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22BA013 AC.pptx

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This document discusses cost-volume-profit (CVP) analysis, which examines the impact of varying sales volumes and costs on operating profit. CVP analysis considers factors like sales price, fixed costs, variable costs, and units sold. It helps businesses understand the relationship between costs and revenues to determine profitability. CVP analysis calculates the break-even point, which is the sales volume needed for total revenue to equal total costs. Managers can use CVP analysis to make short-term economic decisions and understand how profits are affected by changes in sales, prices, or variable costs.

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A.JANANI 22BA013 ACCOUNTS FOR DECISION MAKING COST VOLUME PROFIT ANALYSIS
COST-VOLUME-PROFIT (CVP) ANALYSIS Cost Volume Profit Analysis (CVP) looks at the impact on the operating profit due to the varying levels of volume and the costs and determines a break-even point for cost structures with different sales volumes that will help managers in making economic decisions for short term.
 Cost Volume Profit Analysis includes the analysis of sales price, fixed costs, variable costs, the number of goods sold, and how it affects the profit of the business.  The aim of a company is to earn a profit, and profit depends upon a large number of factors, most notable among them is the cost of manufacturing and the volume of sales. These factors are largely interdependent.
The volume of sales is dependent upon production volume, which in turn is related to costs that are affected by the volume of production, product mix, internal efficiency of the business, production method used, etc.
 CVP analysis helps management in finding out the relationship between cost and revenue to generate profit.  CVP Analysis helps them to BEP Formula for different sales volume and cost structures.  With CVP Analysis information,the management can better understand the overall performance and determine what units it should sell to break even or to reach a certain level of profit.
BENEFITS CVP analysis provides a clear and simple understanding of the level of sales that are required for a business to break even (No profit, No loss), level of sales required to achieve targeted profit. CVP analysis helps management to understand the different costs at different levels of production/sales volume. CVP analysis helps decision- makers in forecasting cost and profit on account of change in volume.
CVP Analysis helps businesses analyze during recessionary times the comparative effects of shutting down a business or continuing business at a loss, as it clearly bifurcates the Direct and Indirect cost.
IMPORTANCE OF COST VOLUME PROFIT ANALYSIS  CVP analysis helps in determining the level at which all relevant cost is recovered, and there is no profit or loss, which is also called the breakeven point. It is that point at which volume of sales equals total expenses (both fixed and variable). Thus CVP analysis helps decision-makers understand the effect of a change in sales volume, price, and variable cost on the profit of an entity while taking fixed cost as unchangeable.
CVP Analysis helps in understanding the relationship between profits and costs on the one hand and volume on the other. CVP Analysis is useful for setting up flexible budgets that indicate costs at various levels of activity. CVP Analysis also helpful when a business is trying to determine the level of sales to reach a targeted income
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22BA013 AC.pptx

  • 1. A.JANANI 22BA013 ACCOUNTS FOR DECISION MAKING COST VOLUME PROFIT ANALYSIS
  • 2. COST-VOLUME-PROFIT (CVP) ANALYSIS Cost Volume Profit Analysis (CVP) looks at the impact on the operating profit due to the varying levels of volume and the costs and determines a break-even point for cost structures with different sales volumes that will help managers in making economic decisions for short term.
  • 3.  Cost Volume Profit Analysis includes the analysis of sales price, fixed costs, variable costs, the number of goods sold, and how it affects the profit of the business.  The aim of a company is to earn a profit, and profit depends upon a large number of factors, most notable among them is the cost of manufacturing and the volume of sales. These factors are largely interdependent.
  • 4. The volume of sales is dependent upon production volume, which in turn is related to costs that are affected by the volume of production, product mix, internal efficiency of the business, production method used, etc.
  • 5.  CVP analysis helps management in finding out the relationship between cost and revenue to generate profit.  CVP Analysis helps them to BEP Formula for different sales volume and cost structures.  With CVP Analysis information,the management can better understand the overall performance and determine what units it should sell to break even or to reach a certain level of profit.
  • 6. BENEFITS CVP analysis provides a clear and simple understanding of the level of sales that are required for a business to break even (No profit, No loss), level of sales required to achieve targeted profit. CVP analysis helps management to understand the different costs at different levels of production/sales volume. CVP analysis helps decision- makers in forecasting cost and profit on account of change in volume.
  • 7. CVP Analysis helps businesses analyze during recessionary times the comparative effects of shutting down a business or continuing business at a loss, as it clearly bifurcates the Direct and Indirect cost.
  • 8. IMPORTANCE OF COST VOLUME PROFIT ANALYSIS  CVP analysis helps in determining the level at which all relevant cost is recovered, and there is no profit or loss, which is also called the breakeven point. It is that point at which volume of sales equals total expenses (both fixed and variable). Thus CVP analysis helps decision-makers understand the effect of a change in sales volume, price, and variable cost on the profit of an entity while taking fixed cost as unchangeable.
  • 9. CVP Analysis helps in understanding the relationship between profits and costs on the one hand and volume on the other. CVP Analysis is useful for setting up flexible budgets that indicate costs at various levels of activity. CVP Analysis also helpful when a business is trying to determine the level of sales to reach a targeted income