BASIC C-V-P QUESTIONS

Example 1
Product X has variable costs of $2 per unit, and selling price of $6 per unit. The fixed costs are
$1,000 per year
a) Use the above information to calculate budgeted sales revenue and budgeted costs when
planned production is 300 units per year. What is budgeted profit (or loss) at this level?
b) What is the breakeven point (in units)?
c) What is C/S ratio of this product – explain the meaning?
d) What is the breakeven revenue ($)?
EXAMPLE 2
Assume that you are planning to sell 600 Ice-creams at the forthcoming Nairobi Show at Sh.9
each. The Ice-creams cost Sh.5 to produce and you incur Sh. 2,000 to rent a booth in the Show
ground.
Required:
a) Compute the breakeven point
b) Compute the margin of safety %
c) Compute the number of units that must be sold to earn a before tax profit of 20%
d) Compute the number of units that must be sold to earn an after tax profit of
Sh.1640, assuming that the tax rate is 30%.
Example 3
The marginal costing operating statement of AAT Limited for the year just ended is as follows:
$
Sales (5,000 units at $4 per unit) 20,000
Variable costs (direct materials, direct labour, etc.) 8,000
Contribution 12,000
Fixed cost 7,500
Profit 4,500
Required:
a) Calculate the break-even point.
b) Calculate the margin of safety.

Example 4
Star Symphony would like to perform for a neighboring city. Fixed costs for the performance
total $5,000. Tickets will sell for $15 per person, and an outside organization responsible for
processing ticket orders charges the symphony a fee of $2 per ticket. Star Symphony expects to
sell 500 tickets.
a) How many tickets must Star Symphony sell to break even?
b) How many tickets must the symphony sell to earn a profit of $7,000?
c) How much must Star Symphony have in sales dollars to break even?
d) How much must Star Symphony have in sales dollars to earn a profit of $7,000?
e) What is the symphony’s margin of safety in units and in sales dollars?