CVP Costing | Breakeven assignment help | Contribution Margin

CVP Costing Assignment Help: CVP (cost-volume-profit) costing can be defined as a process of study the effects of changes in fixed cost, variable cost and output on future profit of the firm. It is an important part of the accounting process that is useful for managers to make short-term economic decisions. The main objectives of CVP costing are; determination of optimum selling price, profit planning, forecasting profits and setting up flexible budgets. It is also useful to determine at which output the company will earn a maximum profit (Hansen, Mowen & Guan, 2009).


The basic equation of CVP costing is as follows:


Profit = Selling price – variable costs – fixed costs Breakeven Assignment Help: Breakeven represents a point where sales revenue equals to total cost. In other words, it refers to a volume of sales at which firm neither earns profit nor loss. It is determined by conducting the breakeven analysis of a product or process. The calculation of breakeven is useful to formulate profit planning for the firm (Dopson & Hayes, 2010). It is a useful indication of net profit or net loss that is likely to arise by examining different levels of activity or quantity. Along with this, breakeven is also helpful to know that how much quantity of sales needs to cover total cost and to start to earn profits (Armstrong, 2006).


Methods of Calculating Breakeven: Following are three methods of computing breakeven point.


Graphical Method: It is a useful way to determine breakeven point by developing graph between total revenue and output (Kreitner & Cassidy, 2012). It is also known as breakeven chart method.


Equation Method: Under this method, breakeven is calculated by using the below formula.


BE quantity = Total Fixed Cost / (Sales price – Average Variable Cost)   Contribution Margin Method: According to this method, following equation is used to compute breakeven (Armstrong, 2006).


BE quantity = Total Fixed Cost / Contribution Margin Contribution Margin Assignment Help: The contribution margin is a difference between sales revenue and total variable cost. It can be defined as an operating profit that a company can make on selling of its products. It is an important cost accounting concept that is useful in business decision making related to a quantity of output. For example, sales revenue per unit is $24 and variable expense is $10 then contribution margin per unit is $14 ($24 – $10). The contribution margin is an important measure of CVP analysis (Dopson & Hayes, 2010).


Contribution Margin Ratio: The contribution margin ratio can be defined as the percentage of total sales. In other words, it represents a proportion of each sales dollar that is available to cover fixed costs and provide profit to the organization. This ratio is useful to show that how contribution margin is affected by changes in sales revenue (Mowen, Hansen & Heitger, 2011). The contribution margin ratio is shown as:


Contribution Margin Ratio = Total Contribution Margin / Total Sales: For example, total contribution margin is $14 per unit and total sales is $24 per unit then contribution margin ratio will be- = 58.33%


References: Armstrong, M. (2006). A Handbook of Management Techniques: A Comprehensive Guide To Achieving Managerial Excellence & Improved Decision Making (3rd ed.). UK: Kogan Page Publishers. Dopson, L.R & Hayes, D.K. (2010). Food and Beverage Cost Control (5th ed.). USA: John Wiley & Sons. Hansen, D.R., Mowen, M.M & Guan, L. (2009). Cost Management: Accounting & Control (6th ed.). USA: Cengage Learning. Kreitner, R & Cassidy, C.M. (2012). Management (12th ed.). USA: Cengage Learning. Mowen, M.M., Hansen, D.R & Heitger, D.L. (2011). Cornerstones of Managerial Accounting (4th ed.). USA: Cengage Learning.


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