CASE 2

CVP ANALYSIS

Sweet Corp. produces two kinds of Candy: Chocolate Candy and Coffee Candy. Sherly, company’s
president holds management meeting with Anton, Production Manager, Fitri, Marketing Manajer, and Hafiz,
Accounting Manager. The following are their conversation:

Sherly: Dear all, today we will discuss our current year’s financial achievement and our next year’s
financial plan. I would like our profit before tax for next year $2,200,000. Fitri, could you tell us
your sale performance in this current year
Fitri: Right Ms. Sherly. In this current year, we can sell Chocolate Candy at price $10 per pack and
Coffee Candy $7.50 per pack, still same as previous year selling price. It’s difficult for us to
increase the selling price because of tight competition. With this price, we can all the products
that we produce.
Sherly: Thanks Fitri. What about our current year’s production, Anton?
Anton: Well. Our production for this year are 3,000,000 packs for Chocolate Candy and 2,000,000
packs for Coffee Candy.

Sherly: Thanks a lot Anton.

Haviz, I think do you have data of manufacturing cost, and marketing & administrative
expenses. Could you explain to us?

Haviz: Yes Ms. Sherly. Actually our manufacturing cost for current year is a little bit lower than
previous year. Our manufacturing costs per pack are as follows:

Chocolate Candy Coffee Candy

- Direct raw material costs $1.50 $1.25
- Direct labor costs 1.00 1
- Variable factory overhead costs 0.50 0.25
- Fixed factory overhead costs 0.75 0.50
Total $3.75 $3.00

Our variable marketing and administrative expenses per pack sold for current year is $2 for
Chocolate Candy and $1.50 for Coffee Candy. We have two kinds of fixed costs: direct fixed
costs and common fixed costs. Our direct fixed costs, not including fixed FOH are $750,000 for
Chocolate Candy and $500,000 for Coffee Candy. We have common fixed cost for both
products are $6,500,000.

Required:
a. What are managerial uses of CVP Analysis?
b. Determine the sales mix based on current sales
c. What are direct fixed cost and common fixed cost? Give the examples.
d. For current year, how many units for each kind of products should be sold to obtain breakeven point?
e. For next year, how many units for each kind of product should be sold to obtain targeted profit before
tax for next year? Assuming selling price and cost data are still same as the current year
f. Prepare projected income statement to proof your answer on requirement (d)
g. Determine margin of safety (MOS). What does it mean?
h. Prepare the CVP Analysis graph
i. What are CVP Analysis assumption