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CVP Analysis
Course MA2
Type Lesson
Basically CVP (Cost Volume Profit) Analysis shows the change in cost and
profits following a change in Sales and Production Volume (i.e units)
Why is it Useful?
It helps the management team in short term decision making
This answers solutions to different scenarios, e.g
• What will be the impact on profit if sales are 12 per cent lower than
expected?
• What will be the impact on profit if staff costs increase?
• What will be the impact of matching a competitor’s lower selling price?
Most of the time, these tools to analyze different situations brings ease to
managers doing cost management and prevents undesirable situations like out-
of-stock days or prevents bringing in extra stock etc.
CVP Analysis 1
, What will we learn?
Break Even Point
Margin of Safety
Target Profit
Using charts to plot different elements of BEP, MoS and other formulas
Break Even Point
In simple words, Break Even Point is that specific position where The company
sells just enough units so that it doesn’t make any profit or any loss. This means
that on this point of units sold:
Cost = 0
Profit = 0
Cost = Profit
Contribution = Fixed Cost
How to calculate Break even point (in Units)?
Total Fixed Costs / Contribution per unit = Break even point
Contribution required to Break even / Contribution per unit = Break Even
Point
Contribution and other elements of this formula
Contribution
Contribution simply means Sales - All variable costs.
For starters we know this basic equation
Sales - (Fixed Cost + Variable Cost) = Profit
Once your subtract the Variable cost from sales we get Contribution
Contribution = Fixed Cost + Profit
This equation is very simple but need to be remembered if the examiner
tries to add or remove certain elements in order for you to find an
answer.
CVP Analysis 2
CVP Analysis
Course MA2
Type Lesson
Basically CVP (Cost Volume Profit) Analysis shows the change in cost and
profits following a change in Sales and Production Volume (i.e units)
Why is it Useful?
It helps the management team in short term decision making
This answers solutions to different scenarios, e.g
• What will be the impact on profit if sales are 12 per cent lower than
expected?
• What will be the impact on profit if staff costs increase?
• What will be the impact of matching a competitor’s lower selling price?
Most of the time, these tools to analyze different situations brings ease to
managers doing cost management and prevents undesirable situations like out-
of-stock days or prevents bringing in extra stock etc.
CVP Analysis 1
, What will we learn?
Break Even Point
Margin of Safety
Target Profit
Using charts to plot different elements of BEP, MoS and other formulas
Break Even Point
In simple words, Break Even Point is that specific position where The company
sells just enough units so that it doesn’t make any profit or any loss. This means
that on this point of units sold:
Cost = 0
Profit = 0
Cost = Profit
Contribution = Fixed Cost
How to calculate Break even point (in Units)?
Total Fixed Costs / Contribution per unit = Break even point
Contribution required to Break even / Contribution per unit = Break Even
Point
Contribution and other elements of this formula
Contribution
Contribution simply means Sales - All variable costs.
For starters we know this basic equation
Sales - (Fixed Cost + Variable Cost) = Profit
Once your subtract the Variable cost from sales we get Contribution
Contribution = Fixed Cost + Profit
This equation is very simple but need to be remembered if the examiner
tries to add or remove certain elements in order for you to find an
answer.
CVP Analysis 2
