This document discusses cost-volume-profit (CVP) analysis, which is used to understand the relationship between costs, sales volume, and profits. It covers key CVP concepts like contribution, break-even point, margin of safety, and CVP charts. The break-even point is where total revenue equals total costs. Contribution is sales minus variable costs. CVP analysis can be used to determine the sales needed to achieve a target profit level. The document provides examples and discusses multi-product CVP analysis and the assumptions and limitations of CVP.
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
Decision making is the process of evaluating two or more alternative’s leading to a final choice.This presentation illustrates caselets which narrate various day to day situations in which an organization has to make a choice
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
Decision making is the process of evaluating two or more alternative’s leading to a final choice.This presentation illustrates caselets which narrate various day to day situations in which an organization has to make a choice
Cost Volume Profit (CVP).
Introduction
Fixed costs
Variable costs
Semi variable costs
Contribution margin
Break even point
PV Ratio
BEP ANalysis.
break even point
Cost-volume-Profit.
MARGINAL COSTING AS A TOOL FOR DECISION MAKINGShubham Boni
DON'T FORGET TO LIKE AND SHARE THE PRESENTATION.
MARGINAL COST:-
“Marginal cost is the additional cost of producing an additional unit of product.”
MARGINAL COSTING:-
“In Marginal costing technique, only variable costs are charged as product costs and included in inventory valuation.”
MARGINAL COSTING HELPS IN DECISION MAKING:-
1.Fixation of Selling Price.
2.Exploring New markets.
3.Make or buy decisions.
4.Product mix
5.Operate plant or shut down.
CASE STUDY 1:-
MAKE OR BUY DECISION.
CASE STUDY 2:-
PRODUCT MIX.
To understand the basic concepts of marginal cost and marginal costing.
To understand the difference between the Absorption costing and Marginal Costing.
To learn the practical applications of Marginal costing.
To understand Breakeven charts & Limitation
Under this technique all costs are classified into fixed costs and variable costs. Only variable costs are considered product costs and are allocated to products manufactured. These costs include direct materials, direct labor, direct expenses and variable overhead. Fixed costs are not considered for computing the cost of products or valuation of inventory.
Contract Costing is a difficult one for accounting.
Basics of which, can be seen in this PPT. I hope it will help to understand what is Contract Costing and how its accounting can be done. Please Like if it proves to be helpful for you.
Cost Volume Profit (CVP).
Introduction
Fixed costs
Variable costs
Semi variable costs
Contribution margin
Break even point
PV Ratio
BEP ANalysis.
break even point
Cost-volume-Profit.
MARGINAL COSTING AS A TOOL FOR DECISION MAKINGShubham Boni
DON'T FORGET TO LIKE AND SHARE THE PRESENTATION.
MARGINAL COST:-
“Marginal cost is the additional cost of producing an additional unit of product.”
MARGINAL COSTING:-
“In Marginal costing technique, only variable costs are charged as product costs and included in inventory valuation.”
MARGINAL COSTING HELPS IN DECISION MAKING:-
1.Fixation of Selling Price.
2.Exploring New markets.
3.Make or buy decisions.
4.Product mix
5.Operate plant or shut down.
CASE STUDY 1:-
MAKE OR BUY DECISION.
CASE STUDY 2:-
PRODUCT MIX.
To understand the basic concepts of marginal cost and marginal costing.
To understand the difference between the Absorption costing and Marginal Costing.
To learn the practical applications of Marginal costing.
To understand Breakeven charts & Limitation
Under this technique all costs are classified into fixed costs and variable costs. Only variable costs are considered product costs and are allocated to products manufactured. These costs include direct materials, direct labor, direct expenses and variable overhead. Fixed costs are not considered for computing the cost of products or valuation of inventory.
Contract Costing is a difficult one for accounting.
Basics of which, can be seen in this PPT. I hope it will help to understand what is Contract Costing and how its accounting can be done. Please Like if it proves to be helpful for you.
Cost-Volume-Profit Analysis by Paulino SilvaPaulino Silva
This presentation shows Cost-Volume-Profit Analysis Chart in a very detailed way. Total Costs are classified in Variable Costs and Fixed Costs. Breakeven point is obtained when Sales equals Total Costs.
INFORMATION ABOUT
B.E.P.
Definition
Cost Volume Profit analysis & Application
Assumption of BEP analysis
Calculation
Method
Formula
Target profit
Margin of safety
Definition
Formula
Limitation of B.E.P.
Basic equation of Marginal Costing
Uses Of CVP Analysis
Limitations Of CVP Analysis
Profit Volume (P/V) Ratio
Marginal costing
Determination Of Marginal Cost
Features of Marginal Costing
Learning Objectives:
Determine the break-even point and output to achieve target operating income
Incorporate income tax considerations into CVP analysis
Determine and explain operating leverage
Draw the breakeven graph and the cost-volume-profit graph
Cost volume profitability analysis of shinepukur ceramicsSamia Ibrahim
In this paper using CVP Analysis we have analyzed the product of Shinepukur Ceramics Limited to know whether the company is profitable or not by examining the interrelationships between its costs, revenues, production volume and profits. Also we determined the breakeven point or level of operating activity at which revenues covered the company’s all fixed and variable costs, resulting in zero profit. Knowing about this point is very crucial for the business, because it is the point a company wants to reach as quickly as possible in order to cover all the costs and start making real profits.
Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit.
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3. Cost Volume Profit Analysis-CVP
Effect on future profit due to changes in fixed cost, variable cost, sale
price , quantity and mix.
Assumptions:
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.
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5. Break Even Point
The 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
total fixed costs, and contribution margin equals fixed costs.
Break even point in units
= Fixed Cost
Contribution per unit
Break even point in sales value
= Fixed Cost
Contribution ratio
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6. Margin Of Safety
A point above which profit will be made.
Margin of safety:
=Budgeted sales-breakeven sales
Percentage Margin of safety:
= Budgeted sales-breakeven sales
Projected sales
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7. Calculation of sales to achieve
certain profit
Sales in units
=Fixed cost + Desired Profit
Contribution per unit
Sales in value
=Fixed cost + Desired Profit
C/S Ratio
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8. Example
The manufacturing company decided to proceed with the original budget and has
asked you to determine how many units must be sold to achieve a profit of
£45,500.
Solution
Required sales =Fixed costs + required profit
Contribution per unit
=42,000+ 36,000+ 45,500 = 9,500 Units
13
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9. Break Even Chart
Axis Y- Cost and revenue
Axis X-Level of activity
Break even point- where total cost and sales revenue meets.
Fixed cost will be shown as separate line.
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11. Contribution Break Even
Chart
Axis Y- Cost and revenue
Axis X-Level of activity
Break even point- where total cost and sales revenue meets.
Variable cost will be shown as separate line.
Difference between sales line and variable cost line is contribution.
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12. Profit Volume Chart
Single line for profit and loss of each activity.
Axis Y-Profit and losses.
Axis X-Zero Profit or loss
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14. Multi product Break Even
Analysis
Assumptions: sales mix remain constant.
Calculation of weighted average C/S ratio
=Total Contribution
Total Revenue
Calculation of Break even revenue:
=Fixed Cost
Weighted average C/S ratio
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15. Multi product PV Graph
Step1- Calculation of C/S ratio of each product.
Step2-Axis X- Cumulative Sales
Step3- Drawing of contribution per unit on product in order of
profitability.
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16. Sensitivity Analysis
It determines the effects of various changes in the CVP model.
The impact on revenue if variable cost changes, if product mix changes
etc.
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17. Advantages of break even
analysis
It indicates the lowest amount of activity necessary to prevent loss.
Helps in decision making.
Explains the relationship between cost-production volume and returns.
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18. Limitation of break even
analysis
CVP analysis is based on assumptions about behavior of
Revenue, cost and volume. Change in behavior will later the break even
point.
CVP chart also get impacted by assumptions.
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19. Practice Questions
Q1-A Ltd has fixed costs of £60,000 per annum. It manufactures a single product which
it sells for £20 per unit. Its contribution to sales ratio is 40 per cent. A Ltd’s breakeven
point in units is:
(A) 1,200
(B) 3,000
(C) 5,000
(D) 7,500.
Q2-The P/V ratio is the ratio of profit generated to the volume of sales.
True
False
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