COST VOLUME PROFIT ANALYSIS

Topics: Variable cost, Costs, Management accounting Pages: 13 (505 words) Published: July 21, 2015
COST-VOLUMEPROFIT
ANALYSIS
Julie E. Colandog

A systematic
examination
of the
relationship
among cost,
cost driver or
level of
activity
(volume), and

Sales
Less: Variable
Costs
Contribution
Margin
Less: Fixed Costs
Net Profit

xxxx
xxxx
xxxx
xxxx
xxxx

CONTRIBUTION MARGIN
INCOME STATEMENT

e
s

Sa
l

Total
Cost

Break-even
point
Fixed
Cost

Break-even point
is a condition
where total
revenue equals
total cost and
profit is equal to
zero

BREAK-EVEN POINT

Break-even point (pesos) =
Total Fixed Cost / Contribution
Margin Rate
Break-even point (units) =
Total Fixed Cost / Contribution
Margin per unit

Break-even formula:
Break-even point in Pesos:
Break-even point in
units:
BEPp = FC/CMr
BEPu = FC/CMu
Where:
where:
FC = Fixed cost
FC = Fixed cost
CMr = Contribution margin rate CMu = Contribution
margin per
unit

Other Formula:
where:

CM = S – VC
CM = Contribution margin
CM/u = SP – VC/u S = sales
CMR = CM ÷ S
VC = variable cost
VCR = VC ÷ S
VCR = Variable cost rate
CMR + VCR = 100% CM/u = Contribution
margin unit
VC/u = Variable cost per unit

Consider the following data:
Sales (10,000 units @10)
100,000
Variable Cost (10,000 @6)
60,000
Contribution margin
40,000
Fixed costs
30,000
Profit
10,000
BEPu = 30,000/4 = 7,500 units
6)/10
BEPp = 30,000/40% = 75,000
(40,000/100,000

CMu = (10CMR =

Compute the BEP in units
Compute the BEP in pesos

Break-even: Multiple Product
where:
BEPp = FC/WaCMR FC = Fixed cost
BEPu = FC/WaCMU WaCMR = weighted
average
contribution margin rate
WaCMU = weighted average
cotribution margin per
unit

Example:
Product A Product B Product C
Selling price
100
120
50
Variable cost per unit
60
90
40
Contribution margin
per unit
40
30
10
Sales in units
1,000
2,000
5,000
Total fixed cost 101,680

Product A

Product B

Product C

Total

Sales

100,000.00 240,000.00 250,000.00 590,000.00

Variable cost
Contribution
margin

60,000.00 180,000.00 200,000.00 440,000.00
40,000.00 60,000.00 50,000.00 150,000.00

WaCMR = Total CM/Total Sales WaCMR = Total CM/Unit Sales
= 150,000 /
590,000
= 150,000 / 8,000
= 18.75
= 25.42%
BEPu = 101,680/18.75
= 5,422.93 units
BEPp = 101,680/25.42% = 400,000
Sales (units)

Product A
1000

Sales (Pesos) 100,000.00

Product B
2000

Product C
5000

Total
8000

240,000.00

250,000.00

590,000.00

BEP (Pesos)

67,796.61

162,711.86

169,491.53

400,000.00

BEP (Units)

678

1356

3389

5,423

Required Sales in
units

Required Sales in
pesos

To earn desired
amount of profit
before tax

RSu = (FC + DP)/CM/u

RSp = (FC + DP)/CMR

To earn desired
amount of profit after
tax

RSu = FC + [NP/(1TxR)]/CMu

RSp =FC + [NP/(1TxR)]/CMR

Single Product

• The difference between the actual
(or planned) sales and breakeven
sales.
• It is the amount where sales could
be reduced before incurring a loss.
• MSR my be determine based on
units or in pesos.

MARGIN OF SAFETY

Changes
Increase in
USP
Decrease in
USP
Increase in
UVP
Decrease in
UVP

CMR
Increas
e
Decreas
e
Decreas
e
Increas
e
No
Increase in FC Effect
Decrease in
No
FC
Effect

Breakeven
point

Operating
income

Margin of
safety

Decrease

Increase

Increase

Increase

Decrease

Decrease

Increase

Decrease

Decrease

Decrease

Increase

Increase

Increase

Decrease

Decrease

Decrease

Increase

Increase

Sensitivity Analysis

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