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Problem solution of CVP Analysis : Management Accounting

Prominent Banker | 12:00 PM | 0 Comments




1 . Problem: – CVP  Zamuna
The following data are obtained from the records of a Manufacturing Company.
Tk
Tk.
Sales 4,000 units@ Tk. 25 each
Materials consumed
Variable overheads
Labour
Fixed overheads
Net profit
-
40,000
10,000
20,000
18,000
 -
1,00,000
-
-
-
-
88,000
12000

Calculate :
i.                   The number of unite by selling which the company will neither loss nor gain anything
ii.                The sales needed to earn a profit of 20% on sales.
iii.             The extra units which should be sold to obtain the present profit  if it is proposed to reduce the selling price by 20%.

iv.             The selling price to be fixed to bring down its break –even- point to 500 units under present condition.






01. Solution – Zamuna  CVP
          Total variable cost =
                             Material consumed = Tk. 40,000
                             Variable overheads =  Tk.10,000
                             Labour                      =  Tk. 20,000
                   Total                                       Tk. 70,000
Variable cost per unit  = Tk. 70,000/ 4,000 units = Tk. 17.50    
Contribution per unit = Sales per unit – Variable cost per unit
                                      = Tk. 25  -  Tk. 17.50 =  Tk. 7.50
i. Sales level in units at which there is neither profit nor loss:
 BEP (Units )    =            = 2,400 units
Req-   ( ii )  sales needed to earn a profit of 20% on sales
    Let X be the number of units sold
                 Total sales =  Variable Cost + Fixed Cost + Profit
                              =  25x  =  17.50 x + 18,000 + (20% of 25x)
                              =  25x  =  17.50 x + 18,000 + 5x
                             =  25x  - 17.50x  - 5x  =  18,000
                              =  2.50 x  =  18,000
                                    X  =           =  7,200 Units 
 Total sales 7,200 units x 25 =  Tk.1,80,000 to  earn a profit of 20% on       sales
Req.-  ( iii ) :
          Present selling price per unit                            =  25.00
          Less:  20% reduced in selling price                   =   5.00
          New selling price per unit                                 =  20.00
          Less: Variable cost per unit                               =  17.50
          Contribution  per unit                              =   2.50      
Units to be sold   = =          
 = 12,000 units   .
       Extra units to be sold are = ( 12,000 – 4,000) units  
   =  8,000 units.
Req.- ( iv)  :Selling price for BEP of  500 units.
          Total variable cost  = 500 units x  17.50  =    Tk. 8,750
          Fixed cost                                                    =     Tk. 18,000
           Total cost of 500 units                               =    Tk.  26,750
            sales price per unit =  Tk. 26,750/ 500 units = Tk. 53.50
                         OR
 BEP   = 
       Let X be the amount of contribution per unit
    500  =  
               50X = Tk. 18,000       X =  36
                 
Selling price per unit = Variable cost per unit + Contribution per unit
                                  = Tk.17.50 + 36                                 
                                      = Tk. 53.50

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Author is a banker and blogger. He writes on Banking diploma and professional certifications for bankers such as CDCS, CAMS etc. Now serve in a large private bank of Bangladesh.

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