Question

Give numerical example of cost function and Cost Volume Profit Analysis and analyze how it will be used by managers?

Answer 1

Answer: Consider a examate with lixed costs of per year year manufactures two pv (Profit-volume) oration products P and Q as follows: with Product Product Q 30 Unit selling price - 20 variable costs - 8 2u contelbution- 20% Plv natio 6000 with compacitively low variable costs, Products elu ratio .ie each high has relatively P sales contributes Rs. 12 prod uit unit of and profit. recovery costs to fixed as the variable case cost of with Product low o, it has high elu ratio.

So by cost profit volume analysis method managers will clearly analyse the contributions giving by product and they will plan sales forecast according to that.

So in this increase the Product P it will case sales than result the and the in manager will production of Product Q as more peofits- For example, a Product P and they Product sells 100 Q , lets units of see the contribution. Product ? Product a Unit selling pejce - 20 No. of units - 100 Total sales 2000 3000 (-) variable cost 800 2400 1200 conteibution 600 - Contribution for product p us Peoduct Q. so manager will decision for boosting sales of twice of take the Product P.

There are many methods to increase sales like increase selling price,decrease selling price,etc.By analysing cost profit volume analysis they can make all these crucial decisions.