Lecture-6: CVP Analysis

• Contribution Margin (CM)=Selling Price (SP)-Variable Expense

• CM Ratio (%)=(CM/SP)*100
• Variable Expense Ratio=(100-CM Ratio)% Or (VE/SP)*100
• Break Even Point (BEP) in units=(Fixed Expense/CM per unit)
• BEP (in sales amount)=Fixed Expense/CM Ratio
• Required Units with Target Profit (TP)=(Fixed Exp.+TP)/CM per unit
• Required sales amount with TP=(Fixed Exp.+TP)/CM Ratio
• Margin of Safety (MoS)=Actual Sales-BEP Sales
• MOS Ratio (%)=(MOS/Actual Sales)*100
 CVP: Problem-1-Solution
• 1. CM Ratio=(15/60)*100=25% =.25
Variable Exp. Ratio=(45/60)*100=75%=.75 or (100-25)%=75%
• 2. BEP (in units)=FE/CM per unit=(240,000/15)=16,000
BEP (in sales amount)=FE/CMR=(240,000/.25)=960,000
• 3. If sales increase by 400,000, NOI will increase by
(400,000*25%)=100,000
• 4. Req. Units=(FE+TP)/CM per unit={(240,000+90,000)/15}=22,000
• 5.MOS=Actuals Sales-BEP Sales=(12,00,000-9,60,000)=2,40,000
MOS Ratio=(MOS/Actual Sales)*100={(2,40,000/12,00,000)*100}=20%
 CVP: Problem-2-Solution
• CM per unit=25-15=10
1. CMR=(10/25)*100=40%; BEP (unit)=(2,10,000/10)=21,000 units;
BEP (sales)=(2,10,000/40%)=5,25,000 Taka
2. MoS (Tk)=(7,50,000-5,25,000)=2,25,000
MoS Ratio(%)={(2,25,000/7,50,000)*100}=30%
3. New CM per unit={25-(15+3)=7}, New CMR=(7/25)*100=28%,
New BEP (sales)= FE/CMR=(2,10,000/.28)=7,50,000
4. Req. Units=(FE+TP)/CM per unit={(2,10,000+90,000)/7}=42,858
5. New Variable Exp. per unit={15-(15*40%)}=9, CM per unit=(25-9)=16
New Fixed Exp.=(2,10,000*2)=4,20,000
New BEP (units)=FE/CM per unit=(4,20,000/16)=26,250