CVP - BEP

Objectives:

1. The different cost behavior patterns and their importance

in cost analyis, profit planning and decision making.
2. How to identify mixed costs and separate cost them into
fixed and variable components.
3. The nature and uses of cost-volume-profit analysis.
4. Break-even analysis using algebriac formula and other
approaches.
5. How to identify break-even point when multiple products
are sold in combination.
Computation of Profit

Profit = Sales - Total Costs and Expenses

Conventional Income Statement

Sales (Unit Sold X Selling Price Per Unit)

Less: Cost of Goods Sold (Cost of Materials, Labor,
and Factory Overhead)
Gross Profit
Less: Operating Expenses (Selling and Administrative)
Profit (Loss)
illustration

A company was able to produce and sell 10,000 units of a

product during a certain period. This product was sold for
P1.50 per unit. Production costs of P7,000 were incurred for
the 10,000 units, while selling and administrative expenses
amounted to P5,000. Using the conventional income
statement format, profit maybe calculated as follows:
Solution

Sales (10,000 X P1.50).........................P15,000

Cost of Goods Sold...................................7, 000
Gross Profit.............................................P8,000
Selling and Administrative.........................5,000
Profit........................................................P3,000
Cost - Volume - Profit Analysis

Is a systematic examination of the

relationships among costs, activity levels,
volume, and profit.
 Cost Concept and Classifications

Functional classification
a. Materials
b. Labor
c. Factory Overhead
d. Selling
e. Administrative
 Cost Concept and Classifications

Behavioral Classification
a. Fixed Costs
b. Variable Costs
c. Mixed Costs
d. Semivariable Costs
e. Semifixed Costs
 Segregation of Fixed and Variable Costs

• High and Low Point Method

A simple and widely used technique of segregating mixed

costs components.
Steps in High and Low Point

1. Choose the representative highest and lowest activity

levels with their corresponding costs.

2. Get the differences between the highest and lowest costs

and direct labor hours. These differences represent the
change in costnmwith the change in direct labor.
3. Determine the rate of cost variabilty with activity level.

4. Determine the total amount of fixed cost by subtracting

the total variable cost from the total cost for any activity
level.
illustration:
Month Cost Labor Hour
January 4,400.00 1200
February 4,700.00 1350
March 4,200.00 1100
April 3,800.00 900
May 4,000.00 1000
June 4,800.00 1400

Compute the Variable cost and Fixed cost by using

High and Low Point Method