COST -

VOLUME=
PROFIT
ANALYSIS
SIT DOLOR AMET
Cost-volume-profit (CVP) analysis
Estimates how changes in costs (variable and fixed), sales volume, and price affect a company's
profit.
CVP is being used by companies to determine the break even point, which is the point of zero profit
(no profit, no loss)
At the break even point total revenue equals total cost, Companies, however, do not wish merely to
"break even "on operations
Knowing BEP, managers are better able to set sales goals that should result in profits from operations
rather than losses.
Cost-volume-profit (CVP) analysis
CVP analysis helps managers answer several questions such as
 the number of units to be sold to break even

 the effect of changes in the fixed cost on the break even point

 the effect of changes in the sales price on the break even point
Cost-volume-profit (CVP) analysis
To fully understand the CVP relationship, we will classify cost according to their tendency to vary
with production (MIXED, FIXED, AND VARIABLE.)

So variable costs are all cost units are produced and sold, including
a. direct materials
b. direct labor’
c. variable overhead
d. variable selling
e. variable administrative
Fixed cost will include
a. Fixed overhead
b. Fixed selling
c. Fixed administrative
 Cost-volume-profit (CVP) analysis
A summary of revenue and cost assumptions is presented at this point to provide a foundation for BEP and CVP
analysis

a. Relevant range - the company is assumed to be operating within the relevant range of activity specified for
determining the revenue and cost information used. The relevant range refers to the range of activity over which a
variable cost per unit remain constant or a fixed cost remains fixed in total.

b. Revenue - Revenue per unit is assumed to remain constant. Total revenue fluctuates in direct proportion to volume.

c. Variable cost - Variable are assumed to remain constant on a per unit basis. Total variable costs fluctuate in direct
proportion to volume.

d. Fixed cost - Total fixed costs re assumed to remain constant regardless of changes in volume and because of this
fixed cost on a per unit basis increases as volume decreases and decreases as volume increases.

e. Mixed cost - before

THE BREAK EVEN POINT
THE BREAK EVEN POINT
MARGIN OF SAFETY
The units sold or revenue above the BEP volume
Illustration: If the current sales is 500 units and the BEP is 150 units, the
margin of safety is:
Margin of Safety = current sales – BEP sales
= 500 units – 150 units
= 350 units
CVP ANALYSIS IN A MULTIPRODUCT
CVP ANALYSIS IN A MULTIPRODUCT
SALES AND UNITS WITH DESIRED PROFIT
SALES AND UNITS WITH DESIRED PROFIT
SALES AND UNITS WITH DESIRED PROFIT
Operating Leverage
the use of fixed cost to get higher percentage changes n profit as sales changes

concerned with the relative mix of fixed cost and variable cost in an organization