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 #P4000010000% Minim"m pricebreaeven 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 Marin - P&000000 x 15$ - P30 30000 "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.
25$
Mar , "p ratio - P12 + P3 + P& - 59.33$ P3& Unit fixed overhead #P&0000050000% Unit fixed expenses #P15000050000% Unit profit marin [#P2500000 x 12$% 50000]
2. 3.
P12 3 &
:aret "nit sales price - P3& x 159.33$ - P5 Mar!"p ratio - P20 + P5 + P10 - .22$ P3& U8x;< #P&0000030000% P20 U8x exp #P15000030000% 5 UPM [#P2500000 x 12$% 30000] 10
[Problem &] 1. :echnicians= >aes #P&0000020000 hrs% P30.00hr ;ther repair costs #P20000020000 hrs% 10.00hr ;rderin handlin etc. 15.5&hr 'tandard time and material loadin chare P 55.5&hr ;rderin handlinetc rate 100 140
P40 ! 20$
- P15.5&
140$
÷
! P40
2. 'tandard time and materials cost #P55.5& x 4 hrs% P 222.24 Parts 1200.00 7mo"nt to be billed P1422.24 [Problem ] 'ales (ar )A' #40$ x costs% 'ales commissions )M )MB
*conom? P50000 # 12000% # 5000% P33000 &&$
'tandard P90000 # 1&000% # 9000% P5&000 0$
/ncrease in )M , @el"xe #P43000 x 40$% ! 'tandard #P5&000 x 90$% @ecrease in )M! *conom? #P33000x20$% et /ncrease in )M ;ld net income @esired net income Maxim"m advertisin expense
@el"xe P0000 # 20000% # 000% P43000 &1.43$
P1200 44900 #&&00% 55400 5500 #22200% P3900
[Problem 9] Becommended sales price - C )hane in U'P
#25
%$#10
%$10$
25$
225000 P
525000
)hane in sales d"e to )hane in U'P # D x 2003 Et?%
P
#50000% P
#295000% P
)hane in F"antit? # D Et? x P 15%
450000
300000
#300000%
#450000%
#0000%
#50000%
#150000%
#250000%
#35000% P
#225000% P
#15000%
)hane in advertisin and promo expendit"res )hane in operatin income
P
#30000% P
:he recommended "nit sales price in 2003 is still P 15. 7ll of the possible chanes in prices and vol"me res"lt to red"ction in operatin income.
[Problem ] 1.a. @ifference in profit #P 19000 , P 15000% b. @irect materials @irect labor Minim"m sales price
P 3000 P 5000 9000 P 13000
2. 7dvantaes of contrib"tion marin approach6 a. /t ives flexibilit? as to pricin strate? b? considerin onl? relevant incremental costs and expenses. b. /t eval"ates sement 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 marin approach6 a. /t does not consider the immediate recover? of fixed costs and expenses >hich are interal 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
15.00P
1&.50P
19.5
30000
20000
0
20000
30000
#33500%
#20000%
0
20000
33500
#0000%
#50000%
0
50000
250000
P #24500%
P#220000%
/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%]
0 P20000
P9500
Units prod"ced and soldHHHH [1 , B;' x )7'ales] U'P -
P 1&9000 + #4904900% x P190000% ÷ 12000 P 1&9000 + P 19000 ÷ #1 , 0.05% 12000 P 19&000 ÷ .5 12000 P 15.5 - P 1&.32 .5
-
1 , #10$ x 2.44.9%
[Problem 10] 1. a. Unit sales price "sin ret"rn!on!capital emplo?ed pricin6 :otal cost - 12000 "nits x P 14 - P 1&9000 Bet. on sales - P 4900004900000 - 10$ )7'ales ratio - P 2.4MP4.9M - 50$
U'P -
:otal cost + #B;' x 8ixed )apital% HHHHUnits prod"ced and soldHHHHHHHHH #1 , B;' x )7'ales ratio% P 1&9000 + #10$ x P190000% ÷ [1 , #10$ x 50$%] 12000 P 15.50 5$ P 1&.32
b. Unit sales price "sin ross profit marin pricin6 AP rate - P 120 ÷ P 4900 - 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 strateic pricin model in meetin the lon!term strate? of a b"siness. :he ross profit pricin basicall? foc"ses on short!term ret"rn.
4. 7dditional steps to be taen to set an act"al sales price6 a. /nd"str? sales price. b. Maret positionin in relation to pricin strate?. c. 8lexibilit? of competitors in respondin to price settins. d. Maret orientation as to price settins. e. Possible re"lator? bottlenecs as to pricin. [Problem 11] 1. 'ales variances6 'ales price variance6 :amis - P 2 8 x 12000 "nits 7nhan - P 2 8 x 20000 "nits 'ales F"antit? variances6 :amis - 4000 8 x P 9 7nhan - 12000 8 x P 4 )ost variances6 )ost price variances6 :amis - P 3 U8 x 12000 7nhan - P 2 U8 x 20000 )ost F"antit? variance6 :amis - P 4000 U8 x P & 7nhan - P 12000 U8 x P3 et increase in ross profit 2.
- P 24000 8 - 40000 8 P &4000 8 -
32000 8 49000 8
-
3&000 U8 40000 U8 &000U8
-
24000 U8 3&000 U8 &0000U8 13&000U8 P 9000 8
90000 8 P144000 8
'ales mix variance6 AP this ?ear at UAP last ?ear :amis - 12000 x P 2 - P 24000 7nhan - 20000 x P1 - 20000 P 44000 Iess6 AP this ?ear at ave. UAP last ?ear #30000 "nits x P 1.50% 49000 'ales ?ield variance #final sales vol"me variance%6 AP this ?ear at ave. UAP last ?ear 49000 Iess6 AP last ?ear 24000 et F"antit? variance
P #4000% U8
24000 8 P 20000 8
[Problem 12] 1.
[#P 115 , P 120% x 4000 "nits]
P #9&000% U8 #30000% U8 P #45&000% U8
)ost price variances6 [#P 92 , P 90% x 4000 "nits]
0 149000 U8
149000 U8
'ales mix variance6 Aross profit this ?ear J b"deted UAP6 #4000 x P 40% 2&0000 3920000 Iess6 Aross profit this ?ear at b"deted UAP #1&0000 "nits x P 4400200% 3500000 300000 8 8inal sales vol"me variance6 Aross profit this ?ear at b"deted UAP 3520000 Iess6 "deted ross profit 4400000 #990000% U8 et chane in ross profit P 1194000 U8
2. 7pparent effect #s% of the special maretin prorams6 a. :he predicted 10$ drop in sales ma? res"lt to a 10$ drop in ross profit amo"ntin to P 224200 #i.e. 10$ x P 2442000% ass"min that overhead follo>s the trend of sales. :his means that the firm is constrained to develop its maretin prorams >ithin the P 244200 b"det to compensate the decline in sales. b. Arantin of dealer disco"nts >o"ld enco"rae dealers to p"sh thro"h table sa> to c"stomers. c. /ncreased direct advertisin >o"ld heihten a>areness and better maret positionin that are expected to retain or increase maret share. [Problem 13] 1. Price variances6 'ales price variances Prod"ct 1 Prod"ct 2 Prod"ct 3 Prod"ct 4 -
#P 0.35 , P 0.5% x 2945 - P #&92.90% U8 #P 1.023 , P 0.&2% x 3290 95&.09 8 #P 0.15 , P 0.20% x 340 # 3&.0% U8 #P 1.&50 , P 1.50% x 4320 &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 2945 #P0. , P 0.&5% x 3290 #P0.14 , P 0.20% x 340 #P 1.25 , P1.14% x 4320
-
# 29.45% 8 1115.20 U8 # 440.40% 8 45.20 U8
1121.55 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 -
#2945 , 2000% x P0.5 #3290 , 5000% x 0.&2 #340 , 000% x 0.20 #4320 , 4000% x 1.50
)ost F"antit? variances6 Prod"ct 1 - #2945 , 2000% x P 0.&0 Prod"ct 2 - #3290 , 5000% x 0.&5 Prod"ct 3 - #340 , 000% x 0.20 Prod"ct 4 - #4320 , 4000% x 1.14 et ross profit variance
-
50.00 U8 #1119.00% 8 &9.00 U8 3&4.94 U8
#19.20% 8 P 220.01 U8
2. 'ales mix variance6 AP this ?ear UAP last ?ear Prod"ct 1 - 2945 G P 0.35 - P 10&&.99 Prod"ct 2 - 3290 x 0.112 3&.3& Prod"ct 3 - 340 x 00.00 Prod"ct 4 - 4320 x 0.3& - 1555.20 Iess6 AP this ?ear at averae UAP last ?ear #195 x P 25019000% 8inal sales vol"me variance6 AP this ?ear at averae 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$% Iess6 'ales last ?ear 'ales F"antit? variance
P 29.44 21.15
21.15 250.00
P 22.2 8
#32.95% U8 P 23.44 8
P&000000 5000000 P1000000 8
2.
'ales this ?ear Iess6 ':K J U'P last ?ear 'ales price variance
3.
'ales price variance ratio - P 1500000 - 25$ decrease &000000
[Problem 15] 1. )ost this ?ear Iess6 )ost this ?ear at U) last ?ear #P &&00000 ÷ 110$% )ost price variance 2.
P 4500000 &000000 P1500000% U8
P&&00000 &000000 P &00000 8
)ost this ?ear at U) last ?ear P&000000 Iess6 )ost last ?ear #P &&00000 ÷ 120$% 5500000 )ost F"antit? variance P 500000 U8
3.
)ost F"antit? variance ratio - P 500000 U8 P 5500000
[Problem 1&] 1. 'ales this ?ear Iess6 ':K at U'P last ?ear #P9000000 x 105$% 'ales price variance 'P( rate - P3&0000 8 - 4.2$ 8 9400000
-
.0$ increase
P12000000 9400000 P 3&00000 8
2. ':K J U'P last ?ear #P 9M x 105$% Iess6 'ales last ?ear 'ales F"antit? variance
P9400000 9000000 P 400000 8
3. )ost this ?ear Iess6 ):K J U) last ?ear #P & million x 105$% (ariable cost price variance
P9000000
4.
):K J U) last ?ear Iess6 )ost last ?ear )ost last ?ear
&300000 P100000 U8 P&300000 &000000 P 300000 U8