![]() ![]() ![]() Profit Volume Ratio (P/V Ratio or Contribution/Sales (C/S)).It is necessary to understand the following four concepts, their calculations, and applications to know the mathematical relation between cost, volume, and profit: Sales – Variable Cost = Fixed Expenses ± Profit /Loss Sales = Variable costs + Fixed Expenses ± Profit /Loss The volume of sales is equal to the volume of production.Įquations for elements of cost are as follows: The relevant factor which affects the cost and revenue is volume only. The sales-mix at all level of sales remains constant in a multi-product situation. We can assume the selling price as constant.Īt all level of sales, the volume, material, and labor costs remain constant.Įfficiency and productivity remains unchanged at all the levels of sales volume. Sales volume does not affect the selling price of the product. Variable costs remain variable and fixed costs remain static at every level of production. Let us go through the assumptions for CVP analysis: CVP analysis highlights the relationship between the cost, the sales value, and the profit. ![]() In other words, we study the sales value, cost and profit at different levels of production. With the help of CVP analysis, the management studies the co-relation of profit and the level of production.ĬVP analysis is concerned with the level of activity where total sales equals the total cost and it is called as the break-even point. Every business organization works to maximize its profits. Cost-Volume-Profit (CVP) Analysis is also known as Break–Even Analysis. ![]()
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