Cost-volume-profit analysis, CVP Analysis for Multi-Product Firms, Limitations of CVP Analysis.

1. CVP Analysis for Multi-
Product Firms and
Limitations of CVP Analysis
Presented by:
Dipesh Raj Pandey
MBA Spring 2017 First Term
Roll: 17321

2. CVP Analysis for Multi-Product
Firms

3. CVP Analysis for Multi-Product
Firms
 Can CVP analysis work with this
complication?

4. Nepal Biscuit Company
Gazab
Biscuit
Mitho Biscuit Power Biscuit
(A) Share in physical volume sold, % 30% 45% 25%
(B) Selling price per unit, Rs Rs10 Rs8 Rs7
(C) Variable costs per unit, Rs Rs7 Rs6 Rs5
(D) Contribution margin per unit, Rs (B - C) Rs3 Rs2 Rs2
(E) Contribution margin ratio (D ÷ B) 0.30 0.25 0.29
(F) Fixed costs total, Rs Rs10,000

5. WCMPU
 Weighted Average Contribution Margin per
Unit (WCMPU) = 30% x 3 + 45% x 2 + 25% x
2 = Rs 2.3
 BEP (in units) = Fixed Cost
Weighted Average Contribution Margin Per Unit
= 10000/2.3 = 4,348 units (approx)
Gazab Biscuit :4348*30% =1304 units
Mitho Biscuit: 4348*45% = 1957 units
Power Biscuit: 4348*25% = 1087 units

6. CVP Analysis for Multi-Product
Firms
 Changes in product mix will result in different
break even points.
 To reach the optimal product mix, the
managers should try to market and sell more
of those products whose CMPU and CM Ratio
is higher

7. CVP Analysis for Multi-Product
Firms
 BEP (in Rs): Fixed Costs/Weighted Average
Contribution Margin Ratio

8. Limitations of CVP Analysis
All costs cannot be classified
as fixed and variable costs.

9. Limitations of CVP Analysis
 The behavior of costs is not necessarily linear
within the relevant range.

10. Limitations of CVP Analysis
 Constant selling price for any volume in the
short run.

11. Limitations of CVP Analysis
 CVP analysis does not work under the full
costing method where inventory change
occurs.

12. Limitations of CVP Analysis
 Single product or constant product mix.

13. Limitations of CVP Analysis
 Short term time horizon.

14. THANK
YOU