Presentation Topic:-

CVP Analysis

Presented by :Muhammad Arslan Arshad ID # 110845-015

Management Accounting

Cost, volume, profit Analysis

CVP helps you in your business operations Examining the relationship between your Fixed costs Variable costs Your volume (in term of units or Rupees) And your profit

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What is cost?
Total money, time and resources value or price of any thing Sacrifice made to obtain any thing

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Types of costs

Variable cost
Fixed cost

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Fixed/Variable costs changes

Per Unit Total Costs Change Does not Change

Fixed cost

Veriable cost Does not Change Change

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Profit

Difference between revenue and cost Positive gain from an investment Total earning less expenses

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Main tools offered by CVP analysis

Break even analysis Contribution margin analysis Operating leverage

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Break even point Analysis

Volume of activity at which an organization; revenues & expenses are equal Formula to calculate
In

units
= Fixed cost contribution margin per unit Fixed cost contribution margin ratio
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In

rupees =

Contribution margin analysis

Formula to calculate C.M per unit = Sales price variable costs

C.M

ratio = CM per unit / sales price

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Contribution Margin Ratio in percentage (%)

Formula to calculate

= C.M Ratiox100

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Margin of safety

Difference between budgeted & break even sales revenue. Formula = Actual Sales Break even sales(units) In percentage % = Margin of Safety Actual Sales x 100
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Break even Capacity in Percentage (%)

Formula to calculate = Break even sales(units) Actual sales x 100

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Target profit

Formula to calculate

Units to earn target profit

= Fixed Expenses + Target profit Contribution Margin per unit

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Contribution Income Statement

Variable and fixed expenses are seperated

xxxx (xxx) xxx (xxx) xx

Sales Less:- variable cost Contribution Margin Less:- Fixed cost Net profit

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Break-even point (units)

Brek-even point (units) = Fixed Costs Contribution Margin per unit = 40,00,000 900(w-1) = 4444 C.M per unit (w-1) = Sale price-Veriable price = 3000 - 2100 = 900

Break-even point (Rs.)

Break-even point (Rs.) = Fixed cost C.M ratio(w-2) = 40,00,000 0.3 = 13,333,333 Rs. =Contribution
= =
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C.M Ratio (w-2) Margin

Sale price 900 3000 0.3

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Contribution Margin Ratio in %

Formula to calculate =C.M Ratio x 100 = 0.3 x 100 = 30 %

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Target Profit
How many units must sell to earn a Target net profit of Rs. 10,00,000. Units to earn Target profit

= Fixed costs+Target Profit Contribution Margin per unit = 4000,000+10,00,000 900 = 5555 Units
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Margin of safety and %

Formula = Actual Sales Break even sales(units) = 6000 4444 = 1556 In percentage % = Margin of Safety Actual Sales x 100 = 1556 6000 x 100 = 26 %
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Break-even capacity in percentage(%)

Formula to calculate = Break even sales(units) Actual sales x 100 = 4444 6000 x 100
= 74 %
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Proof
Sales (6000x3000) 180,00,000 Less:- Variable cost(2100x3000) 630,0000 Contribution Margin 1170,0000 Less:- Fixed Cost 40,00,000

Net Profit
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770,0000
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