Practice 2 - CVP Analysis

Clayroll Products produces a unique item with the following information:

Sales price                P100 per unit

Variable costs          P40 per unit
Fixed Costs (total) P60,000
Units sold                  5,000

Required: Calculate the following based on the above information:

1. Net income

Sales ₱500,000.00 5,000 × ₱100.00

Less: Variable Cost 200,000.00 5,000 × 40.00
Contribution Margin ₱300,000.00 ₱ 60.00
Less: Fixed Cost 60,000.00
Net Income ₱240,000.00

2. Contribution margin per unit

Contribution Margin per unit = selling price – variable cost per unit

= ₱100.00 – ₱40.00

= ₱60.00

OR = Contribution margin in pesos ÷ units sold

= ₱300,000 ÷ 5,000

= ₱60.00

3. Contribution margin ratio

Contribution Margin Ratio = Contribution Margin in pesos

Units Sold in pesos
= 300,000
500,000
= 0.6 or 60%

4. If Clayroll sells 500 more additional units, by what amount will net income increase?
The Units Sold will be 5,500 therefore:
 Sales ₱550,000.00 5,500 × ₱100.00
Less: Variable Cost (220,000.00) 5,500 × 40.00
Contribution Margin ₱330,000.00 ₱ 60.00
Less: Fixed Cost (60,000.00)
Net Income ₱270,000.00

Increase in Net Operating Income = ₱270,000 – ₱240,000

= ₱30,000

5. If Clayroll has an additional P20,000 in sales, by what amount will net income increase?
The Units Sold will be 5,200 (₱520,000 / ₱100) therefore:

Sales ₱520,000.00 5,200 x ₱100.00

Less: Variable Cost (208,000.00) 5,200 x 40.00
Contribution Margin ₱312,000.00 ₱ 60.00
Less: Fixed Cost (60,000.00)
Net Income ₱252,000.00

Increase in Net Operating Income = ₱252,000 – ₱240,000

= ₱12,000