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Prepared by: Moha

Cost-Volume-Profit anCost-Volume-Profit analyses con

or Activity level.

Cost-volume-profit (CVP) analy

to changes in sales volumes, cos

future levels of operating activit

_ Which products or services to

_ The volume of sales needed to

_ The amount of revenue requir

_ Whether to increase fixed cos

_ How much to budget for discr

_ Whether fixed costs expose th

Break Even

The break-even point (BEP) is th

is no net loss or gain, and one h

Break Even Point

Fixed cost

Contribution per Unit

mad Faizan Farooq Qadri AtCC

http://www.Contact:faizanacca

alysissider how costs and profits change with chang

is is a technique that examines changes in pro

ts, and prices. Accountants often perform CVP

and provide information about:

emphasize

achieve a targeted level of profit

ed to avoid losses

s

tionary expenditures

e organization to an unacceptable level of risk

e point at which cost or expenses and revenue

s "broken even".

Break Even Reven

Fixed Cost

C/S Ratio

C/S R

Contrib

Sal

Contri

Sales v

Sales *

ari(Finalist)

ffqacca.co.ccyahoo.com

in the volume

its in response

analysis to plan

are equal: there

e

tio

ution x 100

es

bution

ariable Cost

Or

/S Ratio


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Prepared by: Mohammad Faizan Farooq Qadri AttariACCA (Finalist)

http://www.ffqacca.co.ccContact:[email protected]

Margin of Safety

Margin of safety represents the strength of the business. It enables a business to know what is

the exact amount it has gained or lost and whether they are over or below the break even point

Question # FFQA1

The shaded area on the conventional breakeven chart shown above represents

A loss. B fixed cost. C variable cost. D profit.

Margin of Safety in Units = Budgeted sales in Units Break Even Point

Margin of Safety in $ = Budgeted sales in $ Break Even Revenue

Margin of Safety in % = Budgeted sales in Units Break Even Point x 100

Budgeted sales in Units

Margin of Safety in % = Budgeted sales in $ Break Even Revenue x 100

Budgeted Sales in $

Actual Sales / Targeted Profit

(Units) ($)Fixed cost + Profit required Fixed Cost + Profit Required

Contribution per Unit C/S Ratio


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Question # FFQA2

W Ltd makes leather purses. It has drawn up the following budget for its next financial period:

Selling price per unit $11.60

Variable production cost per unit $3.40

Sales commission 5% of selling price

Fixed production costs $430,500

Fixed selling and administration costs $198,150

Sales 90,000 unitsThe margin of safety represents

A 5.6% of budgeted sales.

B 8.3% of budgeted sales.

C 11.6% of budgeted sales.

D 14.8% of budgeted sales.

Question # FFQA2 Contd

The marketing manager has indicated that an increase in the selling price to $12.25 per unit

would not affect the number of units sold, provided that the sales commission is increased to

8% of the selling price.These changes will cause the breakeven point (to the nearest whole number) to be

A 71,033 units.

B 76,016 units.

C 79,879 units.

D 87,070 units.

Question # FFQA3

The company expects to sell h units in the next accounting period.

The margin of safety is shown on the diagram by

A k B m C n Dp


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Question # FFQA4

What is the margin of safety at the 1,700 units level of activity?

A 200 units

B 300 units

C 500 units

D 1,025 units

Question # FFQA5

A company manufactures a single product which it sells for $20 per unit. The product has a

contribution to sales ratio of 40%. The companys weekly breakeven point is sales revenue of

$18,000.

What would be the profit in a week when 1,200 units are sold?

A $1,200

B $2,400

C $3,600

D $6,000

Question # FFQA6

A company has established a budgeted sales revenue for the forthcoming period of 500,000

with an associated contribution of 275,000. Fixed production costs are 137,500 and fixed

selling costs are 27,500.

What is the breakeven sales revenue?

A 75,625

B 90,750

C 250,000

D 300,000


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Question # FFQA7

A company has the following budgeted information for the coming month:

Budgeted sales revenue 500,000

Budgeted contribution 200,000

Budgeted profit 50,000

What is the budgeted break-even sales revenue?

A 125,000

B 350,000C 375,000

D 450,000

Question # FFQA8

An organisation manufactures and sells a single product. At the budgeted level of output of

2,400 units per week, the unit cost and selling price structure is as follows:

per unit per unit

Selling price 60

Less variable production cost 15

Less other variable cost 1 5

Less fixed cost 30

(50)

Profit 10

What is the breakeven point (in units per week)?

A 1,200

B 1,600

C 1,800

D 2,400

Question # FFQA9

A company manufactures one product which it sells for 40 per unit. The product has a

contribution to sales ratio of 40%. Monthly total fixed costs are 60,000. At the planned level of

activity for next month, the company has a margin of safety of 64,000 expressed in terms of

sales value.

What is the planned activity level (in units) for next month?

A 3,100

B 4,100

C 5,350

D 7,750


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Question # FFQA10

Which line represents total variable cost?

A Line A

B Line B

C Line C

D Line D

Question # FFQA11

TP Ltd is now planning for 2009/2010. The budgeted demand is expected to be 20,000 services.

Because of changes in technology, Material X and Material Y will be replaced by a new

component that will cover both of their functions. Labour costs, variable overhead costs and

fixed overhead costs are expected to remain at the same level as the previous year. The new

component will cost 1440 per service. TP Ltd will keep the standard service charge at 135 for

each computer.

Required:

The breakeven output for next year will be _________

If the fixed costs were to increase to 650,000, the sales revenue required in order to achieve a

profit of 673,000 next year will be __________


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Question # FFQA12

FF manufactures various products and uses CVP analysis to establish the minimum level of

production to ensure profitability.

Fixed costs of 50,000 have been allocated to a specific product but are expected to increase to

100,000 once production exceeds 30,000 units, as a new factory will need to be rented in

order to produce the extra units. Variable costs per unit are stable at 5 per unit over all levelsof activity. Revenue from this product will be 750 per unit.

Required:

(a) Formulate the equations for the total cost at:

(i) less than or equal to 30,000 units;

(ii) more than 30,000 units.

(b) Prepare a breakeven chart and clearly identify the breakeven point or points. (6 marks)

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