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3/02/2008 11:51:00 AM
Phân tích C-V-P
タオ チューン
Cost Volume Profit Analysis
Cost-volume-profit analysis, popularly referred to as break-even analysis, is an important tool of profit planning.
Basic Assumptions:
A simple tool for profit planning and analysis, cost-volume-profit analysis is based on some assumptions. Effective use of such analysis calls for an understanding of these assumptions which are discussed below:
Cost-volume-profit analysis may be carried out graphically or algebraically. We first deal with the graphic analysis and then with the algebraic. For our discussion, the following example will be used. The Smooth flow Company manufacturers a certain fountain pen. The fixed costs of the company are Rs 300,000 per year. The unit selling price (net) is Rs 8 and the unit variable cost is Rs 5. At present, the firm manufactures and sells 140,000 fountain pens.
Given the basic assumptions of cost-volume-profit analysis, the relationship between volume (quantity) and cost, and volume and revenues for the Smooth flow Company are shown. From this exhibit, we find that: (1) total revenues are less than total costs so long as the volume is less than 100,000 units, (2) total revenues and total costs are equal when the volume is 100,000 units and (3) the total revenues exceed total costs when the volume exceeds 100,000 units. The volume of 100,000 units, thus, represents the break even point.
The level of profit for a given level of volume is the difference between the total revenues and total costs corresponding to that volume. The relationship between profit and volume can, however, be studied more easily with the help of the profit-volume graph is shown derived from the cost-volume-profit graph, the profit-volume graph plots the differences between the total revenue lie and the total cost line of the cost-volume profit graph. The slope of the profit-volume line is simply the difference between the slopes of the total revenue line and the total cost line of the cost-volume-profit graph.
Source: citeman.com
Cost-volume-profit analysis, popularly referred to as break-even analysis, is an important tool of profit planning.
Basic Assumptions:
A simple tool for profit planning and analysis, cost-volume-profit analysis is based on some assumptions. Effective use of such analysis calls for an understanding of these assumptions which are discussed below:
- Predictability of Costs: The cost-volume-profit model is based on the assumption that the costs of the firm are divisible into two components: fixed costs and variable costs. Fixed costs remain unchanged for all ranges of output and variable costs vary proportionately to volume. Hence, the behavior of costs is predictable. For practical purposes, however, it is not necessary for these assumptions to be valid over the entire range of volume. If they are valid over the range of output within which the firm is most likely to operate, referred to as the relevant range, cost-volume-profit analysis is useful tool.
- Constancy of Unit Selling Price: This implies that the total revenue of the firm is a linear function of the output. For firms which have a strong market for their products, this assumption is quite valid. For other firms, however, it may not be so. Price reductions might be necessary to achieve a higher level of sales. On the whole however, this is a reasonable assumption and not unrealistic enough to impair the validity of the cost-volume-profit model, particularly in the relevant range of output.
- Stability of product Mix: In the case of a multi-product firm, the cost-volume-profit model assumes that the product mix of the firm remains stable. Without this premise, it is not possible to define the average variable profit ratio when different products have different variable profit ratios. While it is necessary to make this assumption, it must be borne in mind that the actual mix of products may differ from the planned one. Where this discrepancy is likely to be significant, cost-volume-profit model has limited applicability.
- No change in Inventory: A final assumption underlying the conventional cost-volume-profit model is that the volume of sales is equal to the volume of production during an accounting period. Put differently, inventory changes are assumed to be nil. This is required because in cost-volume-profit analysis, we match total costs and total revenues for a particular period.
Cost-volume-profit analysis may be carried out graphically or algebraically. We first deal with the graphic analysis and then with the algebraic. For our discussion, the following example will be used. The Smooth flow Company manufacturers a certain fountain pen. The fixed costs of the company are Rs 300,000 per year. The unit selling price (net) is Rs 8 and the unit variable cost is Rs 5. At present, the firm manufactures and sells 140,000 fountain pens.
Given the basic assumptions of cost-volume-profit analysis, the relationship between volume (quantity) and cost, and volume and revenues for the Smooth flow Company are shown. From this exhibit, we find that: (1) total revenues are less than total costs so long as the volume is less than 100,000 units, (2) total revenues and total costs are equal when the volume is 100,000 units and (3) the total revenues exceed total costs when the volume exceeds 100,000 units. The volume of 100,000 units, thus, represents the break even point.
The level of profit for a given level of volume is the difference between the total revenues and total costs corresponding to that volume. The relationship between profit and volume can, however, be studied more easily with the help of the profit-volume graph is shown derived from the cost-volume-profit graph, the profit-volume graph plots the differences between the total revenue lie and the total cost line of the cost-volume profit graph. The slope of the profit-volume line is simply the difference between the slopes of the total revenue line and the total cost line of the cost-volume-profit graph.
Source: citeman.com
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