MBA Project Report on Cost Volume Profit (CVP) Analysis

This is a good Management thesis report on CVP analysis for MBA students. Cost-volume-profit (CVP) analysis is the technique used to identify the levels of operating activity needed to avoid losses, achieve targeted profits, plan future operations, decide on expansion or contraction plans, monitor organizational performance and analyze operational risk as they choose an appropriate cost structure to help in the decision making process to sustain the firm. You can also Subscribe to FINAL YEAR PROJECT'S by Email for more such Projects and Seminar.

In marginal costing, marginal cost varies directly with the volume of production or output. On the other hand, fixed cost remains unaltered regardless of the volume of output within the scale of production already fixed by management. In case if cost behavior is related to sales income, it shows a cost-volume-profit relationship. In net effect, if the volume is changed, variable cost varies as per the change in volume. In this case, selling price remains fixed, fixed remains fixed and then there is a change in profit.

Being a manager, you constantly strive to relate these elements in order to achieve the maximum profit. Cost Volume Profit (CPV) Analysis is a logical extension of Marginal costing. It is based on the same principles of classifying the operating expenses into fixed and variable. CVP analysis is generally defined as a planning tool by which managers can evaluate the effect of a change(s) in price, volume, variable cost or fixed cost on profit. Additionally, CVP analysis is the basis for understanding contribution margin pricing, related short-run decisions, target costing and transfer pricing. Apart from profit projection, the concept of Cost-Volume-Profit (CVP) is relevant to virtually all decision-making areas, particularly in the short run.

The report covers topic like marginal cost equations and CVP analysis, cost volume profit (CVP) relationship in graphic form, applications of cost volume profit (CVP) concepts, CVP analysis illustrations - unit in expansion mode. Use it only for your reference and study. Thanks to Authors.

Objectives of Cost-Volume-Profit Analysis

1. In order to forecast profits accurately, it is essential to ascertain the relationship between cost and profit on one hand and volume on the other.

2. Cost-volume-profit analysis is helpful in setting up flexible budget which indicates cost at various levels of activities.

3. Cost-volume-profit analysis assists in evaluating performance for the purpose of control.

4. Such analysis may assist management in formulating pricing policies by projecting the effect of different price structures on cost and profit.

Limitations of Cost Volume Profit Analysis

The CVP analysis is generally made under certain limitations and with certain assumed conditions, some of which may not occur in practice. Following are the main assumptions and limitations therein of the cost-volume-profit analysis:

1. It is assumed that the production facilities anticipated for the purpose of cost-volume-profit analysis do not undergo any change. Such analysis gives misleading results if expansion or reduction of capacity takes place.

2. In case where a variety of products with varying margins of profit are manufactured, it is difficult to forecast with reasonable accuracy the volume of sales mix which would optimize the profit.

3. The analysis will be correct only if the input price and selling price remain fairly constant which in reality is difficult to find. Thus, if a cost reduction program is undertaken or selling price is changed, the relationship between cost and profit will not be accurately depicted.

4. In the cost-volume-profit analysis, it is assumed that variable costs are perfectly and completely variable at all levels of activity and fixed cost remains constant throughout the range of volume is considered. However, such situations may not arise in practical situations.


Author:- Ajai Govind G, Ambika Gupta, Ankit Jain, Bhanupriya Deswal, Chandrika Mittal, Kulvir Singh Gill

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