CMA Study Group

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. 



    ------------------------------
    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.



    ------------------------------
    JHON PAULO DE PADUA
    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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    Badar Ghafoor
    Accountant
    Dubai
    United Arab Emirates
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