Break Even/CVP

Analysis
 Income Statement
Sales: 100 units @ Rs. 10/- Rs. 1000
Less: Variable Cost 100x Rs. 6/- (600)
Contribution Margin 400
Less: Fixed Cost (250)
Net Profit 150_
 Contribution Margin
C/M per Unit = Sales per unit – variable cost per
unit
C/M per Unit = 10 – 6
C/M per Unit = 4

C/M Ratio = C/M = _4_ OR 400 = 0.4

Sales 10 1000
 Break Even
B/E Sales = Fixed Expenses = 250
C/M Ratio 0.4
B/E Sales = Rs. 625

B/E units = Fixed Expenses = 250

C/M per unit 4
B/E units = 62.5 OR 63 units
 Break Even Income
Statement
Sales: 63 units @ Rs. 10/- Rs. 630
Less: Variable Cost 63x Rs. 6/- (378)
Contribution Margin 252
Less: Fixed Cost (250)
Net Profit 2 or 0_
 Class Activity
Q) Firms wants to get profit of Rs.
275/-
(a) What should be sales?
(b) No. of units firm should sale?
(a) Target Sale = Fixed Cost + Target profit
C/M Ratio
= 250 + 275
0.4
Target Sale = Rs.1313
(b) No. of Units = _____Sales_______
Selling price per unit
= 1313
10
= 131 units.
 Class Activity
Q) Firm planning to change selling price per unit from
Rs. 10/- to 12/-, but volume will reduce to 850 units
(a) Calculate break even sales in amount and
units.
Solution: B/E Sales = Fixed Expense = 250
C/M Ratio 0.5
B/E Sales = Rs. 500/-

B/E units = Fixed Expense = 250

C/M per unit 6
B/E units = 42 units
 Income Statement
Sales: units @ Rs. 12/- Rs. 500
Less: Variable Cost Rs. 6/- (250)
Contribution Margin 250
Less: Fixed Cost (250)
Net Profit 0.00
 Class Activity
Q) Selling price per unit increased by 10%, variable
cost also increased by same %.
Fixed cost reduced to Rs. 225.
(a) Calculate B/E sales.
(b) Sales to get profit of Rs. 100/-
(c) Sales to get profit of Rs. 300/-
Solution:
(a) B/E Sales = Fixed Expense = 225
C/M Ratio 0.4
B/E Sales = Rs. 563
(b) Sales to get profit of Rs. 100/-

Target Sale = Fixed Cost + Target profit

C/M Ratio
= 225 + 100
0.4
Target Sale = 813
(c) Sales to get profit of Rs. 300/-

Target Sale = Fixed Cost + Target profit

C/M Ratio
= 250 + 300
0.4
Target Sale = 1313
 Activity
Q) Firm forecast that material cost (variable cost) will
increase by 25%. Firm estimate that that fixed cost
will also increase by 50%. What should be selling
price to maintain same profit?
Solution:

variable cost 6x1.25 = 7.5/-

Fixed cost 250x1.5 = 375/-

 Net Profit 150_
Add: Fixed Cost 375_
Contribution Margin 525
Add: Variable Cost 100x Rs. 7.5/- 750_
Sales: 100 units @ Rs. 12.75/- Rs. 1275
 Margin of safety Ratio
Margin of safety Ratio= Sales – B/E Sales
Sales
= 1000 – 625
1000
M/S Ratio = 0.375/-
 M/S Ratio = 0.375
Less: C/M Ratio = 0.4___
Profit Margin = 0.15
 #709 Q 1
1
Contribution margin

Sales 4,500,000
Less: Variable cost 1,800,000
Contribution margin 2,700,000

Contribution margin ratio:

Contribution margin/ sales

2700,000/4500,000

0.6
BREAK EVEN POINT IN AMOUNT

FIXED COST/ CONTRIBUTION MARGIN RATIO

1200,000/0.6

2,000,000
 #709 Q 2

Variable cost 56% of sales

Variable cost is Sales x % given

265,000 x56% 148,400

Sales - Variable cost = Contribution - fixed exp = Profit

265,000 - 148,400 = 116,600 - ?????????= 31,768

Fixed expenses= 84,832

BREAK EVEN POINT IN AMOUNT=
FIXED COST/ CONTRIBUTION MARGIN RATIO

Contribution margin ratio:

Contribution margin/ sales

116,600 / 265,000= 0.44

84832/ 0.44 = $ 192,800

June sales if profit is $10,500

Fixed cost + Profit / CM ratio

84,832 + 10,500 / 0.44 = $216,800

Q No.4#709
Variable cost of production
Direct material $ 206,200
Direct labor 165,200
Variable factory overhead 102,600 558,000
Variable market exp 80,000
Variable Adm exp 4000

Fixed expenses
Factory overhead 171,896
Marketing expenses 71,000 252,396

Administrative expenses 9500

BREAK EVEN POINT IN AMOUNT=
FIXED COST/ CONTRIBUTION MARGIN RATIO

Contribution margin ratio:

Contribution margin/ sales

Sales 900,000
Less: Variable cost 558,000
Contribution margin 342,000

342,000/900,000 = 0.38

252,396/0.38 = 664,200
Q No.6#709
Variable cost
Direct materials 3,000,000
Direct labor 3,000,000
FOH 800,000
Marketing exp 700,000
Admini. exp 500,000
Total 8,000,000

Fixed Cost
FOH 500,000
Marketing exp 1,000,000 300,000
Admini. exp 200,000
New Variable Cost

Direct Material 3000,000-250,000= 2750,000

Direct labor 3000,000-250,000= 2750,000

Factory overhead 800,000

Mark. And Adm. Expens 1200,000

7500,000

New fixed cost= 1000,000+250,000 1250,000

New Contri margin= 10000,000-7500,000= 2500,000

Current contribution margin ratio

Contribution margin

Sales 10,000,000

Less: Var. cost 8,000,000

C/M 2,000,000

C/M RATIO 2000,000/10,000,000

0.2
Current break even point

Fixed cost/ CM ratio

1,000,000/0.2 = 5,000,000
Existing Fixed cost 1000,000
Add: Increment in Fixed cost 100,000
Total Fixed Cost 1100,000

Break Even Point

11,00,000/0.2 = 5500,000 Profit

Profit = Sales - Var. cost - Fixed cost

10,000,000 – 80% of Sales – 11,00,000 = 900,000

New Variable Cost
Direct Material 3000,000-250,000= 2750,000
Direct labor 3000,000-250,000= 2750,000
Factory overhead 800,000
Mark. And Adm. Expens 1200,000
7500,000

New fixed cost= 1000,000+250,000 1250,000

New Cont margin= 10000,000-7500,000=

2500,000
C/M RATIO
2500,000/10000,000
25%

Break even point 1250,000/0.25 = 5,000,000

profit
Profit = Sales - Var. cost - Fixed cost

10,000,000 -7500,000 -1250,000 = 1250,000

Contribution margin was 40%

Variable cost was 60% 220,000 x0.6

132,000

Last month sales 220,000

New sales (132,000/0.64) 206,250

Decrease in sales 13,750

 #712 Q 17

Break even point in

dollars 120,000/0.4 = $300,000

Break even point in 300,000/2.25=133,333

units units
Percent
age of 133,333/200,000 = 66.67%
capacity
 2

Margin of safety

Sales (200,000 x 2.25) 450,000

Break even sales 300,000

Margin of safety 150,000

Margin of safety ratio

150,000*100/450,000 = 33.33%
 3
New Break even point
120,000/0.325 = 369,231

a: Sales if profit is 30,000

120,000 + 30,000/0.40 = $375,000

b: Sales if profit is 30,000

120,000 +30,000/0.325 = $461,538