Question

In a cost-volume-profit (C-V-P model) analysis the graph is frequently used in business meetings because it presents a picture of cost relationships within a company.

Required:

1. Briefly describe the type of information and data that you would need in order to prepare a CVP graph (construct a CVP graph for illustration).   

2. How to interpret the breakeven point using graph analysis.   

Answer 1

1. Information required for making CVP Analysis are :

a. Number of Units Sold and price per unit.

b. Variable Cost per Unit.

c. Fixed Cost

Diagram is shown below.

2. Break Even point signifies the levels of sale at which company is able to recover its all costs (fixed and variable). And after this point each sale made will contribute to net profit. Hence the contribution earned on sales made after Break even point will contribute to bottomline.

Please like and Support!!