CVP DS FINAL

8/7/2019 CVP DS FINAL

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GROUP MEMBERS Sharon Francis 50

Juanita Dsouza 23

Ruth Jacob 46

Cassandra Dsouza 11

Sushrut Sawant 55

Joffine Joseph 22


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FLOW OF PRESENTATION Introduction

Basic concepts

Margin of Safety Uses

Assumptions

Limitations Case Study 1

Case Study 23


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INTRODUCTIONCost-Volume-Profit (CVP) Analysis

Technique that examines changes in profits inresponse to changes in sales volumes, costs, and

prices

Helps to estimate future revenues, costs, and

profits in order to plan and monitor operations

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Basic Concepts

Contribution margin

Contribution margin per unit

Contribution margin ratio(CMR) or P/V Ratio

Breakeven point

In case of single products

In case of multiple products

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Margin of Safety The excess of an organizations expected future sales above the

breakeven point.

Can also be expressed in percentage

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Uses Of CVPo Calculation of expected sales and desired

profit.

o

Decisions related to expansiono Product pricing

o Comparision of different production units.

o Estimating the future cost

o Analysing the product mix and changing itaccording to profit.

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ASSUMPTIONSo All costs can be analysed into their fixed and

variable elements.

o

Fixed costs remain fixed even over a widerange of activity.

o Selling prices are constant per unit.

o Only levels of activity affect costs and

revenues

o Uncertainty does not exist.

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Limitations of CVP Analysis

Assumed that what is produced is sold

Units Sold = Units produced

Assumes that fixed and variable costs can be accuratelyidentified.

Selling prices and costs are assumed to be known withcertainty.

Inventory levels remain same.

Decisions by sales staff and marketing personnel maylead to low profits or loss.


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CASE 1

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CASE 2


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The owner of The Spotted Cow Creamery hasseveral profitable stores. He asked the storemanagers to provide information about theirsales mix

The amount of beverage versus ice creamproducts sold

Beverages provide a much larger contributionmargin than ice cream.

After analyzing the data, they found that abouthalf of the revenues in the most profitable storeswere for the sale of beverages


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these stores have more stable salesthroughout the winter because they sell

specialty coffee beverages as well assoft drinks.


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Spotted Cow Creamery


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Spotted Cow CreameryCurrent Sales mix Desired Sales mix


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THANK YOU

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CVP DS FINAL

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