Learning Activity 5.3: CVP & Breakeven Exercise
Introduction and Purpose of Assignment
This assignment focuses on two inte
elated concepts. First, the concept of C-V-P or Cost-volume-profit analysis looks at how single products are performing. Secondly, the concept of
eakeven, which tells managers how much of a product needs to be made to
eakeven considering direct, indirect, and overhead costs. Looking at individual products, rather than the combined profit reflected on the income statement, provides managers information to make sound production decisions. In this exercise you will calculate C-V-P and
eakeven data.
Objectives
· Apply incremental and differential aspects in costs and revenues to decision-making. (5.2)
Theory and Context
CVP analysis provides a numeric relationship between the cost of production, the volume of output, and the related profit. A CVP analysis is typically done on a single product, not an overall analysis of all the company’s production. Analyzing one product provides managers with insight into how well that individual product contributes to the company’s profit margin.
The
eakeven analysis provides managers information that shows, at what point the sales amount equals the total costs. Production in excess of the
eakeven point will result in a profit for the company, while production below the
eakeven point will result in a loss.
Resources
CVP & Breakeven Exercise.xlsx located in the Course Documents in e360.
Edspira. (2013, July 11). Cost volume profit analysis (CVP): calculating the
eak even point [Video file]. Retrieved from https:
www.youtube.com/watch?v=Nw2IioaF6Lc&list=PL_KGEFWqEaTAswdGBQr2YwKDQoKz84iox&index=3
Edspira. (2013, July 9). Cost volume profit analysis (CVP): Target profit [Video File]. Retrieved from https:
www.youtube.com/watch?v=4U60Ya5ysMU&index=4&list=PL_KGEFWqEaTAswdGBQr2YwKDQoKz84iox
Edspira. (2014, November 17). Contribution margin [Video File]. Retrieved from
https:
www.youtube.com/watch?v=1TxWhgRPq3s&list=PL_KGEFWqEaTAswdGBQr2YwKDQoKz84iox&index=55
Edspira. (2014, November 17). Contribution margin ratio [Video File]. Retrieved from
https:
www.youtube.com/watch?v=ZWXTrCCo17Q&list=PL_KGEFWqEaTAswdGBQr2YwKDQoKz84iox&index=56
Notepirate. (2014, April 29). Contribution margin and
eak even points (managerial accounting tutorial #13) [Video file]. Retrieved from https:
www.youtube.com/watch?v=XndHS8FgsAM
Instructions
Complete the spreadsheet CVP & Breakeven Exercise