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CVP and Cost

CVP and Cost Exercises

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14 views

CVP and Cost

CVP and Cost Exercises

Uploaded by

miralouaujuaniza10
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Variable Costing - 2.

General and Administrative Costs


Cost Classification • All other non-production costs incurred in
the over-all administration of the business,
other than sales.
Costs refers to the monetary expenditure
incurred by the business in its day-to-day
operations. Classification by Behavior

Cost classification refers to the logical VARIABLE COSTS


process of categorizing the different costs ● Costs that varies in proportion to the
involved in a business process. level of business activity (units
produced, machine hours, product
•Classification by nature: Costs are shipment, etc).
differentiated by its purpose to the business. ● Total variable increases as the
related activity volume increases,
•Classification by behavior: Costs are but the variable cost per unit
differentiated by how it reacts or changes remains constant.
based on the level of business activity.
FIXED COSTS
Classification by Nature ● Costs that remain constant
regardless of activity or production
levels.
PRODUCT COST
● When production increases, fixed
● Costs incurred in acquiring or
cost per unit decreases.
creating a product.
Consequently, when production
● Also known as inventoriable costs
decreases, fixed cost per unit
● These costs are charged to profit or
increases.
loss only when a product is sold.

MIXED COSTS
1. Direct Materials
● Costs that contains both variable
• Raw materials that forms an integral part of
and fixed components.
the finished product and are directly traceable
● For better cost analysis, the variable
to it.
and fixed components of fixed costs
must be separated
2. Direct Labor
• Costs of labor incurred that is directly
attributable to the finished product.

3. Manufacturing Overhead
• All other costs incurred in the production line
that is not directly traceable to a product.

PERIOD COST
● All other costs incurred by the
business other than production.
● These costs are immediately
reported to profit or loss in the
period it was incurred.

1. Selling Costs
• Costs incurred to secure orders and send
the product to the customers.
Cost-Volume-Profit Analysis •Formula for break-even point (BEP) in
terms of total sales:
CVP Analysis is the process of managing
costs and sales volume as they impact profit. BEP (sales) = Total fixed cost + Contribution
Margin Ratio
Profit Planning is the process of anticipating
profit under varying conditions and analyzing MARGIN OF SAFETY
the effects of variables affecting it. ● The amount by which sales can drop
before losses are incurred.
CVP analysis and profit planning utilizes ● The higher is the margin of safety,
the variable costing method. the lower is the risk of not breaking
even and incurring losses.

•Formula for margin of safety (MoS) in


terms of units sold:

MoS (units) = Actual sales volume - BEP


(units)

•Formula for margin of safety (MoS) in


terms of total sales:

Contribution Margin Format Income MoS (sales) = Actual sales - BEP (sales)
Statement
•Formula for margin of safety (MoS) ratio:

MoS Ratio = MOS sales : Actual sales

TARGET PROFIT ANALYSIS


● The estimation of sales level needed
to achieve a specific target profit.
CM = Sales-Variable Costs
•Formula for target profit (TP) in terms of
CM = Fixed Costs+Net Income units sold:

CM = Units sold x UCM TP (units) = (Total FC + Target Profit) ÷ CM


per unit
CM = Sales x CM ratio
•Formula for target profit (TP) in terms of
BREAK-EVEN POINT total sales:
● The level at which total sales equals
total costs. TP (sales) = (Total FC + Target Profit) +
● The Company recognize no profit Contribution Margin Ratio
nor loss.
● Total contribution margin equals total
fixed costs.

•Formula for break-even point (BEP) in


terms of units sold:

BEP (units) = Total fixed cost + Contribution


Margin per unit
SAMPLE PROBLEM
TP (units) = (Total fixed cost + Target profit) +
Pilot Company establishes the following Unit CM = (P400,000 + P320,000) ÷ P80 =
information for its profit planning activities: P720,000 ÷ P80 = 9,000 units

Unit sales price: P200 TP (sales) = (Total fixed cost + Target profit) ÷
Total fixed costs: P400,000 CM Ratio = (P400,000 + P320,000) + 40% =
Unit variable costs: P120 P720,000 ÷ 40% = P1,800,000
Units sold: 8,000 units

Determine the ff.


1. Unit CM, CM Ratio, and VC Ratio
2. BEP in units and in pesos 4. Target profit analysis
3. MoS units, sales, and ratio
4. Target profit analysis if the Company TP (units) = (Total fixed cost + Target profit) ÷
targets to realized P320,000 profits. Unit CMTP (units)
= (P400,000 + P320,000) ÷ P80
Sample problem - Solution = P720,000 ÷ P80
= 9,000 units
1. Unit CM, CM Ratio and VC Ratio
TP (sales) = (Total fixed cost + Target profit) ÷
Unit CM = Unit selling price - Unit variable CMRatio
cost = (P400,000 + P320,000) ÷ 40%
= P200 - P120 = P80 = P720,000 ÷ 40%
= P1,800,000
CM Ratio = Unit CM + Unit selling price
= P80 = 40% P200

VC Ratio = Unit VC + Unit selling price


= P120 60% P200

2. Break-even point (BEP)

BEP (units) = Total fixed cost ÷ Unit CM


= P * 400000 / P * 8o = 5,000 units

BEP (sales) = Total fixed cost ÷ CM Ratio


= P * 400000/40 \% = P1,000,000

3. Margin of safety (MoS)

MoS (units) = Actual sales volume - BEP


(units)
= 8,000 units - 5,000 units = 3,000 units

MoS (sales) = Actual sales - BEP sales


= P1,600,000 - P1,000,000 = P600,000

MoS Ratio = MoS sales Actual sales


= P600,000 + P1,600,000 = 37.50%

Sample problem - Solution

4. Target profit analysis

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