Module+5000+XIV.+Additional+Websites+and+Videos

XIV. Module 5000 Additional Websites and Videos MJH

http://simplestudies.com/accounting-cost-volume-profit-analysis.html

Great lecture on contribution margin and cost volume profit.

The beginning of the lecture is below.


 * Cost-volume-profit (CVP) analysis; equation technique and contribution margin technique; break-even point and sales for desired income; graphical interpretation of CVP analysis; margin of safety and limitations of CVP analysis.**

1. Cost-volume-profit (CVP) analysis
We can illustrate the purpose of cost-volume-profit (CVP) analysis by using an imaginary start-up Friends Company, a valve producer. When you and your friend were thinking of setting up the business, you were probably eager to have answers to the following questions:

Using CVP analysis, we can answer these questions. So what is CVP analysis? CVP analysis may be helpful for the following tasks: CVP analysis requires certain information to be available before analysis can be performed. The information needed in CVP analysis is as follows:
 * What level of sales is necessary to cover all expenses?
 * How many valves should be sold in order to earn a planned profit?
 * What will happen to profit if we change the selling price?
 * How will changes in variable costs or fixed costs impact planned profits?
 * What valve types should we produce and sell more of to gain the maximum profit?
 * Cost-volume-profit (CVP) analysis** helps determine how changes in costs and volume affect a company's profits.
 * 1) To forecast profit by considering the relationship between cost and profit on one hand, and production volume on the other
 * 2) To prepare a flexible budget showing costs at different levels of production
 * 3) To help evaluate a start-up operation
 * 4) To evaluate performance for the purpose of benchmarking and control
 * 5) To set pricing policies by projecting the effect of different price structures on cost and profit
 * Amounts of variable and fixed costs
 * Sales price per unit
 * Desired level of profit (or loss)

2. Equation technique and contribution margin technique in CVP analysis
Two techniques are used in CVP analysis. They are the //equation technique// and the //contribution margin technique//. We will review them separately. Also note that CVP analysis can be applied to single-product or multiple-product scenarios.