This document discusses break-even analysis, contribution analysis, and cost-volume-profit (CVP) analysis. It outlines factors that affect break-even points, advantages and disadvantages of break-even analysis, how CVP analysis examines the relationship between costs, profits and sales volume, and how contribution analysis looks at the contribution each product makes to fixed costs. The objective of CVP analysis is to understand the relationship between cost, profit and sales volume.

1. BREAKEVEN – CONTRIBUTION
AND
CVP ANALYSIS
-RAHUL KANTAK

2. BREAK EVEN ANALYSIS
Break Even Analysis: Study of cost – volume –
profit relationship.
Total revenue = Total cost.

4. FACTORS AFFECTING BREAK EVEN
Internal Factors
• Employing extra sales staff
• Price increase
• Automation replaces direct labor
External Factors
• Recession cuts demand
• Price war forces price cut
• Inflation pushes up direct costs.

5. ADVANTAGES OF BREAK EVEN ANALYSIS
Simple to conduct and understand.
 Shows profit and loss at different level of
output.
 Can cope with changing circumstances.

6. DISADVANTAGES OF BREAK EVEN ANALYSIS
 Assumes that all output is sold at a given price.
 Regular changes in circumstances reduces its
usefulness as a forecasting tool.
 Based on data from which it is drawn. Poor
quality data would lead inaccurate conclusions.

7. COST – VOLUME - PROFIT ANALYSIS
• If cost behavior is related to sales income, it
shows cost-volume-profit relationship.
• What is the net affect if volume is changed?

8. OBJECTIVE OF CVP ANALYSIS
• Essential to ascertain the relationship between
cost, profit and volume.
• Helpful in setting up flexible budget.

9. CONTRIBUTION ANALYSIS
Payment made by individual
products, recovering the fixed cost of a business.
Total revenue – variable cost