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ACCA F5

Performance Management (PM)

业绩管理

ACCA Lecturer: Kimberley Gong

Copyright © ACCAspace.comACCAspace 中国ACCA特许公认会计师教育平台 2

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2

What is cost volume profit(CVP)/breakeven analysis

Single product breakeven analysis

Content of chapter 7

3 Breakeven chart analysis

4 Lecture example

5 Multi-product break-even charting analysis


CVP/breakeven analysis

What is CVP/breakeven analysis?

Most businesses need to at least break-even their

setting prices with output levels.

The break-even point is the sales volume which will

give the company a profit of $nil.

If sales exceed the break-even point the company will

make a profit.



Assumptions of CVP/breakeven analysis

(a) Can only apply to one product , or to more products

Only if they are sold in fixed sales mix

(b) Constant unit variable costs and total fixed costs

(c) Constant selling price per unit

(d) Production volume=sales volume



Single product breakeven analysis

Method 1 : Activity level at which there is neither

profit or loss

Break even point =

Method 2:The amount of contribution earned per

dollar of sales

Contribution/sales ratio =

Break even revenue = or

Break even point x selling price/unit

Fixed costs

Unit contribution

Contribution/unit

Selling price/unit

Fixed costs

C/S ratio



Single product break even analysis

Method3:The difference between the budgeted level

of activity and the break-even level of activity

Margin of safety(in units) = Budgeted sales-Break even

sales

Margin of safety(%) =

Sales volume to earn a

required profit

Budgeted sales- Break even sales

Budgeted sales

=Required profit+ Fixed costs

Contribution per unit



Breakeven chart analysis

Chart 1 : Break-even chart


Lecture example 1

Company Z has fixed xosts of $6000 and variable costs per

unit of $4

Required:

A) If the selling price is $8 at all levels,what is the break-even

point?

B) What is the break even revenue?

C) What is the c/s ratio?

D)If budgeted sales are 9000 units,what is the margin of

safety in units?

What is the margin of safety as a %?What doed this mean?

E) What are the sales volume (in units) required to make a

profit of $5000?


Lecture example 1

A)BEP=

B) Break even revenue =

= 1500X8=12000

C)

=4/8=0.5

D)

=9000-1500=7500

Fixed cost

Unit contribution=

6000

8-4


=7500/9000=83.3%

E)

=

=2750

5000+6000

8-4



Chart 2:Contribution break-even chart

This chart is used to highlight the importance of

contribution and focus on the variable costs.



Chart 3:The profit-volume chart

The advantage of profit-volume chart is that it is

capable of depicting clearly the effect o profit and

break-even point of any changes in variables.



Multi-product break-even analysis

Assume sales mix remains constant.

Weighted average C/S ratio =

Sales volume to earn a required =

Profit

Margin of safety = Budgeted sales-Break even sales

Margin of safety(%)=

total contribution

total revenue

Required profit +Fixed costs

weighted average C/S ratio

Budgeted sales-Break even sales

Budgeted sales



BEP=

EG.

=

FC

Weighted average contribution per unit

A B C

units 1000 2000 3000

Selling price $4 $5 $6

VC $2 $2 $2

1000XCA+2000XCB+3000XCC

1000+2000+3000



Multi-product break-even charting analysis

1. Break-even chart (Similar to single product)

2. Product volume graph (Assume product a , b , c)

(1) Calculate C/S ratio of each product being sold

and rank the products in order of profitability.

(2) Asix—x shows cumulative sales revenue and

asix-y shows cumulative profit earned . Find point V

representing total sales and point K representing

fixed cost when profit is zero.



(3) Draw line km . The slope of km is c/s ratio of

product a . It shows the profit earned by product a.

(4) Draw line mn which represents the profit earned

by product b which has lower c/s ratio than

product a . Draw line np which represents the least

profitable product c.


Lecture example 2

United Trading sells three products as follows.

Assume that the sales mix is ‘ fixed ’ in these

proportions . Fixed costs are $20000.

Required

(a) What is the breakeven sales volume?

(b) What is the breakeven sales revenue?

(c) Draw the Profit-volume chart

Product Footballs Baseballs Rugby balls

$ $ $

Selling price 7 6 9

VC 3 4.5 5

Budgeted sales(units)

2000 4000 3000


Lecture example 2

Working : C/S ratio

(a)

proportion=2:4:3

F B R

4/7=57.1% 25% 44.4%

1 3 2

A B C

contribution 4 1.5 4

=

2X4+4X1.5X3X4

2+4+3

= $2.89


Lecture example 2

BEP =20000/2.89 = 6921units

(b) 6921units

F=(2)=1538 , B = (4)=3576 , R=(3) =2307

X7 X6 X9

=10766 =18456 =20763

Total BER= 49985


Lecture example 2

2000 5000 9000

FC20000

12000

6000

6921

$

Total sales volumes



Appraisals of CVP analysis

Advantages Disadvantages

More easily understood by non-financial managers

Assume all costs can be dividedas fixed or variable

Profit/loss at any level within the range can be determined

Fixed costs are constant

Indication of risks by highlighting breakeven point and margin of safety

Variable cost or selling priceper unit is constant

Inventory levels are constant (Sales = Production)

Ignore uncertainty in estimating fixed and variable costs

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ACCAspaceaccaspace.com/upload/ACCA_F5/PPT/F5_Chapter_07... · 2. Product volume graph (Assume product a , b , c) (1) Calculate C/S ratio of each product being sold and rank the products