CVP or Breakeven Analysis Notes (Grade A)

Summary:

The CVP or Breakeven Analysis note provides a comprehensive overview of three critical topics related to business analysis, including CVP or Breakeven analysis, limiting factor or constrained resource analysis, and make or buy decisions. The primary objective of the note is to provide technical explanations that are easy to understand. To achieve this, the note includes numerous mathematical examples that clarify the underlying concepts, along with formulas presented in an easily memorable manner.

One of the key features of the note is its applicability to both exam preparation and practical situations. By discussing the theoretical aspects of each topic and how they apply to real-world scenarios, the note provides readers with a deeper understanding of the concepts.

Furthermore, the note covers the most important theoretical questions related to CVP or Breakeven analysis, limiting factor or constrained resource analysis, and make or buy decisions, making it a valuable reference for students and professionals alike. Overall, this note is an excellent resource for anyone looking to improve their knowledge of business analysis and make informed decisions in their organization.

Excerpt:

CVP or Breakeven Analysis

CVP analysis (cost-volume-profit) or breakeven analysis refers to determining interrelationships
between cost, quantity and profit at different activity levels. CVP analysis includes a number of
tools, such as contribution margin analysis, breakeven point, the margin of safety, limiting factor
analysis, make or buy decision etc.

Advantages/benefits / Importance of CVP or breakeven analysis:
1. CVP analysis helps to know how much money is left for paying fixed costs (i.e. contribution).
2. CVP analysis helps to know how much profit may be earned from a certain sales volume at a certain selling price.
3. CVP analysis helps to know the expected selling price and the expected sales quantity for making a certain profit figure.
4. CVP analysis helps to know the impact of changes in selling price and in sales quantity on profit.
5. CVP analysis is used for fixing sales incentives, sales targets, production priorities etc.
6. CVP analysis helps to know the required production volume for recovering all costs and thus avoiding any loss (i.e. a breakeven point).