Perform Cost Volume Profit Analysis

Explanation

Use this function to perform a break even analysis. You can choose whether you want to receive the break even price, or break even volume. You can also calculate the safety volume, return of sales (ROS), and return on investment (ROI). You can also replace the Variable Cost with a Base Cost Factor that will reduce or increase the Variable Cost by the required ratio. A sensitivity study of price change effects is available in a sensitivity graph. Further evaluation regarding Price Elasticity is also available.

Prerequisites

• The cost calculation must have been performed for the inventory part you want to study.
• If you want to study an Optimal Price Calculation, you must have performed the Price Elasticity Estimation.

System Effects

• No system effects.

Window

Cost Volume Profit Analysis
Price Elasticity Estimation

Related Window Descriptions

Cost Volume Profit Analysis
Cost Volume Profit Analysis/Break-Even Analysis
Cost Volume Profit Analysis/Sensitivity Analysis
Cost Volume Profit Analysis/Optimal Price Calculation
Price Elasticity Estimation

Procedure

In Cost Volume Profit Analysis window:

1. Select the part for which you want to perform the break even analysis.
2. Click the Break-Even Analysis tab.
3. In the Analysis Base list box, select the base of the analysis.
4. In the Analysis Type list box, select analysis type; Price, Volume, or Return On Sales.
5. If you have selected Price as the analysis type, enter a price per unit in the Unit Price field, or if you have selected Volume, enter a volume in the Unit Volume field. If you have selected ROS as analysis type, enter a Return On Sales percentage in the ROS(%) field.
6. In the Fixed Cost field, you can choose to specify a fixed cost.
7. In the ROI field, you can choose to specify a Return On Investment percentage.
8. In the Safety Margin field, you can choose to specify a safety margin percentage.
9. In the Base Cost Factor field, you can choose to specify a base cost factor percentage. This factor will be multiplied by the analysis base cost.
10. Click Calculate.
11. You can now study the result in the graph and corresponding fields that show the break even unit price, volume, sales point, safety volume, ROS, ROI volume, and ROI price.
12. Proceed with the Sensitivity Analysis tab, where you can evaluate required volume at a price increase of 10% or 20%, or a price decrease of 10% or 20%. The required change in volume is related to the level of Variable Cost of Break-Even Price.
13. Proceed with the Optimal Price Calculation tab, where you can evaluate optimal price and volume given the price elasticity estimation.