Cost-Volume-Profit Model

Concept:
It is a model that helps management determine the actions that should be taken in order to achieve a certain objective, which in the case of for-profit companies is called profits.
The cost-volume-profit analysis provides a comprehensive financial view of the planning process and decision-making. Cost-volume-profit analysis helps the company's management to
determine what actions must be taken to achieve the set objective: to obtain profits.
The Cost-Volume-Profit (CVP) analysis highlights the relationships that exist between costs, quantities sold, and prices, allowing for the integration of all financial information of the company.
analysis helps to identify economic problems that a company may have, and allows for the search for the necessary solution. Or, if there is no economic problem in the company, the analysis of the CVU,
allows the company to improve its financial situation and reach the financial goal set by the company's owners.
The analysis of the CVU is important, primarily because the resources that companies have to carry out their activities and achieve their goals are limited, and knowing how costs fluctuate with
The changes in volume help them understand how to control costs.
The analysis of the CVU is an important responsibility. It is basically about achieving the optimal (profitable) structure of variable and fixed costs. For example, management may decide between compensating its
sales employees with higher commission percentages (variable cost) instead of paying them a higher salary (fixed cost).
The cost-volume-profit model helps management determine the actions to be taken in order to achieve a certain objective, which, in the case of profit-oriented companies, is called
utility or result.

Some other ways in which cost-volume-profit analysis can be used include:

1. Analyze the effects on profits of changing sales prices.
2. Analyze the effects on profits of changing costs.
3. Analyze the effects on profits of changing the volume.
4. Set selling prices.
5. Select the mix of products to sell.
6. Choosing between marketing strategies.

Characteristics:
The cost-volume-profit analysis depends on the following assumptions that are valid for relevant ranges of operations:
Total sales and total costs can be represented by straight lines.
2) Within a relevant range of operating activity, the efficiency of operations does not change.
3) Costs can be divided into fixed and variable components.
4) The unit sale price and market conditions remain unchanged.
The sales mix is constant.
There is no change in the inventory quantities during a period.
The limitations of break-even analysis do not invalidate it. The information provided by this analysis is very valuable as it allows for the identification of the cost-volume-profit relationship. However, management
The company must be aware that this analysis is not the only one for decision-making; there are others that can be used to support this analysis.
The cost-volume-profit analysis generally determines the volume necessary to achieve the desired or set profit target by the company's shareholders. The commonly used tool
used to carry out this CVU analysis is the calculation of the break-even point.
 The management has two main functions: planning and control, and for this it has the support of the tools that integrate Managerial Accounting.
2. The C-V-U model is designed to assist in the planning activity, that is, to develop the actions that allow for the integral development of the entity.
One of the most common ways to measure a company's success is in terms of net profit, which depends on the sales-cost relationship.
4. Direct costing is of great importance for cost-volume-profit analysis and the starting point of the analysis is the break-even point.
2.1 Introduction to the model 5. The Cost-Volume-Profit analysis is the systematic examination of the relationships between selling prices, sales, production volume, costs, expenses, and profits.
This analysis provides very useful information for decision-making to the management of a company.
cost-volume-profit.
6.Cost: The cost is the economic expenditure that represents the manufacture of a product or the provision of a service.
7. Volume: It is an accounting magnitude that aggregates all the income that a company or accounting unit has had, due to its ordinary activity, in a period of
determined time.
8. Utility: Understood as benefit or profit, it is the difference between the revenues obtained by a business and all the expenses incurred in generating those revenues.

Break-even point: 1. To calculate the Break-Even Point it is necessary to have

determined the behavior of costs (fixed and
It is the level of operations at which revenues are equal in amount. variables).
to their corresponding expenses and costs. 2. It can be expressed in product units: Customers,
b) It can also be said that it is the minimum sales volume that must cubiertos, huéspedes, comidas, bebidas, unidades
achieve in order to start obtaining profits. monetary, etc.
c) It is the sales figure that needs to be reached to cover expenses and costs. 3. It can be applied to the entire establishment as
2.2 characteristics of Characteristics
of the company and consequently not to obtain either profit or loss. for each of the departments.
break-even point d) It is the mathematical analysis with which the quantity of units is determined. 4. The breakeven point of a company is characterized by being
that must be produced and/or sold to cover the total costs and expenses, the point at which a company begins to cover its
neither profit nor loss. costs. Therefore, if it increases its sales, placing itself by
above the break-even point, they will start to perceive a
e) The point at which the company's revenues equal its costs is positive benefit.
break-even point; at this point, there is no profit or loss.

Companies are created with a specific purpose (Mission) to provide a service to the community, for example, increasing the wealth of their shareholders and growth.
and to hold on over time (Vision) among others. It is known that the normal, logical, and ordinary thing is for each sales operation to leave a 'profit'. (Contribution margin).
Contribution margin: It is defined as the excess of income over variable costs; which contribute to covering fixed costs and to obtaining profit.
Contribution Index: it is the percentage by which revenues exceed variable costs. It is equivalent to expressing the contribution margin as a percentage.
The limitations of break-even analysis do not invalidate it. The information provided by this analysis is very valuable as it allows for identifying the cost relationship.
volume-utility. However, the company's management must be aware that this analysis is not the only one for decision-making; there are others that
2.3 The break-even point and They can be used as support for this analysis.
its relationship with the model Marginal contribution: Knowing the contribution margin or marginal contribution is very important, because it allows us to understand the potential for profits of
cost-volume-profit the company. The contribution margin is the excess of sales expressed in monetary units over all variable costs of production, marketing and
administration.
The contribution margin can be calculated total, per unit, and by percentage. It indicates the amount that will be able to cover fixed costs and generate profits.
The break-even point is found at the sales volume where there are neither profits nor losses. This break-even analysis can be considered a
static concept; however, it applies to dynamic situations, supporting the management of the company in its functions of planning, control, and decision-making.
To conduct a break-even analysis, it is necessary to study the behavior of the company's fixed and variable costs.
Bibliographies:
Unable to access external links.
(Microsoft Word - 03 PEC Cost-Volume-Profit Analysis) (wordpress.com)
LC_1459_09116_A_CostosII.pdf (unam.mx)
2.1 INTRODUCTION TO THE COST-VOLUME-PROFIT MODEL by Nora Montero (prezi.com)
The provided text is a URL and does not contain translatable content.
Break-even point. Cost, volume, profit relationship • gestiopolis
LC_1459_09116_A_CostosII.pdf (unam.mx)