating Income / Assets
ROI = (P675,000 – P400,000 – P237,500) / P750,000
ROI = 37,500/ P750,000
ROI = 5%
2. What is its residual income?
Sales
Less: Cost of Goods Sold
Operating Expenses
Actual Income
Less: Desired Income or imputed charge on investment
(P750,000 x 4%)
Residual Income
₱675,000
(400,000)
(237,500)
37,500
(30,000)
₱7,500
Problem 5
The following data pertains to Adan Corp:
Earnings before interest and taxes
Current Assets
Non-current Assets
Current Liabilities
Non-current Liabilities
800,000
800,000
3,200,000
400,000
1,000,000
Adan Corp pays an income tax rate of 32%. Its weighted-average cost of capital is 10%. What is
Adan’s Corp’s Economic Value Added?
After tax operating income (800,000 × 68%)
Less: Desired return on investment
Total assets ( P800,00 + P 3,200,000)
Less: Current Liabilities
Investment Base
Multiply by weighted average cost of capital
Economic Value Added
₱544,000
4,000,000
400,000
3,600,000
10%
360,000
₱184,000
Transfer Pricing
Problem 6
N & R Company transfers a product from division N to division R. Variable cost of this product is
anticipated to be P40 a unit and total fixed costs amount to P8,000. A total of 100 units are anticipated to
be produced. Actual cost, however, amounts to P50 for variable costs. Fixed costs were same as budget.
However, actual output was twice as many.
Required:
a. Actual cost per unit amounts
Unit Variable Costs
Add: Fixed Costs/Actual Units Produced (8, 000 / 200)
Actual Costs
₱50
40
₱90
b. The transfer price based on actual variable costs plus 130% markup amounts to:
Varible Cost
Add: Mark-up (P 50 x 1.3)
Transfer Price
₱50
65
₱136
c. The transfer price based on budgeted full cost plus 30% markup amounts to
Budgeted full cost [P40 + (P8, 000 ÷ 100)]
Add: Mark-up (P 120 x 0.3)
Transfer Price
₱120
36
₱156
Relevant Costing
Problem 7 (Make or Buy)
Direct Materials
Direct Labor
General and Administrative Cost
Fixed manufacturing overhead
Variable manufacturing overhead
buy.
Make
₱1.50
2.50
0.75
₱4.75
Buy
₱5
₱5
The company should make the part, because the ₱4.75 cost to make is less than the ₱5.00 cost to
Problem 8 (Drop or continue the business segment)
Gata Company plans to discontinue a department with P48,000 contribution to overhead, and
allocated overhead of P96,000, of which P42,000 cannot be eliminated. What would be the effect
of this discontinuance on Gata’s pretax profit?
Contribution Margin
Controllable Fixed Overhead (96,000 - 42,000)
Segment Margin
₱48,000
54,000
₱(6,000)
Since, the segment margin is negative, the department should be dropped to eliminate the negative
segment margin and increase the overall net income by P6,000.
Problem 9 (Retain or Replace)
`
Ysabelle Industries, Inc. has an opportunity to acquire a new equipment to replace one of its
existing equipment. The new equipment would cost P900,000 and has a five-year useful life, with a zero
terminal disposal price. Variable operating cost would be P1 million per year. The present equipment has
a book value of P500,000 and a remaining life of five years. Its disposal price now is P50,000 but would
be zero after five years. Variable operating costs would be P1,250,000 per year. Considering the five
years in total, but ignoring the time value of money and income taxes, Ysabelle should:
Purchase Price
Book Value
Useful life (remaining)
Terminal Salvage Value
Salvage Value - Now
Variable operating costs
Annual savings in operating costs (P1,250,000 - P1,000,000)
Retain
500,000
5 years
0
50,000
1,250,000
Replace
900,000
5 years
0
1,000,000
250,000
Therefore:
Savings (250,000 × 5 years)
Salvage Value of Old Equipment
Total cash inflows
Less: Purchase price
Net advantage of replacing the old equipment
₱1,250,000
50,000
1,300,000
(900,000)
₱400,000
The book value of the old asset is irrelevant. It is a sunk cost and cannot be changed regardless of the
decision to be made. This analysis does not consider the time value of money and tax effects. Hence,
replace the equipment due to 400,000 advantage.
Product Pricing
Problem 10
VHRV Company’s quantity demanded of product Zee rises by 20% due to 8% fall in its price.
Calculate price elasticity of demand.
Elasticity of Demand =
Percentage
in Quantity Demanded
Percentage
in Unit Sales Price
Elasticity of Demand =
20
-8
Elasticity of Demand = - 2.5%
The -2.5 elasticity rate means that product Zee is considerably elastic with the change in its selling
price. Stating more concretely, for every 1% change in price, the quantity demanded inversely changes by
-2.5%.
REFERENCES
https://www.scribd.com/document/541077770/CVP-exercise-docx
https://www.harpercollege.edu/academic-support/tutoring/subjects/pdf/4b.%20Cost-VolumeProfit%20CR.pdf
https://www.studocu.com/ph/document/central-luzon-state-university/management/short-term-budgetingagamata/35762947
https://www.academia.edu/41250145/X07_B_Responsibility_Accounting_and_TP_Transfer_Pricing
https://www.studocu.com/ph/document/university-of-the-cordilleras/managementaccounting/resposibility-accounting-problems-go/26669222
https://studylib.net/doc/25693244/kupdf-agamata-relevant-costing-chapter-9