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Managerial Accounting Notes

The document discusses cost-volume-profit (CVP) analysis and break-even analysis. It provides examples of how to calculate break-even points in units and sales revenue under different scenarios when considering variables like selling price, quantity, variable costs, fixed costs, and desired profits. The key aspects are determining the contribution margin per unit and using it to calculate the break-even level required to cover fixed costs and generate a target profit level.

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Marilou Gabaya
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58 views6 pages

Managerial Accounting Notes

The document discusses cost-volume-profit (CVP) analysis and break-even analysis. It provides examples of how to calculate break-even points in units and sales revenue under different scenarios when considering variables like selling price, quantity, variable costs, fixed costs, and desired profits. The key aspects are determining the contribution margin per unit and using it to calculate the break-even level required to cover fixed costs and generate a target profit level.

Uploaded by

Marilou Gabaya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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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%

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