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Assignment 2 CVP

The document provides financial information and calculations for two companies, Patricia and Francesca. For Patricia, it calculates contribution margin, break-even point, margin of safety, net profit ratio, and the effect of increased sales. For Francesca, it performs the same calculations and also analyzes the impact of changes to price, cost, production volume, and fixed costs.

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hed-llimangan
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411 views9 pages

Assignment 2 CVP

The document provides financial information and calculations for two companies, Patricia and Francesca. For Patricia, it calculates contribution margin, break-even point, margin of safety, net profit ratio, and the effect of increased sales. For Francesca, it performs the same calculations and also analyzes the impact of changes to price, cost, production volume, and fixed costs.

Uploaded by

hed-llimangan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem 1

Patricia Company produces a product that has the following data:


Unit Sales Price P 40
Unit Variable Cost P 24
Total Fixed Costs P 320,000/year
Units Sold during the year 25,000 units
Required:
1. Unit contribution margin, contribution margin ratio and variable cost ratio
a. Contribution margin per unit = Unit Selling Price – Unit Variable Costs
= P 40 – 24
= P 16

b. Contribution Margin Ratio = Contribution margin per unit/SP per unit


= P 16/ P 40
= 40%

c. Variable Cost Ratio = VC per unit/ SP per unit


= P 24/ P 40
= 60%

2. Break-even point in units and pesos

a. Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 320,000/ 16
= 20,000 units

b. Break-even point in pesos= Fixed costs/ Contribution Margin Ratio


= P 320,000/ .40
= P 800,000

3. Margin of safety in units and pesos, and margin of safety ratio


a. Margin of Safety in Units = Actual Sales in units – Break-even Sales in units
= 25,000 units – 20,000 units
= 5,000 units

b. Margin of Safety in Pesos = Actual Sales – Break-even Sales


= P 1,000,000 – P 800,000
= P 200,000

c. Margin of Safety Ratio = Margin of Safety in Pesos/ Actual Sales


= P 200,000/ 1,000,000
= 20%

4. Net profit ratio = (Units Sold x Contribution Margin per unit – Fixed Costs)/ Sales
= (25,000 units x 16 – 320,000)/ 1,000,000
=8%

5. The amount of profit using the margin of safety is P 80,000 ( 20%).


Margin of Safety
In peso = Sales – (Variable cost + Fixed Cost)
= 1,000,000 – ((25,000x 24) + 320,000)
= P 80,000

6. If sales increase by P 150,000, how much would you expect income to increase?
Income increase = P 150,000 x CMR
= P 150,000 x 40%
= P 60,000

Problem 2
Francesca Company manufactures and sells a single product that has a retail price of P
75, unit variable cost of P 60 and total fixed cost of P 450,000. It expects to sell 50,000 units in
the coming year.

Required:
1. The CMR, BEP in units and pesos and the expected income before tax (IBIT) in the
coming year.
Base Case
Variable Values
Sales Price per Unit P 75
Variable Cost per Unit P 60
Fixed Cost 450,000
Volume of Sales 50,000

CVP PERCETAGE
Sales P 3,750,000 100%
Less: Variable Cost 3,000,000 80%
Contribution Margin 750,000 20%
Less: Fixed Cost 450,000
Expected Income P 300,000
a. Contribution Margin Ratio = Contribution margin per unit/SP per unit
= P 15/ P 75
= 20%

b. Break-even point in units and pesos


Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 450,000/ 15
= 30,000 units

Break-even point in pesos= Fixed costs/ Contribution Margin Ratio


= P 450,000/ 20%
= P 2,250,000

c. Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 50,000 units x 15 – 450,000
= P 300,000

2. The new CMR, BEP in units and pesos and the expected income before tax (IBIT) in the
coming year if:

a. Unit sales price increase by 10%


b. Unit variable cost decrease by 20%
c. Total fixed costs increase to P 720,00
d. The number of units sold increases to 65,000
e. If unit sales price decreases by P 2, unit variable cost decreases by 10% and total
fixed costs increase by P 50,000
SOLUTION OF SENSITIVITY ANALYSIS:

Base Case Unit sales Unit variable Total fixed The number of Changes in A,
price increase cost decrease costs increase units sold B, C, D
by 10% by 20% to P 720,00 increases to
65,000
Variable Values
Sales Price per Unit P 75 82.5 82.5
Variable Cost per Unit P 60 P 48 48
Fixed Cost 450,000 720,000 720,000
Volume of Sales 50,000 65,000 65,000

CVP
Sales P 3,750,000 P 3,750,000 P 5, 362, 500
Less: Variable Cost 3,000,000 3,120,000
Contribution Margin 750,000 2,242,500
Less: Fixed Cost 450,000 720,000
Expected Income P 300,000 1,522,500

Changes in A, B, C, D
Contribution Margin Ratio = Contribution margin per unit/SP per unit
= P 34.5/ P 82.5
= 42%
Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 720,000/ 34.5
= 20,870 units
Break-even point in pesos = Fixed costs/ Contribution Margin Ratio
= P 720,000/ 42%
= P 1,714, 286

Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 65,000 units x 34.5 – 720,000
= P 1,522,500

A. Unit Selling Price = P 75 x 1.10 = 82.5


Contribution Margin Ratio = Contribution margin per unit/SP per unit
= P 22.5/ P 82.5
= 27%
Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 450,000/ 22.5
= 20,000 units

Break-even point in pesos = Fixed costs/ Contribution Margin Ratio


= P 450,000/ 20%
= P 2,250,000

Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 50,000 units x 22.5 – 450,000
= P 675,000

B. Unit Variable Cost = P 60 x .80 = P 48


Contribution Margin Ratio = Contribution margin per unit/SP per unit
= P 27/ P 75
= 36%

Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 450,000/ 27
= 16,667 units

Break-even point in pesos= Fixed costs/ Contribution Margin Ratio


= P 450,000/ 36%
= P 1,250,000

Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 50,000 units x 27 – 450,000
= P 900,000

C. Fixed Cost = 720,000


Contribution Margin Ratio = Contribution margin per unit/SP per unit
= P 15/ P 75
= 20%

Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 720,000/ 15
= 48,000 units

Break-even point in pesos= Fixed costs/ Contribution Margin Ratio


= P 720,000/ 20%
= P 3,600,000

Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 50,000 units x 15 – 720,000
= P 30,000

D. Units Sold = 65,000


Contribution Margin Ratio = Contribution margin per unit/SP per unit
= P 15/ P 75
= 20%

Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 450,000/ 15
= 30,000 units

Break-even point in pesos= Fixed costs/ Contribution Margin Ratio


= P 450,000/ 20%
= P 2,250,000

Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 65,000 units x 15 – 450,000
= P 525,000

Changes in E
Base Case Changes in E
Variable Values
Sales Price per Unit P 75 73
Variable Cost per Unit P 60 54
Fixed Cost 450,000 500,000
Volume of Sales 50,000 50,000

CVP
Sales P 3,750,000 P 3, 650, 000 100%
Less: Variable Cost 3,000,000 2,700,000 74%
Contribution Margin 750,000 950,000 26%
Less: Fixed Cost 450,000 500,000
Expected Income P 300,000 P 450, 000
Unit Sales Price = P 75- 2 = P 73
Unit Variable Cost = P 60 x .90 = P 54
Total Fixed Cost = P 450,000 + 50,000 = 500,000
Volume Sales = 50,000

Contribution Margin Ratio= Contribution margin per unit/SP per unit


= P 19/ P 73
= 26%
Break-even point in units = Total Fixed Cost/ Contribution Margin per unit
= P 500,000/ 19
= 26, 316 units

Break-even point in pesos= Fixed costs/ Contribution Margin Ratio


= P 500,000/ 26%
= P 1,923,077

Income before Tax = Units Sold x Contribution Margin per unit – Fixed Costs
= 50,000 units x 19 – 500,000
= P 450,000

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