Cost Volume Profit Analysis Assignment Answers

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About cost volume profit analysis:

Cost volume profit analysis is a term that is widely used in accounting. It is used to determine how cost and volume changes have the capacity to affect an operation’s operating income and net income. This determines the volume required to break even, the volume that needs to be acquired to reach targeted profit levels, discretionary expenditure effects, and the selling price to reach target volume levels.

It helps in the analysis of sensitivity of profits to changes in selling price, cost, volume and sales mix.

What are the assumptions made?

As per cost volume profit analysis homework answers, there are several assumptions made to obtain such an analysis. These are:

  1. Selling price per unit is constant.
  2. Variable cost is constant.
  3. No changes in total fixed costs.
  4. All manufactured products are sold.
  5. Costs are affected due to activity changes.
  6. When a company sells more than one product, they are sold in the same mix.

What are the components of cost volume profit analysis?

There are several components of CVP analysis. These include:

  • Total fixed costs
  • Unit selling prices
  • Volume of activity
  • Variable cost per unit

With the help of these variable, the equation for CVP analysis from cost volume profit analysis assignment answers in given by:

Px= vx+FC+ profit

Where p= price per unit

X= total number of units sold and produced

FC= fixed total cost

V= variable cost per unit.

Limitations of CVP analysis

  1. Due to the presence of assumption, CVP analysis serves best as an approximation tool. It lacks the necessary precision and accuracy.
  2. It assumes that total sales and cost are linear which is not always true in some cases.
  3. CVP analysis assumes that productivity and efficiency of operations will be constant.
  4. It is a short run analysis and not suitable for long term analysis of entire life cycle of product.

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