1. Management AccountIng8
COST VOLUME PROFIT ANALYSIS
Breakeven Point

2. Cost-Volume-Profit (CVP) Analysis Definition
Cost–volume–profit (CVP) is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions. CVP analysis looks the relationship between selling price, selling volume, cost and profit.

3. Cost-Volume-Profit (CVP) Analysis Definition
CVP, is a planning process that management uses to predict the future volume of activity, costs incurred, sales made, and profits received.

4. Cost-Volume-Profit (CVP) Analysis Definition
CVP analysis is the study of the effects of changes of costs and volume on a company’s profits.
CVP analysis is important in profit planning.
It also is a critical factor in management decisions.

5. Cost-Volume-Profit (CVP) Analysis Definition
The CVP analysis classifies all costs as either fixed or variable. CVP analysis uses these two costs to plot out production levels and the income associated with each level.

6. Cost-Volume-Profit (CVP) Analysis Definition
As production level increase, the fixed costs become a smaller percentage of total income while variable costs remain a constant percentage.

7. Cost-Volume-Profit (CVP) Analysis Definition
Cost accountants and management analyze these trends in an effort to predict what costs, sales, and profits the company will have in the future.

8. Cost-Volume-Profit (CVP) Analysis Usage of CVP Analysis
Setting the selling price.
Determining product mix.
Maximizing the use of production facilities.
Evaluating the impact of changes in costs.

9. Cost-Volume-Profit (CVP) Analysis Assumptions of CVP Analysis
All costs can be classified either fixed or variable costs.
Changes in activity are the only factor that affects cost.
All units produced are sold.
When more than one type of product is sold, the sales mix will remain constant.

10. Cost-Volume-Profit (CVP) Analysis Profit Function
CVP analysis is a mathematical equation that computes how changes in costs and sales will affect profit in future periods. 
𝑷𝒓𝒐𝒇𝒊𝒕=𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆−𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆=𝒇 ∗𝒙 →𝒙=𝒗𝒐𝒍𝒖𝒎𝒆, 𝒇 =𝒖𝒏𝒊𝒕 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆
𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕=𝒂𝒙+𝒃
𝑷𝒓𝒐𝒇𝒊𝒕=𝒇𝒙−𝒂𝒙 −𝒃
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒙 −𝒃 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅

11. Cost-Volume-Profit (CVP) Analysis Components of CVP Analysis
The components of CVP analysis are:
Level or volume of activity
Unit selling prices
Variable cost per unit
Total fixed costs

12. Cost-Volume-Profit (CVP) Analysis Income Statement
Income Statement (Traditional Income Statement)
I. Sales fx
II. Cost of Goods Sold (-)
(ax+b)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
fx-(ax+b)

13. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example 1
Example: The costs of ABC company occurred in September are as follows:
Net Sales
5.000
Total Cost
Variable
Fixed
Total
Direct Material
 1.000
250
1.250
Direct Labor
1.000
Factory Overhead
500
1.500
General Administrative Cost
 150
200
350
Marketing and Selling Cost
397
Annual Production Capacity kg
Units produced in April
750 kg
Beginning Work-in Progress -
Beginning Finished Goods
Ending Work-in Progress
Ending Finished Goods
250 kg
Units Sold in April
500 kg
Required: Ascertain the total and unit cost of current production according to «Absorption Costing Method» and «Variable Costing Method». Prepare the income statement of current period.

14. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
TOTAL COST
Absorption Costing
Variable Costing
Direct Material
1.250
1.000
Direct Labor -
Factory Overhead
1.500
500
Production Cost
3.750
Gen. Ad. Exp.
350
150
Mark. Selling Exp.
397
Total Cost
4.497
1.650
Total Variable Cost
Total Fixed Cost
2.847
Unit Production Cost 5 2
Unit Variable Cost
2,2
TC Function
2,2x+2.847

15. Cost-Volume-Profit (CVP) Analysis Break-Even Point
A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this break-even point, a company will experience no income or loss. This break-even point can be an initial examination that precedes more detailed CVP analysis.

16. Cost-Volume-Profit (CVP) Analysis Break-Even Point
Sales level at which operating income is zero
Sales above breakeven result in a profit
Sales below breakeven result in a loss
Two methods
Income Statement Approach
Contribution Margin Approach

17. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
(Absorption Costing)
I. Sales
5.000
II. Cost of Goods Sold (-)
(2.500)
Gross Profit/Loss
2.500
III. Operating Expenses (-)
(747)
- Gen. Administrative Exp.
350
- Marketing and Selling Exp.
397
Operating Profit/Loss
1.753
CVP Income Statement
(Variable Costing)
I. Sales
5.000
II. Variable Costs (-)
Variable Prod.Costs
Other Variable Costs
1.000
100
Net Contribution Margin
3.900
III. Fixed Costs (-)
Fixed Production Costs
Other Fixed Costs
(2.847)
2.250
597
Operating Profit/Loss
1.053
Used primarily for external reporting.
Used primarily by management.

18. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
CVP Income Statement
(Variable Costing)
Total
Unit
I. Sales
5.000 10
II. Variable Costs (-)
Variable Prod. Costs
Other Variable Costs
1.000
100
2,2
Net Contribution Margin
3.900
7,8
III. Fixed Costs (-)
Fixed Production Costs
Other Fixed Costs
(2.847)
2.250
597
Operating Profit/Loss
1.053
The contribution margin format emphasizes cost behavior. Contribution margin covers fixed costs and provides for income.

19. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Sales – Variable Costs – Fixed Costs = Operating Income
Total Sales
Variable Cost
Total Fixed Cost
Operating Income
Selling Price Per Unit x Units Sold
Variable Cost Per Unit x Units Sold
Total Fixed Cost
Set to ZERO
Start by expressing income in equation form:
At the breakeven point, operating income is zero.
Be sure to check your calculations.
“Prove” the breakeven point by substituting the breakeven number of units into the income statement.
Then check to ensure that this level of sales results in zero profit.
Solve for units sold
Breakeven Point

20. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- What is the Breakeven point for quantity of sales?
Sales – Variable Costs – Fixed Costs = Operating Income
Total Sales
5.000 TL
Variable Cost
1.100 TL
Total Fixed Cost
2.847 TL
Operating Income
1.053 TL
Selling Price Per Unit x Units Sold
10 x 365 unit
Variable Cost Per Unit x Units Sold
2,2 x 365 unit
Total Fixed Cost
2.847 =0
Start by expressing income in equation form:
At the breakeven point, operating income is zero.
Be sure to check your calculations.
“Prove” the breakeven point by substituting the breakeven number of units into the income statement.
Then check to ensure that this level of sales results in zero profit.
𝑃𝑟𝑜𝑓𝑖𝑡= 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠− 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡+𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 𝑥=𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
𝑃𝑟𝑜𝑓𝑖𝑡=10 𝑥−2,2𝑥−2.847
𝑥= ,8
0=10𝑥−2,2𝑥−2.847
𝒙=𝟑𝟔𝟓 𝒖𝒏𝒊𝒕
2.847=10 𝑥−2,2𝑥
2.847=(10 −2,2) 𝑥

21. CVP Income Statement (Variable Costing)
Cost-Volume-Profit (CVP) Analysis Income Statement Approach- What is the Breakeven point for amount of sales?
CVP Income Statement (Variable Costing)
Total %
Unit
I. Sales
5.000
100 10
II. Variable Costs (-)
Variable Prod.Costs
Other Variable Costs
1.000
2,2
Contribution Margin
3.900
0,78
7,8
III. Fixed Costs (-)
Fixed Production Costs
Other Fixed Costs
(2.847)
2.250
597
Operating Profit/Loss
1.053 %0
Contribution Margin
Contribution Margin Ratio
Start by expressing income in equation form:
At the breakeven point, operating income is zero.
Be sure to check your calculations.
“Prove” the breakeven point by substituting the breakeven number of units into the income statement.
Then check to ensure that this level of sales results in zero profit.
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜= 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠−𝑇𝑜𝑡𝑎𝑙 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
𝑃𝑟𝑜𝑓𝑖𝑡=𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 𝑥 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠−𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
→𝑆𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 0 𝑓𝑜𝑟 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑃𝑜𝑖𝑛𝑡
𝑥= ,78 → 𝑥=3.650 𝑇𝐿
0=0,78 𝑥−2.847 𝑥=𝑆𝑎𝑙𝑒𝑠 𝑇𝐿

22. CVP Income Statement (Variable Costing)
Cost-Volume-Profit (CVP) Analysis Income Statement Approach- What is the Breakeven point for amount of sales?
CVP Income Statement (Variable Costing)
Total
I. Sales
3.650
II. Variable Costs (-)
Variable Prod.Costs
Other Variable Costs
730 73
(803)
Contribution Margin
2.847
III. Fixed Costs (-)
Fixed Production Costs
Other Fixed Costs
2.250
597
(2.847)
Operating Profit/Loss
1.053
Start by expressing income in equation form:
At the breakeven point, operating income is zero.
Be sure to check your calculations.
“Prove” the breakeven point by substituting the breakeven number of units into the income statement.
Then check to ensure that this level of sales results in zero profit.

23. Cost-Volume-Profit (CVP) Analysis Income Statement Approach
Breakeven Point is sales level at which operating income is zero.
In order to use in management decision total cost will be ascertained according to Variable Costing Method.
The «Contribution Margin» will be used to compute the breakeven point on the base of units (sales quantity).
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 (𝒇−𝒂) x=units sold
The «Contribution Margin Ratio» will be used to compute the breakeven point on the base of sales TL (sales amount).
𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐= 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔−𝑻𝒐𝒕𝒂𝒍 𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝑪𝒐𝒔𝒕 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐 x= Sales TL.
Start by expressing income in equation form:
At the breakeven point, operating income is zero.
Be sure to check your calculations.
“Prove” the breakeven point by substituting the breakeven number of units into the income statement.
Then check to ensure that this level of sales results in zero profit.

24. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example 2
Example 2 (KB A.12.6): The financial information of a company for the year 20X1 are as follows: TL
Net Sales
 4.000
Direct Material (variable)
 1.800
Direct Labor (variable)
 700
Factory Overhead
- Variable ?
- Fixed
Total Net Contribution Margin
650
Marketing and Selling Cost
250
Gross Sales Profit
700
Operating Profit
300
Required:
Ascertain the cost of goods sold on the base of Absorption Costing Method.
Ascertain the cost of goods sold on the base of Variable Costing Method.
Compute gross contribution margin
Compute the Breakeven Point.

25. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Required: a) Ascertain the cost of goods sold on the base of Absorption Costing Method.
Income Statement (Absorption Costing)
I. Sales
4.000
II. Cost of Goods Sold (-)
(3.300)
Direct Material Cost
1.800
Direct Labor Cost
700
Factory Overhead
800
Variable ?
Fixed
Gross Profit/Loss
III. Operating Expenses (-)
(400)
Mark.and Selling Exp.
250
150
300

26. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Required: b) Ascertain the cost of goods sold on the base of Variable Costing Method.
c) Compute gross contribution margin.
Income Statement (Variable Costing)
I. Sales
4.000
II. Variable Cost of Goods Sold (-)
(3.100)
Direct Material Cost
(1.800)
Direct Labor Cost
(700)
Factory Overhead
Variable
600
Gross Contribution Margin
900
III. Variable Operating Expenses (-)
(250)
Mark.and Selling Exp.
Total Net Contribution Margin
650

27. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Required: Ascertain the Total Fixed Costs?
Income Statement (Absorption Costing)
I. Sales
4.000
II. Cost of Goods Sold (-)
Direct Material Cost
1.800
Direct Labor Cost
700
Factory Overhead
800
Variable
600
Fixed
200
Gross Profit/Loss
III. Operating Expenses (-)
(400)
Mark.and Selling Exp.
250
150
300

28. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Required: d) Compute the Breakeven Point.
𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐= 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔−𝑻𝒐𝒕𝒂𝒍 𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝑪𝒐𝒔𝒕 (𝑵𝒆𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏) 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐 x= Sales TL
𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐= 𝟒.𝟎𝟎𝟎−𝟑.𝟑𝟓𝟎 𝟒.𝟎𝟎𝟎 =𝟎,𝟏𝟔𝟐𝟓
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝟑𝟓𝟎 𝟎,𝟏𝟔𝟐𝟓 x= Sales TL
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝟑𝟓𝟎 𝟎,𝟏𝟔𝟐𝟓 =𝟐.𝟏𝟓𝟑,𝟖𝟓→ 𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳

29. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Example (KB A.9.4) The Income Statement of ABC Co. is as follows:
Total Sales
5.000
Cost of Goods Sold
(1.500)
Gross Sales Profit
3.500
Operating Cost
-2.300
- Wages
1.200
- Rent
600
- Sales Premium (%10)
500
Operating Profit
Required:
Determine the level of activity (volume)
Compute the Total Cost Function
The sales target of the Company is 500 TL next year for January. Compute the total cost and profit of January.

30. Cost-Volume-Profit (CVP) Analysis Income Statement Approach- Example
Example 1 (KB A.9.4) The Income Statement of ABC Co. is as follows:
Total Sales
5.000
Cost of Goods Sold
(1.500)
Variable
Total Variable Cost
2.000
Gross Sales Profit
3.500
- Cost of Goods Sold
Operating Cost
-2.300
- Sales Premium
- Wages
1.200
Fixed
Total Fixed Cost
1.800
- Rent
600
- Sales Premium (%10)
500
Operating Profit
Determine the level of activity (volume) Level of Activity is Total Sales
Compute the Total Cost Function 𝑻𝑪=𝒂𝒙+𝒃 →𝑻𝑪=𝟎,𝟒𝒙+𝟏.𝟖𝟎𝟎
The sales target of the Company is 500 TL next year for January. Compute the total cost and profit of January.
𝑻𝑪 𝒂𝒏𝒏𝒖𝒂𝒍 =𝟎,𝟒𝒙+𝟏.𝟖𝟎𝟎 → 𝑻𝑪 𝒎𝒐𝒏𝒕𝒉 =𝟎,𝟒 𝟓𝟎𝟎 +𝟏𝟓𝟎 →𝑻𝑪=𝟑𝟓𝟎
𝑷𝒓𝒐𝒇𝒊𝒕=𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔−𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝑷𝒓𝒐𝒇𝒊𝒕=𝟓𝟎𝟎−𝟑𝟓𝟎=𝟏𝟓𝟎 𝑻𝑳

31. Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach
𝑷𝒓𝒐𝒇𝒊𝒕=𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆−𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆=𝒇 ∗𝒙 →𝒙=𝒗𝒐𝒍𝒖𝒎𝒆, 𝒇=𝒖𝒏𝒊𝒕 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆
𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕=𝒂𝒙+𝒃
𝑷𝒓𝒐𝒇𝒊𝒕=𝒇𝒙−𝒂𝒙 −𝒃
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒙 −𝒃 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒇 𝒙 −𝒃 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑼𝒏𝒊𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 (𝒇−𝒂) = 𝒃 𝒇−𝒂 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑼𝒏𝒊𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐 = 𝒃 𝒇−𝒂 𝒇 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳

32. Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach -Target Profit
The contribution margin approach can be used to determine the units sold for a target profit.
What is the units sold point to achive the target profit?
𝑷𝒓𝒐𝒇𝒊𝒕+𝒃= 𝒇−𝒂 𝒙
𝒙= 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃 (𝒇−𝒂) →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒙 −𝒃 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
𝑷𝒓𝒐𝒇𝒊𝒕+𝒃= (𝒇−𝒂) 𝒇 𝒙
𝒙= 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃 𝒇−𝒂 𝒇 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒇 𝒙 −𝒃 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳

33. Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach -Target Profit
The contribution margin approach can be used to determine the units sold for a target profit.
What is the units sold point to achieve the target profit?
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒙 −𝒃
𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
𝑷𝒓𝒐𝒇𝒊𝒕+𝒃= 𝒇−𝒂 𝒙
𝒙= 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃 (𝒇−𝒂) →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
What is the sales level (TL) to achieve the target profit?
𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒇 𝒙 −𝒃
𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳
𝑷𝒓𝒐𝒇𝒊𝒕+𝒃= (𝒇−𝒂) 𝒇 𝒙
𝒙= 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃 𝒇−𝒂 𝒇 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳

34. Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach -Target Profit-Example
Example (K.B A.10.2): Total fixed cost of ABC Co. is TL and unit variable cost is 80 TL. The unit price is 100 TL. Tax rate is 20% and the net profit after tax for the year 20X TL. Required: Compute breakeven point in units and the sales unit for the year 20X1.
𝑋 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 = 𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 𝑈𝑛𝑖𝑡 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 (𝑓−𝑎) = 𝑏 𝑓−𝑎 →𝑥=𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
𝑋 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 = (100−80) = 𝑢𝑛𝑖𝑡 →𝑥=𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
𝑃𝑟𝑜𝑓𝑖𝑡+𝑏= 𝑓−𝑎 𝑥
𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥=𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡+𝑇𝑎𝑥
𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥= (𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥∗0,2)
𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥= ,80 =800.00
𝑃𝑟𝑜𝑓𝑖𝑡+𝑏= 𝑓−𝑎 𝑥 𝑥= 𝑃𝑟𝑜𝑓𝑖𝑡+𝑏 (𝑓−𝑎) 𝑥= (100−80) = 𝑢𝑛𝑖𝑡𝑠

35. Cost-Volume-Profit (CVP) Analysis Graphing CVP Relationship
Viewing CVP relationships in a graph gives managers a perspective that can be obtained in no other way. Consider the following information for ABC Co.:

36. Cost-Volume-Profit (CVP) Analysis Graphing CVP Relationship
Fixed expenses

37. Cost-Volume-Profit (CVP) Analysis Graphing CVP Relationship
Total expenses
Fixed expenses

38. Cost-Volume-Profit (CVP) Analysis Graphing CVP Relationship
Total expenses
Fixed expenses

39. Cost-Volume-Profit (CVP) Analysis Graphing CVP Relationship
Total sales
Total expenses
Fixed expenses

40. Cost-Volume-Profit (CVP) Analysis Graphing CVP Relationship
Total sales
Profit area
Break-even
point
Total expenses
Fixed expenses
Loss area