In this case, the breakeven point is when the sales revenue and total cost is the same. I)From the table, it is possible to identify the breakeven point. Iv)From answer (i) and (ii) comment on the two answers Iii)Comment on the relationship between volume, cost and profitability factors Ii)Using graphical tool, determine the breakeven point in terms of units, revenue and cost I)Using the above table, determine the breakeven point in terms of units, revenue and cost The following data was extracted from the production schedule Assume that all units produced were all sold. The selling price and cost is $60 and $40 per unit respectively. ltd produces juices for the market in its environs. Therefore, there is a direct relationship among the three variables When volume of production increases, total cost increase and profitability increases. Profit is a derivative of selling price and units sold or the level of demand In other words, when sales value is more than cost value, is the time we talk of profitability. In other words, total cost is a product of cost per unit multiplied by the number of units used for production. Variable cost is a derivative compound of number of units of input needed for production and the cost per unit of those inputs. Variable cost-is cost which change with changes in the level of output For example, we have monthly salaries for employees and rent which will have to be paid by the business whether production is zero or otherwise. It is the expenses incurred or paid for to acquire the raw materials needed in production.įixed cost-is cost which is constant or which does not change with changes in the level of output. 2.CostĬost is the economic value of the inputs used in production of goods and services. It is at 50 units level of output that the average cost is at the lowest, that is $20.Īny higher level of production beyond 50 units will result to diseconomies of scale as far as cost is concerned for the average cost will start increasing. As the firm produce more, i.e up to 30 units, the average cost reduces to $60. When output is at 20 units, the average cost is $100. Graphically, this approach is represented as follows One of those advantages is that the more one produces a particular product, the cost keeps on reducing up to a certain level beyond which the cost starts to increase. Again, the total number of units produced depend on the production capacity of the machinery usedĮconomies of scale is the advantages derived by an entrepreneur for producing goods in large quantities. It is the total output produced in a day, week, monthly or per annum. Volume is the units produced per machine run. ![]() ![]() Cost Volume Profit (CVP) AnalysisĬVP analysis is also referred to as break-even analysis and it is an in depth interrogation of the relationship between cost, volume and profit levels of a business at a particular period in time. The in depth analysis of this business model is helpful in providing an insight of the business. Breakeven point analysis-graphical approachīreakeven point is a tool that is useful in any business, be it small, medium or large.
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