Cvp analysis graph professional#

However, when we ask the question, ‘Will the company make a profit in that year?’ the answer is ‘We don’t know’. Company A may also have fixed costs of $200,000 per annum, which again, are fairly easy to predict. It can, therefore, say with some degree of certainty that the contribution per unit (sales price less variable costs) is $20. For example, Company A may know that the sales price for product X in a particular year is going to be in the region of $50 and its variable costs are approximately $30. Sales volume, however, is not usually so predictable and therefore, in the short-run, profitability often hinges upon it. The reason for the particular focus on sales volume is because, in the short-run, sales price, and the cost of materials and labour, are usually known with a degree of accuracy. The objective of CVP analysisĬVP analysis looks primarily at the effects of differing levels of activity on the financial results of a business. This type of analysis is known as ‘cost-volume-profit analysis’ (CVP analysis) and the purpose of this article is to cover some of the straight forward calculations and graphs required for this part of the Performance Management syllabus, while also considering the assumptions which underlie any such analysis.

One of the most important decisions that need to be made before any business even starts is ‘how much do we need to sell in order to break-even?’ By ‘break-even’ we mean simply covering all our costs without making a profit. While management accounting information can’t really help much with the crystal ball, it can be of use in providing the answers to questions about the consequences of different courses of action. The reality is, of course, that decisions such as staffing and food purchases have to be made on the basis of estimates, with these estimates being based on past experience. If the owners knew exactly how many customers would come in each evening and the number and type of meals that they would order, they could ensure that staffing levels were exactly accurate and no waste occurred in the kitchen. If only we could look into a crystal ball and find out exactly how many customers were going to buy our product, we would be able to make perfect business decisions and maximise profits. In any business, or, indeed, in life in general, hindsight is a beautiful thing.

Cvp analysis graph professional#

An introduction to professional insightsĬost-volume-profit analysis looks primarily at the effects of differing levels of activity on the financial results of a business.

Support for students and affiliates in Singapore.

Virtual classroom support for learning partners.

Becoming an ACCA Approved Learning Partner.

Resources to help your organisation stay one step ahead.