CVP ANALYSIS

* Break- even point *Breakeven point

1 Contribution Margin Approach "sakto"
2 Equation approach no profit or loss
3 Target Net Income Approach
4 Through graphing Assumptions:
1 Costs are classified as variable or fixed
Purpose: COGS & Operating Expenses
*decision- making 2 Variable costs change at a linear rate
1 How many units to produce to Breakeven? 3 Fixed costs remains unchanged within the relevant range
2 Margin of Safety 4 Selling price do not change as sales volume changes
3 Sensitivity analysis 5 For multiple product companies, sales mix usually remains constant
6 Inventory level remains constant
*CVP focuses on the units that we sell
Definition:Understand the relationship of: 7 Volume is the greatest factors affecting costs
Cost Cost of the products that the company sell
Volume the number of units produced/ sold
Profit the profit Contribution Margin Approach
affected by Sales xx
a Selling prices Less: Variable Cost & Expenses xx
b Sales Volume Contribution Margin XX
c. Variable cost per unit Less: Fixed Cost & Expenses xx
d Total Fixed Costs Net Income/ Profit XX
e Product Mix
BEP= Contribution Margin = Fxd Cost & Expenses

BEPu= Fixed Cost/ CMu

BEPs= Fixed Cost/ CMR

* with Target Income/ Profit--> Before tax

BEPu= Fixed Cost + Desired Profit/ CMu

BEPs= Fixed Cost + Desired Profit/ CMR

Margin of Safety "maximum"

= Actual sales- BE sales