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Cost Volume Profit

Cost Volume Profit

The breakeven point for various sales volumes and price structures is explored by the cost-volume-profit analysis, also called the “breakeven analysis,” which may be helpful for managers making immediate business choices.

The sales price, fixed costs, and variable costs per unit are among the many presumptions made by CVP analysis. For price, cost, and other factors, a CVP analysis uses a variety of equations, which it then shows on an economic graph.

The breakeven point can even be determined using the CVP formula. The breakeven point is the quantity of units that must be sold, or the number of sales needed to offset the prices related to producing the goods. The formula for CVP breakeven sales volume is:

The Breakeven Sales Volume is = FC/C

where:

FC=Fixed costs.

C= Contribution Margin = Sales – Variable Costs

Margin for product contribution is additionally managed by CVP analysis. The difference between total revenues and total variable costs is the contribution margin. The contribution margin must be greater than the full fixed costs for a business to be profitable.

It’s also possible to work out the contribution margin per unit. The balance left over after deducting the unit variable cost from the unit sales price is thought to be the unit contribution margin.

The contribution margin ratio is obtained by dividing the contribution margin by total sales.

 

 

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