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Cost Volume Profit Analysis

This document provides an example of a cost-volume-profit analysis with three problems. Problem 1 calculates contribution margin, break-even point, and margin of safety given unit price and costs. Problem 2 estimates sales needed to achieve different profit targets. Problem 3 calculates a composite break-even point for a company with multiple products by determining an average contribution margin.

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VanityHugh
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576 views14 pages

Cost Volume Profit Analysis

This document provides an example of a cost-volume-profit analysis with three problems. Problem 1 calculates contribution margin, break-even point, and margin of safety given unit price and costs. Problem 2 estimates sales needed to achieve different profit targets. Problem 3 calculates a composite break-even point for a company with multiple products by determining an average contribution margin.

Uploaded by

VanityHugh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

COST-VOLUME-PROFIT

ANALYSIS

Problem 1. Contribution Margin

Let us say:
Unit Sales Price
Unit Variable Costs

Total Fixed Costs


Units Sold

P200
120

400,000
8,000

What would be:


a.

Unit contribution margin, contribution margin ratio, and variable


cost ratio

b.

Break-even point in units and pesos

c.

Margin of safety in units and in pesos, and the margin of safety ratio

Unit Contribution Margin, Contribution


Margin Ratio, and Variable Cost Ratio
Units

Unit Prices

Amount

Ratio

Sales

8,000

200

1,600,000

100

Less: Variable Costs

8,000

120

960,000

60

Contribution Margin

8,000

80

640,000

40

Less: Fixed Costs

400,000

Operating Income

240,000

Break-even Point in Units and Pesos


BEP = Fixed Costs / Contribution Margin per unit
BEP = 400,000 / 80 = 5,000 units
BEP = 400,000 / 40% = P1,000,000

*it should be observed that at Break-even point, total


contribution margin equals total fixed costs

Margin of Safety in Units and


Pesos, Margin of Safety Ratio
Amount

Percentage

Budgeted Sales
(8,000 units x 200)

1,600,000

100.00

Less: Break-even Sales

1,000,000

62.50

600,000

37.50

Margin of Safety

Problem 2. Estimating Sales with Profit


To illustrate, let us say:
Unit Sales Price
Unit Variable Costs
Total Fixed Costs

P400
240
P800,000

How much is sales if profit is expressed as:


a. Income before tax of P400,000
b. Income after tax of P480,000, tax rate is 40%
c. 20% of sales
d. P25 per unit

Income before Tax of P400,000

() =

800,000:400,000
160

= 7,500

= 7,500 400
= 3,000,000

Income After Tax of 480,000, Tax Rate = 40%

:(1 )

() =
=

480,000
0.60

800,000:

160

= 10,000
= 10,000 400
= 4,000,000

20% of Sales

=
=

800,000
0.40;0.20

= 4,000,000

Profit per unit = P25

=
=

800,000
160 ;25

= 5,926

Problem 3. Composite Breakeven Point (Multi-Product Sales)


Consider the following data:
Products

Unit Sales Price

P 400

P 600

P700

100

350

500

Unit Variable Costs


Sales Mix
Total Fixed Costs,

P 795,000

Compute the:
a. Composite Break-even Point (CBEP) in units and pesos
b. Allocated CBEP
c. Sales per mix

Composite Break-even Point


(CBEP) in Units and Pesos
=
=

795,000
265

= 3,000
=
=

795,000
50.9615%

= 1,560,000

Allocated CBEP

CBEP Allocation
A = 3,000 x 5/10 = 1,500
B = 3,000 x 3/10 =

900

C = 3,000 x 2/10 =

600

CBEP

3,000

Sales Per Mix

795,000
2,650

The composite beak-even point would be


A = 300 units x 5 = 1,500 units
B = 300 units x 3 = 900 units
C = 300 units x 2 = 600 units

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