Tea CVP Analysis
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Transcript of Tea CVP Analysis
FIRST ASSIGNMENT
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.
TEA LEAVESMILKSUGARWATERGAS
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.
He invested Rs.20,000 for Trolly.
He invested Rs.4,000 for gas cylinder, gas stove and glasses.
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.
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
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
Total variable cost for one day = Milk +
Sugar + Tea leaves = 520 + 130
+ 85 = Rs.735
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
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
He sells 400 cups of tea everyday at Rs. 4 per cup of tea.
Total Sales = 400 cups x Rs.4 = Rs.1,600
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
Contribution = Sales – Variable Cost = 1600 – 735 = Rs.865
Contribution Per Unit = Contribution/No. of Units sold
= 865 / 400 = Rs.2.1625
per unit
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%
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
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
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
TR
TC1266.5
984
246 >246
TR1 TR2
FC
UNITS
<246
CO
ST
/RE
VE
NU
E
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.
<246 246 >246
UNITS
CO
ST
/RE
VE
NU
E
TR
TC1
TC2
TC
AbhasAnurag DeepthiHansitaLavakusha Maleshwari