ACCA PM Chapter 8 - COST VOLUME PROFIT ANALYSIS

Breakeven

Breakeven volume = Fixed costs / Contribution per unit.

Margin of Safety

Margin of Safety = (Budgeted sales - breakeven) / Budgeted sales x 100%

Contribution to Sales ratio

C/S ration = Contribution in $ / Sales in $

Breakeven Chart

Profit-Volume chart

Multi-Product CVP analysis
A company may produce several products, each with different CS ratios. The company could reach the breakeven position sooner if it were to sell the product with the highest CS ratio first.

Limitations of CVP analysis

• The selling price per unit is assumed to remain constant at all levels of activity
• The variable cost per unit is assumed to remain constant at all levels of activity
• It is assumed that the total fixed costs remain constant
• It is assumed that the level of production is equal to the level of sales (o.e. that there are no changes in the levels of inventory)

Source: https://opentuition.com/acca/pm/acca-performance-management-pm-lectures/