1 Gross C.M. = Sales - Variable COGM2 Net C.M. = Sales - Variable COGM - Variable operating expensesNet C. M. = Gross C.M. - Variable operating expenses
Example No.1:
Total Per unitSale (400 Speakers) 100,000 250Less: Variable Cost (60,000) (150)Contribution Margin 40,000 100Less: Fixed Cost (35,000)Net Operating Income 5,000
Explaination of change in activity affect Contribution Margin & Net Operating I On Sale of 1 Speaker:
Total Per unitSale (1 Speaker) 250 250Less: Variable Cost (150) (150)Contribution Margin 100 100Less: Fixed Cost (35,000)Net Operating Loss (34,900)
On Sale of 2 Speakers:
Total Per unitSale (2 Speakers) 500 250Less: Variable Cost (300) (150)Contribution Margin 200 100Less: Fixed Cost (35,000)Net Operating Loss (34,800)
On Sale of 350 Speakers:
Total Per unitSale (350 Speakers) 87,500 250Less: Variable Cost (52,500) (150)Contribution Margin 35,000 100Less: Fixed Cost (35,000)Net Operating Income -
On Sale of 351 Speakers:
Total Per unitSale (351 Speakers) 87,750 250Less: Variable Cost (52,650) (150)Contribution Margin 35,100 100Less: Fixed Cost (35,000)Net Operating Income 100Increased in numbers of speakers sold 25Contribution margin per speaker x $ 100
Increase in Net Operating Income 2,500
CONTRIBUTION MARGIN RATIO:
C. M. Ratio = TotalContribution Margin 40,000Total Sales 100,000Or: C. M. Ratio = Contribution Margin Per unit 100Sales price Per unit 250
Impact on Net Operating Income on changes in Sales, by C.M. ratio:
Calculation of changes in net income, with the changes in sales, without I/S
Increase in Sales 30,000C.M. ratio 40%Increase in Net operating Income 12,000Decrease in Sales 40,000C.M. ratio 40%Decrease in Net operating Income 16,000
There is a direct relationship or proportion between sales and contribution marg as well as net income
Proof: Present Expected Changes PercentageSales 100,000 130,000 30,000 100%Less: Variable Cost (60,000) (78,000) (18,000) 60%Contribution Margin 40,000 52,000 12,000 40%Less: Fixed Cost (35,000) (35,000) -Net Operating Income 5,000 17,000 1
2,000
Some Applications of CVP Analysis:
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Cost Volume profit Analysis -CVP Exmaples
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