CVP project to determine a breakeven point.

1. COST-VOLUME-PROFIT
(CVP) ANALYSIS
Best Bikes

2. COST-VOLUME-PROFIT (CVP)
 1. How much sales-revenue must be generated to earn
a before-tax profit $96,000?
 2. How much sales-revenue must be generated to earn an
after-tax profit of $96,000 and a 40% marginal tax rate?
 3. What is the break-even point?

3. CVP: Equation
Profits = (Sales – Variable expenses) – Fixed expenses
OR
Sales = Variable expenses + Fixed expenses + Profits
At the break-even point
profits equal zero

4. Assume the following:
Monthly fixed costs: $24,000.
Rent $7000 Insurance $3000
Electricity $4000 Maintenance $2000
Indirect labor $4000 Misc. fixed costs: $4000
Monthly variable costs: $450
Pedals $50 Brakes $20 Wheels $50
Seats $20 Headsets $30
Other direct materials $200 Direct labor $80

5. CV
P -
5
CVP
Assume the following:
Total Per unit %of Sales
Sales (800 Bikes) $480,000 $600 100%
Less: Variable Expenses $360,000 $450 75%
Contribution Margin $120,000 $150 25%
Less Fixed Expenses $24,000
Net Income $96,000

6. Revenue before tax profit
Sales = Variable expenses + Fixed expenses + Profits
$600Q = $450Q + $24,000 + $96,000
Q = $120,000 / $150 = 827
Q = 800 bikes
$800 X $600 = $480,000 required sales
How much sales-revenue must be generated to earn
a before tax profit $96,000?

7. Revenue after-tax profit
$600Q - $450Q - $24,000 = $96,000 / (1 -0.4)
150Q = $184,000
= 1227 Bikes
Sales = 1227 X $600
= $736,200 Sales required
How much sales-revenue must be generated to earn
after-tax profit of $96,000 and a 40% marginal tax rate?

8. Break-Even Analysis
Sales = Variable expenses + Fixed expenses + Profits
X = 0.75X + $24,000 + $0
X = 24,000 / 0.25 = $96,000
BEP: $96,000 / $600 = 160 Bikes
Where:
X = Total sales dollars
0.75 = Variable expenses as a % of sales
$24,000 = Total fixed expenses

9. Break-Even Point
$500,000
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Break-Even Point
Units
How many bikes to sell to make break-even? 160 Bikes
Sales
FC
Total Costs

10. Data: Break-Even Analysis
time Unit Start Unit Incre Unit Price Unit VC Total FC
month 0 70 600 450 24,000
Units Sales VC CM FC Total Costs Net Inc
0 $0 $0 $0 $ 24,000 $ 24,000 -24,000
70 $ 42,000 $ 31,500 $ 10,500 $ 24,000 $ 55,500 -13,500
140 $ 84,000 $ 63,000 $ 21,000 $ 24,000 $ 87,000 -3,000
210 $ 126,000 $ 94,500 $ 31,500 $ 24,000 $ 118,500 7,500
280 $ 168,000 $ 126,000 $ 42,000 $ 24,000 $ 150,000 18,000
350 $ 210,000 $ 157,500 $ 52,500 $ 24,000 $ 181,500 28,500
420 $ 252,000 $ 189,000 $ 63,000 $ 24,000 $ 213,000 39,000
490 $ 294,000 $ 220,500 $ 73,500 $ 24,000 $ 244,500 49,500
560 $ 336,000 $ 252,000 $ 84,000 $ 24,000 $ 276,000 60,000
630 $ 378,000 $ 283,500 $ 94,500 $ 24,000 $ 307,500 70,500
700 $ 420,000 $ 315,000 $ 105,000 $ 24,000 $ 339,000 81,000
770 $ 462,000 $ 346,500 $ 115,500 $ 24,000 $ 370,500 91,500