Cost Volume Profit Analysis for Cisco Manufacturing Pty Ltd.

EXECUTIVE SUMMARY
Cisco Manufacturing Pty Ltd. (Cisco) manufactures radiators for triple B
semi- trailers and has three plants for the same. All plants have separate
costing systems.
The company wishes to minimise its costs in order to maximise its profits.
A cost volume profit analysis was carried out to determine which plant
should produce what quantity in order to maximise profits depending
upon their respective cost structures under various production capacity
levels.
The company can produce and sell 150000 units of the radiators.
From the analysis, we see that Preston Manufacturing plant has the
highest contribution margin per unit and hence it is recommended that
the plant operate at maximum capacity, Brunswick and Northcote both
operate at minimum capacity in order to maximise profits of the
company.

ANALYSIS
The cost volume profit analysis of the three plants was carried out. The analysis
comprised of calculation of the contribution margin per unit, breakeven point,
operating income for equal units of production and profit maximising allocation of
production units
Contribution margin per unit under current production Northcote Brunswick Preston
Per unit Per unit Per unit
Selling price $700 $700 $700
Variable material
cost $160 $165 $150
Variable labour
cost $160 $150 $145
Variable
overhead cost $20 $30 $35
Contribution
margin $360 $355 $370

CONTINUED...
Contribution Margin per unit under maximum production
Northcote Brunswick Preston
Per unit Per unit Per unit
Selling price $700 $700 $700
Variable material
cost $170 $170 $160
Variable labour
cost $165 $155 $155
Variable overhead
cost $25 $30 $30
Contribution
margin $340 $345 $355