Solution manual managerial accounting and finance for hospitality OperationsCHAPTER 07

CHAPTER 7
COST-VOLUME-PROFIT APPROACH TO DECISIONS
I.

II.

Questions
1.

Refer to pages 172 and 173.

2.

Refer to pages 172 and 173.

3.

Refer to page 173.

4.

Use the equation:

Sales

=

Fixed Cost + Desired Profit
Contribution Margin Ratio

Practical Exercises and Problems

A. EXERCISES
EXERCISE 1
Food
100.0%
35.0
65.0%
80.0%
52.0%

Sales
Less: Variable Cost
Contribution Margin
Multiply by: Sales Mix
Weighted CM
Total or Combined CM

=
=

Beverage
100.0%
33.0
67.0%
20.0%
13.4%

52% + 13.4%
65.4%

EXERCISE 2

P100,800
Break-even sales revenue

=

1 –

P96,000
P240,000

=

P100,800
1 – 0.40

=

P168,000

=

P240,000
0.48

=

P500,000

EXERCISE 3
Break-even sales revenue

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Solutions Manual - Managerial Accounting and Finance for Hospitality Operations

EXERCISE 4
Contribution margin

=
=

P 125 – P75
P50

Break-even (units)

=

P400,000
P50

=

8,000 units

EXERCISE 5
a.

Selling price

Variable cost
Contribution margin

P129.50
54.40
P 75.10

b.

Break-even (units)

c.

Variable cost percentage =

d.

Contribution %

e.

Break-even sales

P1,400,000
P75.10

=

=

18,642 units

P54.40
P129.50

P75.10
P129.50

=

=

P1,400,000
58%

=

=

42%

58%
=

P2,143,793

EXERCISE 6
Requirement (a)
Since the firm has sales revenue of P444,000, no additional sales are needed to
generate the desired profit.

Requirement (b)
Sales to earn net income
after tax of P48,000

P188,482 +
=
=
=

P48,000
1 – 0.28

58%
P188,482 + P66,666.666
58%
P439,911.49


Cost-Volume-Profit Approach to Decisions

7-3

Proof:
Sales
Less: Variable cost (42%)
Contribution margin
Less: Fixed cost
Net income before taxes
Less: Taxes (28%)
Net income after taxes

P444,000
186,480
257,520
188,482
69,038
19,331
P 49,707

EXERCISE 7
P6,000
26%

= P23,077

B. PROBLEMS
PROBLEM 1
Requirement (a)
Break-even sales revenue

P1,600,000
=
=

1 –

P2,600,000
P5,000,000

P1,600,000

1 – 0.52

=

P3,333,333.33

Requirement (b)
Sales
Variable Cost (52%)
Contribution Margin
Fixed Cost
Net Income

P4,400,000
2,288,000
P2,112,000
1,600,000
P 512,000

Requirement (c)
No. of customers served
at P5 million sales level
at P4.4 million sales level
Reduction

P50,000
44,000
P 6,000

P439,911

184,763
255,148
188,482
66,666
18,666
P 48,000


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Solutions Manual - Managerial Accounting and Finance for Hospitality Operations

PROBLEM 2
Requirement (a)
=

Break-even sales

=

P98,320
1 – 75%

=

P98,320
25%

P393,280

Requirement (b)
=

Sales

=

P98,320 + P30,000
25%
P513,280

PROBLEM 3
Requirement (1)
CM Rate

Weight

Weighted CM

Rooms

3.2M
4M

80.00%

66.67%

53.34%

Food

0.15M
1.2 M

12.50

20.00

2.50

Beverage

0.25M
0.60 M

41.67

10.00

4.16

Telephone

0
0.20M

0

3.33%

Total Weighted CM

60%

Requirement (2)
Break-even point

=

P1,600,000 + P1,700,000
60%

= P5,500,000
Break-even sales

P5,500,000

Contribution margin: at Break-even
Rooms
Food
Beverage

0

P5.5 M x
5.5 M x
5.5 M x

53.34%

2.50%
4.16%

P2,933,700
137,500
228,800


Cost-Volume-Profit Approach to Decisions

Telephone

5.5 M x

0

7-5

0
P3,300,000
3,300,000
0

Fixed costs
Profit (Loss)
Requirement (3)
Revenue to yield Net
income of P500,000

=

=

P3,300,000 + P500,000
60%
P6,333,333

CM at P500,000 profit
Rooms
P6,333,333
Food
6,333,333
Beverage
6,333,333
Telephone
6,333,333
Total CM (60%)
Less: Fixed costs
Net income before tax

x
x
x
x

53.34%
2.50%
4.16%
0

P3,378,200

158,333
263,467
0
P3,800,000
3,300,000
P 500,000

Sales
Rooms (6,333,333 x 66.67%)
Food (6,333,333 x 20%)
Beverage (6,333,333 x 10%)
Telephone (6,333,333 x 3.33%)
Total

4,222,433
1,266,667
633,333
210,900
6,333,333

x
x
x
x

80.00%
12.50%
41.67%
0

P3,377,946
158,333
263,910
0
P3,800,189

* 189: rounding off difference
Requirement (4)
Rooms revenue when profit equals P500,000 =
=

P6,333,333 x 66.67%
P4,222,433

Requirement (5)
Break-even point if FC increase by P300,000 =
=

P3,300,000 + P300,000
60%
P6,000,000


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Solutions Manual - Managerial Accounting and Finance for Hospitality Operations

Requirement (6)
Break-even point if FC increase by P300,000
and revenues increase by 10% through

=
price increases
=

P3,300,000 + P300,000
63.67%
P5,654,154

CM Rate

Weight

Weighted
CM rate

Rooms

3.6M
4.4 M

81.82%

66.67%

54.55%

Food

0.27M
1.32 M

20.45%

20.00%

4.09%

Beverage

310T
660T

47.00%

10.00%

4.70%

Telephone

20T
200T

10.00%

3.33%

0.33%

100.00%

63.67%

PROBLEM 4
Requirement (1)
Break-even point (P)

P20,000
=

1 –

=

P20,000
1 – 0.33

P10
P30
= P29,850.75 per month

Requirement (2)
Margin of safety in revenues

=
=

P45,000 – P29,850.75
P15,149.25

Margin of safety in rooms

=

45,000
30

=

1,500 – 995

=

505


Cost-Volume-Profit Approach to Decisions

Requirement (3)
S

=

20,000 + 10,000
20

= 1,500 rooms
Requirement (4)
Occupancy percentage is 100%.
=

50 rooms x 30 days in a month

=

1,500 rooms

7-7