Question

Create a simple product or service that you would like to sell. Present the following (show your calculations) in a written document:

1. Cost per unit—variable costs per unit only, and fixed costs with an assumed level of production.
2. Sales price per unit
3. Selling and Administrative costs-- variable costs per unit only, and fixed costs with the same assumed level of production that was used in #1.
4. Breakeven point in units and in dollars.
5. CVP income statement using an assumed level of sales that does not exceed the assumed level of production used in #1.

Answer 1

LET US ASSUME,

THE UNITS OF PRODUCED IS 22,000 UNITS

SALES UNITS =20,000

SELLING PRICE =$60 PER UNIT

VARIABLE COST :-

SELLING & ADMIN COST =$45 PER UNIT

FIXED COST = $ 2,40,000

CVP ANALYSIS:

FOR CVP ANALYSIS ,

WHICH MEANS COST VOLUME PROFIT ANALYSIS,

IS ALSO KNOWN AS BREAKEVEN ANALYSIS

GENERALLY UNDERGO 5 STEPS:

1. PV RATIO AND VARIABLE COST RATIO

2. BEP (BREAK EVEN POINT)

3. MOS( MARGIN OF SAFETY)

4. CHANGES IN NET INCOME

5. DEGREE OF OPERATING LEVERAGE

COMPUTATION IS AS UNDER:

SALES (PER UNIT =60)	60*20000	1200000
- VARIABLE COST (PER UNIT=45)	45*20000	(900000)
CONTRIBUTION	15	300000
-FIXED COST		(240000)
NET INCOME		60000

PV RATIO = CONTRIBUTION /SALES

=15/60*100

=25%

THEREFORE ,PV RATIO =25%

VARIABLE COST RATIO = 100-PV RATIO=100-25

=75%

BEP=FIXED COST / CONTRIBUTION

=240000/15

=16000 UNITS

BEP SALES = 16000* $60=$960000

WHICH MEANS THE BEP IS AT 16000 UNITS WHERE THERE IS NO PROFIT OR LOSS

MOS=ACTUAL SALES - BEP SALES

=1200000-960000

=$240000

THIS IS THE CVP ANALYSIS WHERE THE COMPANY CAN MAKE DECISIONS REGARDING PRODUCING ANDF SELLING TH PRODUCT