Cvp Analysis
Measuring, Monitoring, and Motivating Performance
Cost Management
Chapter 3 Cost-Volume-Profit Analysis
Prepared by Gail Kaciuba Midwestern State University
© John Wiley & Sons, 2005 Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 1
Chapter 3: Cost-Volume-Profit Analysis
Learning objectives
• • • • • • Q1: What is cost-volume-profit (CVP) analysis, and how is it used for decision making? Q2: How are CVP calculations performed for a single product? Q3: How are CVP calculations performed for multiple products? Q4: What is the breakeven point? Q5: What assumptions and limitations should managers consider when using CVP analysis? Q6: How are the margin of safety and operating leverage used to assess operational risk?
Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 2
© John Wiley & Sons, 2005
Q1, Q4: CVP Analysis and the Breakeven Point • CVP analysis looks at the relationship between selling prices, sales volumes, costs, and profits. • The breakeven point (BEP) is where total revenue equal total costs.
$ BEP in sales $ Total Revenue (TR)
Total Costs (TC)
units BEP in units
© John Wiley & Sons, 2005 Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 3
Q1: How is CVP Analysis Used? • CVP analysis can determine, both in units and in sales dollars: • the volume required to break even • the volume required to achieve target profit levels • the effects of discretionary expenditures • the selling price or costs required to achieve target volume levels • CVP analysis helps analyze the sensitivity of profits to changes in selling prices, costs, volume and sales mix.
© John Wiley & Sons, 2005 Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 4
Q2: CVP Calculations for a Single Product
Units required to F + Profit achieve target = Q = P -V pretax profit where F = total fixed costs P = selling
Cost Management
Chapter 3 Cost-Volume-Profit Analysis
Prepared by Gail Kaciuba Midwestern State University
© John Wiley & Sons, 2005 Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 1
Chapter 3: Cost-Volume-Profit Analysis
Learning objectives
• • • • • • Q1: What is cost-volume-profit (CVP) analysis, and how is it used for decision making? Q2: How are CVP calculations performed for a single product? Q3: How are CVP calculations performed for multiple products? Q4: What is the breakeven point? Q5: What assumptions and limitations should managers consider when using CVP analysis? Q6: How are the margin of safety and operating leverage used to assess operational risk?
Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 2
© John Wiley & Sons, 2005
Q1, Q4: CVP Analysis and the Breakeven Point • CVP analysis looks at the relationship between selling prices, sales volumes, costs, and profits. • The breakeven point (BEP) is where total revenue equal total costs.
$ BEP in sales $ Total Revenue (TR)
Total Costs (TC)
units BEP in units
© John Wiley & Sons, 2005 Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 3
Q1: How is CVP Analysis Used? • CVP analysis can determine, both in units and in sales dollars: • the volume required to break even • the volume required to achieve target profit levels • the effects of discretionary expenditures • the selling price or costs required to achieve target volume levels • CVP analysis helps analyze the sensitivity of profits to changes in selling prices, costs, volume and sales mix.
© John Wiley & Sons, 2005 Chapter 3: Cost-Volume-Profit Analysis Eldenburg & Wolcott’s Cost Management, 1e Slide # 4
Q2: CVP Calculations for a Single Product
Units required to F + Profit achieve target = Q = P -V pretax profit where F = total fixed costs P = selling