Cost-Volume-Profit Analysis
True or False
CVP analysis focuses on cost, volume, and profit
➛ True
Fixed costs change with production
➛ False
Fixed costs remain constant.
Contribution margin is sales minus variable costs
➛ True
Break-even point is where profit is zero
➛ True
Fill in the Blanks
1. CM per unit = selling price − variable cost per unit
2. Break-even units = fixed costs ÷ CM per unit
3. At break-even, profit equals zero
4. Variable costs change with production / sales volume
Calculation Practice
A company has
Selling price =
Variable cost =
Fixed costs =
Variable cost =
Fixed costs =
$80
$50
$60,000
$50
$60,000
Step 1
CM per Unit
80 − 50 = 30
Step 2
Break-Even Units
60,000 ÷ 30 = 2,000
Step 3
Break-Even Sales
2,000 × 80 = 160,000
Final Answers
CM per unit =
Break-even units =
Break-even sales =
Break-even units =
Break-even sales =
$30
2,000 units
$160,000
2,000 units
$160,000
Profit Calculation
A business sells 3,000 units.
CM per unit =
Fixed costs =
Fixed costs =
$25
$50,000
$50,000
Calculation
(3,000 × 25) − 50,000
75,000 − 50,000 = 25,000
Final Answer
Profit = $25,000
Mini Case Study
A company wants to launch a new product and must decide on pricing.
Questions
How can CVP help determine the selling price?
➛ By analyzing contribution margin and setting a price that covers costs and achieves target profit.
What happens if variable costs increase?
➛ Contribution margin decreases, profit decreases, and break-even point increases.
How can the company lower its break-even point?
➛ Reduce fixed costs
➛ Reduce variable costs
➛ Increase selling price
Why is contribution margin important?
➛ It shows how much revenue contributes to covering fixed costs and generating profit.
Quick Quiz
What is CVP analysis?
➛ Analysis of how cost, volume, and profit interact.
What is contribution margin?
➛ Sales minus variable costs.
How is break-even calculated?
➛ Fixed costs ÷ contribution margin per unit.
What happens at break-even?
➛ Total revenue equals total cost (profit = 0).
How can profit be increased?
➛ Increase sales, raise prices, reduce costs.
Module 5 ➧ Here