Cost Volume Profit Analysis

In: Business and Management

Submitted By shilp
Words 1404
Pages 6
| Factory A | Factory B | Rs. | 50 | 50 | Rs. | 40 | 35 | Rs. | 2,00,000 | 3,00,000 | Rs. | 40,000 | 30,000 | | 30,000 | 20,000 | | 40,000 | 30,000 | 1. A Ltd. is manufacturing an identical product in two factories. The following are the details in respect of both factories :

Selling price per unit
Variable cost per unit
Fixed cost
Depreciation included in above
Sales (Units)
Capacity (Units)

You are required to determine : * Output Break-even-points for each factory. * Capacity Break-even-point for each factory. * Cash Break-even-point for each factory, * Which factory is more profitable ? * B.E.P. for company as whole assuming the present product-mix. * B .E.P. for company assuming that product-mix can be changed as desired.

2. There are two similar plants under the same management. The management wishes to merge these two plants and to run them as one integrated plant. The following particulars are made available : Plant-I Plant-II
Capacity in operation 60% 100%
Rs. Rs.
Sales 1,20,000 3,00,000
Variable Costs 90,000 2,20,000
Fixed Costs 25,000 40,000

You are requested to compute :
(i) What would be the capacity of merged plant to be operated at break-even ?
(ii)What would be the profitability on working at 75% of the integrated capacity ?

3. 1st Year 2nd Year
Sales Rs. 3,60,000 Decrease in sales price and decrease
Margin of Safety 25% in fixed costs are the only changes
Profit volume Ratio 30% Margin of safety 30% Profit volume
Ratio 25%
Required : * Decrease of sales amount in IInd year. * Decrease of fixed cost in IInd year. * New profit in IInd year. * New BEP in IInd year.

4. Arpita Ltd. has the following budget for the year 1996-97 : Rs.
Sales…...

Similar Documents

A Presentation Report on Cost–Volume–Profit Analysis (Cvp)

...A presentation report on Cost–volume–profit analysis (CVP) Prepared for: Ms. Wahida Akther Lecturer Department of Business Administration Course code: ACC- 324 Course title: Taxation Prepared by: Group name: Exclusive NAME | ID | Omar Faruk | 1001010169 | Mirza Atiqul Hoque | 1001010182 | Minhaj Sultana | 1001010184 | Mushfiqur Rahman | 1001010186 | khairul Anam Choudhury | 1001010199 | Section:(D) 8th semester 24th Batch Department of Business Administration, Leading University,Syhet. Date of Submission: August 07 ,2012 Introduction: The relationship between cost volume and profit is shown by cost-volume-profit analysis. It is an analytical tool for analyzing the relationship among cost, price, profit, sales and production volume. Mainly there are three elements in cost-volume-profit analysis. It is highly essential for the management to have the complete knowledge about the inter relationship among the cost, volume and profit. For this purpose cost-volume-profit analysis can be regarded as a sophisticated method or analytical tool used in management. Definition of 'Cost-Volume Profit Analysis': Cost-volume profit analysis is a simplified model, useful for elementary instruction and for short-run decisions. It is based upon determining the breakeven point of cost and volume of goods. It can be useful for managers making short-term economic decisions, and also for......

Words: 2166 - Pages: 9

Cost Volume Profit

...CASE 4–33 Cost Structure; Target Profit and Break-Even Analysis [LO4, LO5, LO6] Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a commission of 15% of selling price for all items sold. Barbara Cheney, Pittman's controller, has just prepared the company's budgeted income statement for next year. The statement follows: As Barbara handed the statement to Karl Vecci, Pittman's president, she commented, “I went ahead and used the agents' 15% commission rate in completing these statements, but we've just learned that they refuse to handle our products next year unless we increase the commission rate to 20%.” “That's the last straw,” Karl replied angrily. “Those agents have been demanding more and more, and this time they've gone too far. How can they possibly defend a 20% commission rate?” “They claim that after paying for advertising, travel, and the other costs of promotion, there's nothing left over for profit,” replied Barbara. “I say it's just plain robbery,” retorted Karl. “And I also say it's time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?” “We've already worked them up,” said Barbara. “Several companies we know about pay a 7.5% commission to their own salespeople, along with a small salary. Of course, we would......

Words: 616 - Pages: 3

Cost Volume Profit Analysis

...TABLE OF CONTENT Executive summary……….………………………………………………………2 Background…………………………………………………………………3 Analysis of company situation………………………………………………....4-8 Analysis on market situation...............…………………………………….....9-12 Swot and competitor analysis ………………………………………………12-15 New product for McDonalds………………………………………………...15- 19 Future marketing strategy..................................................................................19-21 Financial forecast............................................................................................21-22 Conclusion……………………………………………………………......22 Appendix …………………………………………………………..........23-24 References…………………………………………………………….....25 INTRODUCTION Health care system is critically important around the world. And health care industry has always been a subject area with a strong international dimension. The health-care industry incorporates several sectors that are dedicated to providing health care services and products. According to industry and market classifications the health-care industry includes health care equipment and services as well as pharmaceuticals, biotechnology and life sciences, nursing homes, providers of health care plans and home......

Words: 3598 - Pages: 15

Cost Volume Profit

...Economics, 9(3), 2009, 103-106 103 USING COST-VOLUME-PROFIT ANALYSIS IN DECISION MAKING GABRIELA BUŞAN, IONELA-CLAUDIA DINA * ABSTRACT: The cost-volume-profit study the manner how evolve the total revenues, the total costs and operating profit, as changes occur in volume production, sale price, the unit variable cost and / or fixed costs of a product. Managers use this analysis to answer different questions like: How will incomes and costs be affected if we still sell 1.000 units? But if you expand or reduce selling prices? If we expand our business in foreign markets? KEY WORDS: cost-volume-profit, marginal contribution, break-even, the equation method, the marginal contribution method, graphical method The cost-volume-profit is a necessary tool for forecasting also for management control. The method includes a number of techniques and methods of solving problems based on understanding patterns of evolution characteristics of business costs. The techniques express the relationship between incomes, sales structure, costs, production volume and profits and include break-even analysis and profit forecasting processes. This relationship provides a general model of economic activity, which management can use to short-term forecasts for business performance evaluation and analysis of decision alternatives. The marginal contribution is the difference between total revenue and totals variable costs and explains how changes the operating profit as changing the number of......

Words: 1237 - Pages: 5

Cost-Volume-Profit Analysis

...Cost-Volume Profit Analysis Cost-Volume-Profit (“CVP”) analysis is essential for any company to be able to determine break-even points, and determining short term decisions. Arguably, for small businesses, nothing could be more important, as CVP provides the minimum volume of a product needed to sell in order to experience neither a gain nor loss. For entrepreneurs it is important to be effective and efficient when utilizing CVP accounting processes. This provides the framework for analyzing CVP’s importance to entrepreneurs. Defined, cost-volume-profit analysis is “the study of the effects of changes in cost and volume on profits” (Kimmel, 2011). CVP is critical in profit planning, determining selling prices, and helps determine the minimum number of future sales. Underling CVP are the assumptions that both cost and revenues are linear, costs can be classified as either fixed or variable, and one changes in activity or volume affect costs (Kimmel, 2011). CVP helps entrepreneur’s asses how much contribution is made on each product and how many units to sell in order to cover fixed costs. “[CVP] can [also] be used to determine whether efforts would be better directed toward the reduction of fixed costs or of variable costs” (Crowningshield, 1986). Margin of Safety as it relates to cost-volume-profit measures the difference between actual sales and the break-even point. Margin of safety enables management to determine allowable sales risk when......

Words: 704 - Pages: 3

Cost Volume Profit Analysis

...takeover of PeopleSoft by Oracle was a long and complicated legal and public opinion battle. The takeover itself had several reasons but one was the most significant. To begin Oracle was increasingly finding it was in a market which was becoming more competitive. As technologies age and patents expire new firms are taking market share away from the dominant firms. As the newer more competitive firms began to succeed, Oracle began to see profit margins decrease. Oracle was being forced into a corner with few choices for successful operations in the future. The maturing market which it found itself a part of was not going to bring it the same level of success it once had. Upper management began to discuss the opportunities Oracle had for expanding. After much deliberation, top executives decided that ERP was a newer technology which would be successful and profitable in the future.[3] With the decision to focus on ERP, Oracle once again was forced into a choice. It was to either to develop ERP internally or acquire an existing company. After much analysis and deliberation Oracle decided to focus its efforts on acquiring a current market leader in ERP systems. Two options presented themselves: SAP, which Oracle soon found to be much too expensive and strong for a takeover and PeopleSoft which was the perfect candidate for a hostile takeover attempt.[4] ERP & the Role it plays in Business Enterprise resource planning is management information systems through automation of......

Words: 1579 - Pages: 7

Cost Volume Profit Analysis

...Key Definitions a) Cost unit- the cost of an item a product or service. This could be a single item, a batch, a contract what ever is appropriate for the organisation. b) Cost classification - to group costs for analysis and control purposes c) Cost centre - a function or location for which costs are ascertained dividing into production (primary) and service (secondary) areas. 1. THE BEHAVIOUR AND CLASSIFICATION OF COSTS 3.1 Classification Costs in any organisation come in many forms and relate to many different things. We can divide or classify into many ‘groups’ a common grouping in costing is into 3 main areas: • Materials • Labour • Overheads Materials and labour costs speak for themselves, however overheads cover many different expenses within the business – rent, administration, heating and lighting, motoring – the list is endless. As well as dividing the costs into these 3 classifications each cost can be further classified into fixed, variable, stepped and semi-variable. This classification depends upon the behaviour of the cost. A fixed cost is just that – fixed. We pay the same amount of money per period regardless of whether we produce 0 units, 500 units or 500,000 units. A fixed sum we pay each period. The different type of cost behaviour is often represented graphically with the increasing level of activity or output being measured on the horizontal axis and the increase in cost being measured on the......

Words: 2284 - Pages: 10

Cost-Volume-Profit (Cvp) Analysis for Planning and Control

...ISSN 1940-204X Bridgestone Behavioral Health Center: Cost-Volume-Profit (CVP) Analysis for Planning and Control A. Ronald Kucic University of Denver IntroductIon Thomas: In reality, securing some outside assistance seems James E. Sorensen University of Denver Lisa M. Victoravich University of Denver In June of the current year Dr. Thomas Russell, Executive Director, and Susan Smyth, Accountant, at the Bridgestone Behavioral Health Center were discussing the necessity of gaining a better understanding of how to monitor the Center’s operating and financial performance. Located in Cleveland, Ohio, Bridgestone provides prevention, intervention, and treatment services for individuals with substance abuse problems. Bridgestone’s management is concerned about its financial performance after realizing a loss in the prior year although a small profit was projected. Despite management’s concern and attention of Bridgestone’s profitability troubles, the Center’s annual budget once again contains a projection for a meager profit of $7,000 (see Exhibit 1). Thomas: According to the financial reports that you have to be a good option to avoid future losses. Since my training is in psychology, I don’t have the accounting background to take the task on myself. We need someone who specializes in financial management for nonprofit human service organizations. BrIdGEStonE BAcKGround HIStory And MISSIon Bridgestone is a comprehensive outpatient substance abuse treatment......

Words: 4225 - Pages: 17

Cost-Volume-Profit (Cvp) Analysis

... Cost-Volume-Profit (CVP) Analysis Shanica N. Todd-Higgins ACC/561 - ACCOUNTING Instructor: DAVID DUREN Schedule: 06/29/2015 - 08/03/2015 Campus: COLUMBIA SOUTH CAROLINA CAMPUS Group ID: SCMBA0914 CVP - What If Analysis Through research, according to Diane Wicks (2015), “Cost-volume-profit (CVP) analysis is used to assess the impact of potential changes in costs and volume on a company's operating profit and net profit. CVP analysis is also useful in making decisions regarding pricing of products, selection of product lines and utilization of production equipments. Additionally, CVP is at the heart of methods used for calculating the break-even point and sales levels necessary to attain targeted income levels.” The break-even point according to W.D Adkins (2015) is, “the point at which revenues are just enough to cover expenses so there in no profit and no loss.” For instance Calculating Breaking-Even Analysis There are many steps in finding the break even analysis. According to Zari Ballard of Ehow (2015, ), First, calculate the total fixed costs by adding together each of the company's fixed costs. For example, a small company with annual fixed costs of $7,000 in rental payments, $3,000 in equipment leases and $30,000 in administrative salaries would have TFC of $40,000. Next, calculate the contribution margin per unit by subtracting the variable cost per unit from the sales price per unit. For example, if a small company's product sells for $60 per unit......

Words: 432 - Pages: 2

Act 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis

...ACT 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis http://homeworkfy.com/downloads/act-460-module-2-critical-thinking-cost-volume-profit-analysis/ To Get this Tutorial Copy & Paste above URL Into Your Browser Hit Us Email for Any Inquiry at: Homeworkfy@gmail.com Visit our Site for More Tutorials: (http://homeworkfy.com/ ) Steve Smith has completed a forecast of cost-volume-profit analysis for the Swiss Chocolate Manufacturing Company’s U.S. division manufacturing plant for the coming year. Smith notes the decline in volumes and prepares the breakeven analysis and computes the margin of safety; he notes that the current production volume projections indicate that the margin of safety will be positive for the period. However, the company will not achieve the sales volume required to achieve its desired level of operating and net income. In addition, the degree of operating leverage is high. Rick White has been tasked with suggesting some cost savings by the vice president of operations. In a well-written paper demonstrating CSU-Global standards, discuss the following. 1. Given the fact pattern above, identify whether White should seek reductions in variable or fixed costs for the greatest impact on the forecast. 2. What types of costs might White suggest for potential savings based on your answer? Name three costs that could be addressed, and rationalize your response. 3. What parts of the value chain might be negatively impacted by White’s......

Words: 295 - Pages: 2

Act 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis

...ACT 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis http://homeworklance.com/downloads/act-460-module-2-critical-thinking-cost-volume-profit-analysis/ ACT 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis Critical Thinking: (90 ) Choose one of the two options below. Option #1: Cost-Volume-Profit Analysis Steve Smith has completed a forecast of cost-volume-profit analysis for the Swiss Chocolate Manufacturing Company’s U.S. division manufacturing plant for the coming year. Smith notes the decline in volumes and prepares the breakeven analysis and computes the margin of safety; he notes that the current production volume projections indicate that the margin of safety will be positive for the period. However, the company will not achieve the sales volume required to achieve its desired level of operating and net income. In addition, the degree of operating leverage is high. Rick White has been tasked with suggesting some cost savings by the vice president of operations. In a well-written paper demonstrating CSU-Global standards, discuss the following. 1. Given the fact pattern above, identify whether White should seek reductions in variable or fixed costs for the greatest impact on the forecast. 2. What types of costs might White suggest for potential savings based on your answer? Name three costs that could be addressed, and rationalize your response. 3. What parts of the value chain might be negatively impacted by White’s......

Words: 291 - Pages: 2

Act 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis

...ACT 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis http://homeworklance.com/downloads/act-460-module-2-critical-thinking-cost-volume-profit-analysis/ ACT 460 Module 2 Critical Thinking : Cost-Volume-Profit Analysis Critical Thinking: (90 ) Choose one of the two options below. Option #1: Cost-Volume-Profit Analysis Steve Smith has completed a forecast of cost-volume-profit analysis for the Swiss Chocolate Manufacturing Company’s U.S. division manufacturing plant for the coming year. Smith notes the decline in volumes and prepares the breakeven analysis and computes the margin of safety; he notes that the current production volume projections indicate that the margin of safety will be positive for the period. However, the company will not achieve the sales volume required to achieve its desired level of operating and net income. In addition, the degree of operating leverage is high. Rick White has been tasked with suggesting some cost savings by the vice president of operations. In a well-written paper demonstrating CSU-Global standards, discuss the following. 1. Given the fact pattern above, identify whether White should seek reductions in variable or fixed costs for the greatest impact on the forecast. 2. What types of costs might White suggest for potential savings based on your answer? Name three costs that could be addressed, and rationalize your response. 3. What parts of the value chain might be negatively impacted by White’s......

Words: 291 - Pages: 2

Managerial Economics - Cost Volume Profit Analysis.

...explain the ‘Law of Diminishing Marginal Returns’ 5. What is ‘Cost benefit analyses? Justify its use in the implementation of developmental projects. Section – B (Marks – 25) Attempt all questions – 1. What is ‘Segmentation’? Explain Product segmentation and Market segmentation concept. 2. What is ‘Wholesaling’? Discuss various benefits of Wholesaling. 3. Explain different Features of Perfect Competition. 4. Cost Volume Profit Analysis. 5. What is Capital Rationing? Section – C (Marks – 50) Attempt any five questions – 1- Explain in detail the nature and scope of Managerial Economics. How Micro Economics differs from Managerial Economics? 2. What is Empirical Production Function? Explain the optimum combination of inputs with diagrams. 3. What is Cost of Capital? Explain its structure and role in inter- national competitiveness. 4. What is Elasticity of Demand? Explain Price, Cross and Income Elasticity of Demand used in managerial decision making process. 5. What do you mean by Monopoly? How price and output is determined in short and long run in Monopoly Competition? 6. Describe the Oligopoly Model in detail. 7. Explain management of foreign exchange with special reference to India Financial Management Section – A (Marks – 25) Attempt all questions 1. Write an important condition for the adjustment of the cost of debt. 2. What does the cost of equity capital indicate? 3. Explain Capital......

Words: 1096 - Pages: 5

Profit Planning: Cost-Volume-Profit Analysis

...Chapter 9 Profit Planning: Cost-Volume-Profit Analysis Cases |9-1 |Cost-Volume-Profit Analysis and Strategy | |9-2 |Cost-Volume-Profit Analysis and Cost Estimation | |9-3 |Cost-Volume-Profit Analysis and Strategy | |9-4 |Cost-Volume-Profit Analysis and Strategy: The ALLTEL Pavilion | |9-5 |Sensitivity Analysis; Regression Analysis | |9-6 |Profit Planning: Choice of Cost Structure | |9-7 |Pancake World | Readings 9-1: “Tools for Dealing with Uncertainty” by David R. Fordham, CMA, CPA, Ph.D and S. Brooks Marshall, CFA. DBA This article explains how to use simulation methods within a spreadsheet program such as Excel to perform sensitivity analysis for a given decision context. The available spreadsheet simulation software systems include the programs Crystal Ball and @Risk, among others. These software systems allow the user to analyze the effect of uncertainty on the potential outcomes of a decision. These tools can be applied directly to CVP analysis. The tools......

Words: 9115 - Pages: 37

Cost Volume Profit Analysis

...CVP Analysis is a powerful tool managers use; as it helps them in understanding the interdependency or relationship between cost, volume and profit in an organization mainly by focusing on interaction between elements such as a: Product Price b: Level or volume of activity c: Per unit variable cost d: Total fixed costs e: Mix of products sold. Assumptions: The cost volume profit analysis assumptions suggest that the selling price does not change and remains constant as the volume changes. As costs are liner as a result of which they can be accurately divided into variable and fixed element. The fixed element remains constant in total over the relevant range and the variable element is constant per unit. On the other hand when considering multi-product companies, the sales mix is constant. Limitations of CVP Analysis It is limited in the amount of information it can provide in a multi-product operations. Multi-product businesses, such as restaurants, can have a difficult time with CVP analysis because menu items, for instance, are likely to have many variable cost ratios. This makes the challenge of CVP analysis all the more difficult because it must be done for each specific product. As it is a short run, marginal analysis therefore it assumes that unit variable costs and unit revenues are constant, which is appropriate for small deviations from current production and sales, and assumes a neat division between variable and fixed costs but in the......

Words: 274 - Pages: 2