Question

Cost-volume-profit, what steps are taken to arrive at the calculation? And following the calculation, how do you provide the analysis to explain the calculations?

Answer 1

ANSWER=

DEFINATION OF COST-VOLUME-PROFIT (CVP) -

Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit. The cost-volume-profit analysis, also commonly known as break-even analysis, looks to determine the break-even point for different sales volumes and cost structures, which can be useful for managers making short-term economic decisions.

FOLLOWING ARE STEP TO ARRIVE AT CALCULATION WITH THE HELP OF AN EXAMPLE-

CVP analysis is conducted to determine a revenue level required to achieve specified profit.

ITEMS	AMOUNT	% OF INCOME
Sales(20units * $5)	$100	(100%)
Less- variable cost (20units * $3)	($60)	(60%)
Total contribution margein	$40	(40%)
Less- Fixed cost	($30)	(30%)
Total opreating income	$10	(10%)

THUS, FROM ABOVE EXAMPLE WE DO ANALYSIS THE CALCULATIONS IN COST-VOLUME-PROFIT AS FOLLOWS-

First of all, The 1st item of above table i.e. "SALES"- we assume that the sales price per unit constant.or the sale meanby the 'REVENUE' that is (units sold * price per unit)

AND , The 2nd item i.e. "VARIABLE COST" - The cost that varies with the level of output(sales) or the term that change in direct proportion in (%) of revenue(sales). here in example is 60%.

AND,3rd item "CONTRIBUTION MARGIN" - I.E. SALES - VARIABLE COST.

OR, CONTRIBUTION MARGIN PERCENTAGE(%) indicates the portion each dollar of sales generated to pay for fixed expenses.(in our example- each Dollar of sales generates $40, that is available to cover the fixed cost)

AND, 4tn item "FIXED COST"- meanby csot that is don't vary with sales over long term (eg. rent,insurance etc) in our example that is $30 fixed.

LAST ONE , "OPREATING INCOME"- is an amount of Profit realixed from such opreation.(i.e.10% of total sales )