COST-VOLUME-PROFIT ANALYSIS

Managerial Decision Case:

DANNA LUMUS

1st. Process
1
𝐵𝐸𝑃�=𝐹𝐶/█(𝑈𝐶𝑀@@) 100,000/20=5,000 �𝑛𝑖𝑡� Sales: 5,000 x 30= 150,000
VC: 5,000 x 10 = 50,000
Contribution Margin 100,000
Fixed Costs 100,000
𝐹𝐶/█(𝐶𝑀𝑅@)
𝐵𝐸𝑃�= 100,000/.666667=𝑃150,000 Profit 0

2nd. Process Sales: 8,333.33 x 30= 250,000

VC: 8,333.33 x 6= 50,000
𝐵𝐸𝑃� =𝐹𝐶/𝑈𝐶𝑀200,000/24=8,333.33 �𝑛𝑖𝑡� Contrbution Margin 200,000
Fixed Costs 200,000
Profit 0
𝐹𝐶/𝐶𝑀𝑅
𝐵𝐸𝑃�= 200,000/(80%)=𝑃250,000
 2 1st. Process in 1st. Process
FOR THE SALES VOLUME OF 30,000 CASES: FOR THE SALES VOLUME OF 22,000 CASES:

UNITS UNIT PRICE AMOUNT % UNITS UNIT PRICE

SALES 30,000 30 900,000 100% SALES 22,000 30
less: VC 30,000 10 300,000 33.33% less: VC 22,000 10
CM 0 20 600,000 66.67% CM 0 20
less: FC 100,000 less:FC
PROFIT 500,000 PROFIT

2nd. Process in 2nd. Process

FOR THE SALES VOLUME OF 30,000 CASES: FOR THE SALES VOLUME OF 22,000 CASES:

UNITS UNIT PRICE AMOUNT % UNITS UNIT PRICE

SALES 30,000 30 900,000 100% SALES 22,000 30
less: VC 30,000 6 180,000 20% less: VC 22,000 6
CM 0 24 720,000 80% CM 0 24
less: FC 200,000 less:FC
PROFIT 520,000 PROFIT

For the amount of 30,000 cases we can identify
that the Automated is more profitable than Manual
With tis range that the total sales remain constant
and the variable cost per unit is remain constant.
However the fixed costs is increasing by 100%.
For the amount of 22,000 cases we can identify
that the Manaual is more profitable than
Automated. With this range the total sales
remain constant and the variable cost per unit is
constant. Still the fixed costs is increasing by 100%

Conclusion: The increase of fixed costs will increase the

breakeven point, because of direct and positive relationship
between fixed costs and breakeven point. The change in sales
volume does not affect unit sales price, variable costs per unit
and fixed cost but affects contribution margin, profit and
margin of safety. The range of total production decrease
the unit fixed costs increase.

In order to start production the Divisional Manager needs the sales forcasted
from Marketing Manager as guidance for all production process and to determine
the varables needed and not and what decision making is reliable in order to
generate profit.
 1st. Process
ME OF 22,000 CASES: MARGIN OF SAFETY FOR 30,000 CASES:

AMOUNT % UNITS AMOUNT %

660,000 100% BUDGETED SALES (30,000 X 30) 30,000 900,000 100%
220,000 33.33% less: BREAK EVEN SALES (5,000X 30) 5,000 150,000 16.77%
440,000 66.67% MARGIN OF SAFETY 25,000 750,000 83.33%
100,000
340,000

2nd. Process
ME OF 22,000 CASES: MARGIN OF SAFETY FOR 30,000 CASES:
UNITS AMOUNT %
AMOUNT % BUDGETED SALES (30,000 X 30) 30,000 900,000 100%
660,000 100% less: BREAK EVEN SALES (8,333.33 X 30) 8,333 250,000 28.00%
132,000 20% MARGIN OF SAFETY 21,,666.6 650,000 72
528,000 80%
200,000
328,000

22,000 cases we can identify

al is more profitable than
h this range the total sales
d the variable cost per unit is
ed costs is increasing by 100%
 1st. Process
MARGIN OF SAFETY FOR 22,000 CASES:

UNITS AMOUNT %
BUDGETED SALES (22,000 X 30) 22,000 660,000 100%
less: BREAK EVEN SALES (5,000 X30) 5,000 150,000 22.72%
MARGIN OF SAFETY 17,000 510,000 72.28%

2nd. Process
MARGIN OF SAFETY FOR 22,000 CASES:
UNINTS AMOUNT %
BUDGETED SALES (22,000 X 30) 22,000 660,000 100%
less: BREAKEVEN SALES (8,333.33 X 30) 8,333.33 250,000 37.88%
MARGIN OF SAFETY 13,666.67 410,000 62.12%
To help Dannas to alter the sales forcast, they are two approaches she must regard to control profit; 1st
to manage the contribution margin, 2nd managing the margin of safety. Observe the computation for
the margin of safety in sales volume of 30,000 cases we can generate a profit same to 1st approach.
In the 1st approach a peso increase in contribution margin is a peso increase in profit, also in 2nd
approach that every peso of margin of safety there is profit, as incremental contribution margin after
the breakeven point because all fixed cost have already been covered by the controlling margin.
Danna must report the 30,000 cases for sales volume, as what the business firm goals is to generate
profit by controlling some costs. I did not agree Dannas decision to alter the sales volume to 22,000
because it lead to opportunity profit that will be loss to the company of 32% . This kind of profit is a big
impact for the company. If Dannas still insest the 22,000 sales volume the fixed costs will increase
because it says that her good friend will be appointed as line supervisor. For me she did not act
ethically she did not consider the future situation of the company if she will continue insesting the
22,000 cases sales volume.