Cost Volume Profit Analysis Essay Example

to maximize profit. There may be change in the level of production due to many reasons, such as competition, introduction of new product, trade depression or boom, increased demand for the products, and changes in selling prices of the changing levels of production.

A number of techniques can be used as an aid to management in this respect. One such technique is the break even analysis. The term cost volume profit analysis is the narrower as well as broader sense. Used in its narrower sense, it is concerned with finding out the breakeven point; i.e. level of activity where the total cost equals total selling price. Used in its broader sense, it means that system analysis which determines the probable profit at any level of production. The break even analysis establishes the relationship of cost volume and profit; so this analysis is known as “Cost Volume Profit analysis”.

 Marginal Costing

Marginal costing is defined by IMA London as “The ascertainment of marginal cost, by differentiating between fixed and variable costs, and of the effect on profit of changes in volume or type of output”. This definition makes it clear that marginal costing goes beyond the ascertainment of costs. It is a technique concerned with the effect on profit when the volume or type of output changes. In particular, marginal costing studies the effect which fixed cost has on the running of business.

Literature Review

1. Li Tak Ming, Andy Deputy Head, Department of Business Administration, Hong Kong Institute of Vocational Education Title: A Cost- Volume- Profit Analysis Cost volume profit analysis is the study of effects on future profit of change in fixed cost,

variable cost, sales prices, quantity. It ia also known as break even analysis. Cost volume profit is useful management tool used by planner in determining the amount of sales needed to cover all expenses.

2. Wei Shih

Title: A general Decision model for cost volume profit analysis under uncertainty. This paper presents a general decision for cost volume analysis which takes into account the crucial element of random demand and level of production in the determination of actual sales and resulting profit.

3. Dr. Mode Shubita

Title: usefulness of cost volume analysis as a managerial concept. In order to cope with planning decision manager use cost volume profit analysis. They find it an extremely useful measurement in a variety of ways. This paper aimed to increase the understanding usefulness of cost volume profit concept.

4. Karen s. Hreha and Wondy M. Liao

College of commerce and Business administration, University of Illionois at Urbana champaign. The tradition CVP analysis has been extended to consider the effect of learning. Learning effect have a significant impact on CVP analysis, they not only change the traditional breakeven point, but also affect the distribution of profit. This paper demonstrates the effect of learning on cost volume profit analysis and develops a cost volume profit model with consideration given to both single and probilistic learning rate estimates.