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Cost-Volume-Profit (CVP) Analysis

Total Per Unit

Sales (20,000 units) $ 1,200,000 $ 60
Less: Variable costs $ (900,000) $ (45)
Contribution Margin $ 300,000 $ 15
Less: Fixed costs $ (240,000)
Net income $ 60,000

Contribution margin ratio 25%

Variable expense ratio 75%

Break-even point 16,000

What-if analysis for target profit

Target profit $ 100,000

# of units needed 22,667

Margin of safety $240,000

Degree of operating leverage (DOL) 5

#1 CM Ratio and Variable Expense Ratio

CM Ratio = Contribution Margin / Sales

Variable Expense Ratio = Total variable costs / Sales

#2 Break-Even Point

BEP = total fixed costs /  CM per unit

#3 Changes in Net Income (what-if analysis)

# of units = (fixed costs + target profit) / CM ratio

#4 Margin of Safety

Margin of safety = Actual sales – break-even sales

#5 Degree of Operating Leverage (DOL)

DOL = CM / Net Income

sts / Sales

CM ratio
 A B C
1
2 CVP
3 Cost-Volume-Profit Analysis
4
5 Data Section
6
7 Fixed Variable
8 Production costs
9 Direct materials $4.30
10 Direct labor 4.70
11 Factory overhead $225,000 3.00
12 Selling expenses
13 Sales salaries & commissions 97,000 0.75
14 Advertising 47,500
15 Miscellaneous selling expense 16,200
16 General expenses
17 Office salaries 87,000
18 Supplies 12,300 1.25
19 Miscellaneous general expense 15,000
20 $500,000 $14.00
21
22 Projected unit sales 90,000
23 Selling price per unit $20.00
24 Target net income $200,000
25
26 Answer Section
27
28 Contribution margin per unit FORMULA1
29 Contribution margin ratio FORMULA2
30
31 Break-even point (units) FORMULA3
32 Target net income (units needed to achieve) FORMULA4
33
34 Break-even point (sales dollars) FORMULA5
35 Target net income (sales dollars needed to achieve) FORMULA6
36
37 Projected net income FORMULA7
38
Selling Price 10
Variable Cost per unit 7
Total Fixed cost 30,000
Units sold 12,500 100% 80% 20.00%
No profit Difference
Per unit % Actual sales Break even sales Margin of safety
Units 12,500 10,000 2,500
Sales 10 100.00% 125,000 100,000 25,000
Less: Variable Cost 7 70.00% 87,500 70,000 17,500
Contribution Margin 3 30.00% 37,500 30,000 7,500
Less:Fixed Cost 24.00% 30,000 30,000 0
Net Income 6.00% 7,500 0 7,500
Less: Taxes
Net Income after Tax

Calculate the ff: Formula

BEP in units 10,000 FC/CMpU
BEP in sales 100,000 FC/CM%
BEP % 80.00% BEP/Actual sales

MS in units 2,500 Actual units sold-Breakeven units

MS in sales 25,000 Actual sales-Breakeven sales
MS % 20.00% units Margin of safety/Actual sales
20.00% (or) amount
100.00%

Net profit % 6.00% 6.00% (1) Net profit/Actual sales or (2) MS% x CM%
Net profit 7500 7500 (1) MS in units x CMpU or (2) MS% x CM amount
7500 or (3) MSpeso x CM%
Actual Sales 125,000 (1) Profit/Profit %
125,000 (2) Fixed cost/Fixed Cost%
125,000 (3) CM/CM%
125,000 (4) VC/VC%
125,000 (5) BEP/BEP%
125,000 (6) MS/MS%

Sales to realize an income

before tax of 6000 6000 AS=(Fixed costs+Desired profit)/CM%
Fixed cost 30,000
Add: Desired profit 6000
Totals 36,000
Divided by: CM% 30.00%
Actual sales 120,000

Sales for an income 7200

after tax of 40% 7200 40% AS=(Fixed costs+(Desired profit after tax/(1-Tax%))/CM%
Fixed cost 30,000
Add: Desired profit 12,000
Totals 42,000
Divided by: CM% 30.00%
Actual sales 140000

New BEP when there is a

Increase in selling price 10%
Increase in variable cost 5%
Increase in fixed cost 20%

Degree of OperatingLeverage
FORMULA CONTRIBUTION MARGIN / NET INCOME
 Before tax After tax

120,000 140,000
17,500 84,000 98,000
36,000 42,000
30,000 30,000
6,000 12,000
4,800
7,200
UNITS SOLD 8,000
SP 10
VC 6
FC 20,000

Amount Per Unit Rate

SALES 80000 10 100.00%
VC 48000 6 60.00%
CM 32000 4 40.00%
FC 20,000 2.5 25.00%
NP 12,000 1.5 15.00%

SALES 80000 100.00%

Less: BES 50000 62.50% FC/CM%
MS 30000 37.50% Actual sales-Breakeven sales
x CMR 40.00% 40.00%
NP 12,000 15.00%

A B Total IF BES & FC ARE ASSIGNED TO PRODUCTS

SP 10 20
VCU 6 18 PRODUCT BESU(FC/CMU)
CMU 4 2 A 6,250
B 8,500
UNITS SOLD 30,000 10,000 40,000 Total 14,750
0.75 0.25

SALES 300,000 200,000 500,000 IF BES & FC ARE "NOT" ASSIGNED TO PRODUC
0.6 0.4
A.
CM 120,000 20,000 140,000 A
0.28 CMU 4
x SALES MIX 3.00
FC 25,000 17,000 42,000 SM 12
ASSIGNED TO PRODUCTS

BES(BESUxSP)
62,500
170,000
232,500

"NOT" ASSIGNED TO PRODUCTS

B
2