tea cvp analysis

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Page 1: Tea CVP Analysis

FIRST ASSIGNMENT

Page 2: Tea CVP Analysis

INTRODUCTION

Location : Bagh Amberpet Business : Tea Shop Total Cost Total Sales Break-Even Analysis Effect on Break-Even Point with

respect to changes in revenue and cost.

Page 3: Tea CVP Analysis

TEA LEAVESMILKSUGARWATERGAS

Page 4: Tea CVP Analysis

FIXED COST Fixed costs are

business expenses that are not dependent on the level of activities of the business

Ex : rent of shop, electricity, etc…

VARIABLE COST Variable costs are

business expenses that change in proportion to the level of activities of a business.

Ex : milk ,sugar, tea leaves.

Page 5: Tea CVP Analysis

He invested Rs.20,000 for Trolly.

He invested Rs.4,000 for gas cylinder, gas stove and glasses.

Page 6: Tea CVP Analysis

Cost of cylinder is Rs.840, which ends in 4 days.

Water is free of cost.Cost is calculated on per day basis.

Depreciation is charged at 10% per annum on trolly and gas stove.

Page 7: Tea CVP Analysis

FIXED COST

Rent Rs.300

Electricity Rs.15

Gas Cylinder Rs.210

Depreciation Trolly

Rs.5.5 Gas stove

Rs.1

VARIABLE COST

Milk 20 litres @ Rs.26 per litre =

Rs.520 Sugar 5 kg @ Rs.26 per kg =

Rs.130 Tea leaves 0.5 kg @ Rs.170 per kg =

Rs.85

Page 8: Tea CVP Analysis

Total Fixed cost for one day = Rent + Electricity + Gas

cylinder + Depreciation

= 300 + 15 + 210 + 6.5

= Rs.531.5 Fixed cost per unit = Total Fixed

cost/Total no.of units=531.5/400=Rs.1.32875

Page 9: Tea CVP Analysis

Total variable cost for one day = Milk +

Sugar + Tea leaves = 520 + 130

+ 85 = Rs.735

Page 10: Tea CVP Analysis

He sells 400 cups of tea everyday at Rs. 4 per cups

Cost of milk per unit = Cost of milk /Total cups of tea sold

= 520 / 400 = 1.3 Rs per unit

Cost of sugar per unit = Cost of sugar/Total cup of tea sold

= 130 / 400 = 0.325 Rs. per unit

Cost of tea leaves per unit = Cost of tea leaves / Total cups

of tea sold = 85 / 400 = 0.2125 Rs. per

unit

Page 11: Tea CVP Analysis

Variable Cost per unit = Rs. 1.3 + Rs. 0.325 + Rs. 0.2125 = Rs. 1.8375

(OR)

Variable Cost per unit = Total variable cost/Total no. of units = Rs.

735/ 400 cups

= Rs. 1.8375

Page 12: Tea CVP Analysis

He sells 400 cups of tea everyday at Rs. 4 per cup of tea.

Total Sales = 400 cups x Rs.4 = Rs.1,600

Page 13: Tea CVP Analysis

Calculation is done on per day basis

He sells 400 cups of tea everyday at Rs. 4 per cups

Total cost = Variable Cost + Fixed Cost

= 735 + 531.5 = Rs.1266.5 Total profit = Total sales – Total cost = 1600 – 1266.5 = Rs.333.5

Page 14: Tea CVP Analysis

Contribution = Sales – Variable Cost = 1600 – 735 = Rs.865

Contribution Per Unit = Contribution/No. of Units sold

= 865 / 400 = Rs.2.1625

per unit

Page 15: Tea CVP Analysis

This ratio indicates the relationship between contribution and sales.

PV ratio can be enhanced by either reduction in variable expenses or increase in sale price or both.

P/V Ratio = Contribution x 100 Sales P/V ratio = (865/1600) x 100 = 54.06%

Page 16: Tea CVP Analysis

The break-even point (BEP) is the point at which cost of expenses and revenue are equal that is there is no net loss or gain.

Break Even Point = Fixed Cost/Contribution

(in units) Per unit = 531.5 / 2.1625

= 246 units

Break Even Point = Fixed Cost/PV Ratio

(in rupees) = 531.5/54.06% = Rs.983.167

Page 17: Tea CVP Analysis

1600

1266.5

984

531.5

246 400

TR

TC

UNITS

CO

ST

/RE

VE

NU

E

V C=Rs.735

FC

BREAK-EVEN POINT

PROFIT=Rs.333.5

Page 18: Tea CVP Analysis

Contribution = Revenue – Variable cost

Break even point = Fixed cost / Contribution per unit

Increase in the revenue will increase the contribution and hence decrease the break even point

Decrease in the revenue will decrease the contribution and hence increase the break even point

Page 19: Tea CVP Analysis

TR

TC1266.5

984

246 >246

TR1 TR2

FC

UNITS

<246

CO

ST

/RE

VE

NU

E

Page 20: Tea CVP Analysis

Contribution = Revenue – variable cost

Break even point = Fixed cost / Contribution per unit

Increase in the cost (either variable or fixed cost ) will cause an increase in the break even point.

Decrease in the cost (either variable or fixed cost) will cause a decrease in the break even point.

Page 21: Tea CVP Analysis

<246 246 >246

UNITS

CO

ST

/RE

VE

NU

E

TR

TC1

TC2

TC

Page 22: Tea CVP Analysis

AbhasAnurag DeepthiHansitaLavakusha Maleshwari

Page 23: Tea CVP Analysis