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    3 - Cost Volume Profit Analysis

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    Pattranite
    This chapter discusses cost-volume-profit (CVP) analysis, which examines the relationship between revenues, costs, and volume and how they impact profit. The key relationship is the profit equation, which shows that total contribution margin from units sold covers fixed costs and provides operating profit. Contribution margin ratio is contribution margin as a percentage of sales revenue. Other concepts covered include profit-volume analysis using a single profit line, cost structure, operating leverage, margin of safety, break-even analysis, and calculating target volume.

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    3 - Cost Volume Profit Analysis

    Uploaded by

    Pattranite
    97 views1 page
    This chapter discusses cost-volume-profit (CVP) analysis, which examines the relationship between revenues, costs, and volume and how they impact profit. The key relationship is the profit equation, which shows that total contribution margin from units sold covers fixed costs and provides operating profit. Contribution margin ratio is contribution margin as a percentage of sales revenue. Other concepts covered include profit-volume analysis using a single profit line, cost structure, operating leverage, margin of safety, break-even analysis, and calculating target volume.

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    3- Cost Volume Profit Analysis

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    This chapter discusses cost-volume-profit (CVP) analysis, which examines the relationship between revenues, costs, and volume and how they impact profit. The key relationship is the profit equation, which shows that total contribution margin from units sold covers fixed costs and provides operating profit. Contribution margin ratio is contribution margin as a percentage of sales revenue. Other concepts covered include profit-volume analysis using a single profit line, cost structure, operating leverage, margin of safety, break-even analysis, and calculating target volume.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    97 views1 page

    3 - Cost Volume Profit Analysis

    Uploaded by

    Pattranite
    This chapter discusses cost-volume-profit (CVP) analysis, which examines the relationship between revenues, costs, and volume and how they impact profit. The key relationship is the profit equation, which shows that total contribution margin from units sold covers fixed costs and provides operating profit. Contribution margin ratio is contribution margin as a percentage of sales revenue. Other concepts covered include profit-volume analysis using a single profit line, cost structure, operating leverage, margin of safety, break-even analysis, and calculating target volume.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    CHAPTER THREE: COST-VOLUME-PROFIT ANALYSIS

     Cost-volume-profit analysis studies the relations among revenues, cost, and volume and their effect on profit.
     The key relation for CVP analysis is the profit equation.
     Total contribution margin is the amount that units sold contribute toward (1) covering fixed costs and (2) providing
    operating profits.
     Contribution margin ratio is the contribution margin as a percentage of sales revenue.
     Profit-volume analysis is version of CVP analysis which uses a single profit line.
     Cost structure is the proportion of fixed and variable costs to the total costs of an organization.
     Operating leverage is the extent to which an organization’s cost structure is made up of fixed costs.
     The margin of safety is the excess of projected (actual) sales over the break-even sales level.

    Operating profit= Total revenues – Total costs

    Total revenue= Price * Units of output produced and sold

    Total costs= (Variable costs per unit * units of output) + Fixed costs

    Or… Profit= (Price- Variable costs) * Units of output – Fixed costs

    Contribution margin = Selling price – Variable costs

    ¿ costs
    Breakeven volume ( ¿ units )=
    Unit contribution margin

    Unit contributionmargin
    Contribution margin ratio=
    Sales revenue

    ¿ costs
    Breakeven volume ( ¿ sales dollars )=
    Contribution margin ratio

    ¿ costs+Target profit
    Target volume ( ¿ units )=
    Contribution margin per unit

    ¿ costs+Target profit
    Target volume ( ¿ units )=
    Contribution marginratio

    Contribution margin
    Operating leverage=
    Operating profit

    Margin of safety=Sales volume−Break even sales volume

    After-tax profit= [(P-V)X – F] * (1- t)

    target profit
    ¿ costs+[ ]
    (1−t )
    Target volume ( ¿ units )=
    Contribution marginratio

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