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Cost Volume Profit Analysis

Cost Volume Profit Analysis

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Published by: ponnuvelscribd on Jun 28, 2010
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Cost volume profit (CVP) analysis generally defined as a planning tool by whichmanages can evaluate the effect of a change(s) in price, volume, variable cost or fixedcost on profit. Additionally, CVP analysis is the basis for understanding contributionmargin pricing, related short-run decisions, target costing and transfer pricing. In themarginal costing varies directly with the volume of production or output. On the other hand, fixed cost remains unaltered regardless of the volume of output. In net effects, if volume is changed, variable cost varies as per the changes in volume. In this case, selling price remains fixed, fixed remains fixed and then there is a change in profit.Cost – Volume profit Analysis is a logical extension of Marginal costing. It is based on the same principles of classifying the operating expenses into fixed andvariable. Now-a-days it has become a powerful instrument in the hands of policy makersto maximum profits.There elements need to be related ion order to achieve the maximum profit. Apartfrom profit projection, the concept of cost volume profit is relevant the short run. Therelationship among cost, revenue and profit at different levels may be expressed in graphssuch as breakeven charts, profit volume graphs or in various statements forms.Earning of maximum profit is the ultimate goal of almost all businessundertakings. The most important factors influencing the earning of profit is the level of  production. (I.e. Volume of production).
Profit depends on a large number of factors, most important of which are the costof manufacturing and the volume of sales, volume of sales depends upon the volume of  production and market forces which turns in related to costs.Management has no control over market. In order to achieve certain level of  profitability, it has to exercise control and management of costs, mainly variable cost.This is because fixed cost is a non-controllable cost.It helps to find out the profitability of a product, department of division to have better product mix, for profit planning and to maximize the profit of a concern.These decisions can include such crucial areas as pricing policies, product mixes,market expansion or contractions, outsourcing contracts, idle plant usage, discretionaryexpenses planning and a variety of other important considerations in the planning process. Given the broad range of context in which cost volume profit can be used.In other words, it helps in locating the level of output which evenly breaks thecost and revenues used in its broader sense, it means that system of analysis whichdetermine profit, cost and ales value at different levels of output. The cost Volume profitanalysis establishes the relationship of cost, volume and profit.Thus cost volume profit furnishes the complete picture of the profit structure. Inother word, cost volume profit is a management accounting tool that expressesrelationship among sales, volume, cost and profit. The cost volume analysis uses thetechniques of breakeven analysis, operating leverage, margin of safety and effect of changes on sales and contribution on margin and net operating income. The level of salesneeded to achieve desired target profit, in order to predict changes in net operatingincome. The data are cost sheet and balance sheet collected from the company.
The company is managed by the Managing Director, Joint Managing Director andExecutive Director - Operations subject to the superintendence, control and direction of the board of directors.The board of Directors of the company have an optimum combination of executive, Non-Executive and independent directors, which compels with clause 49 of the listingrequirements as well. The entire board of the company is involved in selection,Orientation and succession of directors.
Shri R.G.Chandramogan Chairman & Managing Director Shri R.G.Chandramogan is the promoter of the company. He is the chairman andmanaging director of the company. He has initially started icecream business in early1970s and later ventured into milk and milk related products. In the year 1986 he formedthe business into a private limited company, which was later converted into a publiclimited company.Shri K.S.Thanarajan Joint Managing Director Shri K.S.Thanarajan is a post-graduate in economics and is in-charge of day-by-dayoperations of the dairy division of the company. Shri Thanarajan has had more than 30years of experience.Shri C.Sathyan Executive Director-OperationsShri C.Sathyan, a Company Executive, is a Bachelor of Business Management withspecialization in Marketing. He has held various executive positions during his career spanning over 10 years.
Shri P. VaidyanathanShri P.Vaidyanathan is a fellow member of The Institute of Chartered Accountants of India and associate member of The Institute of Company Secretaries of India and TheInstitute of Cost and Works Accountants of India. Shri Vaidyanathan is the Chairman of M/s Integrated Enterprises (India) Limited. He is also on the Board of reputed companiesviz., City Union Bank Limited, Economist Communications Limited and TempletonAsset Management Pvt. Limited. Shri Vaidyanathan has had more than 32 years of experience in the Finance functions.Shri Kirti P ShahShri Kirti P Shah, an Industrialist, is an Engineering Graduate. Shri Shah is a Non-Resident Indian. At present he is the President of M/s Custom Magnetics Inc., U.S.A.Shri Shah has had more than 40 years of experience in the field of Engineering.Shri S. Thiagarajan

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