Cost-Volume-Profit Analysis
Cost-Volume-Profit Analysis
1.0 Income Statement, 2012.
1.1 Contribution Margin/Unit of Product.
In order for Clipboard Tablet Company to make a profit, the product contribution margin must exceed the total fixed costs. Unit contribution margin of product is the amount by which unit sales exceeds unit variable costs. The product specifications, in terms of costs, prices, and sales mix ratio, derive from the results of simulation attached as an appendix 1.0. The contribution margin per unit of the tablet products for 2012 is as follows.
| Product | X5 | X6 | X7 |
| Unit Price ($) | 265 | 420 | 195 |
| -Variable Cost per Unit. | 119 | 19 | 162 |
| Unit Contribution Margin | 146 | 401 | 33 |
1.2. Weighted Average Contribution Margin/unit of Each Tablet Product.
Clipboard Tablet Manufacturing Company manufactures and trades in three products. This is a case of product sales mix. Therefore, it is a prerequisite to determine a weighted value that represents the contribution margin per unit of the three products integrated. It is the weighted contribution margin.
| Product | X5 | X6 | X7 |
| Unit Price. | 265 | 420 | 195 |
| Minus Variable Cost per Unit Product. | 119 | 19 | 162 |
| Unit Contribution Margin | 146 | 401 | 33 |
| × Sales Mix Ratio. | 47 | 47 | 6 |
| 6862 | 18847 | 198 | |
| Sum: Weighted Average Contribution Margin. | 25907 | ||
1.3 Units of Sales Mix required to break-even.
This represents an integrated number of product sales units necessary to break-even. This is equivalent to the total fixed cost divided by weighted average contribution margin per unit of the tablet products. This is equivalent to 385,370,237 ÷ 25907 = 14875 units. Therefore, Clipboard Tablet Company must sell 14875 of X5, X6, and X7, in total, in order to balance sales with expenditure (fixed and variable costs).
1.4 Number of Units of Tablet X5, X6 and X7 at break-even point.
This is equivalent to product sales mix ratio × total break-even units of the sales mix.
| Product | X5 | X6 | X7 |
| Product Mix Ratio (percentage) | 47 | 47 | 6 |
| Total Break Even Units. | 14875 | ||
| Number of Individual Product Sales (At Break-even Point). | 6991 | 6991 | 893 |
This represents the number of units for each tablet Product that Clipboard Tablet Company must sell to break-even.
1.5 Break-even Point in Dollars.
| Product | X5 | X6 | X7 |
| Product Units at break-even point. | 6991 | 6991 | 893 |
| × Unit Price. | 265 | 420 | 195 |
| Product sales at break-even point. | 1,852,615 | 6,936,220 | 174,135 |
| Sum: Break-even point in dollars. | 8,962,970 | ||
This represents the amount of sales, in dollars, that Clipboard Tablet Company must achieve, in order to break even. In relation to the simulation results, Clipboard Tablet Company sold 3,955,935 units translating to 1,323,125,098 dollars, in revenue. In respect to break even analysis, the company made the right decisions in setting prices and allocating R&D costs for 2012.
2.0 Income Statement, 2013.
The same process applies to 2013, 2014, and 2015. The summary of statements for respective financial years follows, in that order of years.
| Product | X5 | X6 | X7 |
| Unit Price. | 265 | 420 | 170 |
| Minus Variable Cost per Unit Product. | 50 | 19 | 83 |
| Unit Contribution Margin | 215 | 401 | 87 |
| × Sales Mix Ratio. | 38% | 51% | 11% |
| 6,862 | 18,847 | 957 | |
| Sum: Weighted Average Contribution Margin. | 26666 | ||
| Total Fixed Costs. | 782,765,762 | ||
| Units of Sales Mix necessary to break even (Total Fixed Cost ÷ Weighted Average Contribution Margin). | 29354 | ||
| Break-even Point in unit sales. | 11,154 | 14,970 | 3,229 |
| Break-even point in dollars (Break-even point in unit sales × Unit price). | 2,955,810 | 6,287,400 | 548930 |
| Sum: Break-even point in dollars. | 9,792,140 | ||
3.0 Financial Statement, 2014.
In the simulation of the performance of tablet products, the financial year 2014 produced sales of 2,342,141 unit products equivalent to 651,829,682 dollars, in revenue. In respect of the break even analysis, the total sales and revenue surpassed the level required to break even. However, the individual products X5, and X6 met the threshold for break-even point, but showed a decline as compared to the previous year.
4.0 Financial Statement, 2015.
The total number of units sold was 2,095,885 while the revenue received was $503,568,597. This is according to the results of the simulation. This is much higher than the requirement for break even both in terms of unit sales and dollars as shown in the cost-profit
| Product | X5 | X6 | X7 |
| Unit Price. | 250 | 400 | 170 |
| Minus Variable Cost per Unit Product. | 138 | 61 | 33 |
| Unit Contribution Margin. | 112 | 339 | 137 |
| × Sales Mix Ratio. | 24% | 27% | 49% |
| 2,688 | 9,153 | 6713 | |
| Sum: Weighted Average Contribution Margin. | 18554 | ||
| Total Fixed Costs. | 782,765,762 | ||
| Units of Sales Mix necessary to break even (Total Fixed Cost ÷ Weighted Average Contribution Margin). | 42188 | ||
| Break-even Point in unit sales (Divide Units Of Sales Mix by product Sales Ratio). | 10,125 | 11,390 | 20672 |
| Break-even point in dollars (Break-even point in unit sales × Unit price). | 2,531,250 | 4,556,000 | 3,514,240 |
| Sum: Break-even point in dollars. | 10,601,490 | ||
5.0 Decisions for 2016.
Financial year 2015 is the year that determines much of the decisions for 2016. In 2015, the simulated, total number of unit sales is 2,095,885 while the revenue collected is $503,568,597. Overall, the Clipboard Tablet Company moves in the right direction. However, tablet products X5, and X6 express rapid decline in sales and revenue. The price for X6 should be set at the level of market price for equivalent products, while the company should face out X5, which expresses signs of maturity.
References
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