Download - CVP DS FINAL
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GROUP MEMBERS Sharon Francis 50
Juanita Dsouza 23
Ruth Jacob 46
Cassandra Dsouza 11
Sushrut Sawant 55
Joffine Joseph 22
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FLOW OF PRESENTATION Introduction
Basic concepts
Margin of Safety Uses
Assumptions
Limitations Case Study 1
Case Study 23
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INTRODUCTIONCost-Volume-Profit (CVP) Analysis
Technique that examines changes in profits inresponse to changes in sales volumes, costs, and
prices
Helps to estimate future revenues, costs, and
profits in order to plan and monitor operations
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Basic Concepts
Contribution margin
Contribution margin per unit
Contribution margin ratio(CMR) or P/V Ratio
Breakeven point
In case of single products
In case of multiple products
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Margin of Safety The excess of an organizations expected future sales above the
breakeven point.
Can also be expressed in percentage
.
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Uses Of CVPo Calculation of expected sales and desired
profit.
o
Decisions related to expansiono Product pricing
o Comparision of different production units.
o Estimating the future cost
o Analysing the product mix and changing itaccording to profit.
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ASSUMPTIONSo All costs can be analysed into their fixed and
variable elements.
o
Fixed costs remain fixed even over a widerange of activity.
o Selling prices are constant per unit.
o Only levels of activity affect costs and
revenues
o Uncertainty does not exist.
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Limitations of CVP Analysis
Assumed that what is produced is sold
Units Sold = Units produced
Assumes that fixed and variable costs can be accuratelyidentified.
Selling prices and costs are assumed to be known withcertainty.
Inventory levels remain same.
Decisions by sales staff and marketing personnel maylead to low profits or loss.
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CASE 1
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CASE 2
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The owner of The Spotted Cow Creamery hasseveral profitable stores. He asked the storemanagers to provide information about theirsales mix
The amount of beverage versus ice creamproducts sold
Beverages provide a much larger contributionmargin than ice cream.
After analyzing the data, they found that abouthalf of the revenues in the most profitable storeswere for the sale of beverages
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these stores have more stable salesthroughout the winter because they sell
specialty coffee beverages as well assoft drinks.
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Spotted Cow Creamery
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Spotted Cow CreameryCurrent Sales mix Desired Sales mix
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THANK YOU
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