The required computations to enable XYZ Company to introduce the new product in August are done as follows:
a. Break-even point in units = Fixed costs/Contribution per unit
= 12,000 units (P72,000/P6)
b. Break-even point in pesos = Fixed costs/Contribution margin ratio
= P432,000 (P72,000/16.66667%)
c. Margin of safety in units = 3,000 units (15,000 - 12,000)
d. Margin of safety in pesos = P108,000 (3,000 x $36)
e. Desired sales in units to earn a target profit of P12,000
= 14,000 (P72,000 + P12,000)/P6
f. Desired sales in pesos to earn a target profit of P12,000
= P504,000 (P72,000 + P12,000)/0.1666667
Data and Calculations:
Selling price per unit P36.00
Variable cost per unit:
Direct materials 15.00
Direct labor 9.00
Manufacturing overhead 4.00
Sales commission 2.00
Total variable cost/unit = P30.00
Contribution margin per unit = P6.00 (P36 - P30)
Contribution margin ratio = 16.66667% (P6/P36 x 100)
Monthly fixed costs:
Manufacturing overhead P40,000
Administrative cost 32,000
Total fixed cost per month P72,000
Actual units produced 15,000
Margin of safety in percentage = 20% (15,000 - 12,000)/15,000 x 100)
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