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78246536 cvp-analysis-of-street-side-business-in-bangladesh
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78246536 cvp-analysis-of-street-side-business-in-bangladesh

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78246536 cvp-analysis-of-street-side-business-in-bangladesh 78246536 cvp-analysis-of-street-side-business-in-bangladesh Document Transcript

  • Introduction:CVP Analysis:Cost-volume-profit (CVP) analysis is used to determine how changes in costs andvolume affect a companys operating income and net income. In performing thisanalysis, there are several assumptions made, including: • Sales price per unit is constant. • Variable costs per unit are constant. • Total fixed costs are constant. • Everything produced is sold. • Costs are only affected because activity changes. • If a company sells more than one product, they are sold in the same mix.Managers need to estimate future revenues, costs, and profits to help them planand monitor operations. They use cost-volume-profit (CVP) analysis to identify thelevels of operating activity needed to avoid losses, achieve targeted profits, planfuture operations, and monitor organizational performance. Managers also analyzeoperational risk as they choose an appropriate cost structure.CVP analysis requires that all the companys costs, including manufacturing, selling,and administrative costs, be identified as variable or fixed.Contribution margin and contribution margin ratioThe contribution margin represents the amount of income or profit the companymade before deducting its fixed costs. Said another way, it is the amount of salesdollars available to cover (or contribute to) fixed costs. When calculated as a ratio,it is the percent of sales dollars available to cover fixed costs. Once fixed costs arecovered, the next dollar of sales results in the company having income. 1
  • The contribution margin is sales revenue minus all variable costs. It may becalculated using dollars or on a per unit basis.Break-even pointThe break-even point represents the level of sales where net income equals zero.In other words, the point where sales revenue equals total variable costs plus totalfixed costs, and contribution margin equals fixed costs.Targeted incomeCVP analysis is also used when a company is trying to determine what level of salesis necessary to reach a specific level of income, also called targeted income. Tocalculate the required sales level, the targeted income is added to fixed costs, andthe total is divided by the contribution margin ratio to determine required salesdollars, or the total is divided by contribution margin per unit to determine therequired sales level in units.CVP-Graph: 2
  • Objective of Study:Primary objective: • To fulfill the course requirement. • To acquire knowledge.Secondary Objective: • To get an idea about the road side business. • To get an idea about the financial performance of the business. • Analysis and evaluate the cost volume profit analysis of that business.Methodology:To prepare this report, we used primary data. We have collected all those datafrom the proprietor of the business.Limitation:Limitation is a usual part of report analysis. Whenever any report is going on toanalyze, there are several lacking to find out the result of the particular topic. Tomake this report, we also faced some problems. Time constrains was anotherproblem. But while preparing the report we came to learn lots of practical thingsand have gathered practical knowledge and finally we have enjoyed a lot toprepare the whole paper work. 3
  • Company Profile:Shahbuddin Tea Stall is a renowned tea stall located in Munsurabad R/A, Adabor,Shamoli, Dhaka. Its owner name is Shahbuddin. He is only man who makes tea &served another thing. It has two benches & one chair. There is one big box forprotect the fire of stove from the air. His stall is decorated with one stove, TwoAluminum tea pot, 12 cups, two or three spoon & a pot for making tea. Somesweet, cake, bread are displayed by hanging them in packet on his stall. The stallhas one water purifying machine for serving pure water. He everyday sell about 250cup tea, 50 sweet, 60 paces of cake.List of product: Per day PriceTea dust 0.4kg 114/-Sugar 1.5kg 90/-Milk 5 Tin 240/-Oil 1.5 liter 100/-Water bottle 2 bottle 80/-Cake 52 pieces 200/-Banana 100 pieces 300/-Sweet 35 pieces 80/-Biscuit 50 pieces 70/-Other CostGlass 180/-Stove and etc 1,800/-Box 600/-Chair & Bench 1,150/-Water purifying machine 7,400/-Tea pot 600/-Electricity 200/-Light 200/-Rent 1,500/-Variable cost (For one month): 4
  • Product: Purchasing costTea dust 3,400/-Sugar 2,700/-Milk 7,200/-Oil 3,000/-Water bottle 2,400/-Cake 6,000/-Banana 9,000/-Sweets 1,650/-Biscuit 2,100/-Total 37,450/-Fixed cost:Product: CostGlass 180/-Stove Burner 1,800/-Box 600/-Chair & Bench 1,150/-Water Purifier Machine 7,400/-Electricity Bill Expense 200/-Tea Pot 600/-Electric Bulb 200/-Rent Expense 2,000/-Total 14,130/-Unit of Production:Item Per day Month Unit Price Selling PriceTea 200cup 6,000 cups 5.0/cup 30,000Cake 52 pieces 1,560 pieces 5.00/piece 7,800Banana 100 pieces 3,000 pieces 5.00/piece 15,000Sweets 35 pieces 1,050 pieces 3.00/sweet 3,150Water bottle 2 bottle 60 bottle 55.00/jar 3,300 5
  • Biscuit 50 pieces 1500 pieces 3.00/unit 4,500Total 63,750 6
  • Analysis:Helal Tea stall produced has a single product & sell 5 product. This information aretaken from the original data those are flowing:Sell: 6,000 cup tea, 1,560 pieces cake, 3000 pieces banana, 1,050 pieces sweets,60 water bottle & 1500 pieces Biscuit =13,170 unitsSelling price per unit (63,750/13,170) = 4.8405/- per unitVariable cost per unit (37450/13170) = 2.8435/- per unitFixed Cost 14130 TakaContribution Margin (4.8405-2.8435) = 1.9969/- per unitWe separated the variable and fixed expenses from original data:Sales (13,170*4.8405) Tk.63,750Less: Variable cost (13,170*2.8435) Tk.37,450Contribution (13,170*1.9969) Tk.26,300Less: Fixed cost Tk.14,130Net operating income Tk.12,170Contribution margin ratio(C/M ratio):To compute change in contribution margin and net operating income resulting fromchange in sales volume:C/M ratio = Contribution per unit /Sales per unit =1.9969/5 =39.9938%Here c/m ratio 39.9938% means that for each volume increase in sales. 7
  • BEP sales in units:Break even sales as the level of sales at which the company’s profit is zero.BEP sales in units = Fixed cost/Contribution per unit =14,130 / 1.9969 = 7,076 unitsBEP sales in volume = 7,076 units*4.8404 = Tk. 32,250.6704Degree of operating leverage:The degree of operating leverage is a measure at a given level of sales of how apercentage change in sales volume will be affect profits.Degree of operating leverage = Contribution Margin / Net operating Income =26,300 / 12,170 =2.16105 timesHere, degree of operating leverage is 2.16105 the tea Stall net operating Incomegrows 2.5386 times as fast its sales.Assume set the farm target profit is Tk.20, 000.How many units would have tobe sold?Target sales in units: (Fixed cost + Target profit)/ Contribution per unit = (14,130 + 15,000) / 1.9969 =14,588 units 8
  • Conclusion:Cost volume profit (CVP) measure how volume is the company product volume unit.If the company produces less than BEP the company must be loss and the companyproduce more than the company must be earn profit. As because CVP analysis helpsmanagers understand the interrelationships among cost, volume, and profit it is avital tool for taking business decisions. In this report analysis we have found thatMr. Shahbuddin take the decision about the profitably condition of his business,that if he wants to make a profit of Tk. 20000.00, he have to sell a amount of14588 unit of product which is larger than his existing sells unit that is 13170 units.In this report we tried to find out the cost and profitIn conclusion, we would like to say that, it was a great experience to do thisreport. We actually got to know a lot of things. The things we study at classroomare not only bookish things rather they are being implemented in real world. Wetried to cover all ratio of analysis the financial statement. But let that not be anyexcuse rather we take all the blame on my shoulder regarding any flaw of thisreport. 9