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Cost Volume Profit Relationship (CVP Analysis):

  1. Contribution Margin:

    If all variable expenses are deducted from sales revenue the resulting figure is contribution margin or contribution margin is equal to sales revenue minus variable expenses (manufacturing and non-manufacturing). Click here to continue reading.

  2. Contribution Margin Ratio (CM Ratio):

    The contribution margin as a percentage of total sales is referred to as contribution margin ratio (CM Ratio). Click here to continue reading.

  3. Contribution Margin Income Statement:

    Contribution margin income statement is an income statement that is prepared to show the contribution margin figure in the income statement. A contribution margin income statement is prepared for the use of internal management. Click here to continue reading.

  4. Break-even Point Analysis:

    Break-even point is the level of sales at which profit is zero. At break even point total sales are equal to total cost (variable + fixed). Click here to continue reading.

  5. Target Profit Analysis:

    Management desires to achieve a specific amount of profit at the end of a business period. The net operating income or profit that management desires to achieve at the end of a business period is called target profit.

  6. Margin of Safety (MOS):

    The excess of actual or budgeted sales over the break even volume of sales is called margin of safety. At break even point costs are equal to sales revenue and profit is zero. Margin of safety, therefore, tells us the amount of sales that can be dropped before losses begin to be incurred. Click here to continue reading.

  7. Operating Leverage:

    Operating leverage is a measure of how sensitive net operating income is to percentage change in sales. Operating leverage is high near the break even point and decreases with the increase in sales and profit. Click here to continue reading.

  8. Break even Analysis with Multiple Products - Sales Mix:

    The term sale mix refers to the relative proportion in which a company's products are sold. The concept is to achieve the combination, that will yield the greatest amount of profits. Most companies have many products, and often these products are not equally profitable. Click here to continue reading.

  9. CVP Consideration in Choosing a Cost Structure:

    The relative proportion of fixed and variable costs in an organization is referred to as cost structure. An organization often has some latitude in trading off between these two types of costs. For example labor costs can be reduced by investments in automated equipments. Click here to continue reading.

  10. Importance of Cost Volume Profit (CVP) Analysis:

    The most profitable combination of variable cost, fixed cost, selling price and sales volume can be found with the help of cost volume profit analysis. Click here to continue reading.




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