How Cost Volume-Profit Analysis is Done? A Practice

11 Pages Posted: 6 Jun 2011

See all articles by Dr. Furrukh Bashir

Dr. Furrukh Bashir

University of the Punjab (PU) - Department of Economics; The Islamia University of Bahawalpur, Pakistan

Saira Batool

affiliation not provided to SSRN

Rida Rizwan

affiliation not provided to SSRN

Date Written: May 30, 2011

Abstract

The main purpose of our study is to find out the optimal level of output to cover all its costs (fixed and variable cost). Cost-Volume-Profit or Breakeven Analysis examines the relationship among the total revenue, total cost and total profits of the firm at various levels of output and is often used by business executives to determine the sales volume required for the firm to breakeven and total profits and losses at other sales level. We have collected data on total revenue; total cost and quantity from January 2007 to December 2009. We have used linear and non linear equation to calculate breakeven point. Business executive often used linear equation to find out the breakeven point (no profit and no loss). We have also calculated breakeven point from the nonlinear equation because we studied in traditional theories total revenue and total cost curves as non linear function. We find the breakeven point in linear form and concluded that the firm should produce and sells 8467 units. So, firm should produce 8467 units to cover its all costs variable and fixed costs. Following non linear functions, it is concluded that firm should 7608 units of output to avoid its losses.

Keywords: Break even output, Sial clothing mills, Linear and Nonâ€“linear functions.

Suggested Citation

Bashir, Furrukh and Batool, Saira and Rizwan, Rida, How Cost Volume-Profit Analysis is Done? A Practice (May 30, 2011). Available at SSRN: https://ssrn.com/abstract=1858082 or http://dx.doi.org/10.2139/ssrn.1858082