Page 81 - 5.2 i. Manac Costing ITC Summarised Notes

ITC EXAM PREP

Overview

Application of CVP

• Please note that ALL variable costs and ALL fixed costs (production

AND non-production costs) are included in the break-even calculation.

• Contribution per unit equals the sales price per unit less ALL variable

costs per unit. The contribution margin ratio is the contribution

expressed as a percentage of sales.
• The net profit figure in a break-even calculation is ALWAYS BEFORE

TAX. Therefore if you are told in a question that you are trying to

achieve a net profit AFTER tax of, for example R50 000, you must first

convert the R50 000 to a BEFORE tax amount before you use it in the

break-even calculation.

• Remember that a break-even point (in units) should always be
ROUNDED UP as one less unit sold will lead to a small loss.

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