C-V-P equation.Contribution margin Essay Example | Topics and Well Written Essays - 1250 words

C-V-P equation.Contribution leeway - Essay ExampleThe C-V-P equation or the Cost Volume acquire Analysis is a major step in major decisions. It is the model which defines a relationship in the midst of the gross revenue price, cost or production, sales lot and other cost of any product. The major economic consumption of this model and its application is the predictability of future profits and its change based on changes in either volume or any of the components of costs that it takes into account.It is important for managers to decide if their materials costs and other direct shifting costs are too high given the revenue from the product. Keeping aside the fixed costs which hire to be borne irrespective of the sales revenue, the remaining costs which are directly proportional to units sold ass be minimized to manage cash flows in a better way. They can cut on their variable costs by having a look at the component margins of their company and their products.The contribution o f sales to before tax profits, or gross profits, over and above the break even is exactly the contribution margin as there are no fixed costs any more. The amount by and by the deduction of variable costs from the revenues will be added to the profits.CVP graphs help the manager and the reader to have a better figure of the relationship between the profits, sales and volume of sales. CVP graphs also helps in viewing the breakeven points on the graph and provides a better insight into the profit-impact of profitd sales or costs.When we have a ontogenesis in the fixed costs, the breakeven point changes. ... 13. When other factors are constant, what is the effect on profits of an increase in fixed costs Of a decrease in variable costs When we have a increase in the fixed costs, the breakeven point changes. The breakeven point is the point where the profits are zero or the wide contribution margin is equal to the fixed costs. Its a no-profit and no-loss position.When the fixed cost s increase in the (Fixed costs) / (contribution margin) count of break-even point, the number of units to break even increases. If there is a decrease in variable costs, the contribution margin increases, given the same price. Due to this, the break even units decrease as the denominator is increasing.14. What are the limiting assumptions of C-V-P abstract The CVP model assumes that the prices of the units will remain constant and do not change in the entire process. varying and fixed components can be easily and accurately calculated for units. The determination of fixed and variable costs, in actual conditions, is very difficult. Inventories are available at all times to make sales and that there is no shortage of supply of products to sell. The sales mix remains constant for multi product companies too.Practice 16-3 linearity of Variable Costs within the Relevant RangeThe company has assembled the following data about its variable costsLevel of ActivityTotal Variable Cost1,000 units$ 25,0002,000 units46,0003,000 units69,0004,000 units92,0005,000 units100,000The company is currently producing 3,300 units. According to these data, what is the relevant range over which the company can assume that the variable cost per unit is constantIn this case, the