CVP Analysis Problems

Sales of Multiple Products

1.The following data relate to Alpha Co. for

the period ending March 31, 1991.

Particulars Product X Product Y Product Z

Sales 200,000 300,000 500,000
Variable 120,000 210,000 350,000
Costs
If total fixed costs are Rs. 1,52,000, calculate the
firm’s breakeven point .

2.Kay Co. is planning to sell two types of

posters. In addition to her regular size
posters, Kay plans to sell large posters.
The sales price per unit for a regular
poster is $35 and Large size poster is $70.
the sales mix is in the proportion of 5:3.
The variable cost is $21 and $40. What is
the breakeven sales? If Kay wants to earn
a profit of $4,900, while her fixed costs
continues to be the same at $7,000.
 3. A company has annual fixed costs of Rs.
2,52,000. In 1991 sales amounted to
Rs.10,80,000 as compared with Rs. 8,10,000
in 1990, and profit in 1991 was Rs. 75,600
higher than that in 1990.

i) Calculate break-even sales for the company

ii) Profit (loss) on an estimated sales of
Rs.14,40,000

OPERATING LEVERAGE PROBLEMS:

4. Two firms X and Y have a selling price per

unit at Rs. 8/-. The variable cost for both firms
are Rs. 6/- and Rs. 4/- respectively. The fixed
costs of X is Rs.80,000 and the fixed cost of Y
is Rs. 2,00,000. Find out the DOL for both
firms for sales ranging from 60,000 units to
80,000 units.
5. A firm sells 10,000 units per month. It is
contemplating between introducing and
automated system instead of continuing with a
manual system. The Selling price per unit
under both cases will be Rs. 100/- The variable
cost under automated is Rs. 50/- and Manual is
Rs. 80/- The fixed cost for Auto system is Rs.
325,000 and the under manual is Rs. 100,000.
Find the DOL under each of the systems. If
sales were to increase by 40%, then what
would be the change in profit under each case
and why?
 6. Lancer Audio produces a high-end DVD player that
sells for $1,300. Total operating expenses for July
were as follows:

Units produced and sold 150

Component Costs $ 71,000
Supplies 2,500
Assembly labor 25,000
Rent 2,300
Supervisor Salary 5,600
Electricity 350
Telephone 280
Gas 300
Shipping 2,000
Advertising 2,600
Administrative costs 15,000
Total 1,26,930

1. Use Account Analysis to determine fixed cost per

month and variable cost per DVD player
2. Project the total cost for August, assuming production
and sales of 175 units
3. What is the contribution margin per DVD player?
4. Estimate the total profit, assuming production and
sales of 175 units
 7. Lancer Audio produces a high-end DVD player that sells
for $1,300. Total operating expenses for the past 12
months are as follows:

Month Units produced Cost

and sold
August 165 $140,345
September 130 116,990
October 150 130,650
November 145 127,670
December 155 133,790
January 170 143,910
February 140 123,520
March 150 130,950
April 145 127,385
May 150 129,865
June 140 122,720
July 135 120,255

1. Calculate the high-low method to estimate fixed and variable

costs
2. Based on the estimates, calculate the break-even level of
sales in units
3. Use the regression analysis to estimate fixed and variable
costs. Round to two decimal places
4. Compare your estimates to those obtained using account
analysis, the high-low method. Which method provides the
best estimates of fixed and variable costs?
 a. Variable costs
Component costs $71,000
Supplies 2,500
Assembly labor 25,000
Shipping 2,000
Total $100,500

Variable cost per disc player ($100,500 ÷ 150) = $670

Fixed costs
Rent $2,300
Supervisor salary 5,600
Electricity 350
Telephone 280
Gas 300
Advertising 2,600
Administrative costs 15,000
Total $26,430

b. Expected cost in August = $670 (175) + $26,430 = $143,680

c. Contribution margin = Selling price less variable cost = $1,300 − $670 =

$630.
d. Estimated profit at 175 units = $1,300 (175) − $670 (175) − $26,430 =
$83,820.

e. The special order will increase profit by ($1,050 − 670)  120 = $45,600.

a. Production Cost
High 170 $143,910
Low 130 116,990
40 $ 26,920

Variable cost per unit = $26,920 ÷ 40 = $673.

Total cost at 170 units $143,910

Less variable costs ($673 × 170) 114,410
Fixed cost $ 29,500
 b. Break-even sales in units = $29,500 ÷ ($1,300 − $673) = approximately
47 units.

c. Margin of safety = 175 − 47 = 128 units × $1,300 = $166,400

d. Total profit = ($1,300 * 175) − ($673 * 175) − $29,500 = $80,225.

e. A major limitation of the high-low method is that it estimates variable

and fixed costs using extreme values. Also, the approach uses only two
observations. A better approach would be to use regression analysis.

a. Note—This output was generated using the regression function in Excel

which is an “add-in” to Excel. In Excel, go to Tools, then Data Analysis,
and then Regression. If Data Analysis is not available under Tools or if
Regression is not available within Data Analysis, “add-in” this function
through Excel’s Add-in process.
b. SUMMARY OUTPUT

Regression Statistics
Multiple R 0.998433139
R Square 0.996868734
Adjusted R
Square 0.996555607
Standard Error 460.0103314
Observations 12

ANOVA
Df SS MS F
Regression 1 673679196.6 67367196.6 3183.596109
Residual 10 2116095.05 211609.505
Total 11 675795291.7

Standard
Coefficients Error t Stat P-value
Intercept 28968.56436 1777.912568 16.29358208 1.57514E-08
Units 676.2970297 11.98611658 56.42336492 7.41768E-14

Based on the regression, fixed costs are $28,968.56 and variable costs are
$676.30 per unit.

b. Comparison of estimates:

Variable cost Fixed cost

Account analysis $670 $26,430
High-low $673 $29,500
Regression $676 $28,969
The regression approach arguably provides the best estimates because it
uses more data and is less subjective.