Professional Documents
Culture Documents
CVP Analysis
&
Absorption Costing
Presented
by :-
Khushang
Desai
vidit
Bhavasar
What is cvp analysis?
CVP analysis deals with how costs and
profits change with a change in volume.
Management is better able to cope with
planning decisions.
CVP analysis examines the behavior of
total revenues, total costs and
operating income as change occur in
output level, selling price, variable costs
or fixed costs.
Continued……
qCVP analysis is one of most powerful
tools that managers have at their
command, it helps them understand
the interrelationship between cost,
volume and profit in an organization
by focusing on followings elements:-
qPrice of products
qVolume or level of activity
qVariable cost
qTotal fixed cost
qMix of product sold
Objectives of CVP analysis
qIt is essential to ascertain the
relationship between cost and profit on
one hand and volume on the other.
q
SP*X=TFC+(V*X)
X = TFC/SP-V
X is break even
SP is selling price
V is variable cost
TFC is total fixed cost
CVP relationship in graph form
450,000
Break-even Total sales
400,000 point
e a
350,000 a r
i t
o f
Pr
300,000
250,000
Total expenses
Sales in
200,000
150,000
a Fixed expenses
100,000 r e
a
s s
o
50,000
L
-
- 100 200 300 400 500 600 700 800
Units
Sold
Application of CVP Analysis
q CVP can also be applied to decisions by
manufacturing, service and non-profit org.
q
q CVP can be useful in pricing decisions in
banking industry.
q
q Governmental agencies use the analysis to
determine the level of service appropriate for
projected revenues
q
q Real estate/construction ventures have used
this technique to explore pricing, lender
choice, and project scope options.
Part – 2
Absorption
Costing
Absorption costing:-
A costing technique
that includes all manufacturing
costs, in the form of direct
materials, direct labour, and
both variable and fixed
manufacturing overheads,
while determining the cost per
unit of a product. It is also
referred to as the full- cost
technique.
Costs are involve in absorption costing