May-2011, 2(b) - CVP Analysis

Lisa Company is the exclusive distributor for an automative product. The product sells for Tk. 40 per unit and has a CM
ratio 30%. The company's fixed expenses are Tk. 180,000 per year.
Required:
i) What is the variable expenses per unit?
ii) Using the equation method:
1) What is the break-even point in units and sales taka?
2) What sales level in units and in sales taka is required to earn an annual profit of Tk. 60,000?
3) Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by Tk. 4 per unit.
What is the Company's new break-even point in units and sales taka?
iii) Repeat (ii) using the unit contribution method.
Solution
Answer (i)
We Know,
CM Ratio = Contribution / Sales
=> CM Ratio = (Selling Price - VC per Unit) / Selling Price
=> 0.30 = (40 - VC) / 40
=> 12 = 40 - VC
=> VC = 40 - 12
=> VC= 28 per Unit
Answer (ii) : Equation Method
1) BEP in Units and Taka
-----------------------------We have,
p = 40, v = 28 and FC = 180,000
40x = 28x + 180,000
=> 40x 28x = 180,000
=> 12x = 180,000
So, Break-even in Units = x = 15,000 units
Break-even Point in Sales Taka = 40 15,000 = 600,000 Taka.
2) Targeted Sales in Units and Taka
------------------------------------------If Targeted Profit, P= Tk. 60,000,
We have,
40x = 28x + 180,000 + 60,000
=> 40x 28x = 240,000
=> 12x = 240,000
So, Break-even in Units = x = 20,000 units
Break-even Point in Sales Taka = 40 20,000 = 800,000 Taka.
3) BEP in Units and Taka (If VC changes)
-----------------------------------------------If VC reduces by Tk. 4,
We have,
p = 40, v = 28-4 = 24 and FC = 180,000
40x = 24x + 180,000
=> 40x 24x = 180,000
=> 16x = 180,000
So, Break-even in Units = x = 11,250 units
Break-even Point in Sales Taka = 40 11,250 = 450,000 Taka.

Answer (iii) : Unit Contribution Method

1) BEP in Units and Taka
----------------------------BEP in Units
= Fixed Costs / Contribution Margin par Unit
= Fixed Costs / (Selling Price - VC par Unit)
= 180,000/ (40 - 28)
= 180,000/12
= 15,000 Units.
BEP in Taka
= Fixed Costs / CM Ratio
= 180,000/ 0.30
= 600,000 Taka.
2) Targeted Sales in Units and Taka
-----------------------------------------Targeted Sales in Units
= (Fixed Costs + Targeted Profit)/ Contribution Margin par Unit
= (Fixed Costs + Targeted Profit)/ (Selling Price - VC par Unit)
= (180,000+60,000)/ (40 - 28)
= 240,000/12
= 20,000 Units.
Targeted Sales in Taka
= (Fixed Costs + Targeted Profit)/ CM Ratio
= (180,000+60,000)/ 0.30
= 240,000/ 0.30
= 800,000 Taka.
3) BEP in Units and Taka (If VC changes)
-----------------------------------------------BEP in Units
= Fixed Costs / Contribution Margin par Unit
= Fixed Costs / (Selling Price - VC par Unit)
= 180,000/ [(40 - (28 - 4)]
= 180,000/16
= 11,250 Units.
New CM Ratio
= (Selling Price - VC per Unit) / Selling Price
= (40 - 24) / 40 = 0.40
BEP in Taka
= Fixed Costs / CM Ratio
= 180,000/ 0.40
= 450,000 Taka.

May-2011, 3(b) - Cost of Goods Manufactured Statement

Note:

Purchase of Raw Materials = Purchase + Freight In - Purchase Return - Purchase Discount = =400000+120003200-20000 = 388800
Manufacturing Overhead = Factory Depreciation + Factory Insurance + Other Factory Expenses =
160000+50000+16000 = 226000

Dec-2012, 2(b) : Costs of Goods Sold Statement

Dec-2012, 6(c) : Working Capital Financing

Note: Here, It is assumed that Interest is paid in advance.

2013 June - 2 (b)

Income Statement
Total amount
2,520,000

Sales revenue
Less: Cost of goods sold
Direct material, opening inventory
Purchase
Direct material, closing inventory
Direct material consumed
Freight in
Direct manufacturing labour cost
Prime cost
Factory overhead
Total manufacturing cost
WIP, opening inventory
WIP, closing inventory
Cost of goods manufactured
FG, opening inventory
Cost of goods available for sale
FG, closing inventory
Cost of goods sold

Unit cost

200,000
675,000
(160,000)
715,000
1,000
240,000
956,000
191,200
1,147,200
1,147,200
210,000
1,357,200
(321,216)

Gross profit
Less: Administrative expenses
Selling expenses
Net profit

458.88

458.88

(1,035,984)

493.33

1,484,016
(6,000)
(12,000)
1,466,016

706.67

698.10

2013 June - 3 (b)

(i) Variable expense per unit =
(ii) BEP :
In units =
In sales =

40 - (40 30%)

180,000 / (40 - 28)

180,000 / 30%

= 28
= 15,000 units
= Tk. 600,000

(iii) Required sales level :

In units = (180,000 + 60,000) / (40 - 28)
In sales = (180,000 + 60,000) / 30%
(iv) BEP :
In units = 180,000 / (40 - 24)
New CM ratio = 16 / 40
= 40%
In sales = 180,000 / 40%

= 20,000 units
= Tk. 800,000
= 11,250 units
= Tk. 450,000

2013 June - 5 (b)

Cash budget
Jan
Feb
Cash receipts:
From sales
From trade receivables
Cash payments:
Trade creditors
Accrued sales commission
Fixed cost
Receipt over payments
Opening cash balance
Closing cash balance

Mar

Total

16,000
30,000
46,000

24,000
18,000
42,000

27,000
22,000
49,000

67,000
70,000
137,000

14,000
3,500
3,000
20,500

33,000
3,000
36,000

36,000
3,000
39,000

83,000
3,500
9,000
95,500

25,500
7,500
33,000

6,000
33,000
39,000

10,000
39,000
49,000

41,500
7,500
49,000

2013 June - 8 (b)

(500,000)

Annual
Depreciation
-

100,000

90,000

150,000

90,000

60,000

21,000

129,000

(274,500)

0.756

97,524

200,000

90,000

110,000

38,500

161,500

(113,000)

0.658

106,267

225,000

90,000

135,000

47,250

177,750

64,750

0.572

101,673

350,000

90,000

260,000

91,000

259,000

323,750

0.497

128,723

Net present value

18,142

Year

CFBT

Payback period =
NPV =
Profitability index =

Profit
before tax
-

Cash flow
after tax
(500,000)

Cumulative
Cash flow
(500,000)

Discount
factor
1.000

Present
Value
(500,000)

10,000

3,500

96,500

(403,500)

0.870

83,955

Tax @ 35%

3 years + (113,000 / 177,750) years

= 3 years 7 months 19 days

BDT 18,142
96,500 + 129,000 + 161,500 + 177,750 + 259,000
500,000

= 1.04

Comment: The invested money is expected to be returned within 3 years 7 months 19 days and the project has a positive
NPV for the entire life which results in PI more than 1. So, the project can be taken up.

2013 December 2(c)

Direct material, opening inventory
Purchase
Direct material, closing inventory
Direct material consumed
Direct manufacturing labour cost
Prime cost
Factory overhead:
Plant energy cost
Indirect manufacturing labour cost (V)
Indirect manufacturing labour cost (F)
Other indirect manufacturing labour cost (V)
Other indirect manufacturing labour cost (F)
Total manufacturing cost
WIP, opening inventory
WIP, closing inventory
Cost of goods manufactured
FG, opening inventory
Cost of goods available for sale
FG, closing inventory
Cost of goods sold
Income statement
Revenue
COGS
GP
Distribution cost
Administrative cost
Net Operating Income

140,000
(1,386)
138,614
30,000
168,614
5,000
10,000
16,000
8,000
24,000
207,614
207,614
207,614
(20,970)
186,644

436,800
(186,644)
250,156
(162,850)
(50,000)
37,306

Total units produced =

100,000
RM required (100,000*2)
200,000
RM closing inventory
2,000
Direct material inventory cost = 140000/202000*2000
Total variable manufacturing cost
Total units produced
Per unit manufacturing cost
FG, closing inventory cost
FG, closing inventory units

167,614
100,000
1.68
20,970
12511

Units sold (100,000-12,511)

Sales revenue
Unit selling price

87,489
436,800
5

1386

Dec-2013, 3(c) CVP Analysis

By Kawser Hossain
(i) CM Ratio & Variable Expense Ratio:
We have,
Contribution Margin= 112,500;
Sales= 5000*50 = 250,000
So, CM Ratio= CM/Sales*100 = (112,500/250,000)*100 = 45%
And, Variable Expense Ratio= 100% - CM Ratio = 100%-45% = 55%
(ii) BEP in units and sales Taka
BEP in Sales Tk = Fixed cost/CM Ratio
= {(Sales*CM Ratio)-profit}/ 45%
= {(250,000*45%)-22,500}/0.45
= (112,500-22,500)/0.45
= 90,000/0.45
= 200,000
BEP in Units = BEP in Sales TK/ Unit Selling Price = 200,000/50= 4000 units
(iii) Change in Income
We have,
FC= 90,000,
Total Sales= 250,000+40,000 = 290,000
VC= 290,000*55% = 159,500
We Know,
Profit = Total Sales- FC-VC
=> Profit = 290,000- 90,000- 159,500 = 40,500
Change in Net Income= 40,500-22,500 = 18,000.

Dec-2013, 5(c) Cash Flow Statement

By Kawser Hossain
Taka
Taka
Net cash flow from operating Activities
Net Income
84000
Adjustments:
(+) Depreciation Expense
18000
(+) Loss on sale of Equipment
1000
(+) Decrease A/c Receivable
3000
(-) Increase M Inventories
(10000)
(+) Decrease prepaid expense
2000
(-) Decrease A/c Payable
(8000)
(+) Increase Income T Payable
12000
(-) Increase Acc Exp. Payable
(5000)
13000
Net Cash Flow from O A
Cash Flow from Investing Activities
Purchase Equipment
Sale on Equipment
Net Cash Flows from I A

Taka

Taka

97000

(180000)
17000
(163000)

Cash Flow from Financing Activities

Bonds Issued
1300000
Bonds paid
(32000)
Net Cash Flow from F A
98000
Net Increase /Decrease
32000
Cash beginning
159000
Cash Ending
191000
** Cash Flow from non-operating & non-financing Common stock of Tk 60,000/- was issued to acquire land.

December-2013, 8(c)
Leasing vs Borrowing (Buying)
PV of Cash Outflows under Leasing Alternative:
Year-end

Lease
Payments

220,000

1-4

220,000

Tax Benefit
@50%

PV
Factor
@7%

Cash
Outflows

PV of Cash outflow

220,000

1.0000

220,000

110,000

110,000

3.3872

372,593

110,000

-110,000

0.7130

-78,428
514,165

PV of Cash Houtflows under Buying Alternative:

Instalment
= Loan Amount / PV Annuity Factor @14%
= 10,00,000 / 3.9137
= 255,513
Loan
Instalment

Year-end

Depreciation

Yearend

Beginning
Balance

255,513

1,000,000

255,513

744,487

255,513

255,513

255,513

Interest

Principal

Ending
Balance

255,513

744,487

104,228

151,284

593,203

593,203

83,048

172,464

420,739

420,739

58,903

196,609

224,129

224,129

31,378

224,135

-5

= (Cost - SV)/ No of years

= (1000000 - 0) / 5
= 200000

Loan
Instalment

Interest
@14%

255,513

255,513

104,228

255,513

255,513

255,513

[considering beginning of the period]

Depr

Tax
Deductable
Expenses

Tax Benefit
@50%

Net Cash
outflow

PV
Factor
@7%

PV of Cash
outflow

255,513

1.0000

255,513

200,000

304,228

152,114

103,399

0.9346

96,634

83,048

200,000

283,048

141,524

113,988

0.8734

99,562

58,903

200,000

258,903

129,452

126,061

0.8163

102,903

31,378

200,000

231,378

115,689

139,824

0.7629

106,671

200,000

200,000

100,000

-100,000

0.7130

-71,299
589,984

The company is advised to go for leasing as PV of cashflows under leasing alternative (514,165) is lower than that under
buying alternative (589,984).