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Cost Volume Profit Analysis Guide

The document outlines a cost volume profit analysis requiring calculations of the company's contribution margin ratio, break-even point, and the impact of changes in advertising budget and selling price on net income. It also discusses the effects of increased packaging costs and potential automation on variable expenses and fixed costs, along with the preparation of income statements under different scenarios. Lastly, it prompts a recommendation on whether to automate operations based on the analysis.

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3 views2 pages

Cost Volume Profit Analysis Guide

The document outlines a cost volume profit analysis requiring calculations of the company's contribution margin ratio, break-even point, and the impact of changes in advertising budget and selling price on net income. It also discusses the effects of increased packaging costs and potential automation on variable expenses and fixed costs, along with the preparation of income statements under different scenarios. Lastly, it prompts a recommendation on whether to automate operations based on the analysis.

Uploaded by

lordgiven12
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

COST ACCOUNTING (COST VOLUME PROFIT ANALYSIS)

REQUIRED:
1. Compute the company's CM ratio and its break-even point in both units and

pesos.

2. The sales manager feels that a P20,000 increase in the monthly advertising

budget, combined with an intensified effort by the sales staff, will result in a

P100,000 increase in monthly sales. If the sales manager is right, what will

be the effect on the company's monthly net income or loss?

3. The president is convinced that a 10% reduction in the selling price,

combined with a P50,000 increase in the monthly advertising budget, will

cause unit sales to double. What will the new income statement look like if

these changes are adopted?

4. Refer to the original data. The company's advertising agency thinks that a

new package for the company's product would help sales. The new package

being proposed would increase packaging costs by P3 per unit. Assuming no

other changes in cost behavior, how many units would have to be sold each

month to earn a profit of P9,000?

5. Refer to the original data. By automating certain operations, the company

could slash its variable expenses to half. However, fixed costs would increase

to P250,000 per month.

a. Compute the new CM ratio and the new break-even point in both units

and pesos.
COST ACCOUNTING (COST VOLUME PROFIT ANALYSIS)

b. Assume that the company expects to sell 20,000 units next month.

Prepare two income statements, one assuming that operations are not

automated and one showing that they are.

c. Would you recommend that the company automate its operations?

Explain.

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