ABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 Sales Volume 22,500.00 Variable Costs: Cost of Direct Raw Materials 895,000.00 Cost of Direct Labor 530,000.00 Cost of Packaging Materials 124,200.00 Fixed Costs: Monthly Depreciation 650,000.00 Monthly Rent of Warehouse 100,000.00 Fixed Monthly Allowance for Electricity 675,000.00 Other Fixed Manufacturing Overhead 146,700.00 Required: BREAKEVEN ANALYSIS 1. Compute the selling price per unit of Agent C. _________________ 2. Compute the variable cost per unit of Agent C. _________________ 3. Compute the variable cost rate of Agent C. _________________ 4. Compute the contribution margin per unit of Agent C. _________________ 5. Compute the current contribution margin rate of Agent C. _________________ 6. Compute the total fixed costs in producing Agent C. _________________ 7. How many units must ABC Manufacturing produce to breakeven? _________________ 8. How many units must ABC Manufacturing produce to achieve a desired profit of P 2,000,000? _________________ 9. From the current sales volume units, how many more units must ABC Manufacturing produce and sell to reach the desired profit of P 2,000,000? _________________ 10. From the current breakeven sales, how many more units must ABC produce and sell to achieve a profit of P 1,900,000? _________________ 11. How much will ABC earn if it produces and sells 10,000 units of Agent C? _________________ SENSITIVITY ANALYSIS 12. If the selling price per unit is increased by 20% of its current price while the variable cost per unit is also increased by 30%, compute the following: a. Compute the new selling price per unit. _________________ b. Compute the new variable cost per unit. _________________ c. Compute the new contribution margin rate. _________________ d. How many units must ABC produce and sell to avoid losing money? _________________ e. At what n th unit ABC will start earning profit? _________________ f. With this proposed changes, how many units more or units less that ABC must produce to reach breakeven compared to the current breakeven? _________________ g. How many units of Agent C must be produced and sold to earn a profit P 2,000,000? _________________ h. With these changes, how many units more or units less should ABC produce to earn a profit of P 2,000,000, as compared to the units determined using the current price and variable costs? _________________ 13. If the fixed cost is increased by P 500,000 per month and 20% income tax is imposed on the net income, compute the following: a. How many units must ABC produce and sell to breakeven? _________________ b. With this proposed changes, how many units more or units less that ABC must produce to reach breakeven compared to the current breakeven? _________________ c. How many units must ABC produce and sell to achieve a profit of P 2,000,000? _________________ d. Assuming the above changes, what price per unit must be charged if the current breakeven units must be maintained? _________________ e. Using the information in letter (d), what will be effect to the contribution margin rate? _________
ABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is
required to present a production report for the month August, however he got no idea on what information he needed
for the report, and what analysis could be made to help the top management on their decision-making.
The production manager sought your expertise on the subject matter and gave to you the following information:
Sales (in Pesos) 4,957,875.00
Sales Volume 22,500.00
Variable Costs:
Cost of Direct Raw Materials 895,000.00
Cost of Direct Labor 530,000.00
Cost of Packaging Materials 124,200.00
Fixed Costs:
Monthly
Monthly Rent of Warehouse 100,000.00
Fixed Monthly Allowance for Electricity 675,000.00
Other Fixed Manufacturing Overhead 146,700.00
Required:
BREAKEVEN ANALYSIS
1. Compute the selling price per unit of Agent C. _________________
2. Compute the variable cost per unit of Agent C. _________________
3. Compute the variable cost rate of Agent C. _________________
4. Compute the contribution margin per unit of Agent C. _________________
5. Compute the current contribution margin rate of Agent C. _________________
6. Compute the total fixed costs in producing Agent C. _________________
7. How many units must ABC Manufacturing produce to breakeven? _________________
8. How many units must ABC Manufacturing produce to achieve a desired profit of P 2,000,000? _________________
9. From the current sales volume units, how many more units must ABC Manufacturing produce and sell to reach the
desired profit of P 2,000,000? _________________
10. From the current breakeven sales, how many more units must ABC produce and sell to achieve a profit of P 1,900,000?
_________________
11. How much will ABC earn if it produces and sells 10,000 units of Agent C? _________________
SENSITIVITY ANALYSIS
12. If the selling price per unit is increased by 20% of its current price while the variable cost per unit is also increased
by 30%, compute the following:
a. Compute the new selling price per unit. _________________
b. Compute the new variable cost per unit. _________________
c. Compute the new contribution margin rate. _________________
d. How many units must ABC produce and sell to avoid losing money? _________________
e. At what n
th unit ABC will start earning profit? _________________
f. With this proposed changes, how many units more or units less that ABC must produce to reach breakeven
compared to the current breakeven? _________________
g. How many units of Agent C must be produced and sold to earn a profit P 2,000,000? _________________
h. With these changes, how many units more or units less should ABC produce to earn a profit of P 2,000,000, as
compared to the units determined using the current price and variable costs? _________________
13. If the fixed cost is increased by P 500,000 per month and 20% income tax is imposed on the net income, compute
the following:
a. How many units must ABC produce and sell to breakeven? _________________
b. With this proposed changes, how many units more or units less that ABC must produce to reach breakeven
compared to the current breakeven? _________________
c. How many units must ABC produce and sell to achieve a profit of P 2,000,000? _________________
d. Assuming the above changes, what price per unit must be charged if the current breakeven units must be
maintained? _________________
e. Using the information in letter (d), what will be effect to the contribution margin rate? _________________
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