Cost Volume Profit Analysis, Cost, Volume, And Profit

Although the financial goal is to create profit, we need to calculate the breakeven point to get started.

• breakeven point: the level of activity at which total revenues equal total costs • unit sales = (fixed costs + desired NIBT) / CM per unit • sales = (fixed costs + desired NIBT) / CM ratio

According to, Skills for Business Decisions, “Cost-volume-profit (CVP) analysis examines changes in profits in response to changes in sales volumes, costs, and prices.” (Kimmel P.D. 2009) A company’s profit is the CVP profit equation of Profit = Revenue – Expenses. A Cost-volume-profit (CVP) analysis consists of five basic components that include:

It helps managers a lot in evaluating future courses of action regarding pricing and the introduction of new services. CVP analysis or Breakeven is used to compute the volume level at which total revenues are equal to the total costs. When total costs and total revenues are equal, the organization is said to be “breaking even”. Managers can utilize P&L statements which are used to project profit or net income. P&L statements can be developed to serve decision making purposes. These can be created for any subunit within an organization, whereas income statements are created only for the overall accounting entity. Break even analysis contains important assumptions and is very essential to the managers to determine whether assumed values can be realistically achieved. Managers can perform CVP analysis to plan future levels of operating activity and provide information about:

After a thorough discussion and analysis of the given data, we have chosen alternatives number one which is to increase the selling price and number three to decrease the variable costs since it generates higher contribution margin ratio which we considered to be the determinant in achieving the 176m profit. The contribution margin ratio tells a company how much of the contribution margin of its products change in response to an increase or decrease in sales volume. As the sales increases the contribution margin also will increase and will have an equivalent increase in profit.

The purpose of break-even analysis is to determine the number of units of a product to sell that will

As you can see above on the table you, there are different figure number that represents different situations of the business, there are the variable costs figures numbers that may change as the business make more sells, the fixed costs which is the costs that do not change in relation to how the business progress. In the table above you will find a blue line which represent the break-even point, this point will show you when the business will

The break- even point is the level of activity (in units of output or sales revenue) at which total costs (fixed + variable) = total sales revenue (Atrill, McLaney 2008: p. 262). First all, we need to calculate contribution per unit for reaching to the break- even point. The pattern for calculate contribution per unit is sales revenue per unit less variable cost per unit. Subsequent we calculate the break- even sales units. Break- even sales units = fixed costs/ contribution per unit. We use the result of BEP unit for next step which calculate the break- even sales value: BEP units x selling price per unit. When we use every formulas, we attain the break- even point.

It is essential for a company to know how to make a profit in order to succeed. It makes planning for the future of a company much easier by knowing how much profit it is going to make in the future. This aids in the company knowing how much to sell product for, how many employees are required, when products should be upgraded, and when

Break-even analysis helps to plan and control business by showing break-even point, net profit and net loss areas. As it is mentioned in the graph below, on the break-even point cost is equal to revenue which means there is neither loss nor profit at the intersection of sales line and cost line (Frongello).

The slope of the total revenue curve is marginal revenue and the slope of the total cost curve is marginal cost. Economic profit (the difference between total revenue and total cost) is maximized where marginal revenue equals marginal cost. This is consistent with the marginal decision rule, which holds that a profit-maximizing firm should increase output until the marginal benefit of an additional unit equals the marginal cost. The marginal benefit of selling an additional unit is measured as marginal revenue. Finding the output at which marginal revenue equals marginal cost is thus an application of our marginal decision rule.

We should look at the objective of the company before our decision about promotion. According to the case, Culinarian Cookware’s marketing objectives were set by CEO Audrey Roux roll out of the four main priorities for the company: (1) widen its distribution network, (2) increase its market share of premium cookware segment, (3) preserve its prestigious image, and (4)

Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.

Cost volume profit (CVP) analysis and costing for the 21st century has evolved into a very complex and difficult paradigm. Even the most gifted accountants find that grasping the entire concept of accounting for a corporation can be very mind-boggling and difficult. Yet, understanding such a fundamental principle can allow corporations to grow in ways that other, less educated, corporations can never dream to achieve and simultaneously understand the ‘bottom-line’. In this paper we will discuss value costing in the 21st century, other relevant costing methods, and the relevancy of CVP in today’s workplace.

This equation is solved for the sales volume in units. c. In the graphical approach, sales revenue and total expenses are graphed. The break-even point occurs at the intersection of the total revenue and total expense lines. 8-2 The term unit contribution margin refers to the contribution that