# COST VOLUME PROFIT ANALYSIS

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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