COST-VOLUMEPROFIT ANALYSIS AS A TOOL OF PROFIT PLANNING

BY: NITYA SHARMA

CVP Analysis
Cost-volume-profit analysis is a

technique that examines changes in

profits in response to changes in sales volumes, costs, and prices.

OBJECTIVE OF CVP ANALYSIS

To establish what will happen to the

financial results if a specified level of activity or volume fluctuates.

Assumptions of CVP Analysis

1. revenues change in relation to production

2.
3. 4. 5.

6.

and sales costs can be divided in variable and fixed categories revenues and costs behave in a linear fashion costs and prices are known if more than one product exists, the sales mix is constant we can ignore the time value of money

Applications of CVP Analysis

Setting prices for products and

services New product/service introduction Replacing a machine Make or buy What if analysis

USAGE OF CVP ANALYSIS IN MANAGERIAL DECISIONS

Product pricing Accepting / rejecting sales orders

What product lines to promote?

What level of output is required to achieve a set level of net profit?

Feasibility of profit plan

Technology usage

Cost-Volume-Profit Graph
Break-even point
Total sales

Total expenses

Fixed expenses

Units Sold

AREAS OF APPLICATION IN INDUSTRY

Banking
Hotel Software

Higher Educational Institutions

Sugar Industry

Non-ProfitOrganistions
Newspaper Industry

Manufacturing Industry

Bearing Industry
Foundry Industry