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CVP ANALYSIS Prob.

This document contains 7 practice problems related to cost-volume-profit (CVP) analysis. Problem 1 asks the reader to calculate net income, break-even point, and contribution margin ratio for a beverage company. Problem 2 involves calculating break-even points for a manufacturing company considering new equipment. Problem 3 requires calculating contribution margins and break-even units for two product models. Problems 4-7 involve additional CVP calculations for various scenarios.

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666 views

CVP ANALYSIS Prob.

This document contains 7 practice problems related to cost-volume-profit (CVP) analysis. Problem 1 asks the reader to calculate net income, break-even point, and contribution margin ratio for a beverage company. Problem 2 involves calculating break-even points for a manufacturing company considering new equipment. Problem 3 requires calculating contribution margins and break-even units for two product models. Problems 4-7 involve additional CVP calculations for various scenarios.

Uploaded by

Gale Ras
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CEBU CPAR/ COLUMBAN COLLEGES

CPA REVIEW

HANDOUT No. MSO-1107 October 2011

CVP ANALYSIS
PROBLEM 1
Ripple Company bottles and distributes Ripple Fizz, a flavored wine beverage. The
beverage is sold for P1 per 8-ounce bottle to retailers. Management estimates the
following revenues and costs at 100% of capacity.

Net sales P2,100,000 Selling expenses-variable P90,000


Direct materials 500,000 Selling expenses-fixed 70,000
Direct labor 300,000 Administrative expenses-variable 20,000
Manufacturing overhead-variable 350,000 Administrative expenses-fixed 50,000
Manufacturing overhead-fixed 275,000

Instructions
A. How much is net income for the year using the CVP approach?
B. Compute the break-even point units and pesos.
C. How much is the contribution margin ratio?

PROBLEM 2
Jay Manufacturing’s sales slumped badly in 2008 due to so many people purchasing
gifts online. The company’s income statement showed the following results from selling
500,000 units of product: Net sales, P2,000,000; total costs and expenses, P2,500,000;
and net loss of P500,000. Costs and expenses consisted of the following:

Total Variable Fixed


Cost of goods sold P2,000,000 P1,300,000 P700,000
Selling expenses 200,000 50,000 150,000
Administrative expenses 300,000 150,000 150,000
P2,500,000 P1,500,000 P1,000,000
Management is considering the following alternative for 2009:
Purchase new automated equipment that will change the proportion between
variable and fixed costs to 40% variable and 60% fixed.

Instructions
A. Determine the selling price per unit.
B. Compute the break-even point in pesos for 2008.
C. Compute the break-even point in pesos under the alternative course of action for
2009.
D. Which course of action do you recommend? Justify your answer.
PROBLEM 3
Homer Company produces two models, Bart and Lisa. Information regarding these
models is summarized for the month of March in the following table:

Bart Lisa
Number of units 3,000 7,000
Sales revenue P60,000 P70,000
Fixed costs 12,000 25,000
Variable costs 30,000 21,000
Net Income P18,000 P24,000

Selling price per unit P20 P10


Contribution margin per unit P10 P7

Fixed costs of Bart will be avoided if only the Lisa model is produced.

Instructions
A. Show how the contribution margin per unit of the Bart model was calculated.
B. If Homer produces ONLY the Lisa model, how many units must it sell to earn
operating income of P35,000?

PROBLEM 4
Gloria Meehan is considering opening a window tinting business. She estimates that the
following costs will be incurred during the first year of operations: Rent, P3,000;
Depreciation on equipment, P5,000; Wages, P3,500 (based on 500 windows tinted in the
previous year); tinting, P3 per square foot. Each window tinted takes 4 square feet of
tint. Gloria anticipates that she will tint each window for a retail price of P35 each.

Instructions
A. Determine variable costs per unit and total fixed costs.
B. Determine the break-even point in number of windows to be tinted.
C. How many windows need to be tinted to earn income of P14,000?
D. How many windows need to be tinted to earn income of P14,000 net of 30% tax?
E. How much is the total revenue in question D?

PROBLEM 5

Laboratorio Unico, Inc. formulates and sells three major chemicals:


C!, C2 and C3. I
It sells to industrial users who use and buy these chemicals in the following ratio:
three (3) measures of C1 for one (1) measure of C3,
two (2) of C2 per one (1) measure of C1.

The company provides the following information per measure


Selling Price Variable cost
C1 P80 P50
C2 P90 P45
C3 P150 P60

Fixed costs amounted to P1.8 million.

1. What is the break-even-point?


2. At break-even point, the volume of C3 to be sold would be?
PROBLEM 6
The Reef Motel has the following monthly telephone records and costs:
Calls Costs
3,000 P4,400
2,500 3,000
3,500 4,100
3,300 2,900
2,700 3,400
Instructions
Identify the fixed and variable cost elements using the high-low method.

PROBLEM 7

Analysis of CVP Graph

Answer the questions based on the following information for the


cost-volume-profit chart below:

Cost-Volume-Profit Chart
15 ______________________________
__ E
__
__
__
10 __ C
----------------------------- 
__
__
B _______________________
Units
5 __
__ F
__
__ D
__
_________________________
_____
A 100 200 300 400 500
Units

1. Which of the following labeled points on this chart is the breakeven point?

2. Which of the following items is graphically represented on the cost-volume-profit


chart as the difference between labeled points E and F?
3. What is line B?

4. What is D represent?

5. What is the breakeven point in units?

6. What is the margin of safety?

7. What is the variable ratio?

8. How much is the fixed cost?

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