COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
Ing. Markéta Skupieňová, Ph.D.
MANAGERIAL ACCOUNTING/NANMU

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
COST-VOLUME-PROFIT (CVP) ANALYSIS
•CVP analysis, together with cost behavior information, helps managers perform many useful
analyses.
•
•More specifically, it looks at the effects on profits of changes in such factors as variable
costs, fixed costs, selling prices, volume, and mix of products sold.
•
•By studying the relationships among costs, sales and net income, management is better able to cope
with many planning decisions.

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
BREAK-EVEN ANALYSIS
•Break-even analysis, a branch of CVP analysis, determines the break-even sales, which is the level
of sales at which total costs equal total revenue.

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
QUESTIONS ANSWERED BY CVP ANALYSIS
CVP analysis tries to answer the following questions:
•What sales volume is required to break even?
•What sales volume is necessary in order to earn a desired profit?
•What profit can be expected on a given sales volume?
•How would changes in selling price, variable costs, fixed costs,m and output affect profits?
•How would a change in the mix of products sold affect the break-even and target income volume and
profit potential?

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
CONTRIBUTION MARGIN (CM)
•The contribution margin is the excess of sales (S) over the variable costs (VC) of the product.
•
•It is the amount of money available to cover fixed costs (FC) and to generate profits.
•
•
•CM = sales (S) – variable costs (VC)

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
UNIT CONTRIBUTION MARGIN (CM)
•The unit contribution margin is the excess of the unit selling price (p) over the unit variable
cost (v)
•
•
•
•Unit CM = unit selling price (p) – unit variable cost (v)

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
CONTRIBUTION MARGIN RATIO (CM ratio)


COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
BREAK-EVEN ANALYSIS
•The break-even point, the point of no profit and no loss, provides managers with insights into
profit planning.
•
•It can be computed in three different ways:
•
1.The equation approach
2.The contribution approach
3.The graphical approach

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
BREAK-EVEN POINT – THE EQUATION APPROACH
•The equation approach is based on the cost-volume equation, which shows the relationships among
sales, variable and fixed costs, and profit.
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•S = VC + FC + profit
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•At the break-even volume:
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•S = VC + FC + 0
•
•or
•
•Profit = S – VC – FC
•0 = P*Q – v*Q – FC

COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
BREAK-EVEN POINT – THE CONTRIBUTION MARGIN APPROACH


COST-VOLUME-PROFIT AND BREAK-EVEN ANALYSIS
MARGIN OF SAFETY (MS)


Thank you for your attention.