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Presentation Topic:-

CVP Analysis

Presented by :-

Muhammad Arslan Arshad

ID # 110845-015

Management Accounting

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Cost, volume, profit Analysis

CVP helps you in your businessoperations

Examining the relationship between

your 

Fixed costs

Variable costs

Your volume (in term of units or Rupees)

 And your profit

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What is cost?

Total money, time and resources

value or price of any thing

Sacrifice made to obtain any thing

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Types of costs

Variable cost

Fixed cost

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Fixed/Variable costs changes

Per Unit Total Costs•  Fixed cost Change Does not Change

• Veriable cost Does not Change Change

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Profit Difference between revenue and cost

Positive gain from an investment

Total earning less expenses

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Main tools offered by CVP

analysis

Break even analysis

Contribution margin analysis Operating leverage

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Break even point Analysis

Volume of activity at which an organization;revenues & expenses are equal

Formula to calculate

In units

= Fixed cost

contribution margin per unit In rupees

= Fixed cost

contribution margin ratioCVP Analysis by Arslan ch 9Wednesday, April 17, 2013

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Contribution margin analysis

Formula to calculate

C.M per unit

= Sales price  – variable costs

C.M ratio

= CM per unit / sales price

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Contribution Margin Ratio inpercentage (%)

Formula to calculate

= C.M Ratiox100 

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Margin of safety

Difference between budgeted & break even sales

revenue.

  Formula= Actual Sales  – Break even sales(units)

In percentage %

= Margin of Safety

 Actual Sales x 100

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Break even Capacity in

Percentage (%) Formula to calculate

= Break even sales(units)

 Actual sales x 100

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Target profit

Formula to calculate

Units to earn target profit

= Fixed Expenses + Target profit

Contribution Margin per unit

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Contribution Income Statement

Variable and fixed expenses areseperated

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Sales xxxx

Less:- variable cost (xxx)Contribution Margin xxx

Less:- Fixed cost (xxx)

Net profit xx

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Break-even point (units)Brek-even point (units) = Fixed Costs

Contribution Margin per unit

= 40,00,000

900(w-1)

= 4444

C.M per unit (w-1) = Sale price-Veriable price

= 3000 - 2100

= 900 

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Break-even point (Rs.)

Break-even point (Rs.) = Fixed costC.M ratio(w-2)= 40,00,000

0.3= 13,333,333 Rs. 

C.M Ratio (w-2) =ContributionMargin

Sale price= 900

3000

= 0.3CVP Analysis by Arslan ch 17Wednesday, April 17, 2013

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Contribution Margin Ratio in %

Formula to calculate

=C.M Ratio x 100

= 0.3 x 100

= 30 %

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Target Profit

How many units must sell to earn aTarget net profit of Rs. 10,00,000.

Units to earn Target profit

= Fixed costs+Target ProfitContribution Margin per unit

= 4000,000+10,00,000900= 5555 Units 

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Margin of safety and %

 Formula

= Actual Sales  – Break even sales(units)

= 6000 - 4444

= 1556 In percentage %

= Margin of Safety

 Actual Sales x 100

= 15566000 x 100

= 26 %

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Break-even capacity in

percentage(%) Formula to calculate

= Break even sales(units)

 Actual sales x 100= 4444

6000 x 100

= 74 %

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Proof Sales (6000x3000)

180,00,000

Less:- Variable cost(2100x3000)630,0000

Contribution Margin

1170,0000Less:- Fixed Cost40,00,000

Net Profit 770,0000CVP Analysis by Arslan ch 22Wednesday, April 17, 2013

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