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CVP

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Cost-Volume-Profit (CVP)
Analysis
 Q&As
Illustration
Formulas
Terminologie
s
CVP

Introduction
 Cost-Volume-Profit (CVP) Analysis
Is the systematic examination of the relationship among selling prices,
volume of sales and production, costs and profits

Key Factors of CVP in many decisions including:

• Choice of product lines
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Terminologie

Introduction
• Pricing of products
Q&As

CVP
• Marketing Strategy
• Utilization of Product Facilities
s

Sales Revenue Php xxx

Variable Costs (xxx)
Contribution Margin xxx
Fixed Costs (xxx)
Profit xxx
 Variable Cost (VC) – costs tend to vary with the Sales
Amount PHP
volume of activity. Any increase in activity will result VC
to increase in variable costs (ex. Direct materials, BEP
direct labors, variable overhead)
FC

Fixed Cost (FC) – costs incurred for a period, and

tend to be unaffected by fluctuations in the levels of Level of Activity or # of
Units
activity (ex. rent, insurance, depreciation expense)
Formulas
Illustration

Terminologie

Introduction
Q&As

CVP
s
Break-Even Point (BEP) or Break-Even Sales
- Level of sales at which profit is zero
- Total sales is equal to Total Expenses (FC + VC)
- Contribution margin is equal to Fixed Cost

Contribution margin Sales Revenue Php xxx

- Amount remaining after deducting variable costs Variable Costs (xxx)
from Sales Contribution Margin xxx
Fixed Costs (xxx)
Profit xxx
 Q&As
Illustration
BEP

Desired Profit
Units
Units

Amount (PHP)
Amount (PHP)

Formulas
Terminologie
s
CVP
Introduction
 Assumptions:
 Inventories are constant
 The total revenues function is linear
 All costs are classified as fixed or variable
 The units produced will equal the units sold
 Sales mix is constant during the related period

Formulas

Introductio
Illustration

Terminologie
Example
Q&As

Demo Company produces product X that has the following data per annum

CVP
Selling Price per Unit = Php 100

s
Variable Cost per Unit = Php 60
Total Fixed Cost = Php 40,000
Units Sold = 1,200
Compute the following:
a. Unit Contribution Margin, Contribution Ratio
b. Break-even Point in units and in pesos
c. Net profit ratio
 Assumptions:
 Inventories are constant
 The total revenues function is linear
 All costs are classified as fixed or variable
 The units produced will equal the units sold
 Sales mix is constant during the related period

Formulas

Introductio
Illustration

Terminologie
Example
Q&As

Demo Company produces product X that has the following data per annum

CVP
Selling Price per Unit = Php 100

s
Variable Cost per Unit = Php 60
Total Fixed Cost = Php 40,000
Units Sold = 1,200
Compute the following:
a. Unit Contribution Margin, Contribution Ratio
Selling Price per Unit = Php 100
Variable Cost per Unit (60)
Unit Contribution margin = Php 40

Contribution Ratio = 40 / 100 = 40%

 Assumptions:
 Inventories are constant
 The total revenues function is linear
 All costs are classified as fixed or variable
 The units produced will equal the units sold
 Sales mix is constant during the related period

Formulas

Introductio
Illustration

Terminologie
Example
Q&As

Demo Company produces product X that has the following data per annum

CVP
Selling Price per Unit = Php 100

s
Variable Cost per Unit = Php 60
Total Fixed Cost = Php 40,000
Units Sold = 1,200
Compute the following:
Break-even Point in units and in pesos

BEP in units

BEP in pesos
 Assumptions:
 Inventories are constant
 The total revenues function is linear
 All costs are classified as fixed or variable
 The units produced will equal the units sold
 Sales mix is constant during the related period

Formulas

Introductio
Illustration

Terminologie
Example
Q&As

Demo Company produces product X that has the following data per annum

CVP
Selling Price per Unit = Php 100

s
Variable Cost per Unit = Php 60
Total Fixed Cost = Php 40,000
Units Sold = 1,200
Compute the following:
Net profit ratio
Sales Revenue (1,200 x 100) Php 120,000
Variable Cost (1,200 x 60) 72,000
Contribution Margin 48,000
Fixed Costs 40,000
Profit 8,000 or 7%
 Q&As
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Formulas
Terminologie
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CVP
Introductio