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• Do you believe in the statement Cost of product = direct material + direct labour +manufacturing overhead. • Is it true break even quantity = Total fixed cost/unit contribution
CVP analysis is also known as Breakeven analysis. It is the study of effects on the future profit of changes in fixed cost, variable cost, sales volume, quantity and mix. CVP analysis is developed on marginal cost concept that required seperate identification of Variable and Fixed Cost.
Yes, Cost of product includes direct material+ direct labour + manufacturing Overhead.
Yes, Break even in quantity = Toal fixed cost/unit contribution
This is also called the breakeven point analysis. I beleive that it is not a decision making factor but it is certainly very helpful is identifying unreasable alternative and eliminating taking them any further.
Direct cost of a product = direct material cost + direct labor cost + manufacturing overheads
Breakeven quantity is the quatitiy at which total cost = total revinue
Cost volume analysis is also called Break even analysis.
Cvp=BEP.
Break even point is a point at which fixed expenses is equal to contribution.
Sales - Variable cost is contribution.
In this point there is no profit or no loss arising from the sales.
Regards,
Joshi Mathew
CIA
Agreed with colleagues answers
Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including:
CVP analysis requires that all the company's costs, including manufacturing, selling, and administrative costs, be identified as variable or fixed.