BE Analysis

Florabelle May D.
Libawan
Pls. answer the following:
Break-Even Analysis:
From the following particulars, calculate:
Prob. 1.
(i) Break-even point in terms of sales value and in units.
(ii) Number of units that must be sold to earn a profit of P90,000.
Fixed Factory Overheads Cost 60,000
Fixed Selling Overheads Cost 12,000
Variable Manufacturing Cost per unit 12
Variable Selling Cost per unit 3
Selling Price per unit 24
i. Break-even point = Fixed cost/ Selling Price per unit – Variable cost per unit
= 60,000 + 12,000/ (12+3) – 24
= 72,000 / 9
Break-even Point in units = 8,000 units
Break-even Point in sales = B.E.P in units x Selling price per unit
= 8,000 x 24 = P 192,000
ii. Unit Sales to attain target profit = Target Profit + Fixed Cost / Unit CM
= 90,000 + 72,000 / 9 = 18,000 units
Prob. 2 From the following data, you are required to calculate:
(a ) Break-even sales Peso

(b) Sales required to earn a profit of P 450,000
Data:
Fixed Expenses = P 90,000
Variable Cost per unit:
Direct Material = P5
Direct Labour = P 2
Direct Overheads = 100% of Direct Labour
Selling Price per unit = P 12.
a. Sales to Break-even = Fixed Expenses / CM Ratio

= 90,000 / .25 = P 360,000
b. Unit Sales to attain target profit = Target Profit + Fixed Cost / CM Ratio
= 450,000 + 90,000 / .25 = P 2,160,000
Prob. 3
From the following particulars, find out the break-even-point:

Florabelle May D. Libawan
Variable Cost per unit 15

Fixed Expenses 54,000
Selling Price per unit 20
Break-even point = Fixed cost/ CM Per Unit

= 54,000 / 5 = 10,800 units
What should be the selling price per unit, if the break-even point should be brought down to
6,000 units?
Break-even Point = Fixed Expenses / CM Per Unit
6,000= 54,000 /CM Per Unit
CM Per Unit = 54,000 / 6,000 = P 9
Selling Price = CM per unit + Variable Cost per unit = P 9 + P 15 = P 24
Prob. 4 A company is making a loss of P 40,000 and relevant information is as follows:
Sales P 120,000; Variable Costs P60,000; Fixed costs P 100,000.

Loss can be made good either by increasing the sales price or by increasing sales volume.
What are Break even sales if
(a) Present sales level is maintained and the selling price is increased to P150,000
(b) If present selling price is maintained and the sales volume is increased. What would be sales
if a profit of P100,000 is required ?
a. Break-even sales = Variable Cost+Fixed Cost

= P 60,000 + P 100,000 = P 160,000
Contribution Margin= Sales – Variable Cost = P 120,000 – P 60,000 = P 60,000

Contribution Margin Ratio= (Contribution/Sales)100= (P 60,000/120,000)100= 50%
BEP in sales = (Fixed Costs/CM Ratio) 100 = 100,000/50 x 100 = P 200,000
b. Desired Sales = Fixed Cost + Desired Profit/CM Ratio

= (100,000 + 100,000)/50%
= (200,000 x 100) / 50 = P 400,000
Prob. 5. Sales Mix; Break-Even Analysis; Margin of Safety
Puleva Milenario SA, a company located in Toledo, Spain, manufactures and sells two models
of luxuriously finished cutlery - Alvaro and Bazan. Present revenue, cost, and unit sales data for
the two products appear below. All currency amounts are stated in terms of Peso, which are
indicated by the symbol P
Alvaro Bazan
Selling price per unit P40.00 P60.00
Variable Expenses per unit P 24.00 P12.00

Number of units sold monthly 2000 units 800 units
Fixed expenses are P60,000 per month
Required:
1.Assuming the sales mix above, do the following:
a.Prepare a contribution format income statement showing both peso and percent columns for
each product and for the company as a whole.
Puleva Milenario SA
Contribution Income Statement
ALVARO BAZAN TOTAL

Amount Percent Amount Percent Amount Percent
Sales P 80,000 100% P 48,000 100% P 128,000 100%
Variable Expenses 48,000 60% 9,600 20% 57,600 45%
Contribution Margin P 32,000 40% P 38,400 80% 70,400 55%
Net Operating Income P 10,400
b.Compute the break-even point in peso for the company as a whole and the margin of safety in
both peso and percent of sales.
Computation of the break-even point = Fixed Expenses = P 60,000 = P 109,090.90

Overall CM ratio .55
Margin of safety in peso = Total budgeted (or actual) sales - Break-even sales
= 128,0000 - 109,090.90 = P 18,909.10
Margin of safety in percentage = Margin of safety in peso = 18,909.10 = 14.77%

Total budgeted (or actual) sales 128,000
2.The company has developed another products, Cano, that the company plans to sell for P80
each. At this price, the company expects to sell 40 units per month of the products. The variable
expense would be P60 per unit. The company’s fixed expenses would not change.
a.Prepare another contribution format income statement, including sales of Cano (sales of the
other two products would not change)
Puleva Milenario SA
Contribution Income Statement
ALVARO BAZAN CANO TOTAL

Amount Percent Amount Percent Amount Percent Amount Percent
Sales P 80,000 100% P 48,000 100% P 3,200 100% P131,200 100%
Variable Expenses 48,000 60% 9,600 20% 2,400 75% 60,000 45.73%
Contribution Margin P 32,000 40% P 38,400 80% P 800 25% P71,200 54.26%
Net Operating Income P11,200
b.Compute the company’s new break-even point in Peso for the company as a whole and the
new margin of safety in both peso and percent of sales.
Computation of the break-even point = Fixed Expenses = P 60,000 = P 110,578.70

Overall CM ratio .5426
Margin of safety in peso = Total budgeted (or actual) sales - Break-even sales
= 131,200 – 110,578.70 = P 20,621.30
Margin of safety in percentage = Margin of safety in peso = 20,621.30= 15.72%

Total budgeted (or actual) sales 131,200
3.The president of the company was puzzled by your analysis. He did not understand why the
break-even point has gone up even though there has been no increase in fixed expenses and
the addition of the new product has increased the total contribution margin. Explain to the
president what has happened.
Even though there is no increase in the fixed cost and there is an additional product, the break-
even point has gone up this is because particularly because the bulk of sales came from the
less profitable product which is the Alvaro. Moreover, with the addition of the new product, the
CM ratio has increased. Because the company is now realizing less average contribution
margin per dollar of sales, it takes more sales to cover the same amount of fixed costs. Thus,
the break-even point has increased.
In order to be more profitable, they have to increase total sales or decrease the break-even
point. To decrease the break-even point, they have to either decrease their fixed expenses or
increase the unit contribution margin by increasing the selling price or decreasing the variable
cost per unit.
END

BE Analysis

Uploaded by

Copyright:

Available Formats

BE Analysis

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BE Analysis

Uploaded by

Copyright:

Available Formats

Florabelle May D.

Pls. answer the following:

Prob. 2 From the following data, you are required to calculate:

(a ) Break-even sales Peso

a. Sales to Break-even = Fixed Expenses / CM Ratio

From the following particulars, find out the break-even-point:

Variable Cost per unit 15

Break-even point = Fixed cost/ CM Per Unit

Prob. 4 A company is making a loss of P 40,000 and relevant information is as follows:

Sales P 120,000; Variable Costs P60,000; Fixed costs P 100,000.

a. Break-even sales = Variable Cost+Fixed Cost

Contribution Margin= Sales – Variable Cost = P 120,000 – P 60,000 = P 60,000

b. Desired Sales = Fixed Cost + Desired Profit/CM Ratio

Prob. 5. Sales Mix; Break-Even Analysis; Margin of Safety

Variable Expenses per unit P 24.00 P12.00

Fixed expenses are P60,000 per month

ALVARO BAZAN TOTAL

Computation of the break-even point = Fixed Expenses = P 60,000 = P 109,090.90

Margin of safety in percentage = Margin of safety in peso = 18,909.10 = 14.77%

ALVARO BAZAN CANO TOTAL

Computation of the break-even point = Fixed Expenses = P 60,000 = P 110,578.70

Margin of safety in percentage = Margin of safety in peso = 20,621.30= 15.72%

You might also like