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    CVP Analysis Solution

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    mohammad bilal
    1. The document discusses contribution margin ratio, variable expense ratio, and break-even analysis for Volta Company. It calculates contribution margin ratio as 25%, variable expense ratio as 75%, and break-even units as 16,000 units. 2. It then calculates the impact of a $400,000 increase in sales on net operating income using the contribution margin ratio. 3. Degree of operating leverage is calculated as 5 times, meaning a 8% increase in sales would lead to a 40% increase in net operating income.

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    CVP Analysis Solution

    Uploaded by

    mohammad bilal
    76 views4 pages
    1. The document discusses contribution margin ratio, variable expense ratio, and break-even analysis for Volta Company. It calculates contribution margin ratio as 25%, variable expense ratio as 75%, and break-even units as 16,000 units. 2. It then calculates the impact of a $400,000 increase in sales on net operating income using the contribution margin ratio. 3. Degree of operating leverage is calculated as 5 times, meaning a 8% increase in sales would lead to a 40% increase in net operating income.

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    Management accounting materiel

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    1. The document discusses contribution margin ratio, variable expense ratio, and break-even analysis for Volta Company. It calculates contribution margin ratio as 25%, variable expense ratio as 75%, and break-even units as 16,000 units. 2. It then calculates the impact of a $400,000 increase in sales on net operating income using the contribution margin ratio. 3. Degree of operating leverage is calculated as 5 times, meaning a 8% increase in sales would lead to a 40% increase in net operating income.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    76 views4 pages

    CVP Analysis Solution

    Uploaded by

    mohammad bilal
    1. The document discusses contribution margin ratio, variable expense ratio, and break-even analysis for Volta Company. It calculates contribution margin ratio as 25%, variable expense ratio as 75%, and break-even units as 16,000 units. 2. It then calculates the impact of a $400,000 increase in sales on net operating income using the contribution margin ratio. 3. Degree of operating leverage is calculated as 5 times, meaning a 8% increase in sales would lead to a 40% increase in net operating income.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    You are on page 1of 4

    SP-01 VOLTA COMPANY

    1 CONTRIBUTION MARGIN RATIO = CONTRIBUTION MARGIN ÷ SALES NOTE: WE CAN USE EITHER TOTAL OR
    CM RATIO = 15/60 25% CM RATIO = 300,000/1,200,000
    VARIABLE EXPENSES RATIO = VAR EXP ÷ SALES NOTE: WE CAN USE EITHER TOTAL OR
    VAR EXP RATIO = 45/60 75% VAR EXP RATIO = 900,000/1,200,000
    OR
    VAR EXP RATIO = 1 - CM RATIO

    2 NOI = Q (P - V) - F where Q=QTY SOLD, P=SALES PRICE PER UNIT, V=VARIABLE COST PER UNIT & F=TOTAL FIXED CO
    PUT NOI = 0 IN EQUATION FOR BREAKEVEN
    0 = Q (60 - 45) - 240,000 P= 60
    0 = 15Q - 240,000 V= 45
    15Q = 240,000 F= 240,000
    Q = 240,000/15
    QBE = 16,000 UNITS OR WE CAN USE FORMULA
    $SALESBE = 960,000 $ 16,000 X 60
    QBE =
    3 INCREASE IN SALES 400,000
    INCREASE IN NOI = 400,000 X 25% 100,000 SALES X CM RATIO

    4 TARGET PROFIT = TP = 90,000


    QTP =
    QTP = (90,000+240,000) / (60 - 45)
    QTP = 22,000

    5 CURRENT SALES 1,200,000 AS PER EXISTING INCOME STATEMENT


    BREAKEVEN SALES UNITS 960,000 AS PER SOLUTION (2)
    MOS ($) = CURRENT SALES - BREAKEVEN SALES MOS = MARGIN OF SAFETY
    MOS ($) = 1,200,000 - 960,000
    MOS ($) = 240,000
    MOS% = (CURRENT SALES - BREAKEVEN SALES) / CURRENT SALES
    MOS% = (1,200,000 - 960,000) / 1,200,000
    MOS% = 20%

    6 (a) DEGREE OF OPERATING LEVERAGE


    TOTAL CONTRIBUTION MARGIN 300,000
    NET OPERATING INCOME 60,000
    DOL = TOTAL CM ÷ NOI 5 TIMES
    6 (b) INCREASE IN NOI = INCREASE IN SALES X DOL
    INCREASE IN NOI = 8% X 5 = 40%
    6 (c) CURRENT SALES UNITS 20,000
    ADD: 8% INCREASE (20,000 X 8%) 1,600
    NEW SALES 21,600
    SALES (21,00 X 60) 1,296,000
    LESS: VARIABLE EXP (21,600 X 45) 972,000
    CONTRIBUTION MARGIN 324,000
    LESS: FIXED EXP 240,000
    NET OPERATING INCOME 84,000
    OLD NOI 60,000
    ADD: 40% INCREASE (60,000 X 40%) 24,000
    NEW NOI 84,000

    7 VARIABLE COST PER UNIT 48 OLD VC PER UNIT + INCREASE = 45 + 3 = 48


    FIXED COST 210,000 OLD FIXED COST - SALARY = 240,000 - 30,000 = 210,000
    SALE PRICE PER UNIT (NO CHANGE) 60
    SALES UNIT 24,000 OLD SALES + 20% INCREASE = 24,000 X 1.2 = 24,000

    TOTAL PER UNIT %OF SALES


    7 (a) SALES (24,000 X 60) 1,440,000 60 100%
    LESS: VARIABLE COST (24,000 X 48) 1,152,000 48 80%
    CONTRIBUTION MARGIN 288,000 12 20%
    LESS: FIXED COST 210,000
    NET OPERATING INCOME 78,000

    7 (b) QBE =
    QBE = 210,000 / (60 - 48) 17,500 UNITS

    SALES$BE =

    SALES$BE = 210,000 / 20% 1,050,000 $

    7 (c) YES, CHANGES SOULD BE MADE BECAUSE OUR NOI INCREASE BY (78,000 - 60,000) $ 18,000.
    E CAN USE EITHER TOTAL OR PER UNIT
    O = 300,000/1,200,000 25%
    E CAN USE EITHER TOTAL OR PER UNIT
    RATIO = 900,000/1,200,000 75%

    R UNIT & F=TOTAL FIXED COST

    OR WE CAN USE FORMULA

    SALES$BE =

    MOS = MARGIN OF SAFETY


    = 45 + 3 = 48
    0,000 - 30,000 = 210,000

    4,000 X 1.2 = 24,000

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