COST-VOLUME-
PROFIT ANALYSIS
(CVP)
REPOORTER:
ALAGBAN
AVIOLA
DACOBA
LAGAPA
COST-VOLUME-PROFIT
ANALYSIS
A powerful tool that helps the managers
understand the relationships among cost,
volume and profit.
CVP Analysis focuses on how profits are affected by
the following five (5) factors:
SELLING PRICES
SALES VOLUME
VARIABLE COST
PER UNIT
TOTAL FIXED
COSTS
PRODUCT MIX
BREAK-EVEN POINT
The point wherein the entity does not
enjoy a profit but does not incur a loss,
which is when total contribution margin
equals total fixed costs.
ASSUMPTIONS IN CVP ANALYSIS
Costs are classified as variable or fixed.
Variable costs change at a linear rate.
Fixed costs remains unchanged within the relevant
range.
Selling prices do not change as sales volume
changes.
LETS GET STARTED
For multiple product companies, sales mix usually
remains constant.
Inventory levels remain constants and is not
focused too much in CVP analysis.
Volume is the greatest factoring affecting costs.
LETS GET STARTED
CONTRIBUTION MARGIN
APPROACHES IN CVP ANALYSIS
SALES
LESS: VARIABLE COST
CONTRIBUTION MARGIN
LESS: FIXED COST
NET INCOME
BEP in units = Fixed cost
Contribution margin per unit
BEP in sales = Fixed cost
Contribution margin ration
GRAPHING CVP RELATIONSHIP
CVP ANALYSIS WITH TARGET NET
INCOME
Required units = Fixed cost + desired profit
Contribution margin per unit
Required sales = Fixed costs + desired profit
Contribution margin ratio
LET’S TRY!
Katipunan, Inc. sells a p ro d u ct to re ta ile rs fo r P 20 0 . Th e
unit variable cost is P40 w ith a se llin g co m m is sio n o f
10%. Fixed Manu fact uri ng co sts to ta l 1, 0 0 0,0 0 0 p er
month while fixed se llin g an d ad m in is tr at iv e co st s to ta l
P420,000. The income ta x ra te is 30 % . Th e ta rg et sa le s if
after tax income is P123,200 would be?
a. 10,950 units c. 13,750 units
b. 11,400 units d. 15,640 units
MARGIN OF SAFETY
measures the potential effect of the risk that sales will
fall short of planned sales, which is the differences
between actual or budgeted sales over break-even sales.
MARGIN OF SAFETY =
ACTUAL OR
BUDGETED SALES -
BREAKEVEN SALES
LET’S TRY!
Leomond Manufacturing Company’s budget for the coming
year revealed the following unit data:
Compute for the margin of safety in peso amount and
percentage.
SALES MIX AND WEIGHTED AVERAGE
CONTRIBUTION MARGIN
Refers to the relative
proportions in which a
company’s products are
sold. The idea is to
achieve the
combination, or mix,
that will yield the
greatest amount of
profits.
LET’S TRY!
Calculate the break-even point in the following
sales mix, both in units and peso sales.
THANK YOU!
NA HUMAN NA JUD!!!
