MANAGEMENT ACCOUNTING

Cost Volume Profit (CVP) Analysis

As a student of management accounting, you are on a community service project to help some of
the SMEs inn your locality. You are to assist a noodles seller who is struggling with the application
of Cost-Volume-Profit Analysis in decision-making.

Scenario 1 – Single Product

Background: An initial review shows that, the seller (Adjoa) has a standard unit cost for each pack
of noodles. She currently expects that to prepare on pack of noodles she incur cost which has been
resolved as follow for the month of January 2020

Variable Cost per unit analysis (in GHS) Fixed Cost Per Year (in GHS)
Noodles 2.00 Salaries 40,000.00
Egg 0.90 Rent 5,000.00
Other Ingredients 1.50 Fixed Admin 15,000.00
Labour 0.60 Total fixed cost 60,000.00
Variable Prod O/H 1.00
Total variable Cost 6.00

Scenario 1a – Break-even point output and revenue

Adjoa currently sells her noodles at GHS 10 per pack and incurs fixed and variable cost as resolved
above. Calculate the breakeven point in units and in value, hence prepare a profit statement based
on the breakeven output for the year.

Scenario 1b – Output to achieve a target profit

Given Adjoa’s selling price of GHS 10 per unit and the prevailing cost resolutions, she desires to
make a profit of GHS 20,000 per year. How many packs of noodles should she sell in a year; what
will be its corresponding sales revenue. Hence, prepare a profit statement based on that output for
the year using the marginal costing approach.

@desmondaboagye2020
Scenario 1c – Output to achieve a target profit after tax
Adjoa is to pay 25% of her earning as tax as disclosed to her by the tax authorities in a letter. She
decides to retain selling price at GHS 10; however, she would like to make a net profit after tax of
GHS30, 000.
How many units and it value that should produce and sold for the coming year and hence prepare
a profit statement based on that output for the year

Scenario 1d – Contribution to Sales ratio

Adjoa is also considering the possibility of finding her break-even point given that, she can
properly estimate her total sales for the year to be GHS 400,000 with a fixed cost GHS 50,000.
She also estimated her total variable cost at GHS 300,000 in total.
What level of sales should she make in quest to make a profit of GHS 25,000?

Scenario 2 – Multi Product

Background: Upon further discussion with Adjoa, she disclosed that, she has an eye for the
provision of snacks for lunch for the middle class. Each of the individual meals are to be sold alone
but she would maintain a constant mix for every complete snack pack sold. She has provided the
cost information for the lunch business, which was analyzed as follows:

Product Juice Cakes Pie

GHS GHS GHS
Selling Price 16.00 20.00 10.00
Variable Cost 5.00 15.00 7.00
Contribution Per unit 11.00 5.00 3.00
Budgeted Sales 50,000 units 10,000 units 100,000 units
Due to the absence of a standard measurement scale, Adjoa maintain the use units of
measurement for all the items. She budgets total fixed cost of GHS 450,000
Scenario 2 a
Given the information provided above, Adjoa wants to know:
i. The break-even sales required
ii. An interpretation into the break-even chart for multi-products

@desmondaboagye2020