CVP
SEATWORK #1
Barkley Company had actual sales of
P500,000 and a break-even point of
P400,000. Its margin of safety ratio
was ________________
SEATWORK #2
A company desires to sell a sufficient quantity
of products to earn a profit of P80,000. If the
unit sales price is P20, unit variable cost is
P12, and total fixed costs are P160,000, how
many units must be sold to earn net income of
P80,000?
SEATWORK #3
How much sales are required to earn
a target net income of P80,000 if total
fixed costs are P100,000 and the
contribution margin ratio is 40%?
SEATWORK #4
A company requires P850,000 in sales to
meet its target net income. Its contribution
margin is 30%, and fixed costs are P150,000.
What is the target net income?
SEATWORK #5
Grant Company has fixed costs of
P600,000 and variable costs are 40%
of sales. What are the required sales
if Grant Company desires net income
of P60,000?
SEATWORK #6
Z Company developed the following information for the product it sells:
• Sales price P50 per unit
• Variable cost of goods sold P23 per unit
• Fixed cost of goods sold P700,000
• Variable selling expense 10% of sales price
• Variable administrative expense P2.00 per unit
• Fixed selling expense P400,000
• Fixed administrative expense P300,000
For the year ended December 31, 2021, Z Company produced and sold 80,000 units of product.
Instructions
(a) Prepare a CVP income statement using the contribution margin format for Z Company for 2021.
(b) What was the company's break-even point in units in 2021? Use the contribution margin technique.
(c) What was the company's margin of safety in peso in 2021?
Solution
Sales P4,000,000
Variable expenses
Cost of goods sold P1,840,000
Administrative 160,000
Selling expenses 400,000
Total variable expenses 2,400,000
Contribution margin 1,600,000
Fixed expenses
Cost of goods sold 700,000
Selling 400,000
Administrative 300,000
Total fixed expenses 1,400,000
Net income 200,000
Solution
(b) Break-even point was 70,000 units in 2002.
Variable costs per unit Contribution margin per unit
Cost of goods sold P23 Sales price P50
Administrative 2 Variable cost 30
Selling 5 Contribution margin P20
P30
P1,400,000 ÷ P20 = 70,000 units to break even.
(c) Margin of safety in peso was P500,000
Actual sales P4,000,000
Break-even sales (70,000 × P50) 3,500,000
Margin of safety P 500,000
Seatwork #7
Instructions
For the items listed below, enter to the left of the
item, the letter in the graph which best corresponds
to the item.
____ 1. Activity base
____ 2. Break-even point
____ 3. Pesos
____ 4. Fixed costs
____ 5. Loss
____ 6. Profit
____ 7. Revenues
____ 8. Total costs
____ 9. Variable costs
Other Cost Volume Profit Analysis
Factors Affecting Profit
• Selling price per unit
• Variable cost per unit
• Volume or number of units
• Fixed costs
• Sales mix
Change in Selling Price
1. An increase in selling price, assuming all other factors remaining the
same results to:
• Increase in total sales
• Increase in peso contribution margin per unit and in total
• An increase in profit percentage
• Decrease in break break-even points in units and in pesos
Change in Selling Price
1. An increase in selling price, assuming all other factors remaining the
same left the following unchanged:
• Variable cost per unit
• Total variable cost
• Total fixed cost
Change in Unit Variable Cost
• An increase in variable cost per unit, all other factors remaining the same,
results to:
• An increase in total variable cost
• A decrease in peso contribution margin per unit and in total
• A decrease in profit
• A decrease in profit percentage
• An increase in break-even point in units and in pesos
Change in Unit Variable Cost
• The following remained the same despite the change in variable cost:
• Selling price per unit
• Total sales
• Total fixed cost
Change in Volume
• An increase in volume or number of units caused the following
• Increase in total sales
• Increase in total variable cost
• Increase in total peso contribution margin
• Increase in profit
Change in Volume
• The increase in volume did not affect the following:
• Selling price, unit variable cost, unit contribution margin and
contribution margin ratio
• Total fixed cost
• Break-even point in units and in pesos
Change in Fixed Cost
• An increase in total fixed cost, with all other factors remaining constant,
showed the following effects:
• Decrease in total profit
• Increase in break-even point in units and in pesos
Change in Fixed Cost
• The following did not change despite the increase in total fixed cost:
• Total sales (units and in pesos), unit selling price, variable cost (per
unit and in total) and contribution margin (per unit and in total)
• Variable cost ratio and contribution margin ratio
All costs are classifiable as either fixed or variable.
Fixed cost constant within the relevant range.
Assumptions and
Limitations The behavior of total revenues and total costs will
be linear over the relevant range.
Underlying CVP
Analysis In case of multiple-product companies, the selling
prices, costs and proportion of units (sales mix) sold
will not change.
There is no significant change in inventory levels
during the period under review.
Uses of Cost-Volume-Profit Analysis
Planning
• CVP analysis is a useful tool for
planning future operations.
Projected income, break-even
point, revenues and costs even
for different activity levels can
be determined with the use of
CVP analysis.
Uses of Cost-Volume-Profit Analysis
Control
• Actual results are studied, analyzed and
compared with the projected or planned data.
Should there be any significant difference
between the actual and planned figures,
investigations should be conducted, and the
necessary corrective action, if any, should be
taken.
Uses of Cost-Volume-Profit
Analysis
Analysis
• Both projected and actual data may be analyzed using
CVP relationships. Different alternatives, strategies as
well as possible changes in the profit factors may be
analyzed considering their possible effects on profit.
• CVP analysis is a useful tool in studying and evaluating
past performance. This analysis may be used as a basis
for a decision to maintain, further improve, or totally
scrap a strategy applied in the past, or this may be used
as a basis for giving commendations, or even reprimand
to persons involved.
