Cost Volume Profit (Cvp) Analysis

432 words - 2 pages

 Cost-Volume-Profit (CVP) Analysis
Shanica N. Todd-Higgins
ACC/561 - ACCOUNTING
Instructor: DAVID DUREN
Schedule: 06/29/2015 - 08/03/2015
Campus: COLUMBIA SOUTH CAROLINA CAMPUS
Group ID: SCMBA0914

CVP - What If Analysis
Through research, according to Diane Wicks (2015), “Cost-volume-profit (CVP) analysis is used to assess the impact of potential changes in costs and volume on a company's operating profit and net profit. CVP analysis is also useful in making decisions regarding pricing of products, selection of product lines and utilization of production equipments. Additionally, CVP is at the heart of methods used for calculating the break-even point and sales levels necessary to attain ...view middle of the document...

For example, a small company with annual fixed costs of $7,000 in rental payments, $3,000 in equipment leases and $30,000 in administrative salaries would have TFC of $40,000. Next, calculate the contribution margin per unit by subtracting the variable cost per unit from the sales price per unit. For example, if a small company's product sells for $60 per unit with variable costs per unit of $20, the contribution margin per unit would be $40. Then, plug the TFC and contribution margin figures into the formula: BEP (in units) = TFC/contribution margin per unit. In this example, the small company's BEP would equal $40,000/$40, or 1,000 units. Next, determine the break-even point from the calculation. Using the previous example, the small business must sell 1,000 units to break even and avoid a loss.”

Reference
Adkins, W. (2015). What Is the Meaning of "Breaking Even" in Accounting Terms? Read more :
http://www.ehow.com/about_5313189_meaning-breaking-even-accounting-t erms.html. Retrieved from http://www.ehow.com/about_5313189_meaning-breaking-even-accounting-terms.html
Ballard, Z. (2015). How to Calculate a Break-Even Point in Units Read more :
http://www.ehow.com/how_2363740_calculate-breakeven-point-units.html. Retrieved from http://www.ehow.com/how_2363740_calculate-breakeven-point-units.html
Wicks, D. (2015). Assumptions That Underlie Cost-Volume-Profit Analysis Read more :
http://www.ehow.com/info_8425479_assumptions-underlie-costvolumeprofit-analysis.html. Retrieved from http://www.ehow.com/info_8425479_assumptions-underlie-costvolumeprofit-analysis.html

Read more : http://www.ehow.com/info_8425479_assumptions-underlie-costvolumeprofit-analysis.html

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