CHAPTER 5

COST – VOLUME – PROFIT (CVP) ANALYSIS

Formulas

 Total Contribution Margin = Total Sales – Total Variable Cost

 Contribution Margin per unit = Per Unit Selling Price – Per Unit Variable Costs

 Total Profit = Total Contribution Margin –Total Fixed Cost

 Breakeven point = Activity level at which neither profit nor loss

Or When Total Contribution = Total Fixed Cost

 Contribution to Sales (C/S Ratio) % = Contribution Margin × 100

Or Profit to Volume (P/V) Ratio) % Sales

 Sales revenue at breakeven point = Fixed costs

C/S ratio

 Margin of safety (in units) = Budgeted sales units – Breakeven sales units

 Margin of safety (as %) = Budgeted sales – Breakeven sales X 100

Budgeted sales

 Sales in Units to achieve = Fixed Cost + Target Profit

Target profit Contribution per Unit
Question 1:

A company makes and sells a single product. The selling price is PKR 12 per unit. The variable cost of making
and selling the product is PKR 9 per unit and total fixed costs per month are PKR 240,000.

The company budgets to sell 90,000 units of the product a month.

Required:

1. What is the Contribution Margin per Unit?

2. Calculate the C/S Ratio?
3. What is the budgeted profit per month
4. What is the breakeven point Units and in Sales Revenue?
5. What is the margin of safety in units and in percentage?
6. What must sales be to achieve a monthly targeted profit of PKR 120,000?

Question 2:

Abid Company makes and sells a single product. The selling price is PKR 24 per unit. The variable cost of
making and selling the product is PKR 18 per unit and total fixed costs per month are PKR 480,000.

The company budgets to sell 100,000 units of the product a month.

Required:

1. What is the Contribution Margin per Unit?

2. Calculate the C/S Ratio?
3. What is the budgeted profit per month
4. What is the breakeven point Units and in Sales Revenue?
5. What is the margin of safety in units and in percentage?
6. What must sales be to achieve a monthly targeted profit of PKR 240,000?
Question 3:

Ahmed Company makes and sells a single product. The selling price is PKR 240 per unit. The variable cost of
making and selling the product is PKR 180 per unit and total fixed costs per month are PKR 1500,000.

The company budgets to sell 30,000 units of the product a month.

Required:

1. What is the Contribution Margin per Unit?

2. Calculate the C/S Ratio?
3. What is the budgeted profit per month
4. What is the breakeven point Units and in Sales Revenue?
5. What is the margin of safety in units and in percentage?
6. What must sales be to achieve a monthly targeted profit of PKR 900,000?

Question 4:

Hassan Company makes and sells a single product. The selling price is PKR 120 per unit. The variable cost of
making and selling the product is PKR 90 per unit and total fixed costs per month are PKR 750,000.

The company budgets to sell 30,000 units of the product a month.

Required:

1. What is the Contribution Margin per Unit?

2. Calculate the C/S Ratio?
3. What is the budgeted profit per month
4. What is the breakeven point Units and in Sales Revenue?
5. What is the margin of safety in units and in percentage?
6. What must sales be to achieve a monthly targeted profit of PKR 600,000?