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Module 3 - Breakeven

The document provides examples of calculating break-even points, units required to earn a profit, and using the profit-volume ratio. It gives the formulas and step-by-step workings for determining the break-even point in units and sales value. It also shows how to calculate the number of units needed to be sold to earn a specific profit level, and the sales value required to break-even or earn a given profit using the profit-volume ratio.

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Bern Austin Esguerra
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164 views2 pages

Module 3 - Breakeven

The document provides examples of calculating break-even points, units required to earn a profit, and using the profit-volume ratio. It gives the formulas and step-by-step workings for determining the break-even point in units and sales value. It also shows how to calculate the number of units needed to be sold to earn a specific profit level, and the sales value required to break-even or earn a given profit using the profit-volume ratio.

Uploaded by

Bern Austin Esguerra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BALLEGA, Katrina Ysabelle M.

ABM 12-IHL

Break-even

1. Solve for the following:


a. Break-even point in terms of sales value and in units.
𝐵𝐸𝑃 = (𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠)/(𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠)
= ($60,000 + $12,000)/($24 − ($12 + $3) )
= $72,000/($24 − $15)
= 8,000 𝑢𝑛𝑖𝑡𝑠
𝑆𝑎𝑙𝑒𝑠 𝑉𝑎𝑙𝑢𝑒 = 8,000 𝑢𝑛𝑖𝑡𝑠 × $24
= $192,000
b. Number of units that must be sold to earn a profit of $90,000.
𝑈𝑛𝑖𝑡𝑠 𝑡𝑜 𝑝𝑟𝑜𝑑𝑢𝑐𝑒 𝑑𝑒𝑠𝑖𝑟𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡
= (𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡)/(𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡)
+ 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑢𝑛𝑖𝑡𝑠
$90,000
= + 8,000 𝑢𝑛𝑖𝑡𝑠
$24 − $15
= 18,000 𝑢𝑛𝑖𝑡𝑠

Fixed factory overheads cost 60,000


Fixed selling overhead cost 12,000
Variable manufacturing cost per unit 12
Variable selling cost per unit 3
Selling price per unit 24

2. From the following information, ascertain by how much the value of sales must be increased by
the company to breakeven.
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠 × 𝑆𝑎𝑙𝑒𝑠
𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 =
𝑆𝑎𝑙𝑒𝑠 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
150,000 × 300,000
=
300,000 − 200,000
= $450,000

𝑁𝑒𝑒𝑑𝑒𝑑 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠 = 𝑆𝑎𝑙𝑒𝑠 − 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛


= $150,000
Sales 300,000
Fixed cost 150,000
Variable cost 200,000

3. Solve for the following:


a. P/V ratio*
𝑃/𝑉 𝑟𝑎𝑡𝑖𝑜 = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 × 100/𝑆𝑎𝑙𝑒𝑠
= [12 − (5 + 2 + 2)] × 100/12
= [12 − 9] × 100/12
= 3 × 100/12
300
=
12
= 25%
b. Break-even sales with the help of P/V ratio
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
𝐵𝐸𝑃 =
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜
$90,000
= $360,000
25%
c. Sales required to earn a profit of $450,000
𝑈𝑛𝑖𝑡𝑠 𝑡𝑜 𝑝𝑟𝑜𝑑𝑢𝑐𝑒 𝑑𝑒𝑠𝑖𝑟𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡
= (𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡)/(𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡)
+ 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑢𝑛𝑖𝑡𝑠
$360,000
𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑢𝑛𝑖𝑡𝑠 = = 30,000 𝑢𝑛𝑖𝑡𝑠
$12
$450,000
= + 30,000 𝑢𝑛𝑖𝑡𝑠
[$12 − $9]
= 180,000 𝑢𝑛𝑖𝑡𝑠
𝑆𝑎𝑙𝑒𝑠 = 180,000 𝑢𝑛𝑖𝑡𝑠 × $12 = $2,160,000

Fixed Expenses 90,000


Variable cost per unit ?
Direct material 5
Direct labor 2
Direct overheads 100% of labor
Selling price per unit 12

*What is Profit Volume ratio?


The Profit Volume (P/V) Ratio is the measurement of the rate of change of profit due to change
in volume of sales. It is one of the important ratios for computing profitability as it indicates
contribution earned with respect of sales.
The PV ratio or P/V ratio is arrived by using following formula.
P/V ratio =contribution x100/sales (*Contribution means the difference between sale price and
variable cost).
Reference: Surendra Naik. (2017, October 15). What is Profit Volume ratio (P/V ratio)? – Banking School.
https://bankingschool.co.in/financial-analysis/what-is-profit-volume-ratio-pv-ratio/

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