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cvp - MANAGING COSTS AND PROFITS(MCP C-V-P...

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MANAGING COSTS AND PROFITS (MCP)
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C-V-P COST-VOLUME-PROFIT ANALYSIS
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Coverage Cost-volume-profit analysis Fixed, variable and semi-variable costs Relevant range Contribution margin Break-even points – volume, sales, selling price Margin of safety Operating leverage Sensitivity analysis Indifference curve Segment profitability
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COST-VOLUME PROFIT ANALYSIS Is based on the relationship between sales/ revenue, costs and profits in the short-term (up to one year) or within the relevant range. The concept of relevant range is vital because CVP relationships are not constant throughout all ranges of output.
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COST-VOLUME PROFIT ANALYSIS RELEVANT RANGE A RANGE OF VOLUME OR ACTIVITY OVER WHICH ONE CAN REASONABLY EXPECT SELLING PRICE, VARIABLE COST AND TOTAL FIXED COST TO BE CONSTANT.
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COST-VOLUME PROFIT ANALYSIS It helps in understanding the interrelation- ship between cost, volume, and profit in an organization by focusing on the interaction between the following elements: Prices of products Volume or level of activity Variable cost Fixed costs Product Mix
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COST-VOLUME PROFIT ANALYSIS It also helps owners and managers decide on: What products to manufacture or sell, What type of cost structure and pricing policy to follow, What marketing strategy to employ, What type of productive facilities to acquire, How much financial resources would be required, and How to motivate people to perform
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COST-VOLUME PROFIT ANALYSIS ASSUMPTIONS All costs can be classified into fixed and variable; Fixed costs will remain constant and variable costs vary with activity; Over the relevant range being considered, costs and revenues behave in a linear fashion;
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COST-VOLUME PROFIT ANALYSIS
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