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    Topic 3 CVP Analysis Handout

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    John Kenneth Colarina

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    Topic 3 CVP Analysis Handout

    Uploaded by

    John Kenneth Colarina
    17 views2 pages

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    Topic 3 Cvp Analysis Handout

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    17 views2 pages

    Topic 3 CVP Analysis Handout

    Uploaded by

    John Kenneth Colarina

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Topic 3: Cost-Volume-Profit Analysis

    Topic Coverage:
    1. Uses, assumptions and limitations of CVP analysis
    2. Factors affecting profit
    3. Breakeven point in unit sales and peso sales
    4. Required selling price, unit sales and peso sales to achieve a target profit
    5. Sensitivity analysis (including indifference point in unit sales and peso sales)
    6. Use of sales mix in multi-product companies
    7. Concepts of margin of safety and degree of operating leverage
    8. Different scenarios using CVP analysis (indifference point, step fixed, multiple drivers)

    Practice Problems:
    Problem 1: Cauayan Corporation has the following information about its single product:
    Selling Price per unit ₱ 20
    Variable Cost per unit ₱ 12
    Annual Fixed Costs ₱ 40,000
    Expected Units to be sold 6,000 units
    Required:
    1. Compute the contribution margin per unit and ratio.
    2. Construct the Contribution Approach Income Statement
    3. Determine the Break-Even Point in units and in peso.
    4. Compute the target sales level (in units and in peso) for the following target profit:
    a. Before tax profit of ₱20,000
    b. After tax profit of ₱18,000 if the tax rate is 40%
    5. Calculate the margin of safety and determine the level of profit if sales will decrease by (a) 15%
    and (b) 18%.
    6. Determine the degree of operating leverage and determine the level of profit if sales will
    a. Increase by 20%
    b. Decrease by 10%

    Problem 2 (Basic Comprehensive) Cavite Corporation has the following information:


    Selling Price P 10
    Variable Cost per unit P 6
    Total Fixed Costs P 20,000
    Units Sold 7,000 units
    Required:
    1. Compute Cavite’s Contribution Margin per unit and ratio.
    2. Construct Cavite’s Contribution Format Income Statement
    3. Compute the company’s Break-even point in units and in peso sales.
    4. How much is the sales required for Cavite to earn P 8,000 before tax earnings?
    5. How much is the sales required for Cavite to earn P 6,000 after tax earnings and the tax rate is
    40%?
    6. Using the original information, compute the company’s margin of safety.
    7. Using the original information, compute the company’s degree of operating leverage.
    8. What is the company’s operating income if sales will increase by 10%?
    Problem 3 (Break-Even Point and Target Profit): One of Sorsogon Corporation’s products has the
    following information:
    Selling Price P 15
    Variable Cost per Unit 10
    Total Fixed Cost P 25,000
    Tax Rate 40%
    Required:
    1. What is the break-even point in units and in peso sales?
    2. How much should the company sell in peso and in units if it wants to earn a before tax income
    of P 10,000?
    3. How much should the company sell in peso and in units if it wants to earn an after tax income of
    P 12,000?

    Problem 4 (MOS) Bicol Corporation has the following information:


    Margin of Safety 20%
    Contribution Margin Ratio 25%
    Total Fixed Costs P 20,000
    Required: Construct the company’s contribution approach income statement.

    Problem 5 (DOL): The following information pertains to Jan Corp.


    Operating Leverage 4
    Fixed Costs P 30,000
    Current Year Total Peso Sale P 125,000
    Required: Construct the company’s contribution approach income statement and determine the net
    income of the company if total sales will increase by 20%.

    Problem 6 (Multiproduct): Negros Corporation has the following information about its product:
    Occidental Oriental
    Selling Price P 10 P 15
    Variable Costs per unit P 6 P 10.5
    Total Fixed Costs P 42,000
    Units Sold 12,000 8,000
    Required: Compute the break-even point in units and in peso sales for each product.

    Problem 7 (Multiproduct) Panay Corporation has the following information about its two products:
    Total Green Caps Red Buttons
    Units Sold 200,000 150,000 50,000
    Sales 1,000,000 600,000 400,000
    Variable Costs 600,000 420,000 180,000
    Contribution Margin 400,000 180,000 220,000
    Fixed Costs 250,000
    Net Income 150,000
    Required: Compute the break-even point in units and in peso sales for each product.

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