f2 17 Cost-volume-profit(CVP) analysis.ppt

1、2020/8/13,Accounting School,1,Chapter17 Cost-volume-profit(CVP) analysis,Priority = High Exam Guidance The examiner will expect you to have an understanding of the terms: breakeven; breakeven point; breakeven revenue; target profit; C/S ratio and margin of safety. You will also be expected to draw b

2、reakeven, contribution and P/V charts from given data. You should be familiar with the application of cost-volume-profit analysis to provide the appropriate decision-making information.,2020/8/13,Accounting School,2,2020/8/13,Accounting School,3,1.CVP analysis,Cost-Volume-Profit (CVP) is the study o

3、f the interrelationship between costs, volume and profit at various levels of activity. It is also called breakeven analysis. Why to do CVP analysis?,How to determine the profit?,2020/8/13,Accounting School,4,S -sales revenue VC -variable cost per unit FC -total fixed costs N -sales number p -price

4、per unit,2002_dec Section A _13A company has established the following information for the costs and revenues at an activity level of 500 units:,2020/8/13,Accounting School,5,20% of the selling costs and 50% of the production overheads are fixed over all levels of activity. What would be the profit

5、at an activity level of 1,000 units?A 15,500B 16,250C 16,500D 17,750,2020/8/13,Accounting School,6,AnswerB,2.Breakeven point (BEP),What is BEP? When the profit is zero, the corresponding activity level is breakeven point. Then,2020/8/13,Accounting School,7,Contrbution per unit,Contibution is the dif

6、ference between sale value and variable cost,Example: Expected sale price $10 per unit Variable cost $7 per unit Fixed cost $18000 Required Compute the BEP.,2020/8/13,Accounting School,8,Sometimes the BEP can be showed in sales revenue.,2020/8/13,Accounting School,9,Contribution/sales(C/S) ratio or

7、profit/volume(P/V) ration,Example: The C/S ratio of product W is 20%. The total fixed costs is $50,000. How many units of product W must be sold if the selling price is $10 per unit?,2020/8/13,Accounting School,10,Example: A company manufactures a single product with a variable cost of $44. The cont

8、ribution to sales ratio is 45%. Monthly fixed costs are $396,000. What is the breakeven point in units?,2020/8/13,Accounting School,11,2005_dec Section A _3A company manufactures a single product with a variable cost per unit of 22. The contribution to sales ratio is 45%.Monthly fixed costs are 198,

9、000.What is the breakeven point (in units)?A 4,950B 9,000C 11,000D 20,000,2020/8/13,Accounting School,12,AnswerC,2006_jun_ Section A_3 A company manufactures a single product which it sells for $15 per unit. The product has a contribution to sales ratio of 40%.The companys weekly break-even point is

10、 sales of $18,000. What would be the profit in a week when 1,500 units are sold?,2020/8/13,Accounting School,13,ANSWER: $1800,2005_jun_ Section A_4A company manufactures and sells a single product. The following data relate to a weekly output of 2,880 units:,2020/8/13,Accounting School,14,What is th

11、e weekly break-even point (in units)?A 1,900B 1,440C 1,800D 4,800,2020/8/13,Accounting School,15,AnswerC,2004_jun Section A _3An 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:,202

12、0/8/13,Accounting School,16,What is the breakeven point (in units per week)?A 1,200B 1,600C 1,800D 2,400,2020/8/13,Accounting School,17,AnswerC,2002_dec Section A _2A company has established a budgeted sales revenue for the forthcoming period of 500,000 with an associated contribution of 275,000. Fi

13、xed production costs are 137,500 and fixed selling costs are 27,500.What is the breakeven sales revenue?A 75,625B 90,750C 250,000D 300,000,2020/8/13,Accounting School,18,AnswerD,2003_dec Section A _19A company has the following budgeted information for the coming month: What is the budgeted break-ev

14、en sales revenue?,2020/8/13,Accounting School,19,Answer375000,1-2_pilotpaper Section A _23Dane makes and sells a single product which has a selling price of 26, prime costs are 10 and overheads (all fixed) are absorbed at 50% of prime cost. Fixed overheads are 50,000.What is the break-even point (to

15、 the nearest whole unit)?A 1,923B 3,125C 4,545D 5,000,2020/8/13,Accounting School,20,AnswerB,3.The margin of safety,The margin of safety is the difference in units between the budgeted sales volume and the breakeven sales volume or the difference between the budgeted sales revenue and breakeven sale

16、s revenue expressed as a percentage of the budgeted sales revenue.,2020/8/13,Accounting School,21,p/s ratio = c/s ratio margin of safety,Profit = contribution per unit margin of safety,Example: Mal de Mer makes and sells a product which has a variable cost of $30 and which sells for $40. Budgeted fi

17、xed costs are $70,000 and budgeted sales are 8,000 units. Required Calculate the breakeven point and the margin of safety.,2020/8/13,Accounting School,22,2007_jun_ Section A_3 An organisation manufactures a single product which has a variable cost of$36 per unit. The organisations total weekly fixed

18、 costs are $81,000 and it has a contribution to sales ratio of 40%.This week it plans to manufacture and sell 5,000 units. What is the organisations margin of safety this week (in units)?,2020/8/13,Accounting School,23,Answer1625,2005_jun_ Section A_5An organisation manufactures a single product whi

19、ch is sold for 60 per unit. The organisations total monthly fixed costs are 54,000 and it has a contribution to sales ratio of 40%. This month it plans to manufacture and sell 4,000 units.What is the organisations margin of safety this month (in units)?A 1,500B 1,750C 2,250D 2,500,2020/8/13,Accounti

20、ng School,24,AnswerB,1-2_pilotpaper Section A _4Hill Ltd sells a single product. In the coming month, it is budgeted that this product will generate a total revenue of 300,000 with a contribution of 125,000. Fixed costs are budgeted at 100,000 for the month.What is the margin of safety?A 0%B 10%C 20

21、%D 25%,2020/8/13,Accounting School,25,AnswerC,2002_dec Section A _24A company has calculated its margin of safety as 20% on budgeted sales and budgeted sales are 5,000 units per month.What would be the budgeted fixed costs if the budgeted contribution was 25 per unit?A 100,000B 125,000C 150,000D 160

22、,000,2020/8/13,Accounting School,26,AnswerA,2004_jun Section A _4A 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

23、 safety of 64,000 expressed in terms of sales value.What is the planned activity level (in units) for next month?,2020/8/13,Accounting School,27,Answer 5,350,2004_dec Section A _23A company sells a single product which has a contribution of 27 per unit and a contribution to sales ratio of 45%. This

24、period it is forecast to sell 1,000 units giving it a margin of safety of 13,500 in sales revenue terms.What are the companys total fixed costs per period?,2020/8/13,Accounting School,28,Answer20,925,4. Profit targets,When a target profit is set, the total contribution needed will be the sum of fixe

25、d costs and required profit.,2020/8/13,Accounting School,29,Example: Dierct materials $10 Dierct labour $8 Variable production overhead $6 The sales price is $30 per unit, and fixed costs per annum are $68,000. The company wishes to make a profit of $16,000 per annum. Required: Determine the sales r

26、equired to achieve this profit,2020/8/13,Accounting School,30,Example: Seven League Boots wishes to sell 14,000 units of its product, which has a variable cost of $15 to make and sell. Fixed costs are $47,000 and the required profit is $23,000. Required Calculate the sales price per unit,2020/8/13,A

27、ccounting School,31,2003_jun Section A _13A company wishes to make a profit of 150,000. It has fixed costs of 75,000 with a C/S ratio of 075 and a selling price of 10 per unit.How many units would the company need to sell in order to achieve the required level of profit?A 10,000 unitsB 15,000 unitsC

28、 22,500 unitsD 30,000 units,2020/8/13,Accounting School,32,AnswerD,5.Breakeven charts,2020/8/13,Accounting School,33,The budgeted annual output of a factory is 120,000 units. The fixed overheads amount to $40,000 and the variable costs are 50c per unit. The sales price is $1 per unit. Required Const

29、ruct a breakeven chart showing the current breakeven point and profit earned up to the present maximum capacity.,2020/8/13,Accounting School,34,2007_jun Section A _1 Four lines representing expected costs and revenue have been drawn on the following break-even chart,2020/8/13,Accounting School,35,Wh

30、ich statement is correct? A. Line F represents total variable cost. B. The break-even point occurs at the intersection of lines E and F C. Line G represents total revenue. D. The break-even point occurs at the intersection of lines G and H,2020/8/13,Accounting School,36,ANSWER: B,2005_dec Section A

31、_2The following breakeven chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed cost (TFC) and total sales revenue (TSR):,2020/8/13,Accounting School,37,What is the margin of safety at the 1,700 units level of activity?A 200 unitsB 300 unitsC 500 unitsD 1,025

32、 units,2020/8/13,Accounting School,38,AnswerC,The use of breakeven charts To plan the production of a companys products To illustrate the influence on profit of variation in price, cost, sale volume,ect. To give a visual display of breakeven arithmetic, and show the possible effect on BEP, margin sa

33、fety of the variation in sale price, variable costs or fixed costs,2020/8/13,Accounting School,39,2004_dec Section A _2A break-even chart for a company is depicted as follows:,2020/8/13,Accounting School,40,Which one of the following statements is consistent with the above chart?A Both selling price

34、 per unit and variable cost per unit are constant.B Selling price per unit is constant but variable cost per unit increases for sales over 4,000 units.C Variable cost per unit is constant but the selling price per unit increases for sales over 4,000 units.D Selling price per unit increases for sales

35、 over 4,000 units and there is an increase in the total fixed.,2020/8/13,Accounting School,41,AnswerA,Decisions to change sales price and costs Example:Change in selling price Stomer Cakes sell a single type of cake. The variable cost of production is 15c and the current sales price is 25c. Fixed co

36、sts are $2,600 per month, and the annual profit for the company at current sales volume is $36,000. The volume of sales demand is constant throughout the year. The sales manager wishes to raise the sales price to 29c per cake, but considers that a price rise will result in some loss of sales. Requir

37、ed: Ascertain the minimum volume of sales required each month to raise the price to 29c.,2020/8/13,Accounting School,42,Change in production costs Example: Close Brickett makes a product which has a variable production cost of $8 and a variable sales cost of $2per unit. Fixed costs are $40,000 per a

38、nnum, the sales price per unit is $18, and the current volume of output and sales is 6,000 units. The company is considering whether to have an improved machine for production. Annual hire costs would be $10,000 and it is expected that the variable cost of production would fall to $6per unit.,2020/8

39、/13,Accounting School,43,Required: (a) Determine the number of units that must be produced and sold to achieve the same profit as is currently earned, if the machine is hired. (b) Calculate the annual profit with the machine if output and sales remain at 6,000 units per annum.,2020/8/13,Accounting S

40、chool,44,Sale price and sale volume (maximize profit) Example:C has developed a new product which is about to be launched on to the market. The variable cost of selling the product is $12 per unit. The marketing department has estimated that at a sales price of $20 annual demand would be 10,000 unit

41、s.However, if the sales price is set above $20, sales demand would fall by 500 units for each 50c increase above $20. Similarly, if the price is set below $20, demand would increase by 500 units for each 50c stepped reduction in price below $20. Required: Determine the price which would maximise Cs

42、profit in the next year,2020/8/13,Accounting School,45,2007_jun_ Section A_24 A company would sell 40,000 units of a product if the unit selling price was set at $10 and these would generate a total contribution of $160,000. If the unit selling price was reduced to $950 then sales of 44,000 units wo

43、uld result. Setting unit selling prices of $10.5 and $11 would result in sales of 36,000 and 31,000 units respectively.Which selling price would generate the highest total contribution?,2020/8/13,Accounting School,46,ANSWER: $10.5,Display effect on BEP, margin safety of the variation in price, varia

44、ble costs or fixed costs Example: A company sells a product which has a variable cost of $2 per unit. Fixed costs are $6,000. It has been estimated that if the sales price is set at $5 per unit, the expected sales volume would be 3000 units; whereas if the sales price is lower, at $4 per unit, the e

45、xpected sales volume would be 5000 units. Required: Draw a breakeven chart to show the budgeted profit, the breakeven point and the margin of safety at each of the possible sales prices.,2020/8/13,Accounting School,47,6.Contribution charts,2020/8/13,Accounting School,48,One of the advantages of the

46、contribution chart is that is shows clearly the contribution for different levels of production as the wedge shape between the sales revenue line and the variable costs line.,2020/8/13,Accounting School,49,7.Profit/volume charts,2020/8/13,Accounting School,50,Can you find the fixed costs, contribution per unit or C/S ratio?,The P/V chart shows clearly the effect on profit and breakeven point of any changes in selling price, variable cost, fixed c