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Q1 Give a numerical example of cost function and analyze this cost function? Discuss how is...

Q1 Give a numerical example of cost function and analyze this cost function? Discuss how is this cost function used in decision making

Q2 Find a numerical example of cost-volume-profit (CVP) analysis, and analyze how CVP analysis is used for decision making?

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2 ANSWER: CVP analvsis It is a technique that helps to identify the effect of sales volume and product co st on the profit of a business. It analyses the sales price, fixed costs, variable co st and the number of goods sold and measure how it affects the profit of a fim It facilitates management to examine the relationship between cost and revenue o f a firm. COST VOLUME PROFIT ANALYSIS EXAMPLES 1 ABC ltd wishes to make an annual profit of S100000 from the sale of appliances Details of manufacturing and annual capacity are as follows Based on the above information lets plug the numbers in CVP equation 10000*p(10000 30) +S30000+S100000 10000p 10000p S430000 Price per unit- (S430000/10000) - S43 ($300000+$30000+$100000) · = Thus price per unit comes out to S43 which implies that will have to price its product S43 and need to sell 10000 units to achieve its targeted profit of S10000 0. Further, we can see that the fixed cost remain constant (S30000) irrespective of the level of salesCOST VOLUME PROFIT ANALYSIS EXAMPLES 2 ABC Limited has entered into the business of making Electrical fans. The manage ment of the company is interested in knowing the breakeven point at which there will be no profit loss. Below are the details pertaining to the cost incurred: No. of units sold by ABC limiteda (S300000/S300)1000 units Variable cost per uni-($240000/1000)-$240 . Contribution per unit= Selling price per unit-Variable Cost per unit (S300-S240) .S60 per unit Break Even Point= (Fixed Cost/Variable Cost per unit) (S60000/S60) . 10000 units Thus ABC limited need to sell 10000 units of electric fans to break even at the current cost structure.Decision Analysis 1. CVP analysis facilitates the decision maker to find out the breakeven level of sales where no profit and no loss can be achieved by a firm. In the E xample, ABC limited need to s 10000 units of electric fans to break eve n at the current cost structure. 2. CVP analysis helps management to understand the different cost such as vari able cost and fixed cost at different levels of production/sales volume. CVP analysis helps decision makers in forecasting cost and profit on account of change in volume. 3. It makes us to understand the Effects of changes in fixed and variable cost help management decide the optimum level of production.月Bc Company has asked t-marea specie ABc has a vder itsvelevent Gut Joy deciding -price 20% Gbove The fallecain athe Cost elatat to progett 7 2) Diveck tobo 5) Eleti mokina on shich not Treivent Cast (ec sn t ) リ-h.ctY andvind e-laY: Thit is-fnd G.st. empley sectived or not 2) Deprt die fien Gast andnot releyent in decision mas

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