1. Cost Volume Profit Analysis
Lecture-29
Main Ahmad Farhan

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

3. Contribution Margin
Contribution Margin = Sales – Variable cost

4. 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

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

6. 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,
Fixed cost (2,250) 0
Profit / Loss
10,000
(7,500)
2,500
2,250)
250

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

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

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

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

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

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

13. 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 ***