CVP Analysis

Question 1

Always remember
- VC and FC composition

Answer 1

• VC = DM, DL, VOH, S&A
• FC = FOH, S&A

Question 2

Inherent Assumptions in CVP Analysis

When it comes to production

Answer 2

all units produced are sold

Question 3

Formula of Break-Even Point
- in units
- in pesos

What if I want to achieve certain amount of profit?
What if what’s given is percentage of sales?
What if multiple products?

Answer 3

• In Unit = FC / UCM
• In Pesos = FC / CMR

FC + Desired Profit
CMR - ROS
CMR x Sales Mix Ratio

Question 4

Two Possible Formulas of Margin of Safety

Answer 4

1. Sales less Breakeven Sales
2. EBIT Ratio / CM Ratio

Question 5

Explain

• Operating Leverage
• Degree of Operating Leverage

Answer 5

• extent to which a company uses fixed costs
• How sensitive the profit is to sales volume increase and decreases

Question 6

Three Possible Formulas of DOL

Answer 6

1. CM / EBIT
2. % Change in EBIT / % Change in Sales
3. 1 / MOS ratio