COST-VOLUME-PROFIT

ANALYSIS

Section 7.2 (pages 204-210)

COST-VOLUME-PROFIT ANALYSIS

Cost-Volume-Profit Analysis

TR = S x
TC = FC + TVC
= FC + VC x
NI = TR TC
At the break-even point, TR = TC .
COST-VOLUME-PROFIT ANALYSIS

Example #1
Kayla has a tire manufacturing company that can produce a maximum of
4,000 tires per annum. The fixed costs per annum are $70, 000. The
variable costs are $50 per tire and the selling price per tire is $100.
(a) Calculate the number of tires Kayla should produce and sell per
year to break even.
(b) In 2008, Kayla produced and sold 1,000 tires. Did she make a
profit or incur a loss, and by what amount?
(c) In 2009, Kayla produced and sold 3,000 tires. Did she make a
profit or incur a loss, and by what amount?
(d) In 2010, Kayla utilized 90% of her facility to produce and sell tires.
Calculate the profit made or loss incurred.
(e) In 2011, Kayla wanted a profit of $60, 000. How many tires did
she have to produce and sell and what percentage of her facility
would she have utilized?
(f) What is the maximum profit per annum that Kayla can expect for
this facility?
COST-VOLUME-PROFIT ANALYSIS

Example #1

COST-VOLUME-PROFIT ANALYSIS

Example #2
Robbie runs a furniture manufacturing company. He has fixed
costs of $3, 000 per month and variable costs of $40 per unit.
He sells each unit for $50.
(a) Calculate Robbies break-even point and his revenue per
month.
(b) If Robbie increases his selling price by 10%, calculate his
new break-even point per month.
(c) If Robbie reduces his fixed costs by $250 per month with
no changes to the variable costs and selling price,
calculate his new break-even point per month.
(d) If the fixed costs increase by 5% and the selling price is
decreased by 10%, calculate the new break-even point
(assuming no changes in the variable costs).
COST-VOLUME-PROFIT ANALYSIS

Example #2

COST-VOLUME-PROFIT ANALYSIS

Exercises
Reflex Manufacturing Corp. makes composters and sells them for $70
each. The variable costs are $43 per unit and the fixed costs are $54, 000
each month. A maximum of 3, 200 composters can be made each month.
1

Find the number of composters that must be sold each month to

break-even.

If 2, 500 units are sold in a month, did the company make a profit
or incur a loss and by what amount?

Suppose the company operates at 75% capacity. What is the

monthly net income?

At what percent utilization would the monthly net income be

$18, 900?

Find the new break-even point per month if the selling price
increases by $1 for each unit.

Find the new break-even point per month if the fixed costs
decrease by 10% each month and the variable cost per unit
increases by 10%.
COST-VOLUME-PROFIT ANALYSIS