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    1 June - CVP Basics

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    This document discusses cost-volume-profit (CVP) analysis and breakeven analysis. It aims to help students understand: 1) the basics of CVP analysis, 2) how to calculate sales, revenue, or price needed to break even or achieve a desired profit for a single product, and 3) how to do the same calculations for multiple products. The document defines variable costs, fixed costs, and semi-variable costs. It explains how to calculate breakeven sales and sales needed to achieve a desired profit level for a single product. Formulas are provided to calculate breakeven sales volume, revenue, price, margin of safety, and margin of safety ratio.

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    1 June - CVP Basics

    Uploaded by

    mary
    28 views4 pages
    This document discusses cost-volume-profit (CVP) analysis and breakeven analysis. It aims to help students understand: 1) the basics of CVP analysis, 2) how to calculate sales, revenue, or price needed to break even or achieve a desired profit for a single product, and 3) how to do the same calculations for multiple products. The document defines variable costs, fixed costs, and semi-variable costs. It explains how to calculate breakeven sales and sales needed to achieve a desired profit level for a single product. Formulas are provided to calculate breakeven sales volume, revenue, price, margin of safety, and margin of safety ratio.

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    This document discusses cost-volume-profit (CVP) analysis and breakeven analysis. It aims to help students understand: 1) the basics of CVP analysis, 2) how to calculate sales, revenue, or price needed to break even or achieve a desired profit for a single product, and 3) how to do the same calculations for multiple products. The document defines variable costs, fixed costs, and semi-variable costs. It explains how to calculate breakeven sales and sales needed to achieve a desired profit level for a single product. Formulas are provided to calculate breakeven sales volume, revenue, price, margin of safety, and margin of safety ratio.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    28 views4 pages

    1 June - CVP Basics

    Uploaded by

    mary
    This document discusses cost-volume-profit (CVP) analysis and breakeven analysis. It aims to help students understand: 1) the basics of CVP analysis, 2) how to calculate sales, revenue, or price needed to break even or achieve a desired profit for a single product, and 3) how to do the same calculations for multiple products. The document defines variable costs, fixed costs, and semi-variable costs. It explains how to calculate breakeven sales and sales needed to achieve a desired profit level for a single product. Formulas are provided to calculate breakeven sales volume, revenue, price, margin of safety, and margin of safety ratio.

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    © All Rights Reserved
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    of 4

    COST VOLUME PROFIT (CVP) ANALYSIS

    BREAKEVEN ANALYSIS

    Learning objectives
    After studying this chapter students will be able to understand:
    1. Basics of CVP analysis
    2. Computation of sales units, sales revenue or selling price to achieve breakeven or to achieve
    desired profit under single product situation
    3. Computation of sales units, sales revenue or selling price for remaining period under single
    product situation
    4. Computation of sales units, sales revenue or selling price to achieve breakeven or to achieve
    desired profit under multiproduct situation

    LO 1: Basics of CVP Analysis

    1.1) CVP Analysis


    CVP Analysis is also known as cost-volume-profit analysis. It is used to show how
    costs and profits change with changes in the volume of activity.

    On the basis of above relationship, we can plan or estimate sales volume or sales
    revenue to achieve breakeven or to achieve desired profit.

    1.2) Cost Classification by Behaviour


    i. Variable costs

    Examples
    • Direct material cost,
    • Direct labour cost,
    • Variable production overheads,
    • Variable selling and distribution cost,
    • Salesmen/distributor’s commission,
    • Any cost that changes with production or sales volume of product
    • Any cost given as a % of sales

    ii. Fixed costs

    Examples:
    • Fixed production overheads
    • Fixed selling and distribution cost
    • Administration cost
    • Staff Salaries
    • Rent expense (Hiring charges)
    • Insurance premium
    • Interest expense
    • Straight line depreciation
    • Any cost that don’t changes with production and sales volume
    • Any cost given as per month or per annum

    iii. Semi-variable costs

    1.3) Breakeven Sales


    • Breakeven means a level of sales where company earns no profit no loss.

    • Breakeven means
    • Total sales revenue = total cost
    • Total sales revenue = total variable cost + total fixed cost
    • Total sales revenue – total variable cost – total fixed cost = 0 Total
    contribution – total fixed cost = 0
    • Total contribution = total fixed cost

    CAF 8 Online Page 1


    • Total sales revenue = total variable cost + total fixed cost
    • Total sales revenue – total variable cost – total fixed cost = 0 Total
    contribution – total fixed cost = 0
    • Total contribution = total fixed cost

    1.4) Assumptions of CVP Analysis


    i. Marginal costing principles will be applied so total fixed costs will be considered and
    per unit fixed cost is not considered for CVP.
    ii. Sale price per unit, variable cost per unit and contribution per unit will remain same
    at all levels of output of same product but total sales revenue, total variable cost and
    total contribution will change with respect to sales volume.
    iii. Total fixed costs will remain same at every production and sales volume.
    iv. Profit will maximised by maximising total contribution.
    v. Ignore taxes so profit before tax will be taken.
    vi. Closing and Opening inventories are not considered in CVP formula.
    vii. For Multiple products, sales quantity ratio or sales revenue ratio will remain same.

    LO 2: Single product CVP Analysis

    Single product CVP analysis consist of:


    i. Breakeven sales volume
    ii. Sales volume to achieve desired profit
    iii. Breakeven sales revenue
    iv. Sales Revenue to achieve desired profit
    v. Selling price per unit to achieve desired profit
    vi. Margin of safety
    vii. Margin of safety ratio

    CAF 8 Online Page 2


    CAF 8 Online Page 3
    CAF 8 Online Page 4

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