Cost volume proft analysis CVP Flashcards
Define the concept of CVP
*Cost volume profit analysis is performed to determine the relationship between sales ,costs and net proft
*it gives managemnet an indication of the impact a change on sales volume will have on profts
*its important for short term decision making as it will assist management is making decisions about the numb er of units to be produced
in cost behviour explain fixed cost and variable cost
fixed cost -is a cost that remains unchanged regardless of the activity level in a relevant range
variable cost-the cost that will change with the change in the activity level
how do we calculate cvp analysis
*sales - variables-fixed costs =proft/loss OR
*sales - total costs= proft/loss
Explain the full concept of break even point
*refers to that point where income is equal to the costs and where no ptoft or loss will be made
*break even point = fixed cost divided by contribution per unit
*management will want to know how much break even point would be in sales value called break even point in sales revenue
-first take the break even point in units and multiply it by the selling price per unit
-the break even point in sales revenue =fixed cost divided by contibution margin ratio
how to calculate targeted profit
units to be sold = fixed cost +target profit divided by contribution per unit