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Introduction
 BREAK EVEN ANALYSIS IS USED TO DETERMINE
  HOW MUCH SALES YOUR BUSINESS NEEDS IN
  ORDER TO EARN GOOD PROFITS.
 IT IS A TOOL FOR DETERMINING MINIMUM
  QUANTITY OF SALES.
 PROFIT IS THE MOST IMPORTANT MEASURES OF
  THE FIRMS PERFORMANCE. EVERY BUSINESS IS
  SET TO EARN PROFIT . NO BUSINESS RUNS TO
  EARN LOSSES.
 IN FREE MARKET PROFIT IS THE BASIS FOR
  ALLOCATING RESOURCES.
 IT IS AN ESSENTIAL STEP IN FINANCIAL
  PLANNING AND DECESION MAKING FOR
  MANAGERS.
 IT PLAYS A VITAL ROLE IN ENCHANCING THE
  USEFULLNESS OF COST VOLUME PROFIT
  ANALYSIS. {CVP}.
 CVP HELPS TO DETERMINE SALES VOLUME TO
  AVOID LOSSES.
CVP ANALYSIS
 CVP ANALYSIS PROVIDES ANSWER TO THE
  FOLLOWING QUESTONS?
 MINIMUM LEVEL OF SALES?
 SALES LEVEL TO EARN TARGET PROFIT.
 WHICH PORODUCT IS PROFITABLE AND
  WHICH ARE NOT?
 SHOULD THE FIRM BE SHUT-DOWN
  TEMPORARY OR PERMANENTLY.
LIMITATIONS
 BREAK EVEN ANALYSIS IS ONLY A SUPPLY SIDE.
 IT IS ONLY A STATIC TOOL.
 IT ASSUMES THAT FIXED COST REMAINS
  CONSTANT.
 ASSUMES THAT AVG. VARIABLE COST ARE
  CONSTANT PER UNIT OF OUTPUT.
 IT ASSUMES QTY OF GOODS PRODUCED=QTY
  OF GOODS SOLD. THATS NOT APPROPRIATE.
 NO CHANGE IN THE OPENING AND CLOSING
  BALANCES OF THE INVENTORY.
CONCLUSION
 ALTHOUGH THE CVP ANALYSIS SUFFER FROM
  CERTAIN LIMITATIONS IT REMAINS AN
  IMPORTANT TOOL OF PROFIT PLANNING.
 THINGS WHICH ARE IMPORTANT IS THAT A
  MANGER MUST UNDERSTAND THE DYNAMIC
  ENVIRONMENT. ANALYSI IT CRITICALLY TO
  MAKE EFFECTIVE AND EFFICIENT DECESIONS.
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Final ppt of hons 2

  • 1. Introduction BREAK EVEN ANALYSIS IS USED TO DETERMINE HOW MUCH SALES YOUR BUSINESS NEEDS IN ORDER TO EARN GOOD PROFITS. IT IS A TOOL FOR DETERMINING MINIMUM QUANTITY OF SALES. PROFIT IS THE MOST IMPORTANT MEASURES OF THE FIRMS PERFORMANCE. EVERY BUSINESS IS SET TO EARN PROFIT . NO BUSINESS RUNS TO EARN LOSSES. IN FREE MARKET PROFIT IS THE BASIS FOR ALLOCATING RESOURCES.
  • 2. IT IS AN ESSENTIAL STEP IN FINANCIAL PLANNING AND DECESION MAKING FOR MANAGERS. IT PLAYS A VITAL ROLE IN ENCHANCING THE USEFULLNESS OF COST VOLUME PROFIT ANALYSIS. {CVP}. CVP HELPS TO DETERMINE SALES VOLUME TO AVOID LOSSES.
  • 3. CVP ANALYSIS CVP ANALYSIS PROVIDES ANSWER TO THE FOLLOWING QUESTONS? MINIMUM LEVEL OF SALES? SALES LEVEL TO EARN TARGET PROFIT. WHICH PORODUCT IS PROFITABLE AND WHICH ARE NOT? SHOULD THE FIRM BE SHUT-DOWN TEMPORARY OR PERMANENTLY.
  • 4. LIMITATIONS BREAK EVEN ANALYSIS IS ONLY A SUPPLY SIDE. IT IS ONLY A STATIC TOOL. IT ASSUMES THAT FIXED COST REMAINS CONSTANT. ASSUMES THAT AVG. VARIABLE COST ARE CONSTANT PER UNIT OF OUTPUT. IT ASSUMES QTY OF GOODS PRODUCED=QTY OF GOODS SOLD. THATS NOT APPROPRIATE.
  • 5. NO CHANGE IN THE OPENING AND CLOSING BALANCES OF THE INVENTORY.
  • 6. CONCLUSION ALTHOUGH THE CVP ANALYSIS SUFFER FROM CERTAIN LIMITATIONS IT REMAINS AN IMPORTANT TOOL OF PROFIT PLANNING. THINGS WHICH ARE IMPORTANT IS THAT A MANGER MUST UNDERSTAND THE DYNAMIC ENVIRONMENT. ANALYSI IT CRITICALLY TO MAKE EFFECTIVE AND EFFICIENT DECESIONS.