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Cost-Volume-Profit Summary R79,33
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  3. University Of Cape Town (UCT)
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  5. Management Accounting (ACC2022H)

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Cost-Volume-Profit Summary
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Fixed and variable costs: Definitions and examples. Contribution margin: Calculating and interpreting the contribution margin per unit and ratio. Break-even analysis: Finding the break-even point in units and dollars. Target profit analysis: How to calculate the required sales volume to meet a p...

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  • September 15, 2024
  • 9
  • 2024/2025
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Cost Volume Profit

CVP used to determine how
analysis is
changes in
prices costs
·
,



and volume affert
company's operating income.
a




Break-even
·
point

TotalCosts = Total Revenue
Contribution towards
covering fixed costs
margin

Fixed Costs

Contribution
Margin per unit




=
Break-even units
-~>
Selling
Definition
unit-variable cost
price per per
.
unit
.




The formula can be
manipulated to calculate other numbers or factors .




At Break-even ,
total fixed costs
= Contribution
Margin

Importance
-



of break-even
point
Detection of loss
Risk of business operations .




Closer are to the BE the riskier the business
you , .




CVP
analysis assumptions
·




① All variables remain constant

②A single product
I
or constant sales mix

③ Total sales and Revenue are linear functions
① Profit is
↓ calculated using the variable

cost driver
costing system
Sales Volume is the only .

, ⑤ Costs can be
accurately divided into their fixed and variable
elements.
⑥ The
⑦
analysis only applies to relevant range a

It
only applies to the short-term .




⑤ All inventories
produced during the period sold within are that
period.

Contribution Margin Ratio


Total contribution fixed
margin-What
·
is available to .
pay
costs




Contribution margin
Revenue/Sales

Shows of rand of sales that is available
the
percentage
each


fixed
to costs and then make
profit
cover a .




e .




.
g
Milkshake business (Covered in Lecture)

CMR =
RIO
R15

= %
6667

>
-
This ratio is constant




Break-even Sales Not Units



· We want to know the sales amount needed to break-even



Fixed Costs Selling Price
simply
BEX
or
,
CM Ratio
↳ Used if
selling price isn't
given Units

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