Cost-volume-profit analysis is a technique of analysis to study the effects of cost and volume variations on profit.
Cost-volume-profit analysis is a
technique of analysis to study the effects of cost and volume variations on
profit. It determines the probable profit at any level of activity. It helps in
profit planning, preparation of flexible budgets, fixation of selling prices
for products, etc.
The break-even point is generally
depicted through the break-even chart. The chart shows the profitability of an
undertaking at various levels of activity. It brings out the relationship
between cost, volume and profit clearly. On the negative side, the limitations
of break-even analysis are: difficulty in segregating costs into fixed and
variable components, difficulty in applying the technique to multi-product
firms, short-term orientation of the concept etc.
The directors of anandam ltd. Provide you the following data relating to
the cylce chain manufactured by them:
require you to answer their following queries:
the number of units by selling
which the company will be At break-even.
(ii) the sales
needed to earn a profit of 20% on sales. (iii)
the extra units which would be
sold to obtain the present Profit if it is proposed to reduce the selling price
Tags : Accounting For Managers - Management Accounting-Cost Volume Profit Analysis
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