Page 66 - DCOM206_COST_ACCOUNTING_II

Manpreet Kaur, Lovely Professional University
Unit 4: Cost Volume Profit Analysis

Unit 4: Cost Volume Profit Analysis Notes

CONTENTS
Objectives
Introduction

4.1 Concept of Cost-Volume-Profit Analysis
4.1.1 Objectives of Cost-Volume-Profit Analysis
4.2 Marginal Cost Equation

4.2.1 Contribution
4.3 Effect of Certain Changes on Profit-Volume Ratio
4.3.1 Improvement of P/V Ratio
4.4 Break-Even Analysis
4.4.1 Assumption of Break-Even Analysis

4.5 Margin of Safety
4.6 Break-Even Chart
4.6.1 Assumption of Break-Even Chart

4.6.2 Advantages and Disadvantages of Break-Even Chart
4.7 Practical Application of CVP Analysis for Decision-making
4.8 Summary
4.9 Keywords
4.10 Review Questions

4.11 Further Readings

Objectives

After studying this unit, you will be able to:
 Define marginal cost equation;
 State the concept of cost-volume-profit analysis;

 Describe the effects of certain changes on P/V ratio;
 Explain break even analysis;
 Recognise practical applications of cost volume profit analysis for decision-making.

Introduction

In the previous unit, we have studied about the need of marginal costing, difference between
marginal and absorption costing and the various applications of marginal costing. Students
need to have clear understanding of the basic concept of marginal costing, so as to have a better
understanding of this unit. As cost-volume-profit analysis is a part of marginal costing.

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