The 17th edition of CVP Analysis provides a concise overview of how costs, volume, and prices influence profitability, offering practical insights and real-world applications for students and professionals in managerial accounting. With updated content and examples, it serves as an essential resource for mastering cost-volume-profit analysis.

1. 17th Edition
Cost-Volume-Profit
Relationships
Presented By: Mansoor Ahmed Rahoojo & Azad Ali
Sandano

2. Agenda
• The basics of cost-volume-profit
• Cost-volume-profit in equation
• Cost-volume-profit in graph
• CM ratio
• application of cost-volume-profit
• Target profit breakeven
• Cost-volume-profit consideration in choosing a cost structure
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3. The Basics Of Cost
Volume Profit
Analysis
• It examines the relationship between sales volume, costs,
and profit to determine breakeven points and profit targets.
• Its primary purpose is to estimate how profits are affected
by the following five factors:
1. Selling prices
2. Sales Volume
3. Unit variable costs
4. Total fixed costs and
5. Mix of products sold.
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4. Contribution Margin
• It represents the incremental money generated for each
product after deducting the variable portion of the firm's
costs.
• Low contribution margins are present in labor-intensive
companies with few fixed expenses, capital-intensive
industrial companies have higher fixed costs and higher
contribution margins.
• Formula and Calculation of Contribution Margin :
• ​C=R−V ( Where C is the contribution margin, R is the
total revenue, and V represents variable costs. )
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5. Cost Volume Profit In
Equation
• Profit = Sales- variable expenses - fixed expenses
• Sales = Selling price per unit x Quantity sold
• Variable expenses = variable expenses per unit x quantity
sold
• Profit = (P x Q – V x Q) – fixed expenses
• Profit = Unit CM x Q – fixed expense
• Unit CM = selling price per unit – variable expenses per unit
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6. Cost Volume Profit In Graph
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7. • CM ratio = contribution margin / Sales
• Variable expense ratio = variable expenses/sales
• Relationship between contribution margin ratio and variable expense ratio :
• CM ratio = sales – variable expense/sales
• CM ratio = 1 – variable expense ratio
• Change in contribution margin = Cm ratio x changes in sales
Contribution Margin Ratio
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8. Application of cost-volume-
profit Analysis
• Cost-volume-profit (CVP) analysis is a way to find out how changes in variable and
fixed costs affect a firm's profit.
• Companies can use CVP to see how many units they need to sell to break even (cover
all costs).
• Cost-volume-profit analysis is used to determine whether there is an economic
justification for a product to be manufactured.
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9. Application of
cost-volume-
profit Analysis
Break-even analysis:
• The Equation Method : Profit = Unit CM x Q – fixed
expense
• The Formula Method: Unit sales to break- even = Fixed
expense / Unit CM
• Break-Even in Dollar Sales: Dollar sales to break-even
= Fixed expenses / CM ratio
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10. Target Profit Analysis
• Equation method : Profit = Unit CM x Q – fixed expense
• The Formula Method : Unit sales to attain the target profit = Target profit +
Fixed expenses / Unit CM
• Target Profit Analysis in Terms of Dollar Sales : Dollar sales to
attain the target profit = Total profit + Fixed expense / Unit CM
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11. Cost-volume-profit consideration in
choosing a cost structure
• Cost structure is an organization's relative proportion of fixed and variable costs.
• Operating Leverage :
• It is a measure of how sensitive net operating income is to a given percentage change in unit
sales.
• If operating leverage is high, a small percentage increase in unit sales can produce a much
larger percentage increase in net operating income.
• Degree of operating leverage = Contribution margin / Net operating income
• Percentage change in net operating income = Degree of operating leverage x Percentage
change in sales
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12. Sales Mix
• sales mix refers to the relative proportions in which a company’s products are sold.
• The idea is to achieve the combination, or mix, that will yield the greatest profits.
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13. Margin Of Safety
• Margin of safety in dollars = Total sales − Break-even sales
• Margin of safety percentage = Margin of safety in dollars / Total sales
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14. Operating leverage
• In business, operating leverage serves a similar purpose. Operating leverage is a
measure of how sensitive net operating income is to a given percentage change in unit
sales.
• Operating leverage acts as a multiplier. If operating leverage is high, a small
percentage increase in unit sales can produce a much larger percentage increase in net
operating income.
• Degree of operating leverage = Contribution margin
Net operating income
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15. ABOUT SUKKUR IBA UNIVERSITY
KANDHKOT CAMPUS
Sukkur IBA University – Kandhkot Campus has
been established to offer access to quality education
to the people of underprivileged areas of Pakistan.
With its geographical importance in Kandhkot city,
the campus provides easy access to students from
south Punjab, northern Sindh, and southeast
Baluchistan. The campus offers admission in various
programs including undergraduate, foundation
semester, summer program, and short courses.
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16. Thank you