A PROJECT REPORT

ON

MANAGEMENT ACCOUNTING & COST CONTROL

ASSIGNMENT
Cost Volume Pricing Analysis
Of
Shyam Juice Corner
Submitted To
Jaipuria Institute of Management

Submitted To:-

SUBMITTED BY:-

Prof: Puneet

Kunal Gulati PGSF1547

Dublish

Priyanka Bathla PGSF1515

Harshit Ahuja PGSF1520
Chirag Bansal PGSF1516
Priyanka Priya PGSF1527
Prachi Tomar PGSF1551
Vaibhav Dhingra PGSF1546
PGDM (SM) Group 5

INTRODUCTION

Cost volume profit (CVP) analysis generally defined as a planning tool by which
manages can evaluate the effect of a change(s) in price, volume, variable cost or fixed cost on
profit. Additionally, CVP analysis is the basis for understanding contribution margin pricing,
related short-run decisions, target costing and transfer pricing. In the marginal costing varies
directly with the volume of production or output. On the other hand, fixed cost remains
unaltered regardless of the volume of output. In net effects, if volume is changed, variable cost
varies as per the changes in volume. In this case, selling price remains fixed, fixed remains
fixed and then there is a change in profit.
Cost Volume profit Analysis is a logical extension of Marginal costing. It is based
on the same principles of classifying the operating expenses into fixed and variable. Now-adays it has become a powerful instrument in the hands of policy makers to maximum profits.
There elements need to be related ion order to achieve the maximum profit. Apart from
profit projection, the concept of cost volume profit is relevant the short run. The relationship
among cost, revenue and profit at different levels may be expressed in graphs such as breakeven
charts, profit volume graphs or in various statements forms.
Earning of maximum profit is the ultimate goal of almost all business undertakings.
The most important factors influencing the earning of profit is the level of production. (I.e.
Volume of production).
Profit depends on a large number of factors, most important of which are the cost of
manufacturing and the volume of sales, volume of sales depends upon the volume of
production and market forces which turns in related to costs.

Management has no control over market.

In order to achieve certain level of

profitability, it has to exercise control and management of costs, mainly variable cost. This is
because fixed cost is a non-controllable cost.
It helps to find out the profitability of a product, department of division to have better
product mix, for profit planning and to maximize the profit of a concern.
These decisions can include such crucial areas as pricing policies, product mixes,
market expansion or contractions, outsourcing contracts, idle plant usage, discretionary
expenses planning and a variety of other important considerations in the planning process.
Given the broad range of context in which cost volume profit can be used.
In other words, it helps in locating the level of output which evenly breaks the cost and
revenues used in its broader sense, it means that system of analysis which determine profit,
cost and ales value at different levels of output. The cost Volume profit analysis establishes
the relationship of cost, volume and profit.
Thus cost volume profit furnishes the complete picture of the profit structure. In other
word, cost volume profit is a management accounting tool that expresses relationship among
sales, volume, cost and profit. The cost volume analysis uses the techniques of breakeven
analysis, operating leverage, margin of safety and effect of changes on sales and contribution
on margin and net operating income. The level of sales needed to achieve desired target profit,
in order to predict changes in net operating income. The data are cost sheet and balance sheet
collected from the company.

COMPANY PROFILE

SHYAM JUICE CORNER is renowned juice corner in Lakshmi Nagar. It was started
back in 1995 by Mr. Shyam Mishra. Currently this business is run by his son and has two
branches one in Nehru Palace and other one in Shahdara. It is known for its taste and quality
served. It is one of oldest shop in market.

BREAKEVEN ANALYSIS;

The breakeven analysis indicates at what level cost and revenue an in equilibrium. It
is a simple and easily understandable method of presenting to management the effect of
changes in volume on profit detailed analysis of breakeven data will reveal to management the
effect alternative decision which reduce or increase cost and which increases sales volume and
income. It is a device which portrays the effects of any type of future planning by evaluating
alternative course of action.

BREAKEVEN POINT;

Under this analysis at the breakeven point profit being zero, contribution is equal to the
fixed cost. If the actual volume of sales is higher than the breakeven volume, there will be a
profit.

Breakeven sales (in Rupees) =

Fixed Cost
_____________________
Contribution Margin Ratio

Breakeven point (in units)

Fixed Cost
_________________
Contribution units

MULTIPLE PRODUCTS IN BEP;

There are multiple products with different has a direct effect on the fixed cost recovery
and total profits of the firm. Different products have different profit volume ratio because of
different selling price and variable cost. The total profit depend to some extent upon the
proportion is the products are sold.

P/V ratio

Sales Variable Cost

_____________________

* 100

Sales

B/E Sales

Fixed Cost
_________________

* 100

Total Contribution

MARGIN OF SAFETY;

This is the difference between the sales and breakeven point. If the distance is relatively
short it indicates that a small drop in production or sales will reduces profit considerably. If
the distance is long it means that the businesses can still making profit even after a serious drop
in production. It is important that there should be a reasonable margin of safety otherwise
reduces level of production may prove dangerous.

Margin of Safety

Sales BES

Margin of Safety

Margin of Safety
_____________________ * 100
Sales

DESIRED TARGET PROFIT;

The management faces two decisions

(i)

To increases sales volume through reduction in selling price

(ii) To increase selling price in case the profit volume ratio is low, with the

expectation

that the higher profit will be earned. If reduction is selling price does not increase the sales
volume the price reduction will result only in lower profits. If the profit makes only small
contribution, then a reduction in selling price makes it all the more difficult to recover the fixed
cost and to earn profit.
Required sales in units

Fixed expenses + Target Profit

___________________________

Unit Contribution Margin

Required sales value

Fixed expenses + Target Profit

____________________________
Contribution Margin Ratio

PROFIT FROM GIVEN SALES:

It can be appropriately used to solve most of the problems of cost volume profit analysis.

Profit is different from the contribution which is net margin increasing after reducing fixed
expenses from the total contribution profit can be ascertained as given below

Contribution

Sales

P/V ratio

Profit

Contribution - Fixed Cost

CONTRIBUTION MARGIN RATIO:

The P/V ratio which establishes the relationship between contribution and sales is of vital
importance for studying the profitability of operation of a business. It reveals the effects on
profit of changes the volume. The profit volume ratio is also called the contribution ratio or
Marginal ratio.

Contribution

Contribution Margin ratio

Sales Variable Cost

Contribution
________________
Sale

* 100

COST-VOLUME-PROFIT ANALYSIS OF BUSINESS

Variable Cost
Item
Qty
Rate
Total
Anar
30kg
100
3000
Mausami
45kg
20
900
Pineapple
30kg
70
2100
Orange
30kg
50
1500
Banana
25kg
50
1250
Chikku
25kg
60
1500
Carrot
32kg
10
320
Milk
30 liters
52
1560
Sugar
13kg
35
455
Shakes Flavour
7 bottles
100
700
Electricity
1200 units
10
12000
Plastic Glasses
15000
1280
Straws
15000
1000
Water
150 Liters
35
5250
Aluminium foil
15 rolls
300
4500
Poly bags
7000 units
0.5
3500
Total Variable cost
40815
Total Variable cost per year
489780

Fixed Cost
Item
Rent 12 months
Juicer and related
Utensils
Tables
Chairs
Cleaning Stuff
Salary 12000
Fixed Electricity bill
Total Fixed Cost

Qty

Total
2

7
2

960000
60000
5000
6000
5000
6000
288000
8400
1338400

Total sales
Item
Mausami Juice
Anar Juice
Pineapple
Orange
Banana Shake
Chikku
Carrot Juice
Chocolate shake
Mango shake
Strawberry shake
Vanilla Shake
Mix Juice
average selling price
Units sold per day
units sold monthly
units sold yearly

Rate (AVG)
Per day Avg Daily sales
45
30
1350
30
20
600
35
20
700
35
10
350
40
15
600
40
15
600
50
30
1500
40
20
800
40
20
800
40
20
800
40
10
400
30
30
900
38.75 Daily sales
240 Monthly
sales
7200 Total Sales
for year
86400

Sales
Less : Variable Cost
Contribution
Less : Fixed Cost
Operating Profit

9400
282000
3384000

3384000
489780
2894220
1338400
1555820

Selling Price per unit = 38.75

Variable cost per unit = 4,89,780/86400 = 5.66
Contribution per unit = 5.66
1. Contribution Margin Ratio :
= Total Contribution/Total Sales
= 28,94,220/33,84,000
= 0.855 or 85.5 %
2. Break Even Sales (in amount) :
Breakeven point is the number of units that must be sold for a
company to breakeven to neither earn profit nor incur a loss.

= Fixed Cost/ Cn Margin

= 13,38,400/0.855
= 15,64,893 approx.
3. Break Even Sales (in units) :
= Fixed Cost/Cn Per Unit
= 13,30,700/0.855
= 236102(Approx) units
4. Operating Leverage :
= Total Contribution/Operating Profit
= 28,94,220/15,55,820
= 1.86 approx.
5. Margin of Safety :
= Total Sales Break even sales
= 33,84,000 15,64,893.34
= 18,19,106