cvp analysis by arslan ch
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Presentation Topic:-
CVP Analysis
Presented by :-
Muhammad Arslan Arshad
ID # 110845-015
Management Accounting
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Cost, volume, profit Analysis
CVP helps you in your businessoperations
Examining the relationship between
your
Fixed costs
Variable costs
Your volume (in term of units or Rupees)
And your profit
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What is cost?
Total money, time and resources
value or price of any thing
Sacrifice made to obtain any thing
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Types of costs
Variable cost
Fixed cost
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Fixed/Variable costs changes
Per Unit Total Costs• Fixed cost Change Does not Change
• Veriable cost Does not Change Change
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Profit Difference between revenue and cost
Positive gain from an investment
Total earning less expenses
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Main tools offered by CVP
analysis
Break even analysis
Contribution margin analysis Operating leverage
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Break even point Analysis
Volume of activity at which an organization;revenues & expenses are equal
Formula to calculate
In units
= Fixed cost
contribution margin per unit In rupees
= Fixed cost
contribution margin ratioCVP Analysis by Arslan ch 9Wednesday, April 17, 2013
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Contribution margin analysis
Formula to calculate
C.M per unit
= Sales price – variable costs
C.M ratio
= CM per unit / sales price
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Contribution Margin Ratio inpercentage (%)
Formula to calculate
= C.M Ratiox100
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Margin of safety
Difference between budgeted & break even sales
revenue.
Formula= Actual Sales – Break even sales(units)
In percentage %
= Margin of Safety
Actual Sales x 100
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Break even Capacity in
Percentage (%) Formula to calculate
= Break even sales(units)
Actual sales x 100
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Target profit
Formula to calculate
Units to earn target profit
= Fixed Expenses + Target profit
Contribution Margin per unit
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Contribution Income Statement
Variable and fixed expenses areseperated
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Sales xxxx
Less:- variable cost (xxx)Contribution Margin xxx
Less:- Fixed cost (xxx)
Net profit xx
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Break-even point (units)Brek-even point (units) = Fixed Costs
Contribution Margin per unit
= 40,00,000
900(w-1)
= 4444
C.M per unit (w-1) = Sale price-Veriable price
= 3000 - 2100
= 900
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Break-even point (Rs.)
Break-even point (Rs.) = Fixed costC.M ratio(w-2)= 40,00,000
0.3= 13,333,333 Rs.
C.M Ratio (w-2) =ContributionMargin
Sale price= 900
3000
= 0.3CVP Analysis by Arslan ch 17Wednesday, April 17, 2013
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Contribution Margin Ratio in %
Formula to calculate
=C.M Ratio x 100
= 0.3 x 100
= 30 %
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Target Profit
How many units must sell to earn aTarget net profit of Rs. 10,00,000.
Units to earn Target profit
= Fixed costs+Target ProfitContribution Margin per unit
= 4000,000+10,00,000900= 5555 Units
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Margin of safety and %
Formula
= Actual Sales – Break even sales(units)
= 6000 - 4444
= 1556 In percentage %
= Margin of Safety
Actual Sales x 100
= 15566000 x 100
= 26 %
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Break-even capacity in
percentage(%) Formula to calculate
= Break even sales(units)
Actual sales x 100= 4444
6000 x 100
= 74 %
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Proof Sales (6000x3000)
180,00,000
Less:- Variable cost(2100x3000)630,0000
Contribution Margin
1170,0000Less:- Fixed Cost40,00,000
Net Profit 770,0000CVP Analysis by Arslan ch 22Wednesday, April 17, 2013
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