Problem 2 (adapted)

Victoria Company sells a single product. The company's sales and expenses for a

recent month follow:

Total Per Unit

Sales P600,000 P40

Less:

variable expenses 420,000 28

Contribution margin P180,000 P12

Fixed expense 150,000

Net operating

income P 30,000

Required:

1. What is the monthly break-even point in units sold and in sales pesos?

2. Without resorting to computations, what is the total contribution margin at the

break-even point?

3. How many units would have to be sold each month to earn a minimum target

profit of P18,000? Use the contribution method. Verify your answer by

preparing a contribution income statement at the target level of sales.

4. Refer to the original data. Compute the company's margin of safety in both

peso and percentage terms.

5. What is the company's CM ratio?

6. If monthly sales increase by P80,000 and there is no change in fixed

expenses, by how much would you expect monthly net operating income to

increase?