costs at a relatively small proportion of the total costs. The fact that the Margin of Safety is $9,000 out of $5,000,000 in revenue might be taken as an indication that they are not doing a good job of controlling overhead, depending on how you define overhead. 3. The CVP does allow you to come up with a breakeven plan. The question is will they be able to achieve a breakeven plan since they already have such a low Margin of Safety and general economic issues, government cut-backs, Medicaid/Medicare
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9 Break-Even Point and Cost-Volume-Profit Analysis QUESTIONS 1. The variable costing income statement classifies costs by the way they behave. Variable costs are deducted from revenues to determine contribution margin and then fixed costs are deducted from contribution margin to determine operating profit. Break-even analysis involves a study of fixed costs, variable costs and revenues to determine the volume at which total costs equal total revenues. Hence, variable costing provides
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47 17. CVP Computation Var. cost per unit: Units sold: 410000 Price per unit: $68 $60 Fixed costs: $1,640,000 Revenue = Revenue = Total Variable Cost = Total Va 1. a. Contribution margin Contribution Margin = Total Revenues - Total Variable Costs Contribution Margin = $27,880,000 - $24,600,000 Contribution Margin = $3,280,000 b. Operating Income Operating Income = Total Revenue -Total Var. Costs - Fixed Costs Total Revenue Total Variable Cost Fixed Costs Operating Income 2. Effect of New
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expenses $12,000.00 60% $12.00 Contribution Margin $8,000.00 40% $8.00 Fixed Expenses $6,000.00 Net operating income $2,000.00 1. Total contribution margin $8,000.00 Total units sold 1,000 units Contribution margin per unit $8.00 per unit 2. Total contribution margin $8,000.00 Total sales $20,000.00 Contribution margin ratio 40%
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Variable Costs of production From the Example:- BEQ= FC/P-VC = $588,000 / (12.5 – 5.5) = $588,000 / 7 = 84,000 Flags So the company has to sell to breakeven Breakeven sales in dollars To compute contribution margin ratio = Contribution Margin per Unit Sales Price per Unit = 588,000 / (7/12.5)
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1.15 = 23,000 units) | $345,000 | $ 15.00 | | Variable expenses | 207,000 | 9.00 | | Contribution margin | 138,000 | $ 6.00 | | Fixed expenses | 70,000 | | | Net operating income | $ 68,000 | | | | | | 2. | Sales (20,000 units × 1.25 = 25,000 units) | $337,500 | $13.50 | | Variable expenses | 225,000 | 9.00 | | Contribution margin | 112,500 | $ 4.50 | | Fixed expenses | 70,000 | | | Net operating income | $ 42,500 |
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Selling price VCU: Variable cost per unit CMU: Contribution margin per unit FC: Fixed costs TOI: Target operating income 3-16 (10 min.) CVP computations. | | |Variable |Fixed |Total |Operating |Contribution |Contribution | | |Revenues |Costs |Costs |Costs |Income |Margin |Margin % | |a. |$2,200 |$ 800
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Selling price B=$80 Less Variable Costs= $30 Less Variable Costs= $44 Contribution margin= 60 Contribution Margin=$36 Labor Hours A= 6 Labor Hours b=3 Contribution Margin Per Hour A= $10 Contribution Margin Hours Per B=$12 Contribution Margin Given Contribution Margin Given 350 Hours= $3500 350 Hours= $4200 365
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000,000 | $1,400,000 | Fixed costs | $6,000,000 | $900,000 | $4,500,000 | $600,000 | Operating profit | $1,000,000 | $900,000 | $100,000 | $0 | Ratios: | | | | | Variable cost to sales | 75.352% | 89.286% | 52.083% | 70.000% | Contribution margin ratio | 24.648% | 10.714% | 47.917% | 30.000% | Utilization of capacity | 83.333% | 40.000% | 26.667% | 16.667% | Breakeven point: | | | | | Units | 214,286 | | | | Revenues | $24,342,857 | | | | Total Revenue Total Revenue
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cost – Low Total Maintenance cost Predict Costs: 1) Account Analysis 2) High-Low Method Contribution Margin: Sales -Variable Costs = Contribution Margin -Fixed Costs =Net Operating Income Used for external reporting Used by management Sensitivity analysis: if sales are down 10% or If sales are up by 10% what’s your income. Can be checked by CM Contribution Margin Ratio: Total CM/ Total Sales In terms of Units: CM Ratio: Unit CM/ Unit SP Break even point in
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