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Cost Volume Profit: Analysis

CVP (cost-volume-profit) analysis is a model used to determine how changes in costs, selling prices, or sales volumes will affect profit. It assumes costs can be divided into fixed and variable categories. Fixed costs remain constant regardless of production levels, while variable costs change directly with production. CVP analysis can be used to determine the sales volume or price needed to hit profit targets, or the minimum costs required for maximum production, by using an equation that calculates profit as sales minus variable costs minus fixed costs.

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93 views8 pages

Cost Volume Profit: Analysis

CVP (cost-volume-profit) analysis is a model used to determine how changes in costs, selling prices, or sales volumes will affect profit. It assumes costs can be divided into fixed and variable categories. Fixed costs remain constant regardless of production levels, while variable costs change directly with production. CVP analysis can be used to determine the sales volume or price needed to hit profit targets, or the minimum costs required for maximum production, by using an equation that calculates profit as sales minus variable costs minus fixed costs.

Uploaded by

surbhi_sharma_2613
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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COST VOLUME PROFIT

ANALYSIS
By NISHANT SINGH

Roll no BM011124

What is CVP
CVP is a model used to determine how profit will be affected by changes in costs, selling price or business activity (ie volume of sales).

CVP analysis is a key factor in: Pricing products Determining marketing strategies

CVP Assumption
CVP assumes that all costs can be divided into two types;
Fixed Variable

Fixed Costs
Fixed costs remain constant despite changes in the level of production.

Cost

Level of production

Variable Costs
Variable costs change in direct proportion to changes in the level of production.

cost

Level of production

How is CVP Analysis Used?


CVP analysis can determine, both in units and in sales rupees required to achieve target profit levels the selling price or costs required to achieve target volume levels Minimum cost maximum production.

Equation method
Profit = (sales(x) * contribution) FC Contribution = SP VC WhereFC = fixed cost SP = selling price VC = variable cost X = no. of units produced

THANK YOU

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