Worked Example On Cost Volume Profit Analysis (1)

Question:

The data for Company XYZ is as follow:-Volume of sales 20,000 units
Sales price per unit $10
Total fixed costs $50,000
Variable cost per unit $5

Compute the new break-even point with the following effect of:

(a) a 20% increase in selling price
(b) a 20% increase in fixed costs
(c) a 20% decrease in variable costs
(d) a 10% increase in volume of sales




Suggested Solution:

(a) Effect of a 20% increase in selling price
New Break-even point
=Fixed cost/(Sales price per unit-Variable cost per unit)
=$50,000/($12-$5)
=7,144 units

(b) Effect of a 20% increase in fixed costs
New Break-even point
=Fixed cost/(Sales price per unit-Variable cost per unit)
=$50,000 x 1.2/($10-$5)
=$60,000/$5
=12,000 unit



© Effect of a 20% decrease in variable costs
New Break-even point
=$50,000/($10-$5x(1-0.2))
=$50,000/$6
=8,333 units

(d ) Effect of a 10% increase in volume of sales
Original sales =20,000 unit x $10 per unit =$200,000
New sales =$200,000 x 1.1 =$220,000
Be=$100,000 or 10,000 units