8/8/2019 Cost Profit and Volume Analysis (1)

1/21

UNDERSTANDING OF COSTPROFIT AND VOLUME ANALYSIS

PRESENTED BY:GROUP-3Anuj SinghManoj Panjwani

Neeraj PradhanNeha DeoraPrerna BhadaniSwapnil Karn

8/8/2019 Cost Profit and Volume Analysis (1)

2/21

8/8/2019 Cost Profit and Volume Analysis (1)

3/21

USAGE OF CVP ANALYSIS IN

MANAGERIAL DECISION

Product pricing

Accepting / rejecting sales orders

What product lines to promote?

What level of output is required to achieve a

set level of net profit?

Feasibility of profit plan Technology usage

8/8/2019 Cost Profit and Volume Analysis (1)

4/21

ASSUMPTIONS OF CVP

The assumption underlying CVP analysis are:-

All units produced are sold

Costs canbe classified accurately as eitherfixed or variable.

Changes in activity are the only factors that

affect costs.

When a company sells more than one type ofproduct, the sales mix will remains constant.

8/8/2019 Cost Profit and Volume Analysis (1)

5/21

OBJECTIVES OF CVP ANALYSIS

To ascertain the cost and profit relationship

on one hand and volume on other.

Setting flexible budget indicating cost atvarious level of activities.

Evaluates performance for the purpose of

control.

Provides assistance in pricing policies.

8/8/2019 Cost Profit and Volume Analysis (1)

6/21

DIRECT AND INDIRECT COSTDIRECT AND INDIRECT COST

Direct Cost- are costs that can easily be

associated with a particular cost object.

Indirect Cost-are cost that are not directly

associated with a particular cost object.

8/8/2019 Cost Profit and Volume Analysis (1)

7/21

VARIABLE AND FIXED COSTVARIABLE AND FIXED COST

Fixed costs are defined as expenses that do not

change as a function of the activity of a

business, within the relevant period.

Variable costs are expenses that change in

proportion to the activity of a business.

8/8/2019 Cost Profit and Volume Analysis (1)

8/21

TECHNIQUES

Broadly CVP analysis uses the

techniques of:-

Break even analysis and

Profit Volume (P/V) analysis

8/8/2019 Cost Profit and Volume Analysis (1)

9/21

Cost-Volume-Profit Graph

Revenue Total Revenue

Total Cost

Unit soldX

Y

Loss

Profit

X = Break-even point in units

Y = Break-even point in revenue

8/8/2019 Cost Profit and Volume Analysis (1)

10/21

CONTRIBUTION MARGIN

Contribution margin is equal to the difference

between total revenue and total variable costs

Contribution margin per unit =Selling price - Variable cost per unit

8/8/2019 Cost Profit and Volume Analysis (1)

11/21

BREAK EVEN ANALYSIS

It indicates at what level of output cost and

revenue is equal.

Point where operating income is equals tozero.

Breakeven point in units =

Fixed costs / Contribution margin per unit

Breakeven point in rupees =

Fixed costs / (P-V)/P

8/8/2019 Cost Profit and Volume Analysis (1)

12/21

OBJECTIVE OF OUR STUDYOBJECTIVE OF OUR STUDY

To study the Cost Volume And Profit

Analysis and its use.

To understand the Sales Mix Ratio as toolto calculate Break Even Analysis.

To calculate the break even point of a

construction company named SHRI RAM

BUILDERS.

8/8/2019 Cost Profit and Volume Analysis (1)

13/21

Cont

To Calculate the Variable Cost of one

Shop, Hall and Restaurant.

To calculate the break even point usingsales mix ratio of Shri Ram Builders who

construct the multiple product.

8/8/2019 Cost Profit and Volume Analysis (1)

14/21

METHODOLOGYMETHODOLOGY

The nature of the study is descriptive.

We conducted a study to calculate the break

even point of the construction company whois producing multiple product.

We collected our data from Shri Ram

Builders.

We collected all the details of their one of a

project; project life was 3 years.

8/8/2019 Cost Profit and Volume Analysis (1)

15/21

Cont..

Details include variable, fixed cost and

selling price.

Then we found variable cost of one unit ofmultiple product.

Then we calculated contribution margin of

multiple product.

We used Cost Volume and Profit Analysis as

our costing technique for calculating break

even point of multiple product.

8/8/2019 Cost Profit and Volume Analysis (1)

16/21

DATA ANALYSISDATA ANALYSIS

The Costs considered under the project are:

Variable Costs :

(a) Excavation cost (hiring of machinery for digging)(b) Foundation cost

(c) Structure cost (Sand, Bricks, Cement, Aggregate)

(d) Labor cost

(e) Outer Development Cost (Parking, Garden, Road,

Boundary, Wall)(f) Electricity Expenses

(g) Water Expenses

(h) Miscellaneous Expenses

8/8/2019 Cost Profit and Volume Analysis (1)

17/21

Fixed Costs:

(a) Finishing Cost (furniture, Light & Fixtures, Sanitary etc.)

(b) Boring Cost (tube well)(c) Electric Connection

(d) Architects fees

(e) Structure Engineers fees

(f) Electrical Consultant

(g) Interior Decorator Fees(h) Set Up Cost (Warehouse & Office for Professionals)

Shree Ram Builders Constructed Panchwati Plaza ,Project life is 3 years, and is divided in 3 multi-

products : Shops

Hall

Restaurants

8/8/2019 Cost Profit and Volume Analysis (1)

18/21

WORKING NOTE

8/8/2019 Cost Profit and Volume Analysis (1)

19/21

RESULT

We have determined the variable cost of 1 shop, 1 halland 1 restaurant

The area of the following is:

1 Shop = 300 sq. feet1 Hall = 1100 sq. feet

1 Restaurant = 600 sq. feet

We have taken the Selling Price of 1 sq. feet = 2800Rs

Break Even Point in terms of number of Shops are :

Shop = 25

Hall = 1

Restaurant = 3

8/8/2019 Cost Profit and Volume Analysis (1)

20/21

CONCLUSION

Determined the break even point of theconstruction company using the sales mix

ratio. Calculated the variable cost of 1 shop, 1

hall and 1 restaurant in the mall which isto be constructed.

Cost, volume and profit analysis used asthe costing technique.

Found the selling price of variousproducts of the construction company

8/8/2019 Cost Profit and Volume Analysis (1)

21/21