Cost Volume Profit Analysis (CVP Analysis) • Contribution Margin Income Statement is

helpful in aiding sensitivity (What If?) analysis.

• It analyzes the effect of changes in product cost, Sensitivity analysis refers to estimating the
selling price, and volume or number of outputs, operating profit if one of the four factor
and its effect to the overall operating profits of changes.
the firm
• For internal purposes only
• Study of net income and other factors that
affects the profit of an entity (eg. Cost that will Contribution Margin (CM)
affect the profit, Effect of changes in volume in
• Difference between sales and variable cost
profit)
are the contribution margin, eto yung
• Impact of changes in cost, selling price and tinataas ng profit everytime may sales ka.
volume in profit
• Known as “marginal income, profit
Factors that affects the Effect to the Profit contribution, contribution to fixed cost or
Profit incremental contribution”
• Contribution Margin per Unit is the amount
Cost Inverse relationship to of increase in profit for every unit sold
- Variable Cost profit • CM can be expressed in: In Unit, In
- Fixed Cost (Cost Increase = Profit Percentage, or In Total
Decrease)
Volume Direct Relationship to
Contribution Margin Express IN TOTAL
- Number of units Profit
Sales (SP x Units Sold) xx
sold (Volume Increase = Profit
Increase) Variable Product (VC per unit x xUnits Sold) (xx)
Selling Price Direct Relationship to Variable Period (VC per unit x xUnits Sold) (xx)
Profit Contribution Margin xx
(Selling Price Increase =
Profit Increase) Contribution Margin Express PER UNIT
Traditional Income Statement Selling Price (Sales/Units Sold) xx
Variable Product Per Unit
• COGS – Product Cost
(Total Variable Product Cost/ Units Produced) (xx)
• OPEX – Period Cost
Variable Period Per Unit
• Ni-group yung expenses based on their function (Total Variable Cost/ Units Sold) (xx)
or classification Contribution Margin per Unit xx

Sales xx Selling Price (Sales/Units Sold) xx

COGS (Variable+Fixed) xx Variable Cost Per Unit
Gross Profit xx (Total Variable Cost/ Units Sold or produced) (xx)
Selling Expenses (xx) Contribution Margin per Unit xx
Gen Ad Expenses (xx)
Net Income xx
Contribution Margin Express IN PERCENTAGE
Contribution Margin Ratio (CMR)
Contribution Margin Income Statement
Contribution Margin Per Unit
• This is needed when u’re preparing CVP analysis Selling Price
• Grouping of Cost based on their behavior
Total Contribution Margin
Sales xx Sales
Variable Cost (Product+Period) (xx)
Contribution Margin xx
• Contribution Margin Ratio is the percentage of
Fixed Cost (Product+Period) (xx)
sales na pwede mo maiuwi
Net Income xx
 2) Answer: 2.15

If contribution Margin and Sales are not given, u need

to workback!

Sales – 1,128,000
Volume – 240,000 units
Variable Product Cost – 456,000
• Contribution Margin and Variable Cost ang
Variable Period Cost – 156,000
bumubuo sa Sales
• Sales is automatic a hundred percent.
• If Contribution Margin Ratio is 40%, Variable
Cost Ratio is automatically 60%

3 and 4

3) Answer: 70

PROBLEMS
1) Answer: 25

4) Answer: 70%

Sales – 600,000
Volume – 15,000 units
Variable Cost – 225,000
• The analysis is kada unit na nabebenta,
tumataas ang net income ng 25 pesos
Sensitivity Analysis • 6 pesos per variable cost unit came from 600k
variable total cost divided by 100k unit sold
5) Answer: 1,600

9 and 10

• 100 selling price and VC per unit came from

question #3 9) Answer: 450,000
• Operating Income is same with Total Net
Income

6) Answer: 6,500

10) Answer: 45%

7) Answer: 2,800

• Contribution Margin divided by Sales

• Contribution Margin Ratio is 45%
• Variable Cost Ratio is matic 55%
11) Answer: 142,000

8) Answer: 205,000

• Sales is Selling Price Multiplied by Unit Sales

• 115% came from 100% plus additional 15% that
is estimated in selling price
• 110% came from 100% plus additional 10% that
is estimated in unit sales volume
Another formula to get Contribution Margin Ratio

• On every 1M sales, may 100k na profit. On

every 1.1M na sales, may 130k na profit.
• Naging 30k ang increase in Profit kasi from 100k
naging 130k
• Naging 100k ang increase in Sales kasi from 1M
naging 1.1M
 CVP ANALYSIS - PART 2 Miguel Corporation budgets fixed expenses of
BREAK-EVEN P250,000.00; variable expenses of P180,000 and
sales of 15,000 units for P28 each. The break-even
- The point of activity (sales in peso or in point in unit is
units) where total revenues equal total costs
(i.e., there is neither profit nor loss). Solution:
- Break-even point can be expressed in Selling price per unit 28.00
either: Variable cost per unit (180k/15k) (12.00)
➢ Peso Contribution Margin per unit 16.00
➢ unit Break even in units = 250,000/ 16
This procedure is to recover the fixed cost from = 15,625 units
earnings of contribution margin of sale.
Example 2: Other way of getting the BE in units
At BEP: Total CM = Total FC Budget data for the Bidwell Company are as
follows:
* BEP - Break Even Point
* CM - Contribution Margin
* FC - Fixed Cost

CONTRIBUTION MARGIN INCOME STATEMENT

Solution:

Note:
- FC and CM should be equal to arrive at
break-even point.
Loss - did not reach the break-even point
Profit - exceed break-even point
At break-even - no loss or profit
BREAK-EVEN IN PESO

Example 1:
CVP Analysis - only quantitative or financial lang
What is the break-even level of revenues for a firm
nakikita
with P4,000,000 in sales, variable costs of
P2,800,000 and fixed costs of P1,000,000?
BREAK EVEN IN UNITS
Solution:

Example 1:

Example 2:
The following is Allison Corporation’s contribution
format income statement for last month:
Example 3:
Barnes Corporation manufacturers skateboards
and is in the process of preparing next year’s
budget. The pro forma income statement for the
current year is presented below.
What is the break-even point (rounded to the
nearest peso) for the current year?
Solution:
Break-even in peso
350k =100k+250k
Example 4:
Hat Co. manufactures a western-style hat that sells
for P10 per unit. This is its sole product and it has
projected the break-even point at 50,000 units in
the coming period. It fixed costs are projected at
100,000, what is the projected contribution margin
ratio?
Solution: Workback
Example 5:
Apple Company has fixed costs of P200,000 and
break-even sales of P1,600,000. What is the
projected profit at P2,400,000 sales?
Solution:
 TARGET PROFIT

TARGET PROFIT IN UNITS

Example 3:
The ff. in Addison Corporation’s contribution format
Example 1: income statement for last month:
Selling price is P50, unit variable cost is P34, and
fixed costs are P200,000. Unit sales required to
earn a P60,000 profit are:
Solution: The company has no beginning or ending
inventories. A total of 20,000 units were produced
and sold last month. How many units would the
company have to sell to attain target profits of
P150,000?
Solution:

To convert units in peso = Units x selling price

Example 2:

Solution:
Examples in TARGET PROFIT:
Formulas: Example:

Assume the following cost behavior data for Brooks

company:

Sales price 8 per unit

Variable costs 6 per unit
Fixed costs 10,000
Tax rate 40%
What volume of sales dollars is required to earn an
after-tax income of 18,000?

Answer: 20,000 units

1. Dynamic company had sales of 1,500,000, fixed Solution:

costs of 400,000 and variable costs of 900,000. How • Formula for units required for TP:
much should the sales be in order to produce a net
income of 30,000?
Answer: 1,075,000

Solution:

• 600,000/1,500,000= 40% CMR

• Target profit in PESO
𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝑇𝑎𝑟𝑔𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
= = 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑠𝑎𝑙𝑒𝑠
𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜

400,000+30,000
= 40%
= 𝟏, 𝟎𝟕𝟓, 𝟎𝟎𝟎

TARGET PROFIT WITH TAX (TP) IN UNITS

Formula for units required for TP: • To check if tama bang 20K units of volume sales
dollars ang required para maka-earned ng 18K after
tax income. Usinh the formula for contribution
Margin income statement:

Formula for contribution Margin income statement:

**tama naman. Okay tayo don?

2. Barney inc. is subject to a 40% income tax rate. The ** ang required na number of units is 125,000 ito
following data pertain to the company produced yung target na dapat makuha sa formula.
and sold 45,000 units
STEP1: Ilagay muna lahat ng given value sa formula
Sales revenue 1,350,000
Variable costs 810,000
Fixed costs 432,000
How many units must barney sell to earn an after-tax
profit of 180,000?

Answer: 61K units

Solutions:
STEP 2: To get the VARIABLE COST kailangan ng
• Get the CM Per unit workback, ano yung kailangang value para kapag
dinivide mo yung numerator lalabas is 125,000.

Dahil given na si required or target amount of units

which is 125,000 (total ng numerator divided by
125,000) = variable cost

75,000
250,000 +
• Formula for target profit with Tax in units = 60% = 𝟑
125,000

STEP 3:

4. August company sells product lamig for P5 per unit.

The fixed cost is 210,000 and the variable cost is 60%
of the selling price. What amount of sales is needed
to realized a profit of 10% of sales?
Answer: P700,000
3. Jose manufacturing incurs annual fixed costs of
250,000 in producing and selling a single product. Solution:
Estimated unit sales are 125,000. An after-tax STEP 1: Formula for TP with Tax in PESO kaso sa
income of 75,000 is desired by management. The problem is express in PERCENTAGE kaya maiiba formula
company projects its income tax rate at 40%. nito.
**note: yung target profit is express in percentage
What is the maximum amount that Jose can expend kaya ang gagawin is instead of TP ay numerator
for variable costs per unit and still meet its profit kailangan i-deduct sa denominator
objective if the sales price per unit is estimated at P6.

Answer: P3
**workback to, ilagay muna lahat ng available
information sa mga formula.
 STEP 2: CMR Examples:

1. Machine A has fixed costs of 225,000 and a

variable cost of P20 per unit. Machine B has fixed
costs of P300,000 and a variable cost of P14 per
unit. What is the indifference point, in units?
Answer: 12,500 units

Solution:
STEP 3: TARGET PROFIT WITH TAX IN (PERCENTAGE)
Formula In units:

**IF ang gusto naming kunin is in PESO, yung required

units na 700,000 divided by SELLING PRICE.

= 700,000/5= 140,000 Units required in Peso

**LET ASSUME may selling price na P50. So yung
PART 4: POINT OF INDIFFERENCE difference ng CM per unit ni Machine A &B will
be divided sa Diff ng fixed cost.
• This is the level of Sales (peso or units) at which two
alternatives being analyzed would yield the same
amount of profits. It is at this point where the
decision maker would be indifferent as to what
alternative to take. If the company has no
alternative, no indifference point will be computed
**therefore,
TWO ALTERNATIVES:
300K-225K
• In units: = 6
= 12,500

2. Edifer tools inc. uses a semi automated process

in its production. It is faced with a proposal to
completely automate its production. Below are
data for these alternative methods:
Answer: 6,000 units

• In Peso:
 3. Eat n eat shop operates sandwiches on the go in MARGIN OF SAFETY
shopping malls. The average selling price of a
• Indicates the amount by which actual or planned
sandwich is P100. And the average cost of each
sales may be reduced without incurring a loss. It is
sandwich is 80. A new mall is opening where Eat
the difference between actual or planned sales
N Eat wants to locate a shop but the location
volume and break-even sales.
manager is not sure about the rent method to
accept. The mall operators offers two options for • Stated otherwise, it is the difference between actual
shop rentals as follows: sales and break-even sales. It indicates the
maximum amount by which sales could decline
• Paying a base rent of 40,000 plus 8% of revenue
without incurring a loss. It can be expressed in
received or
either PESO or RATIO
• Paying a base rent of 20,000 plus 14% of revenue
received up to a maximum of 80,000 IN PESO
Eat N eat will be indifferent between options 1 and 2
when its level of sales is:

STEP 1: GET THE CMR

IN RATIO

STEP 2: IN UNITS

STEP 3: IN PESO

**Or just simply multiply the 3,333 units to Selling price

of 100.
EXAMPLES: 2. The following information relates to snorbird
corporation
1. The following is Addison corporation’s contribution
format income statement for last month: Sales at the breakeven 312,500
point
Sales 1,000,000 Total fixed expenses 250,000
Variable expenses 700,000 Net operating income 150,000
Contribution margin P300,000 What is snowbird’s margin of safety? (IN PESO)
Fixed Expense 180,000
Answer: 187,500
Net operating income 120,000
The company has no beginning or ending inventories. A
Solution:
total of 20,000 units were produced and sold last
**breakeven is given, but the Sales is not given in the
month. What is the company’s margin of safety in peso?
problem.
Answer: P400,000
Step 1: GET THE SALES
STEP 1: GET THE CMR
Contribution margin
=
Sales
300,000
= 1,000,000 = 30% CMR

STEP 2: GET THE BREAK EVEN IN PESO

Fixed cost
=
CMR
180,000
= 30%
= 𝑷𝟔𝟎𝟎, 𝟎𝟎𝟎 𝑩𝒓𝒆𝒂𝒌 𝒆𝒗𝒆𝒏(𝑩𝑬) 𝒑𝒐𝒊𝒏𝒕 **WORKBACK TO GET THE SALES
STEP 3: FORMULA IN PESO 1. At break-even muna gawin,
- Net income = 0
- Fixed cost = 250,000
- CM= 250,000 (nacompute to kasi since yung net
income is 0 and given si Fixed cost, ano yung
amount na kapag dineduct yung CM sa FC ang
sagot is 0, kaya yung CM is 250k)
- CMR= 80%
=250,000/312,500
=80%
Sales in Peso P1,000,000
BE point in Peso 600,000 2. At actual sale, workback na simula ka sa:
Margin of Safety P400,000 - Income= 150,000 (given)
- FC= 250,000
**If may tanong na is IN RATIO: here’s the solution: - CM= 400,000 (nacompute to kasi since yung net
income is 150K and given si Fixed cost, ano yung
amount na kapag dineduct yung CM sa FC ang
sagot is 150,000, kaya yung CM is 400k)
- SALES= 500,000
= 400,000/80%

or
STEP 2: SUBSTITUTE NA SA FORMULA IN PESO **ano amount na kapag dinivide mo yung 10% sa
denominator ay lalabas is 25%
**given na si breakeven kaya:
CMR= 10%/25%
CMR= 40%

b. What is the current sales in peso for the month

of May? SALES = 333,333

Solutions: at actual sales (express in percentage).

Nacompute kasi yung 40% na CM, so ang bumubuo sa
CM is sales and Vc kaya 40%/2 = 20%)

3. Narchie sells a single product for P50. Variable costs

are 60% of the selling price, and the company has
fixed costs that amount to 400,000. Current sales
total 16,000 units. If Narchie sells 24,000 units, its
safety margin will be in peso:
Answer: 200,000

Step 1: Break even point in peso

=400,000/ 40%
= 1,000,000

Step 2: IN PESO
Substitute in peso yung sa percentage, since si Fixed cost
lang ang may given na “IN PESO” substitute naten.

• SALES
= FC/30%
= 333,333
• VC
4. Use the ff information for the 3 questions: = Sales/60%
= 200,000
Laguna corp. sales for the month of May resulted in a • CM
margin of safety ration of 25% and after-tax return on = SALES-VC
sales of 10%. Monthly fixed cost is estimated to be at = 133,333
P100,000 • INCOME= CM-FC
a. What is the contribution of margin ratio (CMR)? =33,333
40%

Solution: workback in margin of safety ratio

Formula: using alternative formula
5. For its most recent fiscal year, corn company
reported that its contribution margin was equal to
40% of sales and that its net income amounted to
10% of sales. If its fixed costs for the year were
P60,000, how much was the margin of safety?
Answer: 50,000

STEP 1: Break even

STEP 2: at actual sales (in percentage) tapos

substitute mo na yung may “IN PESO” ang value sa
mga percentage

**Sales is 100% and income is 10%

**CMR is 40%
**VC= SALES%-CM%
= 60%

**FC= CM%-INCOME%
= 30%

**yung may value lang na in peso is net income na

20,000. To get the sales 20,000/10% = 200,000
**kaw na bahala sa iba. Substitute lang sa mga
percentage.

STEP 3: MARGIN OF SAFETY IN PESO