Chapter 18

Cost volume profit analysis

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 Outline
• CVP analysis and the break-even point
• Graphing CVP relationships
• Target net profit
• CVP analysis for management decisions
• CVP analysis with multiple products
• Including income taxes in CVP analysis
• Assumptions underlying CVP analysis
• An activity-based approach to CVP analysis
• Financial planning models
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 What is cost volume profit
(CVP) analysis?
• Determines the effect of changes in an
organisation’s sales volume on its
costs, revenue and profit
• Provides answers to a series of short-
term changes – can determine the
impact on revenue and costs quickly
• Can be used in both profit-seeking and
not-for-profit organisations

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 The break-even point
• The volume of sales where the total revenues
and costs are equal, and the operation breaks
even
• At this level of sales, there is no profit or loss
• The break-even point can be calculated for an
entire organisation or for individual projects or
activities

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 Break-even formulas
Điểm hòa vốn theo sản lượng
Fixed costs
Break-even point (in units) =
Unit contribution margin

Fixed costs
Break-even point (in sales dollars) =
Unit contribution margin ratio
Điểm hòa vốn theo doanh thu (tiền)
Tỷ lệ số dư
đảm phí

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BEP analysis
Sales – total costs = Income
Sales – Total VC – Total FC = Income
pxQ – vxQ – FC = Income
•At BEP:
pxQ – vxQ – FC = 0
(p-v)xQ – FC = 0
Unit contribution

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 Terminology

• Contribution margin (or variable

costing) statement
• Total contribution margin
• Unit contribution margin
• Contribution margin ratio
• Contribution margin percentage

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 Graphing cost volume
profit relationships
• Shows how costs, revenue and profits
change as sales volume changes
• Five steps
– Draw the axes of the graph
– Draw the fixed cost line
– Draw the total cost line
– Draw the total revenue line
– Break-even point – where the total
revenue and total cost lines intersect
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 Cost volume profit graph, Melbourne
Theatre Company production Calypso
CP

BP + ĐP
CP =
T ổn g
u
p h í ( bắt đầ c
Biến CP = mứ
c
t ừ m ứ í vớ i s ả n CP cố định trong
h
định p ằng 0 một dk nhất định
b
lượng là không đổi

số
nh
oa
n gd
Tổ

Sản lượng

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 Profit volume (PV) graph
• Shows the total amount of profit or loss at
different sales volumes
• The graph intercepts the vertical axis at the
amount equal to the fixed costs
• The break-even point is the point at which the
total profit/loss line crosses the horizontal axis

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 Profit volume graph, Melbourne
Theatre Company production Calypso

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 18-11
 Target net profit
• A desired profit level determined by
management
• The break-even formula can be used
to determine the sales volume
needed to achieve a particular target
profit
Fixed costs + target net profit
Target sales volume (in units) =
Sản lượng tại lợi nhuận mong mong Unit contribution margin
Số dư đảm phí đơn vị
Fixed costs + target net profit
Target sales volume (in dollars) =
Unit contribution ratio

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 Using CVP analysis for
management decision making
Tính lợi nhuận biên an toàn (CVP)
• Safety margin
– Difference between the budgeted sales
revenue and break-even sales revenue
• Changes in fixed costs
– Percentage change in fixed costs will
lead to a similar increase in the break-
even point (in units or dollars)
• Changes in the contribution margin
per unit
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Multiple changes in key variables
ví dụ thay đổi biến phí
• May involve, for example
– Decreasing variable costs per unit
– Increasing selling prices
– Undertaking a new advertising campaign
– Leasing a new office
Điều chỉnh sự thay đổi biến phí
• An incremental approach to analysis
– Focuses on the differences in the total
contribution margin, fixed costs and
profits under the two alternatives

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 CVP analysis with multiple
products
• Sales mix Tỷ lệ sản lượng và doanh số giữa các sp là không đổi trong 1 thời gian
nhất định
− The relative proportions of each type of product
sold by the organisation
• Weighted average unit contribution margin
− The average of the products’ unit contribution
margins, weighted by the sales mix
Fixed costs
Break-even point =
Weighted average unit contribution margin
SM: Sales mix WACC = [CM (A)xSM (A) +
CM: Contribution margins
CM(B)xSM(B)] / 2
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 Profit volume graph with multiple
products, Melbourne Theatre
Company production Calypso

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 Including income taxes in CVP
analysis
Sales volume required to earn net
profit after tax

Fixed costs + [target net profit after tax / (1 – t)]

=
unit contribution margin

Target net profit = Target net profit before tax

Target net profit after tax
=
(1 – t)
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 Assumptions underlying
CVP analysis
Doanh số là một đường hồi quy tuyến tính (đường thẳng)
• The behaviour of total revenue is linear
Trong cùng một mặt phẳng, đường CP cũng là đường thẳng
• The behaviour of total costs is linear over a
relevant range
Giả sử ko có yêu tố nào làm thay đổi khác ngoài biến phí và định phí
• For both variable and fixed costs, sales
volume is the only cost driver
Tỷ lệ sản lượng giữa các sp là
• The sales mix remains constant over the
relevant range
Trong cty SX, chu kì sản xuất giữa các đơn vị là không đổi
• In manufacturing firms, the levels of inventory
at the beginning and end of the period are the
same
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 CVP analysis and
longer-term decisions
Mối QH giữa phần tích CVP và ra quyết định dài hạn

• CVP analysis is usually regarded as a

short-term or tactical decision tool
Ko lq vì CVP chỉ lqđ quyết định ngắn hạn

• Classification of costs as variable or

fixed is usually based on cost
behaviour over the short term
Cần phân loại các CP: BP hay ĐP

• The financial impact of long-term

decisions is best analysed using
capital budgeting techniques
Nếu muốn phân tích dài hạn thì nên xài các pp phân tích dài hạn
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 Treating CVP analysis
with caution
Đây là mô hình đơn giản hóa nên tỷ lệ sai sót lớn
• CVP analysis is a simplified model
• The usefulness of CVP analysis may be
greater in less complex, smaller firms, or for
stand-alone projects
• For larger, more complex firms, CVP analysis
canphù hợpbe
also chovaluable
các dự ánas
nhỏ, cty nhỏ tool for the
a decision
planning stages of new projects and ventures

Trong những cty lơn hơn, CVP chỉ có giá trị là công cụ tham khảo khi lập kế hoạch dự án

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 An activity-based approach
to CVP analysis

• ABC categorises activities at unit,

batch, product or facility level
– Batch, product and facility activities are
non-volume related activity costs
Total batch, product and facility level costs
Break-even point =
Selling price per unit - costs per unit

(cont.)

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An activity-based approach to CVP
analysis (cont.)

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 Planned activities and costs,
AccuTime Pty Ltd

Lắp ráp
Kiểm tra
Đóng gói
CP chuyển từ kho
vào nhà máy
CP kiểm tra, bảo trì
máy móc trước SX
mỗi ngày
CP cho thiết kế sản
phẩm và quy trình
SX
CP khác
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 Limiting assumptions of
CVP analysis using
activity-based costs
• Total batch level costs are dependent
on the batch size and the
break-even/target production level
• Management may change the batch
size at certain production volume levels
• More complex models are needed
where there are multiple products
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 Including customer-related
costs in CVP analysis
Profit = Sales revenue – (unit level costs + batch level costs
+ product level costs
+ order level costs
+ customer level costs
+ marketing level costs
+ facility level costs)

Thêm CP lqđ KH
đặt hàng

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 Financial planning models
• Sensitivity analysis and CVP analysis
• Can be run using spreadsheet software
• Goal seek approaches
– The analyst specifies the outcome, and the
software specifies the necessary inputs
• What-if analysis
– The analyst specifies changes in
assumptions and data to examine the effect
of these changes on the outputs

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 Profit model for AccuTime Pty Ltd
under activity-based costing

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 Summary
• CVP analysis is a decision tool
• The break-even point is the sales level at
which sales cover costs – there is zero profit
• The break-even formula can be modified to
calculate target profit
• CVP analysis has several assumptions which
limit its usefulness for decision making
• Activity-based approaches and financial
planning modelling can provide more
sophisticated models

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