How Cost Volume-Profit Analysis is Done? A Practice
11 Pages Posted: 6 Jun 2011
Date Written: May 30, 2011
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 Non–linear functions.
Suggested Citation: Suggested Citation