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Break-Even Analysis for AAA Company

The document outlines a series of problems related to cost-volume-profit (CVP) analysis for AAA Company and Bam, focusing on break-even points, contribution margins, profit planning, and margin of safety. It provides calculations for unit selling prices, variable costs, and required sales for desired profits. Additionally, it includes detailed computations for fixed costs, sales, and profit margins for both companies.

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Ezrella Valeria
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5 views5 pages

Break-Even Analysis for AAA Company

The document outlines a series of problems related to cost-volume-profit (CVP) analysis for AAA Company and Bam, focusing on break-even points, contribution margins, profit planning, and margin of safety. It provides calculations for unit selling prices, variable costs, and required sales for desired profits. Additionally, it includes detailed computations for fixed costs, sales, and profit margins for both companies.

Uploaded by

Ezrella Valeria
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Management Science

ACTIVITY
CVP, BREAK-EVEN POINT
Problem 1
AAA Company manufactures and sells a Sales P 37,500 (1,500 units)
single product. The company sales and Less: Variable Costs 15,000
expenses for the recent month follows: Contribution Margin P 22,500
Less: Fixed Costs 15,000
Profit P 7,500

1. Determine the following:


a. Unit selling price P 25 P 37,500 ÷ 1,500 units

b. Unit variable cost per unit P 10 P 15,000 ÷ 1,500 units


c. Contribution margin ratio 60% P 22,500 ÷ P 37,500

• What is the monthly break-even point in units sold and in peso sales?
• What is the total contribution margin at break-even point?
Problem 1
AAA Company manufactures and sells a Sales P 37,500 (1,500 units)
single product. The company sales and Less: Variable Costs 15,000
expenses for the recent month follows: Contribution Margin P 22,500
Less: Fixed Costs 15,000
Profit P 7,500

2. For the purpose of profit planning, compute the following:


a. Break-even point in units 1000 units P 15,000 ÷ P 15 Fixed Costs ÷ CM per unit

b. Break-even point in peso sales P 25,000 P 15,000 ÷ 60% Fixed Costs ÷ CM ratio
Problem 1
AAA Company manufactures and sells a Sales P 37,500 (1,500 units)
single product. The company sales and Less: Variable Costs 15,000
expenses for the recent month follows: Contribution Margin P 22,500
Less: Fixed Costs 15,000
Profit P 7,500
3. What unit sales are required to earn P9,000 profit for the 1600 units (P 15,000 + (Fixed Costs + profit) ÷
9,000) ÷ P 15 CM per unit
month?
4. What peso sales are required to earn an after-tax profit of P 40,000 (P 15,000 + (P7,200 ÷ (100% - 20%)) ÷ 60%
P7, 200 (assuming tax rate of 20%)
(Fixed cost + (after-tax profit ÷ (100% - tax rate)) ÷ CM ratio
5. Assume that the AAA Company is currently selling 800
units and that the company president believes that the
400 units P 6,000 ÷ P 15 cost ÷ CM per unit
sales would increase if advertising were increased by
P6,000. How many units should sale increase to give the
AAA Company the same profit or loss that is currently
Sales – Break-even sales
earning?
6. What is the margin of safety of AAA Company at its present P 12,500 P 37,500 – P 25,000
sales of P37,500?
Problem 2 Sales 100% 528,000 100% 660,000
Bam’s break-even sales are Less: Variable Costs 60% 316,800 60%
P528,000. The variable Contribution Margin 40% 211,200 40%
cost ratio is 60% while the Less: Fixed Costs 40% 211,200 32%
profit ratio is 8%. Profit - - 8% 52,800

Required:
Determine the following:
1. Fixed costs P 211,200 P528,000 x 40% Break-even sales x CM ratio

P 660,000 P 211,200 ÷ (40% - 8%) Fixed Costs ÷ (CM ratio – Profit ratio)
2. Sales
3. Profit P 52,800 P 660,000 x 8% Sales x profit ratio

4. Margin of safety P 132,000 P 660,000 – P 528,000 Sales – Break-even sales

5. Margin of safety ratio 20% P 132,000 ÷ P 660,000 Margin of safety ÷ Sales

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