36 views

Original Title: Presentation of CVP Final

Uploaded by Monir Hossan

- AFM CVP Analysis
- MSQ-01 - Activity Cost & CVP Analysis (Final)
- Horngren16e Ch02 Im
- Cost-Volume-Profit Analysis for a Multi-Product
- comp_exam30_qp_28082k14
- chap006.ppt
- 188189689 Cost Volume Profit Analysis
- Week 3 Acct Discussion
- Grutzen
- CVP Analysis in Management Accounting
- CVP ANAL.ppt
- Cost Volume Profit Model the Break -Even Point And
- Cost Accounting (3)
- Lecture 7 - CVP Analysis
- Breakeven Analysis Contoh
- Table of Contents.docx
- Break Even Analysis and Ratio Analysis
- Chapter 10 Cost-Volume-profit Analysis
- 7_1_Information for Decision Making
- Final

You are on page 1of 34

Cost-Volume-Profit Analysis

Costs

Revenue

Presentation outline

Accounting Approach to Breakeven

Analysis. Single Product firm BEP Multi-product firm BEP Without constraint With many resource constraints Economic Approach to Breakeven Analysis. Cost Volume Profit Analysis under Uncertainty Discrete variable approach Continuous variable approach

A. B. C.

D.

E. F.

G.

H. I.

Concepts of CVP Cost-Volume-Profit Assumptions Concepts of BEP & CM CVP Equation Approach Contribution Margin Approach Graphical presentation Target profit Margin of Safety Limitations of CVP analysis

Costvolume-profit analysis involves an examination of cost and revenue behavioral patterns and their relationships with profit. The analysis -- separates costs into fixed and variable components and determines the level of activity where costs and revenues are in equilibrium.

Compute the break-even point

Study interrelationships of

prices volumes fixed and variable costs contribution margins Profits Calculate the level of sales necessary to achieve a target profit Set sales price

is equal to sales i.e. inventory level do not changes. Costs are linear throughout the entire relevant range and they can accurately be divided into variable and fixed elements. In multi-product companies, the sales mix is constant.

The CVP analysis also known as break even analysis, to compute the volume or level of activity for which the profit generated is zero (cost=revenue) and beyond which any increase in production will lead to a positive result or profit.

Breakeven point:

Break-even point is the point in which the volume of activity where the organizations revenues and expenses are equal.BEP is the point where operating income equals zero.

Total revenues = Total costs

Calculation of the break-even point in dollar rather than units by using the contribution margin ratio.

= CM Ratio

7-11

In accounting approaches there are some methods of BEP

Sales revenue Variable expenses Fixed expenses = Profit

7-13

= Pq-(F+Vq)

where, = Profit before tax P = Unit selling price=$50 q = Sales volume in units=1000units V = Unit variable cost = $30 F = Total fixed costs=$10000 = 501000 (10000 +301000) =$ 10000

Sales = variable cost +fixed cost +profit Q = quantity of unit sold Unit selling price = $50 Unit variable cost = $30 Fixed cost = $10000 In the break even point , profit = $o 50Q = 30Q +$10000+$0 Q = 10000/20 Q = 500 units BEP sales in dollar = 500units$50 =$ 25000

BEP sales in units : q=F/P-V

Where, q=Break even volume P-V=Contribution margin F=fixed cost Calculation of BEP sales in units : If , Sales price per unit=$ 50 Variable cost pr unit=$ 30 Fixed cost =$ 10000 Contribution margin per unit=$ (50-30) =$ 20 Break even sales in units, Y = 10000/20 = 500 units

BEP sales in dollar: y=F/ 1-P/V Where, y=Break even sales in dollar 1-P/V=Contribution margin ratio F=fixed cost Calculation of BEP sales in units : If , Sales price per unit=$ 50 Variable cost pr unit=$ 30 Fixed cost =$ 10000 Contribution margin ratio=1-30/50 =0.40 Break even sales in dollar , y = 10000 /0.40 = $25000

Breakeven Point

Sales Variable expenses = Fixed expenses

Proof

Sales Less : variable expense Contribution margin Less : fixed expense Net income $ 25000 $ 15000 $ 10000 $ 10000 ---

Break even chart depicting the interactions between the cost and revenue structures .It shows the relationship between sales volume as an independent variable and the total cost as a dependent variable .

Break-even chart illustrates relationships among Revenue Volume Costs

Viewing CVP relationships in a graph gives managers a perspective that can be obtained in no other way. Consider the following information for Curl, Inc.:

300 units Sales $ 150,000 Less: variable expenses 90,000 Contribution margin $ 60,000 Less: fixed expenses 80,000 Net income (loss) $ (20,000) 400 units $ 200,000 120,000 $ 80,000 80,000 $ 500 units $ 250,000 150,000 $ 100,000 80,000 $ 20,000

7-20

Cost-Volume-Profit Graph

450,000 400,000 350,000 300,000

Break-even point

Dollars

Fixed expenses

100

200

300

400 Units

500

600

700

800

7-21

Profit-Volume Graph

Break even point is the intersection between the total revenues line and the total cost line. The area between the total revenues line and the total cost line at a volume below the breakeven point represent the loss area. The corresponding area above the break even point represents the profit area.

Profit-Volume Graph

100,000 80,000 60,000 40,000

Break-even point

Profit

20,000 0 (20,000) (40,000) (60,000) ` 100 200 300 400 Units 500 600 700

7-23

Changes in the unit selling price : An increase in the unit selling price will raise the contribution margin and decrease in the breakeven volume. Changes in the unit Variable costs : An increase in the unit variable cost leads to a decline in the unit contribution margin and an increase in the breakeven volume. Changes in the total fixed costs : An increase in the total fixed costs will results in an increase in the breakeven volume .

The breakeven formula can be adopted to determine the sales volume necessary to achieve a desire net income.

Target sales for a given target profit after tax

Before tax target sales in units, q=F+/P-V =(10000+20000)/(50-30) =1500 units Before tax target sales in dollars, Y=F+/ (1-V/p) =(10000+20000)/1- 30/50 =$ 75000 where , q=sales volume in units =1000 units P=selling price per unit= $50 V=variable cost per unit =$30 F=fixed cost =$10000 =desired profit before tax =$20000

After tax target sales in units , q=F+Z/1-t /(P-V)

=10000+(20000/1-.50) /(50-30) =2500 units After tax target sales in dollars , Y=F+Z/1-t /(1-V/P) =10000+(20000 /1-.50) /1- 30/50 =$125000 where , q=sales volume in units =1000 units P=selling price per unit= $50 V=variable cost per unit =$30 F=fixed cost =$10000 Z=desired profit after tax =$20000 T=tax rate=50%

The operating profit before taxes at the breakeven volume

equals zero .The operating profit for any given sales volume greater than the breakeven volume equals the profit realised by the additional volume beyond the breakeven volume .

If the interaction of volume , selling price , variable costs

and fixed costs and taken into account , the breakeven formula can be adapted to reflect the simultaneous changes in all relevant variables . Example: Assume that Smith is considering the impact of different changes on his original estimates . He believe that a decrease of 20% per unit in the selling price may lead to a 30% increase in the sales volume . An improvement of production techniques would lead to a decrease of 90% per unit variable cost and an increase of $46500 per year in the fixed costs . What level of sales dollar must Smith achieve to attain an after tax netincome of $18000 if the current tax rate is 50% .

where , q=sales volume in units =1000 units P=selling price per unit= $50 V=variable cost per unit =$30 F=fixed cost =$10000 Z=desired profit after tax =$18000 T=tax rate=50%

q=f+{FZ/(1-t)} 1-(VV / PP)

Margin of Safety

The difference between budgeted sales revenue and

break-even sales revenue. The amount by which sales can drop before losses begin to be incurred.

Margin of safety

CVP analysis is criticized on the following grounds: 1.Separation of variable & fixed element from mixed cost is the precondition of CVP analysis. But it is really very difficult and costly in consideration of both time &money. 2.This analysis assumes that selling price is constant throughout the entire relevant range but it in reality lit is never constant even within the relevant range. 3.The assumption that there is no inventory or inventory levels do not change is irrelevant. 4.Managers cannot rely absolutely on CVP analysis for any decision rather it can only be used with other techniques to arrive at a decision.

END OF PRESENTATION

WE MADE IT

- AFM CVP AnalysisUploaded byParas Dhaka
- MSQ-01 - Activity Cost & CVP Analysis (Final)Uploaded byMary Alcaflor
- Horngren16e Ch02 ImUploaded byAshish Indolia
- Cost-Volume-Profit Analysis for a Multi-ProductUploaded byAchmad Taufik Hermansyah
- comp_exam30_qp_28082k14Uploaded bySajid Ali
- chap006.pptUploaded byAlif Nur Firdaus
- 188189689 Cost Volume Profit AnalysisUploaded byRoxan Jane Valle Espiritu
- Week 3 Acct DiscussionUploaded byDeAngela Dixon
- GrutzenUploaded byGhafoor Meraj
- CVP Analysis in Management AccountingUploaded bygurgurgurgur
- CVP ANAL.pptUploaded byAmit Acharya
- Cost Volume Profit Model the Break -Even Point AndUploaded bygttrans111
- Cost Accounting (3)Uploaded byYash Raj Singh
- Lecture 7 - CVP AnalysisUploaded byPei Ing
- Breakeven Analysis ContohUploaded byTunggul S Adjie
- Table of Contents.docxUploaded byBrahms Anwar
- Break Even Analysis and Ratio AnalysisUploaded byJaywanti Akshra Gurbani
- Chapter 10 Cost-Volume-profit AnalysisUploaded byAddisalem Mesfin
- 7_1_Information for Decision MakingUploaded byMahbub Hussain
- FinalUploaded byAbedin Suzan
- COST ANALYSISUploaded byAdan Ceballos Miovich
- Cvp Analysis by Sahil AndotraUploaded byKunwar Sahil Andotra
- Cost Volume Profit AnalysisUploaded byDavi Ananda
- Group 4 Project 3 (Rev 1)Uploaded byAshley Winters
- Financial Details of TatvaUploaded byKamal Antil
- A-C ProjectUploaded byasanjana11
- 1 What is Inflation AccountingUploaded bysolo_sudhan
- Business plan final 1.docxUploaded byViet Quang Tran
- Financial Plan MadhuUploaded byKuladeepa Kr
- Dec Sci PresentationUploaded byGilbert G. Asuncion Jr.

- Export ManagementUploaded byBineeta Sinha
- ASCOBANS 2012 Roadshow ProposalUploaded byNadia Hachki
- Notification No. G.S.R. 332E Income Tax Dated 03.04.2018Uploaded bykshitijsaxena
- A03DimensionalModeling.docUploaded byDEEPAK KUMAR ARORA
- hpUploaded byphamminduc11
- 02-duhovnik-1360659883.pdfUploaded byδιδικ ωιγσησ
- Toyota Shaw, Inc. vs. Court of AppealsUploaded byetc23
- Experiences in Mobile Phone FraudUploaded bynagataa
- Journal Pentadbiran Awam KopratUploaded bytuahtaufik
- The Seven Principles of Supply Chain ManagementUploaded byLowell Harper
- Contract of Lease Pag LaumUploaded byRex Traya
- homeowners sue BofA and all over BofA/BNY settlementUploaded byAC Field
- Timing Constraints Support on Petri-Net Model for Healthcare System DesignUploaded byJournal of Computing
- Chap 8Uploaded bymuhammadajkhan
- Chap017.rtfUploaded byAndrea Robinson
- Harvard_Business_Case_Study_Infosys_Grou (1).docxUploaded byAnonymous RoAnGpA
- Isb Cee Ampi BrochureUploaded byzaheeruddin_mohd
- Costing AssignmentUploaded bySumit Suman
- ISM3 v2.00 HandBookUploaded byGroumix
- The St. Joe Company - SEC Investigation IUploaded byMichael Corwin
- Information Act2005Uploaded byAbhishek Kumar Mishra
- 4Ps.docxUploaded bynir noel aquino
- latest update osh regulationUploaded byYusmadi J Mohamad
- Indian Supreme Judgment on DerivativesUploaded byMichael Green
- Warehouse Cost CalculationUploaded byAnnisa Rakhmawati
- PM Prepcast Answer and Exam QuestionsUploaded byChelix
- learningagreement porfolioUploaded byapi-254089087
- Die Casting Players (USA)Uploaded byVinayak Oleti
- Crowdsourcing: Aggregation and selection mechanisms and the impact of peer contributions on contestsUploaded byThomas Gegenhuber
- CarUploaded bysamyfouad