CVPA | BEP | Brief Question | Descriptive Question | Analytical Question
Arjun EP
Cost Volume Profit Analysis
The cost volume profit analysis (CVPA) is also known as breakeven analysis.
CVPA determines the breakeven point for different sales volumes and cost structures.
It can be useful for managers for making short-term business decisions.
CVPA makes several assumptions; sales price, fixed cost and variable cost per unit are constant in CVPA.
CVPA also manages contribution margin.
The contribution margin is the difference between total sales and total variable costs.
The main motive of the business is to earn the profits.
For profit, the contribution margin must be exceed to total fixed costs.
The contribution margin may also be calculated per unit.
Break-Even Point Analysis
Breakeven point is an analysis system.
Under this system, variable cost, fixed cost, volume and changing profit are analyzed.
Break-even point analysis is the part of cost volume profit analysis.
It tells us about the level of sales where revenue equal to expenses viz total cost is equal to total sales.
In other words, if there is no profit, no loss that is called break-even point.
It is the important tool for profit planning.
If the production or sales is higher than breakeven point, there is profit.
In the same way, if there is production or sales less than breakeven point, there is loss.
There are three types of breakeven point:
Contribution margin income statement approach
Graphic approach
Formulas approach
Sales or production = Break-even point, No profit no loss
Sales or production > Break-even point, Profit
Sales or production < Break-even point, Loss
Brief Questions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 1
The extracted data of XYZ Company is given below:
Selling price per unit $50
Variable cost per unit $20
Required: (1) Contribution margin per unit; (2) Profit volume ratio
[Answer: (1) CMPU = $20; (2) P/V ratio = 40%]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 2
The following extracted information is given:
Sales $500,000
Variable cost $200,000
Fixed cost $50,000
Required: (1) P/V Ratio; (2) Profit for the period
[Answer: (1) 0.6 or 60%; (2) $250,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 3
Following data is given from Ultra Manufacturing Company for one month:
|
Sales in $400,000 |
Variable cost per unit $8 |
|
Selling price per unit $20 |
Fixed cost $50,000 |
Required: (a) P/V Ratio; (b) Profit for the month
[Answer: P/V ratio = 60%; Profit = $190,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 4
The extracted data are taken from AK Rice Mill for one month:
|
Sales 20,000 kg |
Variable cost per kg $30 |
|
Selling price per kg $60 |
Break even sales 10,000 kg |
Required: (1) Actual sales; (2) BEP sales
[Answer: (1) $12,00,000; (2) $600,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 5
The extracted data are given for one month:
Sales $12,00,000
Variable cost $6,00,000
Margin of safety $900,000
Required: (1) P/V Ratio; (2) Profit from margin of safety
[Answer: (1) P/V ratio = 0.5; (2) MOS = Rs 45,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 6
The following data for particular product is available:
Variable cost per unit $150
Selling price per unit $300
P/V ratio 0.5
Fixed cost $135,000
Required: (a) BEP in amount; (b) BEP in units
[Answer: (a) $270,000; (b) 1,800 units]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 7
ABC Traders has following extracted data:
Sales $300,000
BEP sales $180,000
Required: (a) Margin of safety; (b) Margin of safety ratio
[Answer: (a) $120,000; (b) 40%]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 8
DL Traders has following extracted data:
Sales $10,00,000
Variable cost $600,000
Fixed cost $150,000
Required: (1) P/V Ratio; (2) Sales amount to earn profit $500,000
[Answer: (1) 40%; (2) $16,25,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 9
BM Traders has following extracted data:
P/V ratio 40%
Fixed cost $150,000
Required:(1) Find out sales if profit is $5,00,000; (2) Find out sales if profit is $500,250 after 13% VAT
[Answer: (1) $16,25,000; (2) $18,12,500]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 10
The extracted data are given below:
Sales for the period (5,000 units) $500,000
Variable cost (5,000 units) $250,000
Fixed cost $100,000
Required: (1) P/V Ratio by rupees and unit; (2) Profit for the period
[Answer: (1) 50%; (2) $150,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 11
The following information is available:
Sales (1,000 units) $500 per unit
Fixed cost $150,000
Profit $125,000
Required: (1) P/V Ratio; (2) Variable cost; (3) Breakeven point in rupees and units
[Answer: (1) 55%; (2) $225,000; (3) $272,727 and 545 units;
* VCPU = $225,000 ÷ 1,000 units = $225]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 12
The following information is given by ABC Trading Company:
|
Sales price per unit $100 |
Fixed cost $800,000 |
|
Sales units 30,000 |
Profit $400,000 |
|
Variable cost per unit $60 |
|
Required: (1) Profit volume ratio; (2) BEP in units and rupees; (3) Margin of safety
[Answer: (1) 40%; (2) 20,000 units and $20,00,000; (3) $10,00,000]
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Descriptive Questions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 1
The following extracted information is given to you EP Company:
|
Years |
Sale amount |
Profit amount |
|
2020 |
$14,00,000 |
$1,50,000 |
|
2021 |
$16,00,000 |
$2,00,000 |
Required: (1) P/V Ratio; (2) Fixed cost for the period; (3) Variable cost for the year 2021
(4) Sales amount to earn $300,000 profit before tax; (5) If profit earned $175,000 after tax 30%, find out sales
[Answer: (1) 25%; (2) $200,000; (3) $12,00,000;
(4) $20,00,000; (5) $18,00,000]
DQ: 2
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
XYZ Manufacturing Company has following data:
Selling price per unit (SPPU) $90
Variable cost per unit (VCPU) $54
Fixed cost $400,000
Required: (calculate nearest units and rupees): (a) Profit volume ratio; (b) BEP in units and rupees;
(c) Determine rupee sales volume required to earn profit of $200,000
(d) Determine the sales volume in units to earn 20% return on sales price per unit
(e) If sales is $20,00,000 find out profit
[Answer: (a) 40%; (b) 11,111 units approx and $9,99,990;
(c) $15,00,000; (d) 22,222 units approx; (e) $400,000;
* Sales units = FC ÷ (SPPU – VCPU – Profit per unit)
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 3
The following data relates to ABC Manufacturing Company:
|
Cost per unit: |
|
|
Materials |
$90 |
|
Labour |
$45 |
|
Variable overheads |
$15 |
|
Selling price per unit |
$200 |
|
Fixed cost |
$135,200 |
|
Units sold during the year |
8,000 units |
Find out: (a) P/V Ratio; (b) Break-even point in units; (c) Break-even point in rupees; (d) Break-even ratio
[Answer: P/V Ratio = 25%; BEP units = 2,704 units;
BEP $= $540,800; BEP Ratio = 33.8%]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 4
The following data are obtained from the records of ABC Company:
|
Particulars |
First year |
Second year |
|
|
Sales |
$800,000 |
$900,000 |
|
|
Profit |
$100,000 |
$140,000 |
|
Required: (a) P/V Ratio; (b) Fixed cost; (c) Break-even-point; (d) Required sales in rupees for earn profit $180,000.
(d) Find out the profit if sales amount is $15,00,000.
[Answer: P/V Ratio = 40%; Fixed cost = $220,000; BEP = $550,000;
Sales = $10,00,000; Profit = $380,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 5
Himalayan Chemicals (P) Ltd manufactures washing shop. Its fixed cost has been budgeted for period is $1,80,000. The company expects to earn $60,000 profit. The variable cost per unit is $6 and profit-volume ratio is 0.6
Required: (a) Selling price per unit; (b) Break-even point in units; (c) Amount of sales made during the year.
(d) Required sales for earning $60,000 profit after VAT, if VAT rate is 13%.
[Answer: (a) $15; (b) 20,000 units; (c) $4,00,000; (d) $414,943]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 6
The break point of the manufacturing company is $480,000. Fixed cost is $120,000 variable cost is $3,000 per unit.
Required: (a) Profit volume ratio; (b) Selling price per unit; (c) Breakeven point in unit; (d) Required sales for earning $8,000
[Answer: (a) 25%; (b) $4,000; (c) 120 units; (d) $512,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 7
The cost and sales figures are available in rupees:
|
Sales $10,00,000 |
Fixed overhead $2,50,000 |
|
Variable costs $6,00,000 |
Profit $1,50,000 |
Required: (a) P/V ratio; (b) BEP; (c) Safety margin; (d) Sales figure to earn after profit of $2,40,000 at 40% corporate tax.
[Answers: (a) 40%; (b) $625,000; (c) $375,000; (d) $16,25,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 8
A manufacturing company’s record has the following trading results for two periods:
|
Periods I |
Sales in amount 5,00,000 |
Net profit in $35,000 |
|
Period II |
Sales in amount 8,00,000 |
Net profit in $1,10,000 |
Required: (a) P/V ratio; (b) Variable after tax for period I and II; (c) BEP;
(d) Sales required to earn after tax profit of $300,000 at 40% tax rate.
[Answers: (a) 25%; (b) Period I = $375,000 and period II = $600,000;
(c) $360,000; (d) 23,60,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 9
The operating results of AK Traders of the last year are:
|
|
First half year |
Second half year |
|
Sales |
$400,000 |
$900,000 |
|
Profit |
$50,000 |
$175,000 |
Required: (i) Profit volume ratio; (ii) Fixed Cost; (iii) BEP sales volume for the year;
(iv) Sales volume required to earn after tax profit of $84,000 at 40% tax rate.
[Answers: (i) 25%; (ii) $100,000; (iii) $400,000; (iv) $960,000]
* CMR = P/V ratio]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 10
The given information depict the operating result AL Trading Concern for the past two years:
|
Year |
Sales |
Net profit/Loss |
|
2020 |
$500,000 |
Loss $15,000 |
|
2021 |
$800,000 |
Profit $45,000 |
Required: (a) P/V Ratio; (b) Amount of fixed expenses; (c) Break-even point in rupees;
(d) Sales required to earn a desired profit of $75,000
[Answers: (1) 20%; (2) $115,000; (3) $575,000; (4) $950,000]
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Analytical Questions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 1
ABC Company has given following data for the month of October:
|
Particulars |
Total |
Fixed |
Variable |
|
Sales |
3,60,000 |
|
|
|
Cost of goods sold |
1,78,000 |
82,000 |
96,000 |
|
Selling expenses |
34,000 |
26,000 |
8,000 |
|
Administrative expenses |
24,000 |
20,000 |
4,000 |
|
Total |
5,96,000 |
1,28,000 |
1,08,000 |
Required: (calculate nearest amount)
(1) Profit for the month; (2) Profit volume ratio; (3) BEP in amount; (4) BEP ratio; (5) Sales amount if profit earning $150,000
(6) If sales are $650,000, find out profit; (7) Sales amount if profit earning $125,000 after tax 40%
[Answer: (1) $124,000; (2) 70%; (3) $182,857; (4) 50.79%;
(5) $397,143; (6) $327,000; (7) $480,476]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 2
ABC Company places before you the following trading results:
|
Month and year |
Units |
Total Costs |
Fixed cost |
Sales |
|
April 2021 |
10,000 |
800,000 |
300,000 |
10,00,000 |
|
May 2021 |
12,000 |
900,000 |
300,000 |
12,00,000 |
Find out: (for both months where necessary)
(a) Profit; (b) Variable cost; (c) P/V Ratio; (d) BEP in rupees; (e) BEP ratio; (f) Margin of safety;
(g) Profit on the basis of margin of safety
[Answer: Profit = $200,000 and $300,000;
Variable cost = $500,000 and $600,000;
P/V Ratio = 50%; BEP = $600,000; BEP ratio = 60% and 50%;
MOS = $400,000 and $600,000;
MOS profit $200,000 and $300,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 3
The sales director of ABC Company collected cost data as below:
Sales 10,000 units @ $100 per unit
Pocket costs 10,000 units @ $50 per unit
Burden costs $300,000 for 10,000 units
Profit $200,000.
Required: (a) P/V Ratio; (b) Break-even in rupees; (c) Breakeven point units: (d) Make a profit of $30 per unit;
(e) Make a profit of 20% of sales units; (f) Make a profit of $300,000; (g) Make a loss of 10% of sales units
[Answer: (a) 50%; (b) $600,000; (c) 6,000 units; (d) 15,000 units;
(e) 10,000 units; (f) $12,00,000; (g) 5,000 units;
* Pocket cost = Variable cost; Burden cost = Fixed cost]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 4
JK Agro (P) Ltd has following data:
Income Statement
|
Particulars |
Per unit |
Amount |
|
Sales |
20 |
400,000 |
|
Less: Variable cost |
15 |
300,000 |
|
Contribution |
5 |
100,000 |
|
Less: Fixed cost |
− |
50,000 |
|
Net income |
|
50,000 |
Required: (1) Profit volume ratio; (2) Margin of safety; (3) Margin of safety ratio
(4) BEP in units and rupees if
(a) Fixed cost increased by 10%
(b) Variable cost per unit increased by 10%
(c) Selling price decreased by 10%
(5) New sales when profit is earned $100,000; (6) Sales if profit $75,000 after tax 50%
[Answer: (1) 25%; (2) $200,000; (3) 50%;
(4) (a) 11,000 units, $220,000; (b) 14,286 units, $285,720;
(c) 16,667 units, $333,340;
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