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    MAS 5

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    12 views28 pages

    Mas 5

    Uploaded by

    Glaizel Larraga

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    + Determine and explain the oper + Identity the different margins inthe variable costing income statement, + Enumerate the underying assumptions in the cost-volume- profitrelationships. + Explain the concept of relevant range in profit planning. + Discuss the importance of contribution mar Compute contribution margin in atleast four diferent ways, + Explain the relationship of volume, sales price, and costs to profit. * Compute the breskeven point and sales with prof. * Calculate the margin of safety and explain itsrelat + Apply sensitivity analysis to variable cositng prof statement. * Apply the CVP analysis in a mult-product sales * Draw the breakeven graph and the cost-volume-p ing leverage. Relate the importance of ini CHAPTER'S PROFIT PLANNING AND COST'VOLUME-PROFIT ANALYSIS. 178 Profit Planning Wer varying conditions and analyzing the normal operating activites and Variable costing and profit planning “The Variable Costing system is prefered as a managerial tool n profit plenning, Variable fees the importance of quantity and pric SJetem or contribution margin approach determines profi as follows (values are assumed): ‘Quantity Price Amount Sales yooo0 P20 P2,000000 Variable costs to900 = 120 (1.200000) Freed costs (300,000) Profit 300,000. Contribution margin in sales and variable costs dretly relate with alee volume. The ifference in sal called a prftolune,b.tisnow popula refered to as the cotrbuton arts use 1 abot hed costs. The ference between conibuton Savane costs Is prot. The format to determine profit using the variable costing jet untesa systems as folows: ‘Table 5.1. The contribution margin format Lan Vulécosendvpense_+ Le: Ve costotapdt aod corto an + Mautcang mesa (ao Pucdconscndemeres x lanVermettngend nine = mot Bx conrtaon acon : (ae Fondcndsnd opines _ mot Pe w 179 PROFITPLANNING AND COST-VOLUME-PROFIT ANALYSIS CHAPTER 5. In ts fearing mode, we wil use the term “osteo Include al the costs of production, ‘marketing. cstibution, and general expenses. And we wll use the condensed format for purposes of nroductry leaning. Assumptions in profit planning and CVP analysis ens whe a business sells wo or they relate to unite sold ae as follows Table 5.2 Profit Planning Assumptions ‘Basie Assumptions | Sensiivly Assumptions ‘Changes Changes Changes for planning purposes, 3s, telecommuniction licenses, agency costs, and such other determin: CostS and expenses ere also considered constant fr planning purpases CHAPTERS PROFIT PLANNING AND COST-VOLUME-PROFIT ANALYSIS 180 “The basic OVP anaes Is based onthe fellowng assumptions: ‘able 5:3 CVP Analysis Basic Assumptions ‘olovort range. Total fixed costs remain constant, but unt fied cost inversely changes in elation to! 7 (2, unl fixed coets decreases as produc ange, their impact itis assumed that there sno inlaion, oft can be forecasted, VP analysis data. CVP sensitivity assumptions that sales price, unt variable costs, and total xed costs are constr the basie CVP Analysis are sti, unreal, and are not reflective of| ‘wor, changes abound and ther imoacts are {eo prfitof the changes in te vriabies scaled as CVP Sensitivity Analysis. Levels of profit planning ‘The four (4 levels of learning n profit planing ae as follows: E Goacrste pet ey ais 3. Mult-product costvolume-proft analysis. ‘4. Degree of operating leverage. ww 181 PROFIT PLANNING AND COSTVOLUME>PROFIT ANALYSIS CHAPTER § ‘The base CVP ena operates within the conte of the base assumptons Used inthe batipumingensorttng tem Seni evesnyseincuprts posses t ‘hanges inne assurotingundehingpratglaning, Mut pod VP aralyisconsrs ‘the occurrence of two or more products produced an¢ distributed by an enterprise as it ‘mactsportola prot. Opertinglevrage nfs the secetefmanagng cangein pret The Basic CVP Analysis, The bari CVP analysis covers the study on contribution margin, breakeven point, margin of safe, rot sting, eles mix analysis, and degree of operating analyss. analysis (Le, marginal analysis, Televance ic based on the premise profi Tailsstite 2 walkthrough’ ofthe tachniques applied in the CVP analysis let us consider the folowing tastrative problem. Sample Problem 5.1 ~ The Contribution Margin, Breakeven Point, and Margin of Safety Pilot Company establishes the flowing information for its profit planning actives: Unit sales price P 200 Totalfixedcosts "Pa00,000 Unit variable costs 120 Unite sold Determine the folowing for Pit Company’ prof planting says: 2 Unt contribution margin, contribution margin rate and variable cost rate. 2 Breskeven point in units andin pesos. 3. Margin of sfetyin units andin pesos, and the margin of eet rate, 3000 unite \ Solutions/Discussions: 1 Unit n Pate foatibution margin (UCM), contribution margin rate (CMR), and variable cost Ht > CM = Sales- Verisbe costs and: UCM = USP -Uve Then: The unit contribution margn fs P80, ie, P200-P120, The contribution margin rates 40%, ie, PBO_/P200, ‘The variable cost rates 60% ie, P120/>200. * The basic interclationships. Let us use this prbie ‘margin fixed costs, a vill nave the folowing mo dacove the intriguing relationships of ontbuton Using the variable costing Income statement ne jar intormation: = CHAPTER'S PROFIT PLANNING AND COST-VOLUME-PROFIT ANALYSIS 182 2. Breakeven pointin units and in pesos. total costs, At this reakeven point, contribution * The breakeven point a units is 5,000, ‘The breakavon point in pesos is 7,000,000, * The breakeven point formulas areas follows: 16" rer a cruciate “over : i i ‘Applying the formulas in our ilustrative problem, we have: : ‘BEP (units) = —P-400,000/ P80 = 5000 units i SEP (oes) = Pacg00/ 40m = 1200000 ‘ : Toprove E ‘And. alsa S000 uns 200) yaoan0000 cM (Se60unisxP80) PacnonD i ese Yaieconn($000x0129) __onaon00_ Less: Fuedeoue_abogto 4 conten tag 0000000" Pot fx) eo i ta Fate ‘oumooe Proto) ‘ACBERtotl contribution margin equals total xed costs 5. Margin of safety in units and in pesos, and the margin of safety rate, * Margin of safetyis the difference between budgeted sales andbreskeven sales. 's the maximum amount of reduction in bales before loss happens, NE=BEEES + Themargin of safety in int is 3.00, the margin in safety pesos is P600,000, and Raia ‘the margin of safety rate is 37 54 “_Themargin of safety expressions and computations are tabulaed below: Unite Amount Rate Bedgeiedsales(8000 units F200) 000 P'1600000 100.00% eudjeted Sales Rate Less: Breakoven sles {5000 _ 1000000 62.50% reskeven Seles Rate Margin of ster 200 P 600,000 37.50% Margin of Safety Rate Marin of sty ra Use marinct ste ows budge ei. The MSA betes oxedinunernpes a tL. 7! CHAPTER'S PROFIT PLANNING AND COSTVOLUME-PROFIT ANALYSIS 164 Incontroling economic prof. “+ From this understanding, we can say that: Now. rf preceding discussion Sample Problem 4.1, solution/ FONUGM-UPW) 200, 000/160 P25) CM=FC + Prot ——_S[EMR) = Fo + Proft = = suzsunts = (FC* Profi)/oMR Sates | Soe nos) = Fe [Sas Geeay > CM=Fo + Proit —_as{ucn) = Fo +qsqueM ettane aR Pra, Tox aa ‘QS = FC/(UCM-UPM) Pear = — OM=FO+ Prot S{OMR) = Fo +S(R peer sassa04 S= FC/(CMR-PR) ‘sae 20000 G8 ezscanm Multi-Product CVP analysis “Sat oa ee |nmeny instances, businesses produce and se more than one product hence, the mut -product Bes tales station If there are two or more products to be considered te composts ‘The besic breakeven point formula (/e, FXC / UCM) is to be used. Except that in the ‘Mult produc sales, the denominator isthe average unt contribution margin (Average UCM) = 187 PROFITPLANNING AND COSE-VOLUME-PROFIT ANALYSIS. CHAPTERS and the average contbution margin rate (Average CMR). _Averoge UCM ethe eum of nvidia poduct UCM times thei salés xratiobasedinunits, Treen Average CMs the sumo inival product CMR times thet ratio basedin amount, cwnmurpoass ‘si coats ‘aveage UCM = § (Product UCM x Sales mixrati ‘Aveage CMR = 5 (Product CMR x Sales mic ratio given period of time. In the be constant. ‘Sample Problem 5.3 = Comp ite Breakeven Point Analysis (Mult-Product Sales) Corporation produces and sls three products and has provided you the following operating sate i Products x ¥ z "Total Unisales price Pao P 600 700 Uni vase costs 100 350 500 Unit contrbaton margin 300 20, 200 curate 7% 6% 235% Budgeted sales in units 5000 3000 2000 19000 Becgeted sslesin pesos P7,000000 P.g0q000 —P1.400,00 P5.200000 795000 3. Sales per mix ‘4 Composite sales profit before taxis P2.000,000, ' Solutions/Discussions: ‘The formulas and ther applications are shown inthe following table: compen: |_Reauired Formulas beseenpot | TGEneee [CREP ais) «Fc merge es) cae peson) «7 Avge CMR Ses, zeroes) + Pesponsoserax CHAPTERS PROFITPLANNING AND COST.-VOLUME-PROFIT ANALYSIS 188 ‘located (BEF (e308) 7 Seles parm? Toles perme = PPOSO007 P2550 = tune “The average UCM is computed 2s follows: Average UCM = 5 (UCM x Sales mix ation units) su of tines ther respective SM Sales Mix Ratioin Units Average UCM 3 ‘Average UCM ‘sles mix es 189 PROFIT PLANNING AND COST'VOLUME-PROFIT ANALYSIS CHAPTER S Average UCM is determined above to be P 265. ‘Average USP = (USP x Sales Mix Ratio) um of indi USP times ther respective SM Raia in units ‘Therefore, the Average CMR » Average UCM / Average USP mae ‘Thiy, the average CMREmay also be computed 2 fllows: ‘Average CMR = Composite CM / Composite Sales ass set 2 Commpasite Ratio 200000 P 180000 —P ¥40,000 -P $20,000 100.0% Variable costs 50000 _105000 _100909 __255009 che ‘asoond 2 2iq0 “Bannon B2ss000 “Sasi — CHAPTERS PROFIT PLANNING AND COSTVOLUME-PROFIT ANALYSIS 190 ‘Average CMR = P2650 /P520000 = sa 9st7% Proving the composite breakeven point “To prove the accuracy ofthe computed composite breakeven point in nits, we deter- ‘mine the composite contiouion margin by getting the sum of he allocated BEP units espectve UCM of ech odie and then compare th the total tango = .795000 795000 zo x = Composite fred costs ‘and expenses Profit Sales per mix “Another way to compute the composite BEPUs by using the composite sales per mix equals te fired costs divide by the composite UCM, where: ‘Composite UCM = (UCM x Sales Mix)... sum ofindvidual UCM ‘mes sles mixin units ng he see formula sedi deterinng hale wih tt easel Pein £2, Svea ne enorantr teed 191 PROFIT PLANNING AND COST-VOLUMEPROFIT ANALYSIS CHAPTERS cHapTERS PROFIT PLANNING AND COSTVOLUME-PROFIT ANALYSIS 192 ed cr) te reese [OR = GP = psoncomersrs | ean asx) a ener setae |S to a pera tt aT Feo [oun = ezs/ao [eer pgmararams | ou(soin=ras) Semone [2 aaa [P+ ean e: arama [eum > pony pa [ace = panama sox [cm 0-2) |r i Teor |" braees | Se . Speatna te ‘The key in sensitivity analysis sto follow the basi assumptions a discuused in Table 5.2 unless 2 specific vanable of profi told have changed. 7 Bea] 37 508 | u(t) 2 eistnaan sue ‘Sample Problem 5.4 CVP Sensitivity Analysie-1 7 "aan Opertegeote — GlgEzamD T pesanne sem [Cun PSO PTSTASD | ‘Timeteo Enterprises produces and sells product KE and makes savallable toyouthe fellowing 2 eiaazase et: ssrate, Aaapeh a7 Sopot octet ethene. 2 ot Siesineone ‘ors Increase Decrease [increase | Decree _| Decrease “_Batcontton magn 70.4, F5D—PS0) The ial OM EP (cd _ = Decrease | Decree ‘and operating profit a Decease | eese [treat | noease cm 7 P80 = 37.50% Cree | een. BEP (pesos) 1000/37.5% = P1,600,000 Tnerenee HOVE effect [Increase | Decrease | Decrease q Deoeaceinwve — |NoEtrect | Deureace | erease | erease + Operating profit = 7 Inerasein FC Contribution margin (45,000 units x P30) P 1,250,000 fed cants e000 + Now. fer parang po = soo00 to Paso to bi te OE deen + Therew Ci BEP (e308), an profi are shown below also, 225% decrease. This isnot co 183 PROFITPLANNING AND COSFVOLUME-PROFIT ANALYSIS CHAPTERS ‘nd positive relationship between fixed costs and breakeven point. Say, if xed ‘costs increase by 12%, BEP sases by 12%; and if fixed costs decrease ‘by 9%, BEP also decreases by + Rehange wuber of units sold does not affect unit sas price unit variable costs a but atfects contribution margin, profit and margin of efety. ‘Sample Problem 5.5. CVP Sensitivity Analysis-2 Vayas Corporation, which s subject o 40% income taxrate,had the fellowing operating

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