Cost, Volume and profit Analysis:

Cost: Sacrifice for the resources

Cost Classification:

1) Variable Cost

2) Fixed Cost

3) Mixed cost

Variable cost: cost that varies with unit. As unit changes total variable cost changes. Variable cost has
some proportional relation with unit.

For example: if

1 unit cost = Tk. 5

2 unit cost =Tk. 10

5 Units cost=Tk. 50

10 units cost= 100

Question papers for Students, total number of mark sheets or certificate issued for the students is VC for
a particular class.

Fixed Cost: cost that does not vary with unit. As unit changes fixed cost does not change. Fixed cost
facilitates a capacity within that capacity FC never be changed. For example: class room decoration cost
is a FC. So FC is fixed in total but per unit FC changes as unit changes

Mixed Cost: combination of Variable cost and FC. Mixed cost follows the following equation

Y=a+bx………….Mixed cost

Y= total coat

a= FC

b= variable cost per unit

x= number of units
For example: Salary of any worker, Electricity bill

TC(Total Cost)= TVC(Total Variable Cost)+ FC(Fixed Cost)

TC=VC per unit(Vp) * quantity(Q)+FC

Total Revenue(TR)/Total sales = P*Q

Profit= TR-TC

Profit=(P*Q)-(V*Q)-FC

0=Q(P-V)-FC

Q=[FC/(P-VC)]…….Break Even Point(BEP)

P=10

VCp=7

Contribution Margin (CM) =3

Contribution Margin Ratio= (CM/Sales per unit)*100

Variable cost ratio=(VC/Sales per unit)*100

CM ratio= 1- VC ratio

VC ratio=1-CM ratio

FC=30,000

Capacity : 0-15,000 units

BEP=[30,000/10-7)

Q=10,000 Units

If I have sold 15,000 units total profit will be =[5000*3)=15,000 taka

If I want to make profit of Tk. 5000. How many units I need to produce??

(30,000+5000)/3=11,667 units

Safety Margin= Current Production-Break even sale

=12,00,000-9,60,000

=2,40,000

Degree of operating leverage (DOL)=[CM/Operating Profit]

= Times