REQUIRED SALES WITH DESIRED PROFIT

Required sales in unit Required sales in pesos

A. Single Product

To earn desired amount of profit b4 tax (FxC + DP)/CMu (FxC + DP) / CMR

To earn desired amount of profit after tax FxC + (NP / 1-TxR) / CMu FxC + (NP / 1-TxR)/CMR

To earn desired profit ratio FxC / (Cmu – Pu) FxC / (CMR-PR)

B. Multiple products

To earn desired amount of profit before tax (FxC + DP) / WaUCM (FxC + DP) / WaCMR

To earn a desired amount of profit after tax FxC+(NP/1-TxR)/WaUCM FxC + (NP/1-TxR

WaCMR
CHANGE IN PROFIT FACTORS

A Change in any of the following profit factors may cause profit to change

1. Selling price

2. Variable costs per unit

3. Volume

4. Total fixed costs

5. Sales mix

Explain activity: EXPLAIN BRIEFLY THE FOLLOWING:

1.Distinguish between variable and fixed costs.
2. Explain the significance of the relevant range.
3. Explain the concept of mixed costs.
4. List the five components of cost-volume-profit analysis.
5. Indicate what contribution margin is and how it can be expressed.
6. Identify the three ways to determine the break-even point.
7. Define margin of safety and give the formulas for computing it.
8. Give the formulas for determining sales required to earn target net income.
9. Describe the essential features of a cost-volume-profit income statement
10. Explain the difference between absorption costing and variable costing.

Elaborate activity: SHORT ANSWER ESSAY QUESTION

CASE 1 : A cost-volume-profit graph is frequently used in business meetings because it presents a

picture of cost relationships within a company. Briefly describe the type of information and data that
you would need in order to prepare a CVP graph. After a CVP graph is prepared, what are the
major points that could be made from the graph that would be of interest to management?

CASE 2: A CVP income statement is frequently prepared for internal use by management. Describe
the features of the CVP income statement that make it more useful for management decision-
making than the traditional income statement that is prepared for external users.

CASE 3 (Ethics): ABC Company requires its marketing managers to submit estimated cost-volume-
profit data on all requests for new products, or expansions of a product line. Lily T. Sunin is a new
manager. Her calculations show a fixed cost for a new project at Php100,000 and a variable cost
of Php5. Since the selling price is only Php15 for the proposed product, 10,000 would need to be
sold to break even. That is approximately twice the volume estimate for the first year. She shares
her dismay with Tim Mckey, another manager.
Tina strongly advises her to revise her estimates. She points out that several of the costs that had
been classified as fixed costs could be considered variable, since they are step costs and mixed
costs. When the data has been revised classifying those costs as variable costs, the project appears
viable.