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Cost Volume Profit Analysis

Contribution margin per unit is calculated as sales price minus variable expenses per unit. Contribution margin in dollars is total sales revenue minus total variable expenses. The contribution margin ratio is contribution margin divided by sales. The CVP relationship equations show that sales equal price per unit times units sold, variable expenses equal variable cost per unit times units sold, and profit equals contribution margin times units sold minus fixed expenses. Target profit analysis can be calculated using either the equation method of profit equals contribution margin per unit times units sold minus fixed expenses, or the formula method of target profit plus fixed expenses divided by contribution margin per unit. Break even point is calculated as fixed expenses divided by contribution margin per unit. Degree of operating leverage is calculated as the ratio

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33 views1 page

Cost Volume Profit Analysis

Contribution margin per unit is calculated as sales price minus variable expenses per unit. Contribution margin in dollars is total sales revenue minus total variable expenses. The contribution margin ratio is contribution margin divided by sales. The CVP relationship equations show that sales equal price per unit times units sold, variable expenses equal variable cost per unit times units sold, and profit equals contribution margin times units sold minus fixed expenses. Target profit analysis can be calculated using either the equation method of profit equals contribution margin per unit times units sold minus fixed expenses, or the formula method of target profit plus fixed expenses divided by contribution margin per unit. Break even point is calculated as fixed expenses divided by contribution margin per unit. Degree of operating leverage is calculated as the ratio

Uploaded by

Kashif
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Cost Volume Profit analysis:

Contribution Margin:
1. Contribution margin per unit=per unit sale Price - Variable expense per unit (P – V)
2. Contribution margin in sales dollars = Sales revenue – Variable expenses
3. Contribution Margin ratio = Sales - Variable expenses = Contribution margin
Sales Sales
CVP Relationship in Equation form:
Sales = selling price per unit X Quantity sold (PXQ)
Variable expenses =Variable expenses per unit X Quantity sold (VXQ)

Target Profit Analysis Equation method:


Profit = (sales – Variable expenses) – Fixed expenses
Profit = (PXQ – VXQ) – Fixed expenses
Profit = (P – V) X Q – Fixed expenses
Profit = Unit CM X Q – Fixed expense
Profit = CM ratio X Sales – Fixed cost

Target Profit Analysis Formula method = Target Profit + Fixed expense


Unit Contribution Margin
Break Even Point = Fixed expense
Unit CM
Degree of Operating Leverage = = Contribution margin
Net Operating Income

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