Chapter
23
Managerial Accounting
Demo 09: CVP Analysis (Rosen Co.)
Masud Jahan
Department of Science and Humanities
Military Institute of Science and Technology (MIST)
2
Rosen Company bottles and
distributes No–Fizz, a fruit drink.
The beverage is sold for Tk 50
per 500ml bottle to retailers. For
the year 2010, management
estimates the following revenues
and costs.
3
Item
Amount (Tk)
Net Sales
Tk 2,000,000
Direct materials
360,000
Direct labor
670,000
Manufacturing overhead – variable
270,000
Manufacturing overhead - fixed
220,000
Selling overhead – variable
100,000
Selling overhead – fixed
150,000
Administration overhead – variable
40,000
Administration overhead – fixed
50,000
4
Requirement:
(i)
Prepare a CVP income statement for 2008
based on management estimates.
(ii)
Compute the contribution margin ratio.
(iii)
Compute Break Even point (BEP) in units and
in Taka amount.
(iv)
Compute the margin of safety ratio.
(v)
Determine the sales amount to earn net
income of Tk 196,000.
5
Working:
1) Total Variable & Fixed Costs:
Items
Direct materials
Variable Costs Fixed Costs
Tk 360,000
-
Direct labor
670,000
-
Manufacturing
overhead
Selling overhead
270,000
Tk 220,000
100,000
150,000
40,000
50,000
Tk 1440,000
Tk 420,000
Administration
overhead
Total
6
Solution to req. 1
Rosen Company
CVP Income Statement
For the year ended Dec 31 2010
Sales (40000 Bottles)
Less: Variable Expenses (W1)
Total
Per Unit
Tk 2,000,000
Tk 50
1,440,000
36
Contribution Margin
560,000
Tk 14
Less: Fixed Expenses (W1)
420,000
Net Income
Tk 140,000
7
Solution to req. ii
Contribution Margin Ratio =
Unit Contribution Margin
Unit Selling Price
=
= 28%
Tk 14
Tk 50
8
Solution to req. iii
Break Even point (BEP) in units =
Fixed costs
Contribution margin per unit
Tk 420,000
=
Tk 14/unit
= 30,000 Units
Break Even point (BEP) in Tk =
Fixed costs
Contribution margin ratio
Tk 420,000
=
28%
= Tk 1,500,000
9
Solution to req. iv
Margin of Safety Ratio = Actual Sales - Break Even Sales
= Tk (2,000,000 - 1,500,000)
= Tk 500,000
Tk 500,000
Margin of Safety Ratio =
Tk 2,000,000
= Tk 28%
10
Solution to req. v
Fixed costs + Target income
Required sales =
Contribution margin ratio
=
=
Tk 420,000 + Tk 196,000
28%
Tk 2,200,000
End of Demo 09