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COST VOLUME PROFIT ANALYSIS

MULTIPLE PRODUCT SALES

❑ Composite breakeven point is computed
❑ Average contribution margin (Ave. CM/unit or Ave
CMR) will be used
❑ Ave CM/unit is the sum of individual product
CM/unit multiplied by their sales mix ratio based
on units.
❑ Ave CM Ratio is the sum of individual product CMR
multiplied by their sales mix ratio based on total
sales

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ILLUSTRATION VI
MERCURY VENUS EARTH TOTAL

Units sold 5,000 3,000 2,000 10,000

Unit sales price 250.00 300.00 450.00

Variable cost per unit 125.00 175.00 225.00

CM / unit 125.00 125.00 225.00

Fixed costs of Php 180,000

Sales mix ratio (units) 50.00% 30.00% 20.00%

(Units sold / total unit sales)

ANSWER TO ILLUSTRATION VI
❑ STEP 1A: Determine the Average CM / Unit

MERCURY VENUS EARTH TOTAL

Unit Selling Price 250.00 300.00 450.00
Variable cost per unit 125.00 175.00 225.00
Contribution margin per unit 125.00 125.00 225.00
Sales mix ratio in units 50.00% 30.00% 20.00%

Average CM per unit 62.50 37.50 45.00 145.00

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ANSWER TO ILLUSTRATION VI
❑ STEP 1B: Determine the Average CM Ratio

MERCURY VENUS EARTH TOTAL

Unit Selling Price 250.00 300.00 450.00 1,000.00
Variable cost per unit 125.00 175.00 225.00
Contribution margin per unit 125.00 125.00 225.00

Contribution margin ratio 50.00% 41.67% 50.00%

X Sales mix ratio in pesos 25.00% 30.00% 45.00%
Ave. contribution margin ratio 12.50% 12.50% 22.50% 47.50%

ANSWER TO ILLUSTRATION VI
❑ STEP 2: Determine the Composite BEP in units
and in pesos
COMPOSITE BREAKEVEN
IN UNITS IN PESOS

Fixed costs 180,000.00 180,000.00

Average CM/unit or Ave CM % 145.00 47.500%
Answer 1,241.38 378,947.37

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ANSWER TO ILLUSTRATION VI
❑ STEP 3: Allocate the Composite BEP Units into
specific products using the sales mix ratio in units
MERCURY VENUS EARTH TOTAL
SALES MIX RATIO IN UNITS 50.00% 30.00% 20.00% 100.00%
COMPOSITE BEP IN UNITS 1,241.38 1,241.38 1,241.38
ALLOCATED UNITS 620.69 372.41 248.28 1,241.38
USP 250.00 300.00 450.00
TOTAL SALES 155,172.41 111,724.14 111,724.14 378,620.69
VARIABLE COSTS 77,586.21 65,172.41 55,862.07 198,620.69
CONTRIBUTION MARGIN 77,586.21 46,551.72 55,862.07 180,000.00
FIXED COSTS 180,000.00
NET INCOME -

ILLUSTRATION VII
❑ The following information pertains to MAS, Inc.
Shampoo Conditioner
BEP in units 360 240
Unit selling price Php 4,500 Php 14,250
Variable costs Php 2,250 Php 5,000

DETERMINE THE FOLLOWING:

1. Average Contribution margin per unit

2. Total fixed costs

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ANSWER TO ILLUSTRATION VII

❑ Average Contribution margin per unit
SHAMPOO CONDITIONER TOTAL

Unit selling price 4,500.00 14,250.00

Variable cost 2,250.00 5,000.00

Contribution margin per unit 2,250.00 9,250.00

X Sales mix ratio in units 60.00% 40.00%

Average CM 1,350.00 3,700.00 5,050.00

❑ Total fixed costs = BEP units * CM/Unit

= Php 3,030,000

PRETEST NO. 2
❑ The following information pertains to HP, Inc with total
fixed costs of Php 756,000 and average unit sales price
of Php 60.
SHORT BOND LONG BOND
SALES PHP 700,000 PHP 300,000
CONTRIBUTION RATIO 60% 70%

DETERMINE THE FOLLOWING:

1. Average Contribution margin ratio

2. Composite breakeven sales in pesos
3. Sales of each product at breakeven point

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SENSITIVITY ANALYSIS
❑ The process of considering the outcome of profit
given the changes to profit, costs and volume.
❑ Concerns about predicting the outcome of profit
given the changes in price, variable costs, fixed
costs, sales mix ratio.

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OPERATING LEVERAGE
❑ Refers to the ability of the business to increase its
profit in relation to its contribution margin.
❑ It is computed as Contribution margin over Profit
❑ It is also computed as

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ILLUSTRATION IX
❑ Solutions, Inc. sells calculators for Php 600 each.
Variable costs are Php 420 per unit, and fixed
costs total of Php 4.5 million. The Company sells
40,000 units a year.
1. Compute the degree of operating leverage at the present
level of sales
2. If 48,000 units are sold next year, what is the expected
increase in net income next year?

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ANSWER TO ILLUSTRATION IX
USP / UC Quantity Total
Sales 600.00 40,000 24,000,000.00 DOL = CM/INCOME
Variable costs 420.00 40,000 16,800,000.00 2.67
Contribution margin 180.00 40,000 7,200,000.00
Fixed costs 4,500,000.00
Net income 2,700,000.00

USP / UC Quantity Total

Sales 600.00 48,000 28,800,000.00
Variable costs 420.00 48,000 20,160,000.00
Contribution margin 180.00 48,000 8,640,000.00
Fixed costs 4,500,000.00
Net income 4,140,000.00

% change in income = DOL* % change in sales

53.33%

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END OF PRESENTATION

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