CVP formula
The BEP can be obtained either in units or in RM. Therefore it is important to know the relevant information needed to calculate using the the given formula;
To find how many units to produce to break-even,
BEP(units) = Fixed Cost/Contribution Margin
To find the break-even in Ringgit,
BEP(RM) = Fixed Cost/Contribution Margin %
Sometimes, we put a figure to target certain profit, the BEP in units,
BEP(units) = (Fixed Cost + Targeted Profit)/Contribution Margin
Same goes to the targeted profit, the BEP in Ringgit,
BEP(RM) = (Fixed Cost + Targeted Profit)/Contribution Margin %
Example 1
Below are the cost to manufacture product XYZ in period 1
Direct material RM 6
Direct labour 3
Direct expenses 2
Rental 5,000
Salary 12,000
Selling price RM 20
Solution;
Total Variable cost per unit (RM) = DM + DL + DE
= 6 + 3 + 2
= 11
Total fixed cost (RM) = Rental + Salary
= 5,000 + 12,000
= 17,000
Contribution margin (RM) = Selling price - Variable cost
= 20 - 11
= 9
Contribution margin(%) = CM/Selling price
= 9/20
= 45%
Using the formula;
BEP(units) = Fixed Cost/Contribution Margin
= 17,000/9
= 1,889 units
BEP(RM) = Fixed Cost/Contribution Margin %
= 17,000/45%
= RM37,778
Example 2
If the management wants an additional profit (targeted profit) then,
Targeted profit (RM) = RM10,000
BEP(units) = (Fixed Cost + Targeted Profit)/Contribution Margin
= (17,000 + 10,000)/9
= 3,000 units
BEP(RM) = (Fixed Cost + Targeted Profit)/Contribution Margin %
= (17,000 + 10,000/45%
= RM60,000
However, the above formula can only be applied for a single product.
If there are changes in the selling price, variable cost and fixed cost, the formula can be adjusted accordingly.
But.....in order to get this formula works for you, all of the above should remain constant at the time you are doing the calculation. All must be constant.
No comments:
Post a Comment