Chapter 10

CHAPTER 10 PRODUCT PRICING AND GROSS PROFIT PR OFIT VARIAT VARIATION ION ANALY ANALYSIS SIS

[Problem 1] 1. Unit variable costs Unit variable expense Unit fixed overhead Unit fixed expense Unit costs and expenses Mar!"p #50$% Unit sales price 2. U'P U()* #P30 + P3% U)M

P30 3 5 4 42 21 P&3 P&3 33 P30

Mar,"p on )M - on , )ost /tems + Profit on , )ost ased - P3 + P5 + P4 + P21 - 110$ 110$ P30 [Problem 2] 1. U'P 2. U'P 3. U'P 4. U'P 5. U'P &. U'P

- P2.50 x 150$ - P3.5 - P3.50 x 140$ - P4.0 - P3.00 x 145$ - P4.35 - P5.0 x 135$ - P.&5 - P3.50 x 135$ - P4.25 - P2.20 x 1&0$ - P3.52

[Problem 3] Unit variable prod"ction costs Unit shippin costs /ncremental fixed costs #P4000010000% Minim"m pricebreaeven price

P3.00 0.5 4.00 P.5

[Problem 4] Mar,"p ratios on6 1. 7bsorption )osts - P3 + P2+ P30 - 102.4$ P34 Unit Profit Marin - P&000000 x 15$ - P30 30000 "nits

2.

(ariable )osts and *xpenses - P4 + P2 + P30 P33  10.0$

3.

(ariable Prod"ction )osts - P4 + P3 + P2 + P30 - 130$ P30

4.

8"ll )osts - P30 - &.2$ P3

5.

Materials )osts - P15 + P5 + P4 + P3 + P2 + P30 P20   -

[Problem 5] 1.

25$

Mar , "p ratio - P12 + P3 + P& - 59.33$ P3& Unit fixed overhead #P&0000050000% Unit fixed expenses #P15000050000% Unit profit marin [#P2500000 x 12$% 50000]

2. 3.

P12 3 &

:aret "nit sales price - P3& x 159.33$ - P5 Mar!"p ratio - P20 + P5 + P10 - .22$ P3& U8x;< #P&0000030000% P20 U8x exp #P15000030000% 5 UPM [#P2500000 x 12$% 30000] 10

[Problem &] 1. :echnicians= >aes #P&0000020000 hrs% P30.00hr  ;ther repair costs #P20000020000 hrs% 10.00hr  ;rderin handlin etc. 15.5&hr   'tandard time and material loadin chare P 55.5&hr  ;rderin handlinetc rate 100 140

P40 ! 20$

- P15.5&

  140$

÷

! P40

2. 'tandard time and materials cost #P55.5& x 4 hrs% P 222.24 Parts 1200.00  7mo"nt to be billed P1422.24 [Problem ] 'ales (ar )A' #40$ x costs% 'ales commissions )M )MB

*conom? P50000 # 12000% # 5000% P33000 &&$

'tandard P90000 # 1&000% # 9000% P5&000 0$

/ncrease in )M , @el"xe #P43000 x 40$% ! 'tandard #P5&000 x 90$% @ecrease in )M! *conom? #P33000x20$% et /ncrease in )M ;ld net income @esired net income Maxim"m advertisin expense

@el"xe P0000 # 20000% # 000% P43000 &1.43$

P1200 44900 #&&00% 55400 5500 #22200% P3900

[Problem 9] Becommended sales price - C )hane in U'P

#25

%$#10

%$10$

25$

)hane in sales d"e to )hane in U'P # D x 2003 Et?%

P

#50000%

P

#295000%

P

225000

P

525000

)hane in F"antit? # D Et? x P 15%

450000

300000

#300000%

#450000%

#0000%

#50000%

#150000%

#250000%

)hane in advertisin and promo expendit"res )hane in operatin income

P

#30000% P

#35000%

P

#225000%

P

#15000%

:he recommended "nit sales price in 2003 is still P 15. 7ll of the possible chanes in prices and vol"me res"lt to red"ction in operatin income.

[Problem ] 1.a. @ifference in profit #P 19000 , P 15000% b. @irect materials @irect labor Minim"m sales price

P 3000 P 5000 9000 P 13000

2. 7dvantaes of contrib"tion marin approach6 a. /t ives flexibilit? as to pricin strate? b? considerin onl? relevant incremental costs and expenses. b. /t eval"ates sement performance b? the amo"nt it contrib"tes to profit. c. /t facilitates in the implementation of effective plannin and controllin s?stem. d. /t Geroes!in to items to be controlled. 3. Pitfalls of contrib"tion marin approach6 a. /t does not consider the immediate recover? of fixed costs and expenses >hich are interal to b"siness operations. b. /t foc"ses to short!term decisions and not to lon!term stabilit? and ro>th. c. /t is not in conformit? >ith A77P. [Problem 9] Becommended sales price - C

Unit sales price

P

#11.25% P

#13.50% P

15.00 P

1&.50 P

19.5

30000

20000

0

20000

30000

#33500%

#20000%

0

20000

33500

#0000%

#50000%

0

50000

250000

P #24500%

P#220000%

0 P20000

P9500

/ncrease #decrease% /n "nit sales /ncrease #decrease% in sales /ncrease #decrease% /n advertisin and promo expendit"res /ncrease #decrease% /n profit

U'P -

[:) + #B;' x 8x)apital%]

Units prod"ced and soldHHHH [1 , B;' x )7'ales] U'P -

P 1&9000 + #4904900% x P190000% ÷ 12000 P 1&9000 + P 19000 ÷ #1 , 0.05% 12000 P 19&000 ÷ .5   12000 P 15.5 - P 1&.32 .5

-

1 , #10$ x 2.44.9%

[Problem 10] 1. a. Unit sales price "sin ret"rn!on!capital emplo?ed pricin6 :otal cost - 12000 "nits x P 14 - P 1&9000 Bet. on sales - P 4900004900000 - 10$ )7'ales ratio - P 2.4MP4.9M - 50$

U'P -

:otal cost + #B;' x 8ixed )apital% HHHHUnits prod"ced and soldHHHHHHHHH  #1 , B;' x )7'ales ratio% P 1&9000 + #10$ x P190000% ÷ [1 , #10$ x 50$%]   12000 P 15.50 5$ P 1&.32

b. Unit sales price "sin ross profit marin pricin6 AP rate - P 120 ÷ P 4900 - 40$ U'P - P 12 ÷ &0$ - P 20 2. o. :he sales price for electric pencil sharpener cannot be calc"lated "sin the ret"rn!on!capital emplo?ed pricin model beca"se other data needed in the model are not available. 3. :he ret"rn!on!asset emplo?ed is a more strateic pricin model in meetin the lon!term strate? of a b"siness. :he ross profit pricin basicall? foc"ses on short!term ret"rn. o"ld heihten a>areness and better  maret positionin that are expected to retain or increase maret share. [Problem 13] 1. Price variances6 'ales price variances Prod"ct 1 Prod"ct 2 Prod"ct 3 Prod"ct 4 -

#P 0.35 , P 0.5% x 2945 - P #&92.90% U8 #P 1.023 , P 0.&2% x 3290 95&.09 8 #P 0.15 , P 0.20% x 340 # 3&.0% U8 #P 1.&50 , P 1.50% x 4320 &49.00 8 P 94.59 8

)ost price variances Prod"ct 1 Prod"ct 2 Prod"ct 3 Prod"ct 4 -

#P 0.5 , P 0.&0% x 2945 #P0. , P 0.&5% x 3290 #P0.14 , P 0.20% x 340 #P 1.25 , P1.14% x 4320

-

# 29.45% 8 1115.20 U8 # 440.40% 8 45.20 U8

1121.55 U8

-

923.99 U8 #1310.&4% 8 &9.00 U8 490.00 U8

# &1.24%U8

'ales F"antit? variances6 Prod"ct 1 Prod"ct 2 Prod"ct 3 Prod"ct 4 -

#2945 , 2000% x P0.5 #3290 , 5000% x 0.&2 #340 , 000% x 0.20 #4320 , 4000% x 1.50

)ost F"antit? variances6 Prod"ct 1 - #2945 , 2000% x P 0.&0 Prod"ct 2 - #3290 , 5000% x 0.&5 Prod"ct 3 - #340 , 000% x 0.20 Prod"ct 4 - #4320 , 4000% x 1.14 et ross profit variance

-

50.00 U8 #1119.00% 8 &9.00 U8 3&4.94 U8

#19.20% 8 P 220.01 U8

2. 'ales mix variance6 AP this ?ear UAP last ?ear  Prod"ct 1 - 2945 G P 0.35 - P 10&&.99 Prod"ct 2 - 3290 x 0.112 3&.3& Prod"ct 3 - 340 x 00.00 Prod"ct 4 - 4320 x 0.3& - 1555.20 Iess6 AP this ?ear at averae UAP last ?ear  #195 x P 25019000% 8inal sales vol"me variance6 AP this ?ear at averae UAP last ?ear Iess6 AP last ?ear et sales F"antit? variance

[Problem 14] 1. 'ales this ?ear at U'P last ?ear  #P 5 million x 120$% Iess6 'ales last ?ear 'ales F"antit? variance

P 29.44 21.15

21.15 250.00

P 22.2 8

#32.95% U8 P 23.44 8

P&000000 5000000 P1000000 8

2.

'ales this ?ear Iess6 ':K J U'P last ?ear 'ales price variance

3.

'ales price variance ratio - P 1500000 - 25$ decrease   &000000

[Problem 15] 1. )ost this ?ear Iess6 )ost this ?ear at U) last ?ear  #P &&00000 ÷ 110$% )ost price variance 2.

P 4500000 &000000 P1500000% U8

P&&00000 &000000 P &00000 8

)ost this ?ear at U) last ?ear P&000000 Iess6 )ost last ?ear #P &&00000 ÷ 120$% 5500000 )ost F"antit? variance P 500000 U8

3.

)ost F"antit? variance ratio - P 500000 U8 P 5500000

[Problem 1&] 1. 'ales this ?ear Iess6 ':K at U'P last ?ear #P9000000 x 105$% 'ales price variance 'P( rate - P3&0000 8 - 4.2$ 8 9400000

-

.0$ increase

P12000000 9400000 P 3&00000 8

2. ':K J U'P last ?ear #P 9M x 105$% Iess6 'ales last ?ear 'ales F"antit? variance

P9400000 9000000 P 400000 8

3. )ost this ?ear Iess6 ):K J U) last ?ear  #P & million x 105$% (ariable cost price variance

P9000000

4.

):K J U) last ?ear Iess6 )ost last ?ear )ost last ?ear

&300000 P100000 U8 P&300000 &000000 P 300000 U8