CMA Study Group

CVP Analysis

  • 1.  CVP Analysis

    Posted 16 days ago

    is there any other way to solve this question??


    Fact Pattern:  MultiFrame Company has the following revenue and cost budgets for the two products it sells:
    Plastic
    Glass
    Frames
    Frames
    Sales price
    $10.00
    $15.00
    Direct materials
    (2.00)
    (3.00)
    Direct labor
    (3.00)
    (5.00)
    Fixed overhead
    (3.00)
    (4.00)
    Net income per unit
    $  2.00
    $  3.00
    Budgeted unit sales
    100,000
    300,000
    The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at $975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations, MultiFrame rounds to the nearest cent and unit. Question: 20The total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000 units of glass frames with all other costs remaining constant is
    Answer (C) is correct.
    The unit contribution margins for plastic frames and glass frames are $5 ($10 – $2 – $3) and $7 ($15 – $3 – $5), respectively. If the number of plastic frames sold is 50% of the number of glass frames sold, a composite unit will contain one plastic frame and two glass frames. Thus, the composite unit contribution margin will be $19 ($5 + $7 + $7), and the breakeven point in units will be 153,947 [3 units × ($975,000 ÷ $19)].


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    Tayba Al-Mehdar
    Analyst
    Khobar
    Saudi Arabia
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  • 2.  RE: CVP Analysis

    Posted 16 days ago
    Hi,


    Contribution Margin for Plastic Frames is 5 and Glass Frames 7.

    A composite unit will contain one plastic frame and two glass frame

    5X1/3 = 1.66 Plastic Frames
    7X2/3 = 4.66 Glass Frames
    Total = 6.32 CM per basket
    =975000/6.32  = 154,272 Units

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    Badar Ghafoor
    Accountant
    Dubai
    United Arab Emirates
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  • 3.  RE: CVP Analysis

    Posted 15 days ago

    Hello Badar,

    If you use this approach, you should not round the CM per basket.

    CM per basket = (5X1/3 for Plastic Frames) + (7X2/3 for Glass Frames) = 19/3
    Breakeven point in units = 975,000 ÷ (19/3) = 153,947



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    Felix Lawson
    Finance Officer
    Kenya
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  • 4.  RE: CVP Analysis

    Posted 16 days ago
    Hi,

    You may refer to the CVP Analysis - Multi-product calculation.

    Multi-product breakeven point = Total Fixed Cost / Weight-average Unit Contribution Margin

    Weight-average UCM = $5 x (150,000 units/ 450,000 units) + $7 x ( 300,000 units/ 450,000 units) = $6.33333

    Multi-product breakeven point = $975,000 / 6.33333= 153,947 units

    Hope that helps

    Thanks,


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    An Le
    Director/Manager
    Ho Chi Minh
    Viet Nam
    ------------------------------