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    CVPPPPP

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    Veronica Apalla
    1. Sensitivity analysis is used to determine how changes in variables like fixed costs, variable costs, sales price, or sales mix impact profit. It allows a company to identify factors they can manipulate to improve profitability. 2. When performing sensitivity analysis on a multi-product company, a weighted average contribution margin per unit and contribution margin ratio is calculated to account for different margins between products. 3. Break-even analysis can then be done using the composite figures to determine the break-even point in units and sales for different sales mix scenarios.

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    CVPPPPP

    Uploaded by

    Veronica Apalla
    144 views4 pages
    1. Sensitivity analysis is used to determine how changes in variables like fixed costs, variable costs, sales price, or sales mix impact profit. It allows a company to identify factors they can manipulate to improve profitability. 2. When performing sensitivity analysis on a multi-product company, a weighted average contribution margin per unit and contribution margin ratio is calculated to account for different margins between products. 3. Break-even analysis can then be done using the composite figures to determine the break-even point in units and sales for different sales mix scenarios.

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    1. Sensitivity analysis is used to determine how changes in variables like fixed costs, variable costs, sales price, or sales mix impact profit. It allows a company to identify factors they can manipulate to improve profitability. 2. When performing sensitivity analysis on a multi-product company, a weighted average contribution margin per unit and contribution margin ratio is calculated to account for different margins between products. 3. Break-even analysis can then be done using the composite figures to determine the break-even point in units and sales for different sales mix scenarios.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    144 views4 pages

    CVPPPPP

    Uploaded by

    Veronica Apalla
    1. Sensitivity analysis is used to determine how changes in variables like fixed costs, variable costs, sales price, or sales mix impact profit. It allows a company to identify factors they can manipulate to improve profitability. 2. When performing sensitivity analysis on a multi-product company, a weighted average contribution margin per unit and contribution margin ratio is calculated to account for different margins between products. 3. Break-even analysis can then be done using the composite figures to determine the break-even point in units and sales for different sales mix scenarios.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    1.2.2.

    5 SENSITIVITY ANALYSIS (INCLUDING INDIFFERENCE POINT IN UNIT SALES AND PESO SALES)

    Sensitivity analysis is very important in determining factors that will significantly affect profits. The
    ultimate goal is to manipulate the factors that will lead to improved overall company profitability. The
    CVP analysis model can be used to perform sensitivity analysis on a single product, several goods, and
    service firms (also called what- if analysis).

    Sensitivity is measured using the following equation:

    Sensitivity = % change in output / % change in

    Input

    Sensitivity analysis depicts how the CVP model will vary as one or more of its variables are changed
    (fixed costs, variable costs, sales price, or sales mix). Typically, the focus is on how changes in factors
    effect profit. The output is the profit and the input components are changes in fixed costs, variable
    costs, sales price, or sales mix.

    Finally, sensitivity analysis can be employed in break-even and target income sales estimates since it
    provides several scenarios, such as boosting sales, lowering variable costs, or lowering fixed costs.

    ILLUSTRATION

    Jennie Kim Company sells figurines for P25.00 each. The manufacturing cost, all variable, is P10 per
    figurine. The company is planning on renting an exhibition booth for both display and selling purposes at
    the annual crafts and art convention. The convention coordinator allows three options for each
    participating company. They are:

    1. paying a fixed booth fee of P5,010, or

    2. paying an P4,000 fee plus 10% of revenue made at the convention, or 3. paying 20% of revenue made
    at the convention.

    Required:
    a. Compute the breakeven sales in figurines of each option.
    b. Which option should Jenny Kim Company choose, assuming sales are expected to be 800
    figurines?

    Solution:

    a. Option 1 Breakeven in figurines = P5,010/(P25 - P10) = 334 figurines

    Option 2 N = Breakeven in figurines P25N-P10N- 0.10 (P25N) - P4,000 =

    P12.5N-P4,000 = 0 Abad N= = P4,000/P12.5 = 320 figurines =

    Option 3 N = Breakeven in figurines P25N-P10N- 0.20(P25N) = 0

    P10N - Po= 0 N = Po/P10 = o figurines

    b. Option 1 profit for 800 figurines = P15 × 800 - P5,010 = P6,99

    Option 2 profit for 800 figurines

    P12.5 x 800 - 4,000 = P6,000

    Option 3 profit for 800 figurines = P10 x 800 = P8,000

    Option 3 is the best choice because it generates the highest profit.

    1.2.2.6 USE OF SALES MIX IN MULTI- PRODUCT COMPANIES

    The proportion of two or more products sold is referred to as the sales mix. In addition to the
    assumptions used for CVP analysis, the following assumptions are applied for calculating the
    break- even threshold for sales mix:

    1. The proportion of sales mix must be predetermined.

    2. The sales mix must not change within the relevant time period

    The contribution approach method is used to calculate the break-even point of the sales mix.
    We will most likely be dealing with products with different contribution margin per unit and
    contribution margin ratios because we have multiple products in our sales mix. Calculating the
    weighted average contribution margin per unit and the contribution margin ratio solves this
    problem. These are then used to compute the sales mix break-even point.
    A. Mix BEP Pesos

    =Total fixed costs / Composite CMR

    B. Mix BEP Units

    =Total fixed costs / Composite CMU

    c. Composite CMR

    = (CMR a X Mix Ratio a) + (CMR b X Mix Ratio b) + (CMR nth.. X Mix Ratio nth..)*
    D. Composite CMU = (CMU a X Mix Ratio a) + (CMU b X Mix Ratio b) + (CMU nth.. X Mix Ratio
    nth..)*

    *Mix Ratio is determined by dividing the total sales units or pesos of a single product by the
    total sales units or pesos of all products combined.

    ILLUSTRATION

    Anne-8 Manufacturing Company produces two products, X and Y. The following information is
    presented for both products:

    Selling price per unit

    P30

    P20

    Variable cost per unit

    20

    Total fixed costs are P292,500.

    1. Calculate the contribution margin for each product.

    2. Calculate breakeven point in units of both X and Y if the sales mix is 3 units of X for every unit
    of Y.
    3. Calculate breakeven point in P of both X and Y if the sales mix is 3 units of X for every unit of
    Y.

    4. Calculate breakeven volume in total pesos if the sales mix is 2 units of X for every 3 units of Y.
    Solution:

    a.

    X: P30 - P20 = P10

    Y: P20 P5 P15

    b. Composite CM/U = (3 x P10) + (1 × P15) = P45 ==

    Composite BEPu = P292,500 / P45 = 6,500 units BEP units per product

    X: 6,500 × 3 = 19,500 units

    Y: 6,500 × 1 = 6,500 units

    c. BEP P

    X: 19,500 units x P30 P585,000 = Y: 6,500 units x P20 = P130,000

    d. (2 x P10) + (3 x P15) = P65

    P292,500/P65 = 4,500 units X: 4,500 x 2 = 9,000 × P30 P270,000 Y: 4,500 × 3 = 13,500 x P20 =
    270,000 Total peso sales = P540,000

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