# CMA Study Group

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## Using CVP analysis in decision making

• #### 1.  Using CVP analysis in decision making

Posted 12-26-2020 04:42 AM

A company has sales of 500,000 ,variable cost of 300,000,  and pretax profit of 150000. If the company increase sales per unit increase by 10% and reduced fixed costs by 20%, and left variable cost per unit unchanged, what would be the new Breakeven point in sales dollars?

How to calculate fixed cost in this question?

My calculation

Fixed cost ÷ contribution margin ratio= pretax profit

CM ratio 0.4×150000 pre tax profit = 60000 fixed cost.

Explanation given in hock

Sales 500000

-Vc 300000

-pretax profit 150000

=50000 fixed cost

But if we used 50000 as a fixed cost we won't get 150000 pretax profit.

Please provide me the correct way of calculation.

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Mohammed Shakeeb Jabali
Student
Karwar
India
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• #### 2.  RE: Using CVP analysis in decision making

Posted 12-26-2020 07:57 AM

Hi,

Sales                         xx.        500,000

less:

Variable Cost             xx.        300,000

Contribution Margin.  xx.        200,000

less:

Fixed Cost.              xx..            50,000

Operating Profit.      xx.          =150,000

Hope this helps.

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Accountant
DUBAI
United Arab Emirates
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• #### 3.  RE: Using CVP analysis in decision making

Posted 12-27-2020 11:08 AM

Hi,

Sale            500,000  Increased by 10%                                      500,000X1.10  = 550,000

VC              300,000  Same                                                                                     300,000

Fixed Cost    50,000  Decreased by 20%                                     50000X.8             40,000

CM Ratio     04 (CM/Sales)                                                          0.45 (Revised CM/ Revised Sales)

Breakeven Revenu  125,000 US \$(Fixed Cost/CM Ration)         88,000 US \$ (Revised Fixed Cost/Revised CM Ratio)

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