Cost Volume Profit Analysis

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Presentation transcript:

Cost Volume Profit Analysis Lecture-29 Main Ahmad Farhan

Cost Volume Profit Analysis (CVP) CVP is a relationship of four variables Sales Variable cost Fixed cost Net income Volume Cost Cost Profit

Contribution Margin Contribution Margin = Sales – Variable cost

Example 90 units of product “PR” is sold for Rs. 100 per unit. Variable cost relating from production and selling is Rs. 75 per unit and fixed cost is Rs. 2250.

Sales *** Variable cost (***) Contribution margin *** Fixed cost (***) Profit / Loss ***

Solution Sales (90 x 100) Rs. 9,000 (10 x 100) 1,000 Sales increased by 10 units: Final addition Sales (90 x 100) Rs. 9,000 (10 x 100) 1,000 Variable cost (90 x 75) (6,750) (75 x 10) (750) Contribution margin 2,250 250 Fixed cost (2,250) 0 Profit / Loss 0 250 10,000 (7,500) 2,500 2,250) 250

B-Impact of increase in sales price by 10 % Sales 100 x Rs 110 11,000 Variable cost 100 x Rs. 75 (7,500) Contribution margin 3,500 Fixed cost (2,250) Profit 1,250 Increase Rs. 1,000

C- Impact of decrease in sales price by 10 % Sales 100 x Rs 90 9,000 Variable cost 100 x Rs 75 (7,500) Contribution margin 1,500 Fixed cost (2,250) Loss 750

D- If Sales increases by 50% Sales 150 x Rs 90 13,500 Variable cost 150 x Rs 75 (11,250) Contribution margin 2,250 Fixed cost (2,250) Loss 0

E- Sales volume increases upto 200% by 10% decrease in sales price Sales 200 x Rs 90 18,000 Variable cost 200 x Rs 75 (15,000) Contribution margin 3,000 Fixed cost (2,250) Profit 750

F-Sales volume increases by 100% and fixed cost also increase (step fixed cost) upto Rs. 2,500 Sales 200 x Rs 90 18,000 Variable cost 200 x Rs 75 (15,000) Contribution margin 3,000 Fixed cost (2,500) Profit 500

G- Impact of increase in variable cost per unit by 20% Sales 200 x Rs 90 18,000 Variable cost 200 x Rs 90 (18,000) Contribution margin 0 Fixed cost (2,500) Loss (2,500)

Contribution margin *** Fixed cost (***) Profit / Loss *** Sales – Variable cost = Contribution margin Contribution margin + Variable cost = Sales Contribution margin – Fixed cost = Profit Profit + Fixed cost = Contribution margin Sales - Variable cost = Fixed cost + Profit Sales *** Variable cost (***) Contribution margin *** Fixed cost (***) Profit / Loss ***