Cost Volume Profit Analysis:

A tool for management to come up with a relationship between the three (CVP)

a. Selling price per unit - ↑↑ profit

b. Volume (quantity) - ↑↑
c. Variable Cost/Unit – changes in total amount
d. Fixed Cost – changes in unit ↓
e. Sales Mix

Contribution Margin Approach:

Sales 25 per unit 100% 300, 000

Variable Cost (15 per unit) 60% (180, 000)
Contribution Margin 10 40% 120, 000
Fixed Cost (100, 000) (100, 000)
Profit 20, 000

Number of units sold: 12, 000

What “IF” Analysis:

a. Selling Price increased by 10%, quantity decreased by 10%:

Sales 27.50 (25 x 110%) 297, 000

Variable Cost (15) (162, 000) (12,000x90%) x 15
Contribution Margin 12.50 135, 000
Fixed Cost (100, 000) (100, 000)
Profit 35, 000

*12, 000 x 90% = 10, 800

b. Selling Price is decreased by 10%, quantity increases by 20%:

Sales 22.50 (25 x 90%) 324, 000 (14,400 x 22.50)

Variable Cost (15) (216, 000) (12,000x120%) x 15
Contribution Margin 7.50 108, 000
Fixed Cost (100, 000) (100, 000)
Profit 8, 000

*12, 000 x 20% = 14, 400

 c. The same Selling Price, Quantity, and Variable Cost increased by 10%:

Sales 25 330, 000 (12,000 x 110%22.50)

Variable Cost (16.50) (217, 800) (15 x 110%) x 13, 200
Contribution Margin 8.50 112, 200
Fixed Cost (100, 000) (100, 000)
Profit 12, 200

d. Selling Price and Quantity increased by 10%, variable cost decreased by 10%:

Sales 27.50 (25x110%) 363, 000 (13,200 x 27.50)

Variable Cost (13.50) (178, 200) (15 x 90%) x 13, 200
Contribution Margin 14 184, 800
Fixed Cost (100, 000) (100, 000)
Profit 84, 800

*12, 000 x 10% = 13, 200

e. Selling Price decreased by 10%, Variable Cost increased by 10%, Volume 20%, and Fixed Cost
10%:

Sales 22.50 330, 000 (14, 400 x 22.50)

Variable Cost (16.50) (237, 600) (16.50 x 14, 400)
Contribution Margin 8.50 86,400
Fixed Cost (90, 000) (90, 000)
Profit (Loss) (3, 600)

*12, 000 x 20% = 14, 400

Breakeven Analysis

Breakeven:

- level of profit is 0
- contribution margin is equal to fixed cost

Fixed cost
Breakeven in units:
Contribution Margin/Unit

120,000
Breakeven in units:
10

= 12, 000 units

Proof: Exceeds BE by 3, 250, 15, 250 units

Sales 300, 000 Sales 381, 250 (25 x 15, 250)

Variable Cost 180, 000 Variable Cost 228, 750
Contribution Margin 120, 000 Contribution Margin 152, 500 (15,250 x 10)
Fixed Cost 120, 000 Fixed Cost 120, 000
Profit (Loss) 0 Profit (Loss) 32, 500 (3, 250 x 10)

Fixed cost
Breakeven in Peso:
Contribution Margin Percent

100, 000
Breakeven in units:
40%

= 250, 000

Proof: Exceeds BEP by 75, 000

Sales 250, 000 Sales

Variable Cost 150, 000 (250, 000 x 60%) Variable Cost
Contribution Margin 120, 000 Contribution Margin
Fixed Cost 120, 000 Fixed Cost
Profit (Loss) 0 Profit (Loss)

Breakeven in Units Fixed cost + Desired Profit

with Desired Profit: Contribution Margin/Unit

Breakeven in Units 120,000 + 150,000

with Desired Profit: 10

= 27, 000 units

Sales 675, 000 (27,000 x 25)

Variable Cost 405, 000
Contribution Margin 270, 000 (27, 000 x 10)
Fixed Cost 120, 000
Profit (Loss) 150, 000
How many sales to generate?

Breakeven in Peso Fixed cost + Desired Profit

with Desired Profit: Contribution Margin %

Breakeven in Peso 100, 000 + 150, 000

with Desired Profit: 40%

= 625, 000

Sales 625, 000

Variable Cost 375, 000
Contribution Margin 250, 000
Fixed Cost 100, 000
Profit (Loss) 150, 000

Breakeven in Units Fixed cost + Desired Profit

with Desired Profit 1 – Tax Rate_______
after tax: Contribution Margin/unit

Desired Profit is 150, 000 net of 40% tax

How many number of units?

Breakeven in Units 120, 000 + 150, 000

with Desired Profit 60%______
after tax: 10

Breakeven in Units 120, 000 + 250, 000

with Desired Profit 10
after tax:
= 37, 000

Sales 925, 000 (37, 000 x 25)

Variable Cost 555, 000
Contribution Margin 370, 000 (37, 000 x 10)
Fixed Cost 120, 000
Profit before tax 250, 000
100, 000 (250, 000 x 40%)
Profit after tax 150, 000
How much peso sales?

Breakeven in Peso Fixed cost + Desired Profit

with Desired Profit 1 – Tax Rate_______
after tax: Contribution Margin %

Breakeven in Units 100, 000 + 150, 000

with Desired Profit 60%______
after tax: 40%

Breakeven in Units 100, 000 + 250, 000

with Desired Profit 40%
after tax:
= 875, 000

Sales 875, 000

Variable Cost 525, 000
Contribution Margin 350, 000
Fixed Cost 120, 000
Profit before tax 250, 000
100, 000 (250, 000 x 40%)
Profit after tax 150, 000

Desired Profit is Php 4.00

Number of units to sell?

Fixed Cost
Contribution Margin/Unit – Profit/Unit

120, 000
10 – 4

120, 000
6
= 20, 000

Sales 500, 000 (20, 000 x 25)

Variable Cost 300, 000
Contribution Margin 200, 000
Fixed Cost 120, 000
Profit 80, 000

80, 000/20, 000 = 4

Desired Profit is 15% of Sales

Fixed Cost
Contribution Margin % – Profit%

100, 000
40% – 15%

100, 000
25%

= 400, 000

Sales 400, 000

Variable Cost 240, 000
Contribution Margin 160, 000
Fixed Cost 100, 000
Profit 60, 000

60, 000/400, 000 = 15%