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    Cost Volume Profit (CVP) Analysis

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    zahidkhan
    Cost-volume-profit (CVP) analysis is used to determine the break-even point, margin of safety, and profitability based on sales volume. It examines the relationship between total costs, fixed costs, variable costs, sales, and profit. The contribution margin, or amount each unit sells for above its variable cost, and fixed costs are key in calculating the break-even point, which is the sales volume needed for zero profit. The margin of safety shows sales above the break-even point, providing a buffer against losses. CVP analysis uses charts and calculations to help managers understand how changes in costs and sales impact profit.

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    Cost Volume Profit (CVP) Analysis

    Uploaded by

    zahidkhan
    17 views10 pages
    Cost-volume-profit (CVP) analysis is used to determine the break-even point, margin of safety, and profitability based on sales volume. It examines the relationship between total costs, fixed costs, variable costs, sales, and profit. The contribution margin, or amount each unit sells for above its variable cost, and fixed costs are key in calculating the break-even point, which is the sales volume needed for zero profit. The margin of safety shows sales above the break-even point, providing a buffer against losses. CVP analysis uses charts and calculations to help managers understand how changes in costs and sales impact profit.

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    CVP 2

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    Cost-volume-profit (CVP) analysis is used to determine the break-even point, margin of safety, and profitability based on sales volume. It examines the relationship between total costs, fixed costs, variable costs, sales, and profit. The contribution margin, or amount each unit sells for above its variable cost, and fixed costs are key in calculating the break-even point, which is the sales volume needed for zero profit. The margin of safety shows sales above the break-even point, providing a buffer against losses. CVP analysis uses charts and calculations to help managers understand how changes in costs and sales impact profit.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Download as pdf or txt
    17 views10 pages

    Cost Volume Profit (CVP) Analysis

    Uploaded by

    zahidkhan
    Cost-volume-profit (CVP) analysis is used to determine the break-even point, margin of safety, and profitability based on sales volume. It examines the relationship between total costs, fixed costs, variable costs, sales, and profit. The contribution margin, or amount each unit sells for above its variable cost, and fixed costs are key in calculating the break-even point, which is the sales volume needed for zero profit. The margin of safety shows sales above the break-even point, providing a buffer against losses. CVP analysis uses charts and calculations to help managers understand how changes in costs and sales impact profit.

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    of 10

    Cost Volume Profit (CVP) Analysis

    In this chapter we are going to study at what volume what is going to be the cost and how much
    profit are we going to make

    Contribution: Sales - Variable Cost.


    This is what is left of the sales after deducting the cost.
    The full name is contribution towards earning profit.

    Breakeven Point: This the level of sales where the company make no profit no loss.
    Above this point is profit
    Below this point is loss

    Margin of Safety: This shows how much safer we are from making loss.
    Budgeted Sales - Breakeven Sales

    CVP 2 Page 1
    1200*$20=$24000 contribution
    $25000 fixed cost
    $1000 loss

    1800*60=108000

    Contribution = $60-$40=$20/unit

    Breakeven Point= Fixed Cost/ Contribution per unit

    25000/20=1250 units breakeven point

    1250*$20=$25000 Contribution
    $25000 Fixed Cost
    0

    Fixed Cost /C/s Ratio

    C/S ratio= Contribution to sales ratio

    20/60=0.3333

    $25000/.333333=$75000.08
    1250*$60=$75000.00

    We need to sell at least 1250 units or $75000 revenue to have no profit no loss

    1800-1250=550 margin of safety


    550/1800*100=30.5556% if we sell even 30% which is 550 less units we are still going to
    be in no profit no loss situation
    The lower this % the higher the risk of making loss.

    At 800 units
    800*$40=$32,000
    $32000+$25000=57000 total
    (1800*$20)-$25000=$11000.00
    800*$60=$48,000.00

    CVP 2 Page 2
    Breakeven Chart

    Profit

    Sales
    Total cost

    Loss Variable cost

    Fixed cost

    Fixed Cost

    (10000s) 1 2 3 4 5 6 7 8 9 10

    Margin of safety
    (200S)

    CVP 2 Page 3
    Contribution Chart

    Sales revenue Profit Total cost

    Fixed cost

    Variable cost

    Loss

    Fixed Cost

    (10000s) 1 2 3 4 5 6 7 8 9 10

    Margin of safety
    (200S)

    CVP 2 Page 4
    ePV (Profit Volume) Chart
    Wednesday, October 3, 2018 8:37 AM

    Contribution

    (10000s) 1 2 3 4 5 6 7 8 9 10

    (200s)

    Margin of safety

    CVP 2 Page 5
    Saturday, October 6, 2018 5:10 PM

    Condition
    Product should sold in a standard sales mix

    W 8-3.8=4.2
    R 14-4.3=9.7

    Average Cont/unit Average Sales/unit

    W 5 * 4.2=21 W 5 * 8=40
    R 6 * 9.7=58.2 R 6 * 14=84
    11 = 79.2 11 = 124

    79.2/11=7.2 (average Contribution/unit) 124/11=11.2727

    C/S ratio 7.2/11.2727=0.6387


    83160/7.2=11550 units

    W 11550/11*5=5250
    83160/.6387=130201.9728
    R 11550/11*6=6300
    W 11550/11*5=5250
    R 11550/11*6=6300
    Proof of profit being zero
    Proof of units and sales revenue
    W 5250*4.2=22050
    R 6300*9.7=61110.0
    5250*8=42000
    22050+61110=83160 6300*14=88200
    Fixed cost (83160)
    Profit 0 88200+42000=130200

    Find W and R units from 130200 revenue

    W 130200/124*40=42000
    R 130200/124*84=88200
    W 42000/8=5250
    R 88200/14=6300

    CVP 2 Page 6
    Monday, October 8, 2018 4:43 PM

    CVP 2 Page 7
    13 December 2017 09:29

    CVP 2 Page 8
    13 December 2017 09:29

    CVP 2 Page 9
    13 December 2017 09:29

    CVP 2 Page 10

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