Answers - CVP Analysis
2. Behavior of total fixed costs;
a. When the volume of production increases the total fixed costs do not change
b. When the volume of production decreases the total fixed costs do not change
3. Behavior of total variable costs;
a. When the volume of production increases the total variable costs increases
b. When the volume of production decreases the total variable costs decreases
4. Contribution margin is the surplus amount to be contributed to cover the fixed costs after the variable costs have been deducted from the revenues/sales.
5. Break-even price is the price-point where the sales equal the costs and thus, no profits or losses are incurred.
6 (a). Contribution margin per unit = selling price per unit − variable cost per unit
= (500,000/100,000) − (160,000/100,000)
= 5 − 1.6
= 3.4
(b). Break-even Sales Volume = Fixed cost / Contribution margin ratio
= (120,000) / (3.4/5 x 100)
= 120,000 / 68%
= 176,470.59
(c). Margin of safety = actual sales volume − break-even sales volume
= 500,000 − 176,470.59
= 323,529.41
7(a). Contribution margin per unit = selling price per unit − variable cost per unit
= (6,000,000/2,000,000) − (650,000/2,000,000)
= 3 − 0.325
= 2.675
(b). Contribution margin ratio = (contribution margin per unit / sales price per unit) x 100
= (2.675/3) x 100
= 0.89166 x 100
= 89.17%
8. Break-even Sales Volume = Fixed cost / Contribution margin ratio
= 750,000 / 89.17%
= $841,090.05
9. Break-even Sales in units = Fixed cost / Contribution margin per unit
= 750,000 / 2.675
= 280,374 units
10. Break-even Sales in units = (Fixed cost + Target income) / Contribution margin per unit
= (750,000 + 3,000,000) / 2.675
= 3,750,000 / 2.675
= 1,401,870 units