CVP ANALYSIS Break-even Point
a. How can the mathematical equation for break-even sales show both sales units and sales dollars?
The mathematical equation for break-even sales shows both sales units and sales dollars is relatively simple. Break even analysis of dollar is the process in which the volume is final and profitable. In the break even sales, the investments are recovered through its profit. Production, salaries and rents are considered in the break even analysis.
Breakeven point helps to identify the profit of the company.
Breakeven units = FC/ (APPU-VCPU)
FC=fixed costs
APPU= average price per unit
VCPU= variable costs per unit
Calculation of break even sales dollar
Profit margin must be calculated first and then identify the fixed cost.
Breakeven sales dollar=FC/ (FE/PM)
FC= Fixed Cost
FE= Fixed Expenses
PM= Profit Margin
b. How do the formulas differ for contribution margin per unit and contribution margin ratio?
Amount of money covered by fixed cost is break even analysis. Contribution margin can be determined from the equation
Contribution margin = SR –VE
SR=Sales Revenue
VE=Variable Expenses
Contribution Margin per unit of sales is calculated on the b per unit basis
Contribution Margin per unit= SRPU-VEPU
SRPU=Sales Revenue per Unit
VEPU=Variable Expenses per Unit
Contribution margin ration is the percentage from the total products supplied. The contribution margin ration is equal to contribution margin sales
c. How can contribution margin be used to determine break-even sales in units and in dollars?
Contribution margin calculate the breakeven point on the basis of CVP analysis concept. Contribution for single unit is called as unit contribution margin.
CVP anlayis equation can be written as
PX = VX + FC |
P= price per unit
x =number of units
v= variable cost per unit
FC = total fixed cost.
By solving the above equation we can obtain