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ACCA F5
Performance Management (PM)
业绩管理
ACCA Lecturer: Kimberley Gong
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Content of chapter 7
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2
3
4
5
What is cost volume profit(CVP)/breakeven analysis
Single product breakeven analysis
Breakeven chart analysis
Lecture example
Multi-product break-even charting analysis
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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.
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CVP/breakeven analysis

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
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CVP/breakeven analysis

Single product breakeven analysis

Method 1 : Activity level at which there is neither
profit or loss
Fixed costs

Break even point =

Method 2:The amount of contribution earned per
Unit contribution
dollar of sales

Contribution/sales ratio =

Break even revenue =
Contribution/unit
Selling price/unit
Fixed costs
or
C/S ratio
Break even point x selling price/unit
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CVP/breakeven analysis

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(%) =
Budgeted sales- Break even sales
Budgeted sales
Sales volume to earn a
required profit
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=
Required profit+ Fixed costs
Contribution per unit
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CVP/breakeven analysis

Breakeven chart analysis

Chart 1 : Break-even chart
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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?
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Lecture example 1


A)BEP=
8-4
= 1500X8=12000
C)


Unit contribution
=
6000
B) Break even revenue =


Fixed cost
=4/8=0.5
D)

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=9000-1500=7500
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=7500/9000=83.3%


E)
5000+6000

=

=2750
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CVP/breakeven analysis

Chart 2:Contribution break-even chart

This chart is used to highlight the importance of
contribution and focus on the variable costs.
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CVP/breakeven analysis

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.
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CVP/breakeven analysis

Multi-product break-even analysis

Assume sales mix remains constant.

Weighted average C/S ratio =

total contribution
total revenue
Sales volume to earn a required = Required profit +Fixed costs
weighted average C/S ratio
Profit
Margin of safety = Budgeted sales-Break even sales
Margin of safety(%)=
Budgeted sales-Break even sales
Budgeted sales
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CVP/breakeven analysis

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
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CVP/breakeven analysis

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.
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CVP/breakeven analysis

(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.
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Lecture example 2

United Trading sells three products as follows.
Product

Footballs
Baseballs
Rugby balls
$
$
$
Selling price 7
6
9
VC
3
4.5
5
Budgeted
sales(units)
2000
4000
3000
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
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Lecture example 2


Working : C/S ratio
F
B
R
4/7=57.1%
25%
44.4%
1
3
2
(a)
contribution

A
B
C
4
1.5
4
proportion=2:4:3

2X4+4X1.5X3X4
=
2+4+3
= $2.89
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Lecture example 2

BEP =20000/2.89 = 6921units

(b) 6921units

F=(2)=1538 , B = (4)=3576 , R=(3) =2307
X7
=10766
X6
=18456
X9
=20763
Total BER= 49985
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Lecture example 2
$
6000
2000
5000
6921
9000
12000
Total
sales
volumes
FC20000
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CVP/breakeven analysis

Appraisals of CVP analysis
Advantages
Disadvantages
More easily understood by nonfinancial managers
Assume all costs can be divided
as 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 price
per unit is constant
Inventory levels are constant
(Sales = Production)
Ignore uncertainty in estimating
fixed and variable costs
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