Cvp Analysis

CVP Analysis

3. The Byrow company manufactures ball point pens.

Given Data:

Present Sales = 500,000 Units

Sales Price = 50 Cents per units

Fixed Costs = $80,000 per annum

Variable Costs = 30 Cents per units

a)

i) Contribution Margin per unit (UCM) = Sale price - Variable cost

= (50-30)

ii) Contribution margin percentage (UCM%) = [UCM/SP]*100

= [.20/.50]*100

UCM % = 40 %

iii) Break-even point in dollars (BEP) = [ FC/UCM % ]

BEP = [ 80,000 / 40 % ]

BEP = $ 200,000

iv) Margin Of Safety = [ (Present Sales - Break Even Volume) / Present sales] * 100

= [ (500,000 - 400,000) / 500,000 ] *100

Margin Of Safety = 20%

Sales could drop 20% from the actual level of 500,000 units before break even volume of sales would have reached it.

B. Using UCM Equation, Compute the profit for each of the following changes:

i) an increase in variable costs to .34 cents per unit

VC= 34 cents, UCM = 16 cents

Profit = (Sales in Units* UCM) - FC

= ( 500,000 * 16 ) - 80,000

Profit= $ 0

ii) a 20% decrease in fixed costs, a 20% drop in sale price, a 10% drop in variable costs per unit, and a 40% increase in units sold.

Earlier SP = .50 cents, VC = .30 cents, fixed cost = $ 80,000 and Present sales = 500,000 units

After 20%