CVP ANALYSIS

Bayobay, Giles Roujhon

Kamid, Almera
Austria, Millen
 Cost-volume-profit analysis
 Estimates how changes in cost (variable and fixed), sales volume and price affect a company’s profit.
 CVP is being used to determine break-even point.
 Helps answer:

1. Number of units to break even

2. The effect of changes in the fixed cost on the break even point
3. The effect of changes in sales price on the break even point

Break even point

 Point of no profit, no loss
 BEP is determined to serve as a point of reference.
 To understand CVP relationship, cost should be classified according to their tendency to vary with
production (MIXED, FIXED, VARIABLE). Mixed cost should be segregated.

VARIABLE COST FIXED COST

 Direct materials  Fixed overhead
 Direct labor  Fixed selling
 Variable overhead  Fixed administrative
 Variable selling
 Variable administrative
REVENUE AND COST ASSUMPTION
 Relevant range – range of activity over which a variable cost per unit remain constant or a
fixed cost remains fixed in total.
 Revenue – Revenue per unit is assumed to remain constant. Total revenue fluctuates in direct
proportion to volume.
 Variable Cost – Assumed to remain constant on a per unit basis, fluctuates directly in direct
proportion to volume.
 Fixed cost – Assumed to remain constant regardless of changes in volume, fixed cost per unit
increases as volume decreases and decreases as volume increases.
 Mixed cost – segregated using three methods (high low point, scattergraph, least square
method)
BREAK EVEN POINT
  BEP (UNITS) = or

 BEP (PESOS) = or BEP in units x Selling Price/unit

 Contribution margin – amount remaining after deducting variable cost per unit from selling
price per unit
 Contribution per unit – amount contributed by each unit to the recovery of the fixed cost.

 Contribution Margin/unit = Selling price – Variable Cost

 Contribution Margin Ratio =

ONE PRODUCT
Nicolas Company produces a product that sells for P800. The variable cost is P350 for direct materials,
P200 for labor, P50 for variable overhead and P30,000 for fixed overhead. The units sold for the month is
500 units.
Compute for:
1. Total variable cost
2. Total fixed cost
3. BEP (units)
4. Contribution margin
5. Contribution margin ratio
6. BEP (pesos)
Contribution Margin Statement Margin of Safety
MULTI-PRODUCT
Selina Company produces three products A, B and C with the following characteristics

Product A Product B Product C

Sales price/unit P10 P16 P18
Variable cost/unit 6 10 14
Expected Sales (units) 20,000 20,000 40,000

Total fixed cost are P1,800,000. Assume that sales mix will be the same at all sales levels.
Compute for:
1. BEP in total units
2. Units A,B, and C must sell at break-even point
3. Total contribution margin if the company expects profit of P350,000
 Product A Product B Product C
Sales price/unit P10 P16 P18
Variable cost/unit 6 10 14
Contribution margin P4 P6 P4
Alternative Solution (BEP in total units)
Product A Product B Product C
Contribution margin/unit P4 P6 P4
Multiply by sales mix ratio 25% 25% 50%
Weighted CM per unit P1 P1.5 P2