For:
Questions and answers email: theotherwomaninmarriage@gmail.com
This
question may likely come out, so treat it with all fairness.
COST VOLUME PROFIT (C-V-P) ANALYSIS
THE ILLUSTRATION:
The
Other Woman In Marriage Plc is planning its production for next year. The Financial Controller had given you the
following data relating to the current period;
PRODUCTS
|
|
MAND1
|
MAND2
|
MAND3
|
|
SALES (UNITS)
|
25,000
|
20,000
|
30,000
|
|
Selling price
(unit)
|
100
|
150
|
250
|
|
Direct
materials
|
30
|
25
|
45
|
|
Direct labour
|
15
|
20
|
30
|
|
Direct expenses
|
25
|
15
|
20
|
|
Variable Overhead
|
20
|
30
|
50
|
Fixed overhead
is N2,000,000.
Required:
Calculate
the following:
1. Profit at total sales value
2. Contribution to sales ratio
3. Break-even point in value of
sales
4. Margin of safety at the total
sales value in (a above)
5. Break-even point in value of
sales if the sales value increases by 50%
SOLUTION:
Profit
at total sales value
|
|
MAND1
|
MAND2
|
MAND3
|
TOTAL
|
|
SALES
|
2,500,000
|
3,000,000
|
7,500,000
|
13,000,000
|
|
Less V.C
|
(2,250,000)
|
(1,800,000)
|
(4,350,000)
|
(8,400,000)
|
|
Contribution:
|
250,000
|
1,200,000
|
3,150,000
|
4,600,000
|
|
Less Fixed
Overhead
|
|
|
|
2,000,000
|
|
PROFIT
|
|
|
|
2,600,000
|
That
is the answer to a.
b. Contribution
to sales ratio = C/S= Contribution/
Sales x 100
= 4,600,000
13,000,000
X 100 = 35.38%
That is the answer to b.
c. Break Even Point in value of
sales is fixed Overhead/Contribution in ratio x 100.
B.E.P = 2,000,000
35.38 X 100 = 5,652,911
Note: Little explanation here:
We argued that we should not use the answer gotten from contribution to sales
ratio i.e. 35.38% in calculating Break Even Point. But from all my findings, it should be
used. But for clarity, you can do your
own findings.
d. Margin of safety = sales value
– breakeven sales.
13,000,000 – 5,652,911=7,347,089.
e. Break-even
point in value of sales if the sales value increases by 50%
let me
explain this last step. You need to add
50% to the total sale which is 13,000,000 by calculating 0.50 x 13,000,000 =
6,500,000. Then add it to the 13,000,000 = 19,500,000.
Then
you need to calculate for new contribution:
|
|
TOTAL
|
|
SALES
|
19,500,000
|
|
Less V.C
|
(8,400,000)
|
|
Contribution:
|
11,100,000
|
Our
new contribution is N11,100,000.
We
have to calculate for contribution to sales ratio.
CS Ratio
= Contribution/Sales x 100.
CS Ratio= 11,100,000
19,500,000 X 100 = 56.92%
Our new CS Ratio
is 56.92%
The new Break Even
Point will be Fixed Overhead /new CS Ratio X 100.
B.E.P = 2,000,000
56.92 X 100 = 3,513,703
That
is it guys, here is some workings below:
Workings for Variable cost
|
|
MAND1
|
MAND2
|
MAND3
|
|
Direct
materials
|
30
|
25
|
45
|
|
Direct labour
|
15
|
20
|
30
|
|
Direct expenses
|
25
|
15
|
20
|
|
Variable Overhead
|
20
|
30
|
50
|
|
Total
|
90
|
90
|
145
|
Note: I have to calculate the variable to
get to make the working fast.
Now
90 x 25,000 = 2,250,000.
90x20,000=1,800,000. 145x30,000=4,350,000.
Did
you know how we got the working of the above? 90 is the total of variables in
MAND1. Multiply it with the sales unit
in MAND1 which is 25,000 will give you 2,250,000. And that is how we got all others.
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