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CVP- INTRODUCTION
m Effect of output volume on revenue, expenses and
net income.

m The five basic components in CVP analysis are:-

(1) volume or level of activity,
(2) Unit selling prices,
(3) variable cost per unit,
(4) total fixed cost and,
(5) sales mix.
USAGE OF CVP ANALYSIS IN
MANAGERIAL DECISION

m Product pricing
m Accepting / rejecting sales orders
m What product lines to promote?
m What level of output is required to achieve a
set level of net profit?
m Feasibility of profit plan
m Technology usage
ASSUMPTIONS OF CVP

m The assumption underlying CVP analysis are:-

All units produced are sold
Costs can be classified accurately as either
fixed or variable.
Changes in activity are the only factors that
affect costs.
When a company sells more than one type of
product, the sales mix will remains constant.
OBJECTIVES OF CVP ANALYSIS

m To ascertain the cost and profit relationship

on one hand and volume on other.
m Setting flexible budget indicating cost at
various level of activities.
m Evaluates performance for the purpose of
control.
m Provides assistance in pricing policies.
 DIRECT AND INDIRECT COST
‡ p
- are costs that can easily be
associated with a particular cost object.

‡

-are cost that are not directly
associated with a particular cost object.
 VARIABLE AND FIXED COST

‡ Ô are defined as expenses that do not

change as a function of the activity of a
business, within the relevant period.

‡ 
 are expenses that change in

proportion to the activity of a business.
TECHNIQUES

m Broadly CVP analysis uses the

techniques of:-
Break even analysis and
Profit ± Volume (P/V) analysis
 Cost-Volume-Profit Graph
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m Contribution margin is equal to the difference

between total revenue and total variable costs
m Contribution margin per unit =
Selling price - Variable cost per unit
BREAK EVEN ANALYSIS

m It indicates at what level of output cost and

revenue is equal.
m Point where operating income is equals to
zero.
m Breakeven point in units =
Fixed costs / Contribution margin per unit
m Breakeven point in rupees =
Fixed costs / (P-V)/P
OBJECTIVE OF OUR STUDY

m To study the Cost Volume And Profit

Analysis and its use.
m To understand the Sales Mix Ratio as tool
to calculate Break Even Analysis.
m To calculate the break even point of a
construction company named ³SHRI RAM
BUILDERS´.


m To Calculate the Variable Cost of one

Shop, Hall and Restaurant.
m To calculate the break even point using
sales mix ratio of Shri Ram Builders who
construct the multiple product.
METHODOLOGY

m The nature of the study is descriptive.

m We conducted a study to calculate the break
even point of the construction company who
is producing multiple product.
m We collected our data from Shri Ram
Builders.
m We collected all the details of their one of a
project; project life was 3 years.
Cont..

m Details include variable, fixed cost and

selling price.
m Then we found variable cost of one unit of
multiple product.
m Then we calculated contribution margin of
multiple product.
m We used Cost Volume and Profit Analysis as
our costing technique for calculating break
even point of multiple product.
DATA ANALYSIS

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