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  • CVP Analysis

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    sakura haruno
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    1. The document outlines key costing and profitability formulas used in managerial accounting, including those related to contribution margin, breakeven point, margin of safety, and degree of operating leverage. 2. It provides definitions and calculations for terms like unit contribution margin, contribution margin ratio, variable cost ratio, profit ratio, and indifference point. 3. The formulas are grouped into categories like controlling formulas, primary formulas, and secondary formulas and make assumptions that costs and prices remain constant, production equals sales, and there is no work in process inventory.

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    1. The document outlines key costing and profitability formulas used in managerial accounting, including those related to contribution margin, breakeven point, margin of safety, and degree of operating leverage. 2. It provides definitions and calculations for terms like unit contribution margin, contribution margin ratio, variable cost ratio, profit ratio, and indifference point. 3. The formulas are grouped into categories like controlling formulas, primary formulas, and secondary formulas and make assumptions that costs and prices remain constant, production equals sales, and there is no work in process inventory.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    8 views2 pages

    CVP Analysis

    Uploaded by

    sakura haruno
    1. The document outlines key costing and profitability formulas used in managerial accounting, including those related to contribution margin, breakeven point, margin of safety, and degree of operating leverage. 2. It provides definitions and calculations for terms like unit contribution margin, contribution margin ratio, variable cost ratio, profit ratio, and indifference point. 3. The formulas are grouped into categories like controlling formulas, primary formulas, and secondary formulas and make assumptions that costs and prices remain constant, production equals sales, and there is no work in process inventory.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    REVIEW NOTES

    1.0 Basic principles


    1.1 Profit = Sales – Costs and expenses
    1.2 Costs = Variable costs and Fixed costs
    1.3 Profit = Sales – Fixed costs – Variable costs
    1.4 Profit = Contribution margin – Fixed costs

    2.0 Assumptions within the relevant range

    Basic CVP Sensitivity


    assumptions analysis
    Unit sales price Constant Changes
    Unit variable costs Constant Changes
    Total fixed costs Constant Changes
    Sales mix Constant Changes
    Quantity sold Changes Changes
    In process inventory None None
    Production and sales Equal Equal
    Sales mix Constant Constant

    3.0 Selected FORMULAS (within the relevant range)

    CONTROLLING FORMULAS
    P = CM – FC P = CM – FC
    CM = FC + P CM = FC + P
    QS (UCM) = FC + P S (CMR) = FC + P
    QS = (FC + P) / UCM S = (FC + P) / CMR
    Primary Formulas Secondary Formulas
    Contribution margin CM = S – VC CM = FC + PBT
    CM = S x CMR CM = QS x UCM
    Contribution margin ratio CMR = CM / S CMR = ΔP / ΔS
    CMR = 1 – VCR CMR = PR / MSR
    CMR = 1 – (VC / S)
    CMR = UCM / USP
    Unit contribution margin UCM = USP - UVC UCM = CM / QS
    UCM = FC / BEPU
    Profit before tax PBT = CM - FC PBT = S x (CMR x MSR)
    PBT = PAT / (1 – TR) PBT = S x PR
    Variable cost ratio VCR = UVC / USP VCR = ΔC / ΔS
    VCR = VC / S VCR = (ΔC - ↑ in FC) / ΔS
    VCR = 100% - CMR VCR = (ΔC +↓ in FC) / ΔS
    Breakeven point in units BEPU = FC / UCM BPU = QS x (1 – MSR)
    Breakeven point in pesos BEPP = FC / CMR BPU = S x (1 – MSR)
    Composite BEPU CBEPU = FC / Average UCM
    Composite BEPP CBEPP = FC / Average CMR
    At breakeven point P/L = 0 FC = CM
    FC = BEPU x UCM
    BEPU = FC / UCM
    Sales in units S = (FC + PBT) / UCM S = FC / (UCM – UPM)
    Sales in pesos S = (FC + PBT) / CMR S = FC / (CMR – PR)
    Margin of safety in units MSU = BS in units – BEPU MSU = Sales in units x MSR
    Margin in safety in pesos MSP = BS in pesos - BEPP MSR = Sales in pesos x MSR
    Margin of safety ratio MSR = MS /BS MSR = PR / CMR
    MSR = 1 / (BEP / S) MSR = 1 / DOL
    Profit ratio PR = UPM / USP PR = MS x CMR
    PR = P/S
    Degree of operating DOL = CM / EBIT DOL = 1 / MSR
    leverage (DOL) DOL = ΔEBIT / ΔS
    DOL = ΔEBIT / ΔCM
    Indifference point, general Profit(1) = Profit (2) CM(1) – FC(1) = CM(2) – FC(2)
    formula
    Indifference point if USP is TC(1) = TC(2), FC(1) + VC(1) = FC(2) + VC(2)
    constant or not given

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