COSTS VOLUME PROFIT (CVP) ANALYSIS out yung una, meaning Units Sold (or yung target sales) = FC +

- In CVP Analysis, we’re just trying to know what is the Profit/CM/u.

relationship of cost with a profit at kung ano ba yung - Ibig sabihin, if gusto mong malaman kung ilang units ba ang
relationship ng volume to profit. Then based on these ibebenta mo para magkaroon ng certain amount of profit, that
relationships, we will use tools. These tools will have the will be the formula.
management to decide with regards to the operation of the - Pero, always keep in mind, that the profit there is always the
business. In management accounting, the reports that are ‘before tax’ profit – meaning – wag mo muna dapat tanggalin
created here are actually for internal purposes – meaning – yung tax.
majority ng mga reports dito or most of the time hindi ito
nilalabas sa public. How to compute BEP or the units that you must sell to have no
profit nor loss?
1. Break-Even Analysis - Same computation. It’s just that the numerator will just be the
 There is actually no profit nor loss. fixed cost because at break even, wala tayong profit. So, the
 Total revenue = total costs computation is equal to fixed cost divided by the contribution
- So kapag sinabing break even, wala tayong profit – hindi kumita margin per unit. (We derive that from the computation of the net
at the same time hindi rin nalugi, and mangyayari lang yan iff the income).
total revenue is equal to the total cost. BEP = _FC__
CM/u
Paano gagamitin yan sa for-profit planning? How to compute Target Sales in terms of Peso amount?
- Magagamit yan kasi on that concept, we can know kung ilang
Target Sales = ___ __FC_+ Profit___ _ ____
units ba yung pwede mong mabenta at break-even or para
₱ Contribution Margin Ratio
magkaroon ng ‘no profit nor loss.
- When we say Contribution Margin Ratio, may be equal to the
Sales xx
Contribution Margin in terms of Peso amount divided by Sales
Variable Costs (xx)
in terms of Peso amount.
Contribution Margin xx
CMR = _CM (₱)_
Fixed Costs (xx)
Sales (₱)
Net Income xx
- Contribution Margin Ratio may be equal to the Contribution
Margin per unit divided by the Selling Price per unit.
- Contribution Margin – it is the excess of sales after deducting all
CMR = CM/u_
the variable costs and this amount is the amount used to absorb
SP/u
the fixed cost para magka-profit – meaning – we have to deduct
- Contribution Margin Ratio can also be computed by deducting
fixed cost from the contribution margin para magkaroon ng net
from Sales Ratio to the Variable Cost Ratio. Sales Ratio (always
income.
100%) and VCR is equal to the variable cost divided by sales.
CMR = SR - VCR
Sales – VC – FC = Profit 100% VC/Sales
US x SP/u – US x VC/u – FC = Profit - Contribution Margin Ratio can also be computed by adding Fixed
US (SP/u – VC/u) – FC = Profit Cost Ratio to the Profit Ratio.
US (CM/u) = FC + Profit CMR = FCR – PR
CM/u CM/u - Profit Ratio – is the ratio of net income based on total
before tax
sales.
Units Sold = FC + Profit - Fixed Cost Ratio – yan yung ratio ng fixed cost over the total
sales.
target sales CM/u
Take note: Pare-pareho lang yung makukuhang
- VC – Variable Costs Contribution Margin Ratio sa 4 formula na yan.
- FC – Fixed Costs
- US – Unit Sold How to compute Break-Even Point in Peso (₱)?
- SP/u – Selling Price per unit BEP = FC_
- VC/u – Variable Costs per unit ₱ CMR
- CM/u – Contribution Margin per unit How to compute Target Sales in Peso (₱) (ang given is not the
Before Tax Profit but rather is yung Profit Ratio)?
- In equation form. Sales less VC less FC, lalabas jan si profit.
Yung computation ng sales = units sold x selling price/unit. Then Target Sales = __ FC ____
breakdown din si Variable costs into the unit sold x the variable ₱ CMR - PR
costs/unit less fixed cost is equal to profit. Same silang may unit
ILLUSTRATIVE
sold, so ilabas natin yung US x SP/u less the VC/u less FC = Swimsuit selling price ₱ 70
1: Raniel
Profit. So, kapag diniduct mo yung Variable cost per unit sa Variable swimsuit expenses: company, is in
selling price per unit, ang maco-compute pa rin jan is Direct material 28 business since
Contribution Margin. It’s just that, kung per unit yang dalawa na Direct Labor 12 2028, makes
yan, per unit din yung contribution margin. So, US x CM/u is Variable overhead 8 swimwear to
equal to FC + Profit (ilipat yung fixed cost sa kabila – kung Annual Fixed Costs: professional
negative, magiging positive.) Then divide to CM/u, maka-cancel Selling ₱ 10,000 athlete.
Administrative 24,000
Analysis of the company’s financial records for the current year Target Sales = __ FC ____ = _____34,000_____ = 297,463
reveals the following: ₱ CMR – PR 31.43% - 20%
less to get
CM/u = 22
- In this problem ang kinonsider lang is, meron lang isang
product. What if marami ng product? Break-even point analysis
48 will be different. If marami ng product, we also need to consider
the Sales Mix Ratio.

34,000
FC based on Total
The company’s tax rate is 40%. Steve Cruz, company’s president, has ILLUSTRATIVE 2: Baby company produces two products: LOVE
asked you to help him answer the following questions: and LOYALTY. The projected income for the coming year, segmented
Required: by product line, follows:

a. What is the break-even point in number of swimsuits? Love Loyalty Total

Sales ₱ 300,000 ₱ 2,500,000 ₱
BEP = _FC__ = 34,000 = 1,545 units
2,800,000
CM/u 22 Less: Variable expenses 100,000 500,000 600,000
Contribution Margin ₱ 200,000 ₱ 2,000,000 ₱
b. What is the break-even point in pesos?
2,200,000
BEP = FC_ = 34,000_ = 108,177 Less: Direct Fixed Expenses 28,000 1,500,000
₱ CMR 31.43% 1,528,000
Profit Margin ₱ 172,000 ₱ 500,000 ₱
 CMR = CM/u_ = 22 = 31.43 % 672,000
SP/u 70 Less: Common Fixed expenses 100,000
Operating Income ₱
c. How much revenue must be generated to produce ₱ 40,000 572,000
of pre-tax earnings?
The selling prices are ₱30 for Love and ₱50 for Loyalty.
Target Sales = FC + Profit = 34K + 40K = 235,444
₱ CMR 31.43% Required:
Units Sold = Sales/Selling Price =
300K/30=10K (Love) a. Compute the no. of
d. How many swimsuits would this level (c) of revenue
represent? Units Sold = Sales/Selling Price = Sales Mix Ratio (SMR) – it is
2.5M/50=50K (Loyalty) the ratio of the sales of each
product.
Target Sales = FC + Profit = 34K + 40K = 3,364 units Variable expense/unit = VE/US = So in this illustration,
units CM/u 22 100K/10K = 10 (Love) 10K ang sales for Love and
50K for Loyalty, meaning, sa
Variable expense/unit = VE/US = kada 1 Love na nabebenta
e. How much revenue must be generated to produce ₱ 40,000 500K/50K = 10 (Loyalty) natin, nakakabenta tayo ng 5
Loyalty. So, 1 is to 5 ang Sales
of after-tax earnings? 40K/60%
Contribution Margin/unit = SP – Mix Ratio.
VE/u = 30 – 10 = 20 (Love)
Target Sales = FC + pre-tax profit = 34,000K + 66,667K = 320,288 Contribution Margin/unit = SP – units of each product
₱ CMR 31.43% VE/u = 50 – 10 = 40 (Loyalty) that must be sold to
Break-even.

 Kapag after-tax earnings ang pinag-uusapan – hindi Love Loyalty

yan pwede because always before-tax dapat ang CM/u 20 40
profit na ina-add. x SMR 1 5____
 Meaning, we need to workback the pre-tax (before Total 20 200
tax) profit. add

 Target sales in terms of peso amount is equal to

34K (FC) plus 66,667 (before-tax profit) divided by
31.43% CMR, so Target sales (₱) = 320,288
 If 40,000 (after-tax profit), then tax rate (40%), so
yung 40K divided by 60% because nakatanggal jan
yung 40%, ang lalabas jan is 66,667 (pre-tax or
before-tax).
220 Weighted Average Contribution Margin
(WACM) also known as Composite
Contribution Margin (CCM)
Total FC = Direct Fxd. Exp. + Common Fxd Exp. = 1,528,000 + 100,000 = 1,628,000
Weighted Average Break-Even Point/Composite Break-Even Point
= Total Fxd. Cost / WACM = 1,628,000 / 220 = 7,400

f. How many swimsuits would this level (e) of revenue Break-Even Point
represent? Love = WABEP x SMR = 7,400 x 1 = 7,400
Loyalty = WABEP x SMR = 7,400 x 5 = 37,000
Target Sales = FC + pre-tax profit = 34,000K + 66,667K = 4,576 units
units CM/u 22

b. Compute the revenue that must be earned to produce an

g. What amount of revenue would be necessary to yield a
Operating Income of 10% of Sales.
profit equal to 20% revenue?
Love Loyalty
 SP/u 30 50 FC 211,000 40% 211,200 32%
x SMR 1 5____ P/L 0% 52,800 8%
Total 30 250
Add
3. Degree of Operating Leverage (DOL)
280
Weighted Average Selling Price/unit - measures how a percentage change in sales from the current
(WASP) also known as Composite Selling level will affect company profits. It indicates how sensitive the
Price (CSP)
company to sales volume increases and decreases. It is also
known as operating leverage factor.
Composite Contribution Margin Ratio (CCMR) also known as - Trying to compute the relationship between the sales and the
Weighted Average Contribution Margin Ratio (WACMR)
profit because we believe that we can compute the percentage
= WACM / WASP = 220/280 = 78.57%
change in profit by just multiplying the percentage change in
sales times the degree of operating leverage.
Target Sales = __ FC ____ = _____1,628,000_____ = 2,374,216
- % ∆ in Profit = % ∆ in Sales x DOL
₱ CMR – PR 78.57% - 10%
- DOL = Contribution margin ÷ OI/EBIT

2. Margin of Safety ILLUSTRATIVE 4: Ralph Co. manufactures tires for all-terrain

- the amount by which revenue can be reduced without incurring
losses.
- Kaya siya natawag na margin of safety, kasi kahit mabawasan
yung revenue or yung sales by this amount, wala pa rin tayong
mai-incur na loss.
vehicles. The tires sell for ₱60 and variable cost per tire is ₱30.
Monthly fixed cost is ₱450,000.
Required:
a. What is the break-even point in units and in sales pesos?

Margin of Safety (MoS) = Actual/Planned Sales – BEP (₱) BEP = _FC__ = 40,000 = 15,000 units
Margin of Safety Ratio (MoSR) = Margin of Safety / Actual Sales CM/u 30 CM/u = 60-30 = 30
Break-Even Sales Ratio (BESR)= Break-Even Sales/Point (₱)
Sales BES = FC / CMR = 40K / 50% = 900K CMR = 30/60 = 50%
MoSR = 1 - BESR
MoSR + BESR = 1 b. If Lucky, the company's CEO, wants the business to earn a
BESR = 1 – MoSR pre-tax profit of 25% of revenues, how many tires must be
Profit Ratio = CMR x MoSR sold each month?

ILLUSTRATIVE 3: Reynaldo’s break-even sales are ₱ 528,000. The Target Sales = __ FC ____ = _____450,000____ = 1,800,000
variable cost ratio is 60% while the profit ratio is 8%. ₱ CMR – PR 50% - 25%
CMR = 40%
Target Sales = _Target Sales (₱)_ = _1,800,000__ = 30,000 units
units SP 60
Required:
a. Fixed Costs
Sales 100% c. If the company is currently selling 20,000 tires monthly,
BES/BEP = FC / CMR VC (60%) what is the degree of operating leverage?
528,000 = FC / 40% CM 40%
FC = 528,000 x 40% FC (32%)  squeeze
NI 8% Sales (20K x 60) 1,200,000
FC = 211,200
VC (20K x 30) (600,000)
CM 600,000
b. Sales
FC (450,000)
Sales = FC / FCR = 211,200 / 32% = 660,000
OI 150,000
c. Profit
DOL = CM / OI = 600,000 / 150,000 = 4 times
Profit = Sales x PR = 660,000 = 8% = 52,800
d. If the company can increase sales volume by 15% above the
d. Margin of Safety
current level, what will be the increase in net income?
MoS = Actual Sales – BES = 660,000 – 528,000 = 132,000

% ∆ in Profit = % ∆ in Sales x DOL

e. Margin of Safety Ratio
= 15% x 4
MoSR = MoS/Actual Sales = 132,000 / 660,000 = 20%
= 60%
x 150,000
BREAK-EVEN ACTUAL
90,000
AMOUNT % AMOUNT %
SALES 528,000 100% 660,000 100% e. What will be the new net income? Prepare comparative
VC 60% 60% Racine Income Statement.
CM 40% 40%
Sales (20K x 60) 1,200,000 1,380,000
VC (20K x 30) (600,000) (690,000)
CM 600,000 690,000
FC (450,000) (450,000)
OI 150,000 240,000

90,000 increase

Sales = 20,000 x 1.15 = 23,000 X 60 = 1,380,000

100% + 15% = 115% OR 1.15

VC = 23,000 X 30 = 690,000