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    Ppt 5

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    Ppt 5

    Copyright:

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    Download as pptx, pdf, or txt
    1 views12 pages

    5

    Uploaded by

    Bin Saadun
    Ppt 5

    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 12

    5

    PM 15 DAYS REVISION CRASH


    COURSE
    Cost Volume Profit
    Analysis
    BY SABI AKTHER 1
    What to focus on?

    • Breakeven/CVP analysis.

    • Basic breakeven chart.

    • Contribution breakeven chart.

    2
    Breakeven/CVP Analysis

    Contribution = Sales price – Variable costs

    Breakeven point =

    Breakeven sales revenue =

    Output required for target profit =

    3
    Breakeven/CVP Analysis

    Sales revenue required for target profit =

    Margin of safety = Budgeted level of activity – Breakeven level of activity

    Margin of safety (%) = x 100%

    4
    Breakeven Chart
    Breakeven point: the point where:

    total costs = total sales revenue

    & where there is neither a profit or loss

    Breakeven
    point es ue FIT
    a l n RO
    S eve P
    £ R l
    Tota s
    t
    C os
    Fixed Costs
    O SS
    L

    5
    Output
    Contribution Breakeven Chart

    Advantage of this chart: Contribution can be read directly from the chart

    Breakeven
    e
    point l es nu FIT Contribution
    Sa eve PRO
    £ R
    l
    Tota s Fixed Costs
    t
    C os

    O SS
    L
    o st s
    e C
    Var i ab l
    6
    Output
    Contribution Breakeven Chart

    Multi-product breakeven analysis

    The calculation of breakeven point in a multi-product firm follows the same pattern
    as in a single product firm. While the numerator will be the same fixed costs, the
    denominator now will be the weighted average contribution margin

    In multi-product situations, a weighted average C/S ratio is calculated by using the


    formula:

    Weighted Average C/S ratio =

    7
    Contribution Breakeven Chart

    The Weighted Average C/S ratio is useful in its own right, as it tells us what
    percentage each $ of sales revenue contributes towards fixed costs; it is also
    invaluable in helping us to quickly calculate the breakeven point in sales revenue:

    Breakeven revenue =

    8
    Contribution Breakeven Chart
    Step 1 : Calculate the C/S ratio of each product being sold, and rank the
    products in order of profitability.

    Step 2 : Draw the graph, showing cumulative sales on the x-axis.

    Step 3 : Draw the line that represents the profit earned by product X.

    Step 4 : Draw the line that represents the profit earned by product y, which has
    a lower contribution per unit than product X.

    Step 5 : Draw the line joining the first and last points: it reflects the average
    profitability of the three products, and each point on that line represents the
    profit earned for the associated output, assuming that the three products are
    sold in the standard product mix, i.e. the mix implied in the construction of the
    9
    chart.
    Contribution Breakeven Chart

    10
    Exam Focus
    Questions to attempt from revision kit

    Constructed Response
    Objective Case Questions
    Questions

    Cardio Co (December 2015) Chocolates Are Forever


    Hare Events (December 2016 Mango Leather
    Breakeven
    EC Ltd
    Health Nuts (Dec/Sept 2020)

    11
    Thank You for Watching!!

    12

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