I.

Franklin Optical Shop has been in operation for several years. Analysis of the firms recent
financial statements and records reveals the following:
Average Selling Price per pair of glasses
P 70
Variable expenses per pair:
Lenses and Frames
29
Sales Commission
12
Variable Overhead
8
Annual Fixed Cost:
Selling Expense
P 19,200
Administrative Expense
48,000
The companys effective tax rate is 30%. Samantha Franklin, company president, has asked you
to help her answer the following questions about the business.
Required:
1.
What is the break-even point in peso sales in pairs of glasses?
2.
How much revenue must be generated to produce P 79,800 of pretax earnings? How many
pairs of glasses would this level of revenue represent?
3.
How much revenue must be generated to produce P 63,000 of after-tax earnings? How
many pairs of glasses would this represent?
4.
What amount of revenue would be necessary to yield profit before tax equal to 20% of
revenue?
5.
Franklin is considering a lens grinding lab, which will save P6 per pair glasses in lens cost,
but will raise annual fixed cost by P8,000. What would be the new break-even point if she
makes this investment?

II.

One of the products produce by Lemon Citrus is Citrus Delight. The selling price per halfgallon is P4.50, and variable cost of production is P2.70. The total fixed cost per year are
P316,000. The company is currently selling P200,000 half-gallons per year.
Required:
1.
What is the break-even point in peso sales?
2.
What is the margin of safety?
3.
What is the degree of operating leverage?
4.
If the company can increase sales in units by 30%, what percentage increase will it
experience in income?

II.

At the beginning of the each year, the Accounting Department at Liwanag Lightning Ltd.,
must find the point at which projected sales revenue will equal total budgeted variable and fixed
costs. The company produces custom-made, low-voltage outdoor lighting systems. Each systems
sells for an average of P435. Variable cost per unit are P210. Total fixed cost for the year are
estimated to be P166,500.
Required:
1.
Compute BEPu.
2.
Compute BEP in sales.
3.
Find the new BEPu if the fixed costs go up by P10,125.

V.

Zacarello Company produces a single product. The projected income statement for the
coming year is as follows:
Sales (50,000 units @ P50)
P2,500,000
Less: Variable Costs
1,440,000
Contribution Margin
1,060,000
Less: Fixed Costs
816,412
Operating Income
243,588
Required:
1. Compute CMU and BEPu. Suppose that 30,000 units are sold above breakeven. What is the
profit?
2. Compute CMR and BEP in peso sales. Suppose that revenues are P200,000 more than
expected. What would the total profit be?
3. Compute MOS.
4. Compute DOL. Compute the new profit level if sales are 20% higher than expected.
5. How many units must be sold to earn a profit equal to 10% of sales.
6. Assume that the tax rate is 40%. How many units must be sold to earn an after-tax profit
of P180,000.