COST-VOLUME-PROFIT, CVP ANALYSIS

We know  that  the relationship between Sales,Cost and Profit

Sales-Variable cost = Contribution

Contribution – Fixed cost =Profit

From above two equation we have following equation

Sales – Variable cost =  Fixed cost+Profit

From above equation we can find out the Break Even Point i.e BEP

BEP :- Break even point means there is no profit and no loss.It is the  sales volume  where there is no profit and loss

Where

Sales –  Variable cost = Fixed cost

From total sales volume,variable cost and fixed cost we can calculate the break even sales where there is no profit and no loss.

Break-even sales=Fixed cost/ P/v ratio

Break-even sales=contribution at BEP/ P/V ratio

Where contribution at BEP=Fixed Cost  in rupees

Break even point = fixed cost/ contribution per unit   in units

Above equation we have mention P/V ratio it is nothing but profit – volume ratio and it is expressed by following formula

P/V ratio =  Conatribution/Sales

P/V ratio = ( S-V)/S

P/V ratio is expressed in percentage.Higher P/V ratio   indicate higher profitability and low ratio is indicate low profitability.

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