Chapter 3 Cost volume profit analysis Group 4: 林晨 刘喆 杨林丹妮

Study Guide Why we use CVP analysis? How to calculate? How to prepare the chart?

Part 1 Background 本量利分析法起源于上个世纪 20 年代，是 发达西方国家的企业为加强内部管理和控 制，提高自身市场竞争能力和抵御风险能 力，以实现企业经营战略目标而建立起来 的一种管理系统。最初在美国的通用电气、 通用汽车公司应用，很快成为大型工商企 业的标准作业程序。

CVP analysis is helpful in understanding the relationships among cost, volume and profit. A manager can find out a BEP which indicates a minimum production level to avoid losses. CVP goes further and shows how much to produce to earn a certain amount of profit. CVP identifies the likely changes in profit whenever a key-factor changes such as price, cost and quantity. WHY?

Part 2 Calculation Breakeven point for multiple products C/S ratio for multiple products Margin of safety for multiple products Target profits for multiple products

Breakeven analysis Contribution per unit = unit selling price – unit variable cost Profit = (sales volume * contribution per unit) – fixed costs Breakeven point = total fixed costs/contribution per unit = contribution required to breakeven/contribution per unit Contribution/sales ratio = (contribution/sales)*100% Margin of safety(in units) = budgeted sales unit – breakeven sales unit Margin of safety(as %) = Sales volume to achieve a target profit = Budgeted sales – breakeven sales Budgeted sales Fixed cost + target profit Contribution per unit

YOU MUST TO PAY ATTANTION TO To perform breakeven analysis for a multi-product orgnisation, either a constant sales mix must be assumed, or all products must have the same C/S ratio.

1 、 Breakeven point for multiple products  Step 1 calculate the weighted average contribution per unit  Step 2 calculate the breakeven point in unit ( 用公式三套用即可）  Step 3 calculate the breakeven point in sale revenue

2 、 C/S ratio for multiple products  Step 1 calculate revenue and contribution per mix.( 计算组合比例下， n 种产品收入和贡献毛益各自的和 ）  Step2 calculate sale revenue in breakeven point (in total)  Step 3 calculate breakeven sales for each product

Margin of safety for multiple products Target profits for multiple products Calculate the weighted average contribution per unit

Part 3 Multi-product breakeven charts A breakeven chart cannot be drawn,because we don't know the proportions of X,Y,Z in the sales mix.

Approach 1 Output in $ sales and a constant product mix are needed.

Approach 2 Products should be plotted in a particular sequence.

Approach 3 Output in terms of % of forecast sales and a constant product mix are needed

Further aspect of CPV analysis LIMITATIONS a) It is assumed that fixed costs are the same in total and variable costs are the same per unit at all output levels. b) The assumption of no change in sales prices at all levels of activity may not be true. c) It ignores the increase and the "de-stocking".

Thanks For Viewing! Thanks For Viewing!