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

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: MANAGING COSTS AND PROFITS (MCP) C-V-P COST-VOLUME-PROFIT ANALYSIS 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 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. 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. 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 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 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; COST-VOLUME PROFIT ANALYSIS ASSUMPTIONS The only factor affecting costs and revenues is volume;...
View Full Document

Page1 / 32

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

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online