Cost-Volume-Profit Analysis

2273 WordsOct 24, 201210 Pages
When a company wants to examine the causes of changes in the cost and volume of their income, they use Cost-volume-profit analysis. CVP analysis examines what changes are made in fixed periods of time Deciding how to sell a product cannot be made if the information found in CVP analysis is lacking. CVP analysis is comprised of five sections; these sections are used to make various decisions. The five sections are level or volume activity, variable cost per unit, unit selling prices, sales mix and total fixed costs. The first elements of CVP analysis, is the level of activity. The height of activity essentially means the amount of units that were formed or sold. The second element is the unit selling price, which is the cost of a unit that is going to be sold at or expected to be sold at. When things are selling at high or levels of activity the cost might change, this is identified as variable cost per unit. The contrary of variable cost is total fixed cost. Regardless of the level of activity, total fixed costs stay the same. The final element of CVP analysis is the sales mix. The sales mix is the earnings coming from different services or products. Using the formula as it can be seen in the text, when the contribution margin increases when the sales price increases. Unit Selling price – Unit Variable Costs = Unit Contribution Margin Figure A. Shine Mine CVP Income Statement For month Ended September 30 2010 Total Per Unit Sales (5000 hats)

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