An example of applying the cost management method of cvp analysis. CVP - analysis as a tool for making managerial decisions

Andrei Mitskevich Ph.D., Associate Professor high school financial management Academy of National Economy under the Government of the Russian Federation, head of the consulting bureau of the Institute economic strategies

Break even analysis

The company's management has to make various management decisions regarding, for example, the price of selling goods, planning sales volumes, opening new outlets, increase or, conversely, savings on certain types of expenses. In order to understand and evaluate the consequences of the decisions made, it is necessary to analyze the ratios of costs, volume and profit.

The break-even analysis shows what happens to the profit when the volume of production, price and basic cost parameters change. The English name for break-even analysis is CVP-analysis (cost - volume - profit, that is, “costs - output - profit”) or Break - even - point (break-even point, break-even point in this case).

Who doesn't know this? However, only a few use the classics in the life of firms. Why? Maybe "professional economics" is so out of touch with life? Let's try to understand what CVP analysis is and why its fate is ambiguous. At least in our country.

Assumptions made in the CVP analysis

Break-even analysis is carried out in the short run under the following conditions in a certain range of production volumes, called the acceptable range:

• costs and output in the first approximation are expressed by a linear relationship;
• productivity does not change within the considered changes in output;
• prices remain stable;
• reserves finished products insignificant.

Academician and our only compatriot - Nobel Prize winner in economics for 1975 L.V. Kantorovich said: “Mathematical economists begin all their work with “suppose that...”. So this cannot be assumed.” Perhaps, in our case, the professors stepped on the same rake?

The answer to this question pleases: the hypotheses are working, tested by practice

management accounting. If they are violated, it is not difficult to make changes to the model.

The acceptable range of production volumes (relevance area) is determined by the cost linearity hypothesis. If the hypothesis is not in doubt, the range is accepted as the constraints of the CVP model. Basic classical ratios:

1. AVC ≈ const, i.e. average variable costs are relatively constant.

2. FC are unchanged, i.e. there is no threshold effect.

Then total costs for the output of the product are determined by the ratio

TC \u003d FC + VC \u003d FC + a × Q, where Q is the volume of output.

A single-product task lives in textbooks, and a multi-product task lives in practice.

• Single-product tasks answer questions from the field of break-even analysis in the form of the amount of product produced ((2). Most often, CVP analysis in theory comes down to determining the classical break-even point, which shows how many units of production need to be produced to cover all fixed costs. How as a rule, it also applies to the target profit, i.e. it comes down to determining the volume of output that provides a given profit.
• Multi-product tasks answer the same questions in the form of revenue (TC). At the same time, its structure is assumed to be unchanged, at least in the sense of the constancy of the share contribution margin in revenue.

Accounting methods affect the applicability of CVP analysis. Break-even analysis is carried out using Variable Costing, since Direct Costing and even more so Absorption Costing give errors. If a company does not use at least Direct Costing, then there will be a break-even analysis, therefore one of the reasons for the unpopularity of CVP analysis in Russia is the dominance of Absorption Costing.

Break even points

1) The classical break-even point in terms of the number of units of production assumes the payback of total costs (TC = TC). The critical value is considered to be such a value of sales at which the company has costs equal to the proceeds from the sale of all products (ie, where there is neither profit nor loss).

In a single-product variant, the value of the break-even point (Q b) is directly derived from this ratio:

This formula dominates the literature and, in fact, therefore, has earned the name of the classic break-even point (see Fig. 1).

Rice. 1. Classical CVP-analysis of the behavior of costs, profits and sales volume

An example of calculating the classic break-even point by the number of units of production

The Corporation decides to open several "mini-wholesale" stores. Their characteristics:

• narrow specialization (office paper, mainly A4 format)
• small trade area(room up to 20 sq.m., or remote outlet);
• minimum sales staff (up to two people);
• form of sales - mostly small wholesale.

Table 1

• Marginal profit per unit of production: 224 -180 \u003d 44 rubles. We calculate the critical point using the formula:
• Break even point = fixed costs/ Marginal profit per unit
  We get: 10000: 44 = 227.27.

To reach the critical point, the store needs to sell 228 reams of paper per month (10 reams per day), with six business days per week.

2) Multi-product break-even analysis. So far, we have assumed that there is one product, but in real life this is a minor special case. Paradoxically, the multicommodity case is less in demand in the literature and even more so in practice. The fact is that in this case the result of the break-even analysis is difficult to interpret. For a practitioner, it is not specific, since it gives hundreds of answers instead of a clear guideline for evaluation.

Let's consider the mathematics of this case. It is clear that the revenue must cover the total costs. In this case, we obtain not one break-even point, but a plane in the N-dimensional space, where N is the number of types of products. If we make a fairly correct and accepted in classical management accounting assumption about the constancy of AVC i = V i , we get a linear equation:

These points, by the logic of reasoning, are very similar to the points of the marginal I breakeven variable. Unfortunately, the remaining inseparable fixed costs cannot be distributed between products on the same and balanced bases. If all products are cash cows, such a base could be the notional contribution margin (revenue minus variable costs minus each product's own fixed costs). But since output is unknown in the break-even point question, neither the notional contribution margin nor the revenue work.

In the second step, you will have to allocate the remaining costs:

NFC = FC - ΣMFC i

Options:

a) equally, if there is no reason to prefer any one product;

b) in proportion to the planned revenue, if the sales plan is drawn up. Naturally, only the total fixed costs are shared;

c) if you have a plan, you can return to a balanced base (for example, marginal profit), but without part of the production
attributed to cover own costs (MPC i).

An example of calculating break-even points based on the developed Direct Costing.

Suppose a firm produces two types of products: "Alpha" and "Beta", sold at a price of 9 and 20 thousand dollars apiece, respectively. Average Variable Costs (AVC) are planned at $4,000 and $10,000 respectively.

Individual fixed costs for Alpha were $2,000,000 for the planned quarter, and for Beta, $8,000. The remaining fixed costs (NFC) turned out to be $10,000.

a) when dividing undivided fixed costs equally (5000 per type of product), we get:

Let's try to determine the break-even points in different ways. First, we calculate the coverage of our own fixed costs:

b) when dividing in proportion to the plan, you need to know this plan: 2900 and 2175, for example, in pieces. As the distribution base, we take the proceeds minus the coverage of own fixed costs:

22500 thousand dollars \u003d 2900 x 9 - 400 x 9 for Alpha;

$27,500 = 2175 x 20 - 800 x 20 for Beta.

c) the marginal profit base assumes that the planned output is reduced by the amount of own coverage (in units):

2900 — 400 = 2500 2175 — 800 = 1375

Conclusion: the deviations in the calculations are small, so you can use any of the proposed methods in the case of an approximate equality in the volumes of products. Otherwise, it's better to use methods B and C:

B - for growing markets and products;

B - for "cash cows".

3) The classical break-even point in terms of revenue is the most common approximate solution to a multi-product problem. It is assumed that the revenue structure changes insignificantly. The task is set as follows: to find such a value of revenue at which profit is zeroed. To do this, the economist requires a coefficient ( To) showing the proportion variable costs in revenue. It is not difficult to find it, knowing the share of variable costs in total costs and profit in revenue. As a result, we get the equation:

For example:

• share of variable costs in revenue = 9742/16800 = 58%;
• fixed costs = 5816 thousand rubles;
• break-even point \u003d 5816 / (1-0.58) \u003d 13848 thousand rubles of revenue

In contrast to the classical break-even point in terms of the number of units of production, here it is necessary to make a reservation regarding the accuracy of the results:

• formula (7) is certainly correct with the same output structure;
• however, a less stringent condition can also be formulated: the invariance of the coefficient k, i.e. share of variable costs in revenue.
• Break-even point based on margin ordering in descending order. The break-even point shifts to the left when using the ordering of products in descending order of marginal profit.

Let's consider this interesting and rarely described effect with an example. So, the firm has fixed costs equal to $16,000 and produces 4 products with different shares of marginal profit in revenue (see Table 2).

Table 2. Initial data for calculating the break-even point based on marginal ordering

Product		Revenue (TK) Doll.	Marginal profit (/OT), USD	Share of contribution margin in revenue

Calculate the break-even point for revenue based on formula (7):

Let's determine it taking into account that we will first produce the most profitable products: A and B. They are just enough to cover fixed costs: μπ(A) + μπ(B) = 12000 + 4000 = 16000 = FС. Thus, we obtain an optimistic estimate of the break-even point:

20000 + 8000 = 28000.

The break-even point based on ascending margin order gives a pessimistic estimate. Let's use the same example to illustrate. Products D, C, B are only enough to cover $12,000, and the remaining fixed cost of $4,000 is one-third of the output of product A. That is, a pessimistic estimate of the break-even point:

Break-even points based on marginal descending and ascending ordering together give an interval of possible break-even points.

4) Point 1. LCC break even. The Life Cycle Costing approach to the problem of cost and profit defines the break-even point as an output that pays for the full costs, taking into account the entire life of the product. The LCC approach encroaches on the prerogatives of investment design. In addition to fixed costs, he also insists on covering investment costs.

An example of an LCC analysis

Suppose a consortium Russian firms invested $500 million in research and development (R&D) of the new aircraft.

Fixed costs consist of $700 million in R&D (a one-off cost in a given year) plus $50 million in annual fixed costs. Variable cost per aircraft - $10 million. It is expected that 25 aircraft will be produced per year, and they can be sold on the market for a maximum of $16 million. How many planes need to be sold to compensate for all costs without taking into account the time factor (this is also a break-even point, but taking into account what?) and how many years will it take?

Solution: Let's denote the unknown number of years as Y. Fixed costs will depend on the number of years to reach the break-even point: 700 + 50 x Y. Equate the total costs and revenue for Y years:

700 + 50 x Y + 25 x 10 x Y = 25 x 16 x Y.

Hence Y = 7 years, during which 175 aircraft will be produced and sold.

5) Point breakeven margin(payback point for an additional unit of output). In modern complex production, marginal costs (for producing an additional unit of output) do not immediately become lower than the price. Release,

providing break-even of an additional unit of production, is determined by the ratio:

Q bm: P \u003d MS (Q bm) (8)

This point shows the moment (output) when the company starts to work "in plus", i.e. when with the release of one more unit of production, profits begin to grow.

Unfortunately, there is no more detailed formula. This ratio

6) Break-even point of variable costs (point of coverage of variable costs):

TR = VC or P = AVC. (9)

It shows that the process of recoupment of fixed costs will soon begin. This is an important indicator both for managers who “started” New Product as well as for owners. However, there is no more intelligible formula for calculations here either. The reason is the same: the ratio

(9) always individually.

Target profit points

They show the output of a single product (or revenue - in the case of multi-product production), providing a given mass or rate of return.

1. Target profit point by the number of units of production.

The traditional indicator is the output that provides the target profit. Similar calculations are performed in many firms. Suppose the required profit is π, that is,

This formula is easily modified in the case of a target after-tax profit. Here are the simplified calculations. If the target profit after tax should be equal to z, then (TR - TC) × (1 - t) = z, where t is the income tax rate. Therefore, (P - AVC) x Q x (1 - t) = z + FC × (1 - t) or

2. The target profit point for revenue is easily calculated by analogy with formula (7):

In the multicommodity case, it is subject to the same restrictions on the invariance of the coefficient k, i.e. share of variable costs in revenue.

Sensitivity analysis is based on the use of the “what happens if one or more factors that affect the amount of sales, costs or profits” change. Based on the analysis, you can get data about the final result with a given change in certain parameters. The sensitivity analysis is based on safety edges.

Safety edges (sometimes translated as safety margin or safety margin) show the margin of safety, break-even business as a percentage or natural units, or in rubles of revenue. The percentage representation is more visual and, most importantly, allows you to normalize this important indicator. Although these norms are extremely approximate, they are useful. Mathematicians speak of such figures and formulas with disdain: "management indicators." But this “engineering approach” cannot be avoided.

Classic safety edge by number of units:

It shows how much percentage revenue can decrease with break-even production. Less than 30% is a sign of high risk.

Classic Safety Edge by Revenue:

Both of these safety margins are good for the business as a whole, as fixed costs are understandable, but not very useful for business segments. However, the "frontal" application of variable or marginal costs, as you remember, requires the non-linearity of their functions. Classical management accounting does not study these functions and therefore is forced to consider them linear. Does this mean that there are no other safety edges than the classic ones? The answer will be negative.

The price safety margin shows how much price needs to be lowered in order for the profit to become zero. This will be at critical price P k \u003d AC. Then the margin of safety will be as a percentage of the current price:

The variable cost safety margin shows how much the unit variable costs need to increase in order for the profit to go to zero. The critical value of AVC is reached at AVC = P - AFC. Because

The margin of safety for fixed costs in absolute terms is equal to profit, and in relative terms:

Please note that in formulas (15-17) the output remains unchanged.

Problems in determining break-even points

If a firm is facing a fixed costs, there can be several break-even points. The break-even chart (see Figure 2) shows three break-even points, and profit and loss zones follow each other as the volume of activity increases.

Rice. 2. Multiplicity of classical break-even points in the case of semi-fixed costs.

Similar reproduction also applies to non-classical break-even points.

Difficulties in conducting a break-even analysis may be due to the following reasons:

• if supply is high, the unit price may have to be lowered. Consequently, a new break-even point will appear, lying to the right;
• "Large" buyers are likely to be eligible for volume discounts. The break-even point shifts to the right again;
• if demand exceeds supply, it may be appropriate to increase the price. This will move the break-even point to the left;
• the cost of raw materials and materials per unit of production may decrease with large volumes of purchases or increase with supply interruptions;
• the unit cost of wages of production workers is likely to decrease with a large volume of production;
• both fixed and variable costs tend to increase over time;
• costs can not always be accurately divided into fixed and variable;
• the structure of sales can change quite significantly.

Primitive business plans simply ignore all these elementary analytical calculations.

However, it is believed that break-even analysis is carried out everywhere and its value is great. My observations do not support this. Like any model, the CVP has its own “battlefield”, and it is fragmented. Many firms conduct CVP analysis only for new projects. Unfortunately, regular work with the profitability of products and segments in our country is still not enough.

Case with solutions

So, two firms: CJSC "Staromehanicheskij Zavod" (hereinafter - SMZ) and OJSC "Foreign Automation" (hereinafter - ZAM) work in the Little Russian market and manufacture a part used in car repairs. Today the two companies have divided Russian market- each holds 50%. Manufactured parts have the same quality and price. The production facilities of both companies are located in the vicinity of Mariupol.

However, companies differ radically in their cost structure. "Foreign Automation" has a fully automated and very capital-intensive production. And the "Old Mechanical Plant" is a non-automated production with a large share manual labor. Monthly profit and loss statements of companies are as follows (see table 1).

Table 1. Initial situation (in c.u.)

Indicators	"Foreign Automation"	"Old Mechanical Plant"
Sales, pcs.
Price for one
Unit Variable Costs
Specific fixed costs
Total unit cost
Full costs	9.5x5000 = 47500	9.5x5000 = 47500
	50000 — 47500 = 2500	50000 — 47500 = 2500

Both companies are looking at ways to increase profits. One of them is to start selling your products to a large, but relatively low-income (or economical) segment of buyers, which in this moment no one is serving. The potential capacity of this segment is 2000 pieces per month. Thus, the company that has captured this segment, sales in physical terms will increase by 40%. The only problem is that in this segment, consumers will buy parts at a price no higher than 8.50 USD. e. per piece, i.e. 15% lower than the market price and 1 c.u. That is, below the total cost of production at the moment. How can you sell below cost? - the head of the FEO with many years of experience at the "Old Mechanical Plant" is indignant.

Question 1: Let's say both companies can cost-free segment the market (i.e. start selling parts to the economy segment at a 15% discount without undermining their full-price sales to wealthy customers). To what extent can each company increase profits if it increases sales (in units): a) by 20%, that is, by capturing half of the economy segment?

b) by 40%, capturing the entire economy segment?

Should companies (one or both) use this opportunity increase profits?

Question	Response Logic	"Foreign Automation"	"Old Mechanical Plant"
	Profit increment (Δπ) is calculated through the marginal profit per unit of production in an additional batch (αμπ)	αμπ \u003d 8.5 - 2.5 \u003d 6 Δπ \u003d 6x1000 \u003d 6000	αμπ \u003d 8.5 - 5.5 \u003d 3 Δπ \u003d 3x1000 \u003d 3000
		αμπ \u003d 8.5 - 2.5 \u003d 6 Δπ \u003d 6x 2000 \u003d 12000	αμπ \u003d 8.5 - 5.5 \u003d 3 Δπ \u003d 3x2000 \u003d 6000

Conclusion: Both companies will be happy to "grab" even half of the economy segment, not to mention the happiness of taking possession of it entirely.

Question 2: What to do if neither SMZ nor ZAM can effectively segment the market, and both firms will be forced to set a single price for all buyers (i.e. 8.50 USD for both the economy segment and wealthy buyers ).

A. Calculate the BOP (break even sales volume) for each

companies, if the price is reduced to 8.50 c.u. e.

b. How much would each company's profits increase if its sales

increase by 40% (in pieces)?

Attention: BOP (break-even sales volume) in this case assumes that the company should receive the same, not zero, profits.

Breakeven sales volume is more common in practice than the classic CVP analysis. In life, it is found, in textbooks - not always. This is a variant of the target profit point in dynamics: when factors change, the profit remains at the same level. The break-even volume of sales assumes that the company should receive the same profits during changes, and not zero. For example, an old machine has been replaced with a more efficient and expensive one. Naturally, the question arises, how much should output be increased in order to “recoup costs”?

Question	Response Logic	"Foreign Automation"	"Old Mechanical Plant"
	Calculated through the equality of marginal profits before and after changes	μπ (up to) \u003d 7.5x5000 \u003d 37500 \u003d μπ (after) = 6xQ μπ (after) = 7.5x5000 =37500	μπ (up to) \u003d 4.5x5000 \u003d 22500 \u003d μπ (after) = 3xQ
b. Output growth by 40%	Profit growth (Δπ) is calculated as the difference between marginal profits before and after changes	μπ (after) \u003d 6x7000 \u003d 42000 μπ \u003d 42000 - 37500 \u003d 4500	μπ (after) = 4.5x5000 = 22500

This is what we call cost structure competitiveness with lower average variable costs. Foreign Automation will survive the price cuts, but Old Mechanical Plant will not. Dumping (the game to lower prices) is the lot of firms with low variable costs. There are no fixed costs here.

Question 3: While companies were thinking, their market was invaded by strong competitor- Automobile plant. He easily captured half the market, trading the same parts for $9. We will have to return to the original situation and analyze the reliability of the SMZ and ZAM. Both firms lost half of their sales (in units). The results are presented in table. 2.

Table 2. The situation after the invasion of the "adversary" (in c.u.)

Indicators	"Foreign Automation"	"Old Mechanical Plant"
Sales, pcs.
Price per piece e.
Specific
variables
costs
Fixed costs (per month)
Specific
permanent	14 = 35000: 2500
costs
Total unit cost
Full costs	16.5x2500 = 41250	13.5x2500 = 33750
	22500 — 41250 = -18750	22500 — 33750 = -11250

Of course, both companies are at a loss, but it is perhaps easier to transfer them to the Staromehanicheskoy Zavod. This is what we call cost structure reliability with lower fixed costs.

Question 4: Morning. Invasion car factory' turned out to be a nightmare. Given that no single company can segment the market, what advice would you give each company on this opportunity?

Answer: "Foreign Automation" should lower the price, but "Old Mechanical Plant" - no. ZAM has every chance to win price competition due to lower variable costs.

After analyzing the situation, ZAM decided to take the opportunity to sell parts to a new segment and reduced prices by 15%. Its sales rose to 7,000 units per month at a price of $8.50. e. Belatedly, SMZ was also forced to cut prices to keep its customers. SMZ management believes that if they had not reduced their prices, they would have lost 60% of sales. Unfortunately, after the price reduction, SMZ operates at a loss.

Question 5: Was Staromekhanichesky Zavod's decision to cut prices financially sound? For example, if SMZ decides to leave this market entirely, it can cut its fixed costs in half. For example, refuse to rent premises, land and other expenses. The remaining 50% of fixed costs is servicing a bank loan for the purchase of equipment that has a zero salvage value. Calculate and compare profits for different options.

Position after price reduction:

μπ (up to) \u003d 4.5x5000 \u003d 22500

μπ (after) = 3x5000 = 15000

FC = 20000, π = -5000.

Alternative option: do not reduce the price, but lose part of the market:

μπ (up to) \u003d 4.5x5000 \u003d 22500

μπ (after) \u003d 4.5x2000 \u003d 9000

FC = 20000, π = -11000.

Therefore, price reduction is beneficial in the short run.

When leaving the market, π = -10000. Therefore, one should stay and reduce the price, although production will be unprofitable: FC = 20000, π = 15000 - 20000 = -5000.

Fortunately, the managers of the Old Machine Factory read Michael Porter's book Competitive Advantage and decided to analyze how the entire value chain works. As a result of market analysis, they found that at least 3,500 parts are bought monthly by drivers, who then have to remake this part themselves so that it better suits their brand of car: namely, the Volga. Thus, there is an opportunity on the market to produce a specialized version of the part for this category of drivers. And although the cost of production at the LMP will increase, the additional costs will still be less than what drivers currently spend on reworking the part.

For the production of specialized parts, SMZ will have to invest additional capital, the fee for which will be 3000 c.u. per month.

Question #6: In order to produce specialized parts, SMZ would have to buy new equipment and a new building, which would cost $23,000. fixed costs per month instead of 20,000 c.u. e. per month. The plant management is convinced that they will be able to sell specialized parts for 6 cu more than conventional parts (ie 16 cu), but the unit variable costs will increase by 3.00 cu. e. per month. Would it be beneficial for SMZ to focus on the production of only specialized parts?

Answer: FC \u003d 23000, π \u003d (1b-8.5) x3500 - 23000 \u003d 3250. Yes, the manufacture of only specialized parts is profitable, since the profit will increase by 3250 - 2500 \u003d 750 c.u. e.

Question #7: What is the minimum number of custom parts that SMZ must sell per month to exceed the profits it currently earns as a generic parts manufacturer? Remember? This is what we call break-even sales volume.

Answer: FC \u003d 23000, π \u003d (16-8.5) xQ - 23000 \u003d 2500. Q \u003d 3400.

Question No. 8: How much will Staromekhanichesky Zavod's profits increase as a manufacturer of specialized parts if it sells 3,500 pieces per month at a price of 16 USD per piece. ?

Answer: 3250 — 2500 = 750.

"Unfamiliar options for break-even analysis"

There are other options for break-even analysis. For most, they will be unexpected. We call them "three break-even points":

The first and fastest achievable - the marginal break-even point - shows at what output the price will begin to recoup the additional costs of producing one more unit of output (P > MC - under conditions perfect competition or MR > MC - under conditions imperfect competition). The first condition (P > MC) corresponds to the spirit of management accounting and is quite worthy to use. The second (MR > MC) is suitable only for pure economic theory, although denying the possibility of it practical use it would be presumptuous.

The second point - the break-even point of variable costs - shows the output at which it will be possible to cover all variable costs (TR\u003e VC). Naturally, such a statement of the problem is typical for Variable Costing. In the case of using Direct Costing, a similar point will be called the break-even point of direct costs (TR> DC).

The third point - classical - sets the output at which it will be possible to cover all costs (TR\u003e TC). It has filled all the textbooks, so most students and professionals think that the classic break-even point is CVP analysis. This is a clear exaggeration, or rather an underestimation of the role and capabilities of CVP analysis.

Example. Evaluation of the work of company stores and allocation of general administrative costs

At the beginning of the year, a large Moscow company set an ambitious goal: to open 200 new branded stores across the country in a couple of years. The central office economist asked how to allocate the costs of the central office between stores? The answer, surprisingly, relies on the “three break-even points”:

1. Again open shop must first pay off its current content. This is the first and concrete task for management. It is not necessary to post costs to such stores. This is also a marginal break-even point, but not for products, but for stores. Ceteris paribus, the team that gets through the first stage faster will “win the capitalist competition.” Moral incentives have not been canceled.

2. As soon as the store contributes to the coverage, another stage of development will begin. Here it is required to recoup the accumulated current losses of the previous stage. This is also a kind of break-even point for variable costs, but not for products, but for stores.

3. Only at the next, third stage, it is necessary to fight for the classic payback. And only here you can distribute the costs of the central office between stores. Advanced Direct Costing welcomes this solution, but does not provide advice on which overhead cost bases to use.

It is on such a decision that the business plan of each store or branch, representative office, business area, and so on should be aimed.

The value of break-even analysis and target profit planning lies in the fact that this approach allows you to evaluate the profitability certain types products, establish a "margin of safety" of the enterprise and plan the volume of sales of products that provides the desired value of profit.

CVP analysis. Basic provisions

As practice shows, the most effective are those enterprises that provide loading production capacity at a level close to full performance. However, despite this, enterprises can be unprofitable. There can be many reasons for the unprofitability of enterprises (delays in implementation, shortage of components, poor quality of raw materials, etc.).

If the enterprise operates at a lower level of capacity utilization, i.e. produces significantly less output compared to full productivity, revenues often cannot cover all costs. When the level of capacity utilization increases, it is hoped that a situation will be reached where total revenues will equal total costs. There is no profit or loss at this point. This situation is called a break-even situation. Thus, we come to the concept of break-even.

Break even analysis, or cost-volume-profit analysis (Cost-Volume-Profit, CVP-analysis, as it is often called) is an analytical approach to studying the relationship between costs and revenues at various levels of sales. Read also about swot matrix.

The practical value of break-even analysis and target profit planning is that this approach allows you to:

• evaluate the comparative profitability of certain types of products, which gives grounds for choosing the optimal product portfolio;
• establish the "margin of safety" of the enterprise in its current state;
• plan the volume of sales of products that provides the desired value of profit.

In the process of conducting a break-even analysis in its standard (classic version), the following assumptions are made.

1. The classification of costs is used according to the nature of their behavior when the volume of sales of finished products changes. Costs are divided into fixed and variable.
2. It is assumed that all manufactured products will be sold within the planned period of time.
3. As a criterion for analysis, profit before taxes is taken, i.e. operating income, not net income.

All subsequent questions of the break-even analysis will be considered mainly within the framework of these assumptions. It is important to emphasize that Assumption 2 is not critical in this analysis.

The fact is that CVP analysis is designed to evaluate the economic efficiency of an enterprise in terms of obtaining operating profit, i.e. money generating potential. It is clear that if the operating profit is high, and the goods are stale in the warehouse, then this leads to a shortage of money in the company. But this task is not considered by the break-even analysis. No matter how much goods remain in stock, the profitability of the enterprise does not change.

The practical orientation of the CVP analysis methodology should be emphasized once again. In the practice of financial management, two bases of analysis and planning are distinguished:

1. accrual basis (or resource);
2. monetary basis.

In accordance with the accrual basis, the object of analysis and planning is revenue as a flow of input resources of the enterprise, and gross costs as a flow of output resources. The difference between the flow of input and output resources is considered as the end result of the analysis.

CVP analysis works exclusively within the framework of the accrual basis, measuring the result of the enterprise's activities by its operating profit. The amount of operating profit only indirectly reflects the total cash flow from operating activities. Evaluation and planning for this cash flow there is a subject of analysis, which is carried out using the monetary basis. This issue is addressed in the next chapter of this book. In the meantime, we will analyze and plan only operating profit. The presence of operating profit in a specific period of time does not mean that the company will have adequate cash flow, as its value is determined by the dynamics of the state working capital and company debts. But if the company is unable to generate operating income for a number of periods, then a positive cash flow cannot be expected.

• Strategic accounting and business performance evaluation

Profit statement as part of the CVP analysis

As part of the CVP analysis, the format is used income statement, which differs from the traditional IFRS format. The traditional format follows the basic classification of production costs (direct materials, direct labor and manufacturing overheads) and non-manufacturing costs (administrative and selling costs). These costs are deducted sequentially from revenue, resulting in net operating income.

The format of this report is presented in Table. 1. It should be noted that the costs used in this format include both variable and fixed components. This format cannot be used for planning purposes, since it does not allow tracking the change in costs due to changes in the volume of sales of goods.

Table 1. Traditional income statement format

Sales proceeds (excluding VAT)		120 000
Minus production costs		60000
Gross profit (see what it is)		60000
Minus non-manufacturing costs:
implementation	31 000
administrative	19 000
Net operating income (before taxes)		10 000

For planning purposes, the income statement format is used (Table 2) based on Contribution Margin. This term is usually translated as contribution margin or invested income.

Table 2. Format of income statement based on contribution margin

The end result turned out to be naturally the same as in the previous case. But now we have the opportunity to plan the value of profit, since with a change in the volume of sales, only variable costs change, while the constant ones remain unchanged. In this format, a new element has appeared - marginal profit. According to the meaning of this characteristic, marginal profit should cover all fixed costs and provide a given value of profit.

The importance of marginal profit for the analysis of the company's marketable product portfolio cannot be overestimated. This indicator is a kind of economic performance of products or product portfolio. Indeed, if the marginal profit per unit of production is 200 rubles, then with each new unit of goods sold, the company receives 200 rubles. arrived. In such a situation, companies should strive to have in their portfolio as many products as possible with a high value of marginal profit.

An essential factor in conducting a CVP analysis is the division of costs into variable and fixed costs. Variable costs, by definition, change (in general) in direct proportion to the increase or decrease in production and sales (assuming that unit costs remain almost constant, stable). In contrast to variable costs, fixed costs do not change when the level of production and sales changes over a certain period of time (for example, a year).

Variable costs include the cost of raw materials and materials, energy and public utilities(used in the production process), sales commissions (if determined by the volume of sales), workers' wages (provided that it is charged according to the piece-rate system). Examples of fixed costs are depreciation of buildings and equipment, depreciation of pre-operating expenses, rent and lease (which do not change with changes in sales and production), interest on loans, wage employees, managers, controllers (who by assumption do not change when the level of production changes), general administrative expenses.

Some of these costs, such as salaries or general administrative expenses, may not vary in direct proportion to volume and at the same time may not be constant. They can be designated as mixed (semi-variables). Such costs can be broken down into variable and fixed components and considered separately.

In this analysis, we will be primarily interested in those characteristics of costs that remain unchanged in the process of changing the volume of production and sales. These characteristics are called invariants. Due to their immutability, invariants are the basis for solving planning problems.

By definition, total (over a period of time) variable costs change in proportion to the volume of production, while unit costs remain unchanged. Based on this property, as an invariant in the analysis variable costs costs are accepted per unit of production, which do not change with changes in the volume of production and sales.

When analyzing fixed costs, it should always be taken into account that the definition of "fixed" is related only to the volume of goods sold. In other words, "fixed costs" may not be fixed if some other business factor changes, such as depreciation rate or unit cost. energy resource, which is used to maintain the temperature in the production room. According to the definition of fixed costs, when the volume of production changes, the total fixed costs over a period of time remain unchanged, and the fixed costs per unit of output change: they increase with a decrease in volumes and decrease with an increase in volumes. Therefore, as an invariant in the analysis of fixed costs, the total costs of the enterprise over a period of time are used.

There is another feature of fixed costs: they can change with a significant change in the volume of production. Moreover, this change is, as a rule, spasmodic in nature. For example, if the volume of production increases, it may be necessary to rent an additional production premises and the purchase of new equipment, which will increase fixed costs by the amount of rents for new premises, as well as operating and depreciation costs for new equipment. Taking into account the noted feature of fixed costs, the concept of a relevant interval of change in the volume of sales of products is introduced, during which the total fixed costs remain unchanged.

In real practice, there are often costs that contain components of variable and fixed costs. A classic example of such costs is the following type of rent, which, according to the agreement between the tenant and the landlord, is divided into two parts: the tenant must pay 10,000 rubles. per month and 5 rubles. for each hour of operation of the production equipment installed on the leased premises.

Examples of this kind, in which mixed cost sharing occurs perfectly, are extremely rare. In practice, it is often difficult to directly and unambiguously single out the variable and fixed components of costs by analyzing the resulting costs for their individual elements, the number of which can reach several dozen.

To solve the problem of cost classification and separation of mixed costs, two approaches are used: subjective and statistical. The subjective approach involves the volitional attribution of costs to variables or constants based on the manager's informal experience. The statistical approach bases its conclusions on the analysis of available statistical data. This approach is considered to be more objective, since it consists in analyzing specific data for several past periods (months) and building on this basis the dependence of total costs on the volume of product sales.

For the purposes of a more detailed structural analysis, the format presented in Table 1 is used. 3. Here a new element for analysis appears - marginal profit per unit of production, which remains constant until the price of a unit of production and variable costs per unit of production change.

Table 3. Analytical income statement format based on invested income

If the sales volume is 400 units, the income statement based on marginal profit is as follows:

From the numbers above, it follows that if a company sells 400 units of a product, it will make zero profit (neither profit nor loss). This sales volume is called the break-even point.

By definition, a break-even point is:

• the volume of sales at which revenue equals total costs;
• the amount of sales at which marginal profit equals fixed costs.

Once the break-even point is reached, each additional unit sold generates an additional profit equal to the invested income per unit of production.

CVP analysis for one product

For breakeven point calculation a simple ratio based on the balance of revenue and costs of the enterprise is used:

Let, for example, the initial data have the following form:

Fixed costs amount to 80,000 rubles. per month.

If X is the break-even point in units of production, then using the main equation we get

500X \u003d Z00X + 80,000 + 0,

whence X = 400 units of production; 500 rub. × 400 = 200,000 rubles.

Zero in this formula is substituted because we find the breakeven point, i.e. the amount of sales at which profit is zero.

From the resulting ratio it can be seen that in order to calculate the break-even point, it is necessary to divide fixed costs by the difference between the sales price of products and the value of variable costs per unit of output. This value is called Unit Contribution Margin.

It is customary to present the break-even point in natural (production units) or in monetary terms. With all evidence, it can be argued that the lower the break-even point, the more efficiently the company operates in terms of operating profit.

The task of determining the target sales volume, i.e. such a value of sales volume, which corresponds to a given value of profit, is solved in a similar way using the relation

Revenue = Variable Costs + Fixed Costs + Profit.

If Y is the desired target sales volume in units of production, then using the main equation, we get

500Y = З00Y+ 80,000 + 20,000, whence Y = 500 units; 500 rub. × 500 = 250,000 rubles.

In this formula, instead of zero, we used the target amount of profit. Using this simple ratio, we have established the following: in order to get 20,000 rubles. operating profit, it is necessary to sell goods for 250,000 rubles.

An important characteristic of the successful operation of the enterprise is the safety margin (Safety Margin), which in relative form is defined as the difference between the planned sales volume and the break-even point. The higher this indicator, the safer the company feels in the face of the threat of negative changes (reduction in revenue or increase in costs).

The content of the break-even analysis is fully disclosed on the break-even chart (Fig. 1). This graph shows the volume of products sold in physical terms on the horizontal axis and the amount of income (or costs) in value terms on the vertical axis. Line AB, showing fixed costs that do not change depending on the volume of sales, runs parallel to the X axis. The distance between the line AB and the AC line along the y-axis for any given volume of sales characterizes the total variable costs of producing a given volume of production, and the distance between OA and AC along the y-axis for any given volume of production characterizes the total costs of production of a given volume. When products are not sold, total costs are not equal to zero, but equal to OA. When output is X, total cost is represented by the CX line, i.e. ХВ + ВС (ХВ - fixed costs, ВС - variable costs).

Rice. 1. Graphical representation of the break-even point

For each specific selling price per unit of product, the OD line shows revenue at different sales volumes. The intersection of the line of total income with the line of total costs determines the break-even point (BEP), i.e. N is the point at which total income equals total costs (variable and fixed). Any vertical difference between the line of total income and total cost to the right of the TOP shows a profit at a given output, while losses will be shown on the graph to the left of the TOP, because in this case, total costs exceed total income.

Example

Consider one of the products of the company "CHISTA" - dishwashing liquid. The average monthly sales of the company are 52,700 units of products, the selling price of products without VAT is planned at the level of 21.7 rubles. per unit of output, while variable costs per unit of output are estimated at 17.3 rubles. The financial manager localized fixed annual costs and they amounted to about 102 thousand rubles. per month.

The forecast income statement for the production and sale of bath products is as follows:

The calculation of the break-even point allows us to estimate the break-even sales volume BEP = 102,000 / 4.4 = 23.18 thousand units of production, i.e. 503 thousand rubles The planned sales volume allows us to predict operating profit at the level of 114 thousand rubles. The safety margin (%) will then be (1144 - 503) / 1144 = 56, i.e. 56%.

Judging by the calculations, the product taken as a separate product, i.e. out of the portfolio, is a very profitable product for CHESTA. But this does not mean that all other portfolio products are equally profitable.

Break-Even Analysis for Multiproduct Production

A feature of the break-even analysis for several types of products is the combination of fixed indirect (or indirect) costs. These costs are often referred to as overhead. The following simple example shows the effect of the structure of products in a portfolio on profitability and break-even point.

This example illustrates the classic break-even analysis scheme for a product portfolio. Let the company's portfolio contain two products A and B, the proceeds from which are distributed in a ratio of 1:3.

The combined break-even analysis can be represented as follows:

It is essential that the cost structure of the products differ significantly from one another. Fixed costs will not be shared between products. Let's calculate the break-even point for the entire portfolio:

With a change in the structure of production and sales, the total relative marginal profit and the break-even point change:

The break-even point also changes:

Using this format, you can analyze the structure of production and sales of an enterprise and build the most effective one, taking as a criterion the minimum break-even point and the total profitability of sales.

In practice, especially with a small range of production and sales, they often resort to a separate break-even analysis. various kinds products. At the same time, fixed indirect costs are conditionally distributed by type of product in accordance with some chosen principle.

The main problem that needs to be solved when constructing a methodology is whether it is worth localizing fixed overhead costs by type of product or whether it can be dispensed with. Accordingly, two approaches are possible: within the framework of the first approach, fixed overhead costs are localized by type of product, within the framework of the second, these costs are set as a whole for a group of products or for a production unit.

In more detail, the main assumptions of the first approach are as follows:

• variable costs are localized by product;
• fixed costs are considered as a grand total for the division of the enterprise;
• margin of safety and profitability are assessed for the entire division.

The first approach has obvious advantages. This is the simplicity of the computational algorithm and the absence of the need to collect a large amount of data. As a disadvantage of the first approach, it should be noted that it is impossible to make a comparative assessment of the profitability of individual types of products.

Example

Let's return to the product portfolio of the CHESTA company in its current state. Having four products in the portfolio, the company's managers decided to analyze the profitability of the portfolio. Initially, they took the first approach, i.e. did not begin to share indirect costs by elements of the product portfolio. Having conscientiously identified the main variable costs, they came up with the following table comparative analysis product profitability:

	Revenue, thousand rubles	Variable costs, thousand rubles		Marginal profit, %	fixed costs		Safety margin, %	Operating profit	Profitability,%
Dishwashing liquid	13 702	1 0 966	2 736	20
Sink cleaner	7 940	6 580	1 360	17
Toilet cleaner	5 823	4 655	1 168	20
Window cleaner	9 045	8 496	549	6
Mixture	36510	30 697	5813	16	3 325	20 881	43	2488	7

Judging by the data in this table, a feature of the portfolio is its lack of balance. Indeed, window cleaner has a relatively low margin, while being the second largest product in terms of sales volume. As a result, portfolio performance "leaves much to be desired." Company managers should focus their efforts on increasing the profitability of the window cleaner.

If the management of the company for adoption management decisions more complete information is required, the financial manager must localize indirect costs by type of product, i.e. use the second approach.

Main assumptions of the second approach:

• variable costs are localized by product;
• fixed costs are localized by product;
• marginal profit is estimated for each product;
• margin of safety and profitability are evaluated for each product.

In this case, the enterprise gets the opportunity to make a complete comparative assessment of the profitability of certain types of products, which is an undoubted advantage of the second approach. At the same time, the second approach leads to a more complex computational algorithm and the need to collect a large amount of data for analysis.

For such diversity, one of two methods can be used:

• baseline method;
• a method called Activity Based Costmg (or ABS method).

Basic indicator method. Suppose that N types of products account for some total amount of indirect costs S. Let's also assume that some indicator B, the value of which is strongly related to the type of costs under consideration, is taken as the basis for cost localization. During the production process, the values ​​of the base indicator are measured, corresponding to the release of each individual type of product: Вг В2, , BN. The value of indirect costs attributable to the ft-th type of product is determined by the formula:

The cost localization procedure involves the implementation of at least two types of additional work:

1. preliminary analysis of the relationship of the localized type of costs with one of the selected base indicators;
2. organizing the measurement and accounting of the values ​​of the selected indicator for the correctness of the subsequent determination of the share of the localized type of overhead costs attributable to one or another type of product.

ABS method. The basic principle of ABS technology is as follows: indirect costs are attributed to the product as they appear in the implementation of the corresponding business process, and are not localized by type of product after the completion of the production or sales process. The fundamental difference of this method is that the basis for the distribution of total indirect costs by type of product is the work (type of activity) performed for the corresponding type of product.

On fig. 2 shows how the costs of support units (i.e. indirect costs) through activities (processes, works, activities) are transferred to individual types of products.

Rice. 2. Distribution of indirect costs using ABC technology

For comparison, we present the traditional scheme for localizing overhead costs (Fig. 3). It shows how cost items classified as indirect are allocated to cost centers and further distributed to individual products.

Rice. 3. Distribution of overhead costs through their localization by basic indicators

To illustrate the point of view under which ABC system overhead costs are seen, we will give an example of the simplest report "plan / fact" for commercial enterprise made within the ABC technology (Fig. 4) and within the traditional approach (Fig. 5).

Rice. 4. Allocation of overhead costs using ABC technology for a commercial enterprise (example)

Rice. 5. Distribution of overhead costs using the base rate method for a retailer (example)

Comparison of the data in the above tables unequivocally testifies in favor of the ABC technology: the tables are more informative for decision-making, since the manager immediately sees who can be asked for such a significant excess of costs.

According to the author's experience, the redistribution of the assessment of the profitability of product groups and individual commodity items as a result of the use of ABS technology can significantly change the view of the real share of profit that a particular type of product or an entire direction brings to a company. Particularly significant is the identification in the course of the analysis of types of products that, due to the indirect costs associated with them, turn out to be unprofitable for business. However, the role of the ABC is not limited to clarification. The base indicator method fundamentally makes it impossible to either track overhead costs or reasonably manage them.

As a rule, an enterprise does not need to have a perfect ABS system in order to significantly improve performance. The well-known Pareto principle, or “80/20 principle”, applies to the process of mastering ABC. In our case, this principle could be called the principle of reasonable necessity in relation to the efforts expended to obtain the necessary accuracy. As always, when deciding economic tasks Initially, a threshold should be determined below which the costs of this stage considered as a general result, without detail.

The principle of reasonable necessity is precisely that the potential benefits of a more detailed consideration and distribution of indirect costs should outweigh the efforts associated with such a deepening.

Summarizing the experience of implementing indirect cost management systems, it is possible to formulate criteria for which system to choose, focusing on the current needs and business opportunities.

The baseline localization system can be recommended in the following cases:

• simple and similar products and services;
• homogeneous processes;
• uniform consumer demands and distribution channels;
• low level and simple structure of overhead costs;
• low implementation and administrative costs;
• high profitability of sales.

The conditions for the expediency of using ABS are characterized by the following business features:

• the diversity of the company's products;
• high proportion of indirect costs;
• a significant difference in sales volumes of certain types of products;
• lack of confidence in cost information on the part of operational managers;
• the desire of managers to understand the cost structure more deeply.

The main reason that the ABS system, which is actively supported in principle, has not found wide distribution in practice (including at Western enterprises) is the difficulty of transitioning from the system existing at the enterprise (traditional localization according to basic indicators) to the ABS system.

Example

Let's return to the product portfolio of the CHESTA company. The head of the company is not quite able to navigate the comparative profitability of products, using marginal profit. He demanded a "full line" of profitability across portfolio elements. The financial manager localized the fixed indirect costs by product type and obtained the results summarized in the table below.

Immediately everything fell into place. Window cleaner proved to be the "weakest link" in the company's product portfolio. This product generates a loss and "pulls to the bottom" the entire portfolio of the plant's marketable products. Note that we did not learn anything fundamentally new: earlier, the same conclusion was made using the marginal profit indicator. But then this conclusion sounded somehow unconvincing, and now we see that the loss is a significant amount of money. This speaks volumes more than just low margins. But, perhaps, the whole point is not in eloquence, but in the culture of decision-making?

	Revenue, thousand rubles	Variable costs, thousand rubles	Marginal profit, thousand rubles	Marginal profit, %	Fixed costs, thousand rubles	Break-even point, thousand rubles	Safety margin, %	Operating profit, thousand rubles	Profitability, %
Dishwashing liquid	13 702	10 966	2736	20	1227	6 145	55	1509	11
Cleaner for sinks and pipes	7 940	6 580	1360	17	703	4104	48	657	8
Toilet cleaner	5 823	4 655	1168	20	542	2 703	54	626	11
Window cleaner	9 045	8 496	549	6	853	14 052	–55	–304	–3
Mixture	36 510	30 697	5813	16	3325	20 881	43	2488	7

If the company's management used the marginal profit indicator for comparison, then it would not be necessary to localize fixed indirect costs, especially since the objectivity of the base indicator for allocating overhead costs cannot be ensured in principle, and there is no evidence for the use of ABC technologies due to the low share of indirect fixed costs. costs in the cost structure.

GAP analysis methods (from the English gap - gap) were developed at Stanford research institute in California. They allow, through the formation of a strategy, to bring the company's affairs in line with the most high level claims. This method of analysis is typical for corporations consisting of divisions and creating a business portfolio - a set of certain activities and products.

At the same time, GAP analysis is also called the analysis of strategic "hatchways". The task of the analysis is to establish the gaps between the desired and the real in the activities of the enterprise.(the intended goals of the enterprise and its real capabilities) (Fig. 1).

Rice. 1. GAP analysis charts

Main stages of GAP-analysis:

- determination of the main strategic indicator of the enterprise's activity (for example, market share, revenue, profitability);

- identification of the real capabilities of the enterprise in time dynamics;

− determination of specific indicators strategic planning providing market share growth;

− establishment of a "gap" between indicators strategic plan and real possibilities;

− development of measures to eliminate the "gap" ("gap").

Depending on the combination "product - market", four options for the development of the company according to Ansoff can be calculated (Fig. 1).

Rice. 1. The principle of conducting a GAP analysis

What is desired in the activities of the enterprise is determined by the vision of what it wants to achieve in its development, which allows you to set the desired "bar height" of strategic claims. The reality is what an enterprise can actually achieve by keeping its current policy unchanged.

From fig. 1 it follows that efficiency (the dynamics of revenue and profit growth) depends on the chosen development strategy and the company's capabilities.

Strategy D is the best in terms of efficiency, but more difficult to implement. Strategy A is the simplest, but less profitable.

Thus, GAP-analysis consists in calculating and evaluating all options for the development of the company in terms of costs and profits, choosing optimal strategy business.

When planning production activities, they often use CVP analysis or cost-volume-profit analysis.

CVP analysis- this is an analysis of the behavior of costs, which is based on the relationship of costs, revenue (income), production volume and profit. It is a management planning and control tool. The results of the analysis for this model are used by the manager for short-term planning and evaluation of alternative solutions.

The relationship "costs - volume - profit" is easy to express graphically (Fig. 1) or formulas. The graph shows the relationship between revenue (income), costs, output, profits (losses).

Figure 1 The relationship "costs - volume - profit"

The considered relationship can be expressed by the formula:

Sales revenue (VR) \u003d variable costs (PZ) + fixed costs (FZ) + profit (P).

The relationship under consideration can also be expressed by the formula : P × Q = v × Q + F + Pr,

where P is the selling price;

Q is the volume of production;

v - variable costs per unit of production;

F - fixed costs;

Rg - profit.

The purpose of analyzing the values ​​at the critical point (break-even point) is to find the level of activity (production volume) when the sales revenue becomes equal to the sum of all variable and fixed costs, and the organization's profit is zero. The value at the critical point can be expressed in sales units or sales dollars. The basic equation for finding a point:

where N is the breakeven point;

PZ - fixed costs;

C - sales price;

P - variable costs per unit of production.

Characteristics of the main methods for calculating the break-even point. CVP analysis is also often referred to as determining the break-even point. Its main tasks are: calculation of the volume of sales, which provides full coverage of costs; break-even point; profitability threshold; calculation of the volume of sales providing, ceteris paribus, obtaining the required amount of profit; analytical evaluation sales volume at which the enterprise can be competitive stock financial strength;...

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MINISTRY OF SCIENCE AND EDUCATION OF THE RUSSIAN FEDERATION

BRANCH GOU VPO "IGU" IN BRATSK

Department of Management and Trade

ABSTRACT

in the discipline "Cost Management"

on the topic of:

CVP analysis

2012

1. Essence, tasks CVP analysis.

CVP-analysis (Cast Value Profit costs, volume, profit) method of optimal distribution of resources by product types and decision-making on the production of goods.CVP analysis is also often referred to as determining the breakeven point. It helps to determine the amount of sales needed to cover costs and achieve the desired profit.

CVP analysis also allows you to determine how profit will be affected by changes in sales price, variable and fixed costs, and income.In other words, cost, revenue (income), production and profit data form the main model financial activities and allow the analysis results to be used for short-term planning and evaluation of alternative solutions.

Its main tasks are:

• calculation of the volume of sales, which provides full coverage of costs - the break-even point (profitability threshold);
• calculation of the volume of sales, providing, ceteris paribus, obtaining the required amount of profit;
• analytical assessment of the volume of sales, in which the company can be competitive (margin of financial strength);
• determination of the price of products, allowing to ensure demand and profit at the planned level;
• selection of the most efficient production technologies;
• implementation of the adoption of the optimal production plan.

Assumptions (or conditions of application) of the CVP analysis:

1. costs should reasonably be divided into fixed and variable parts;
2. there are constant prices for sold products - on the one hand, and prices for consumed production resources - on the other hand;
3. the range of products is constant;
4. the volume of production is approximately equal to the volume of sales;
5. revenue received is directly proportional to the volume of production;
6. the efficiency of the enterprise remains unchanged.
7. Marginal income, its role in CVP - analysis

The CVP method is based on the break-even principle, that is, expenses can be covered only when the total income minus the total variable costs is equal to the level of fixed costs. Any level of production above the break-even point will be profitable. The methodology for conducting this analysis includes building a break-even schedule based on data on estimated revenue, costs and production volumes and calculating a number of indicators, the central of which is marginal income.

Marginal income is the difference between the company's revenue from the sale of products (works, services) and the amount of variable costs.

Profitability threshold (break-even point) is an indicator that characterizes the volume of product sales, at which the company's revenue from the sale of products (works, services) is equal to all its total costs, i.e. This is the amount of sales at which the company has neither profit nor loss.

Production leverage is a mechanism for managing the profit of an enterprise depending on changes in the volume of sales of products (works, services).

Marginal margin of safety is the percentage deviation of the actual proceeds from the sale of products (works, services) from the threshold proceeds (profitability threshold).

To conduct a break-even analysis of production necessary condition is the division of enterprise costs into fixed and variable. As you know, fixed costs do not depend on the volume of production, and variables change with an increase (decrease) in output and sales. To calculate the amount of revenue covering fixed and variable costs, manufacturing enterprises in his practical activities use indicators such as magnitude and norm marginal income 1 .

The value of marginal income shows the contribution of the enterprise to cover fixed costs and profit.

There are two ways to determine marginal income:

1. All variable costs are subtracted from the company's revenue for products sold, i.e. all direct costs and part of the overhead costs (overhead costs) that depend on the volume of production and are classified as variable costs.

2. The value of marginal income is determined by adding the fixed costs and profits of the enterprise.

Under the average contribution margin understand the difference between the price of products and average variable costs. The average contribution margin reflects the contribution of a unit of product to covering fixed costs and making a profit.

The rate of marginal income is the share of marginal income in sales proceeds or (for an individual product) the share of the average marginal income in the price of goods.

The use of these indicators helps to quickly solve some problems, for example, to determine the amount of profit for various output volumes.

1. Characteristics of the main methods for calculating the break-even point

Analysis of the relationship "cost volume profit" in practice is sometimes called the analysis of the break-even point. The break-even point is understood as such revenue and such volume of production of the enterprise, which provide coverage of all its costs and zero profit, i.e. This is the amount of sales at which the company has neither profit nor loss. This point is also called the "critical" or "dead" or "balance" point. In the literature, you can often find the designation of this point as BEP (abbreviation for “break-even point”), i.e. point or threshold of profitability.

Break-even analysis is one of the most effective means planning and forecasting the activities of the enterprise. It helps business leaders to identify the optimal proportions between variable and fixed costs, price and sales volume, and minimize entrepreneurial risk.

Profitability threshold (break-even point) is an indicator that characterizes the volume of product sales, at which the company's revenue from the sale of products (works, services) is equal to all its total costs. That is, this is the volume of sales at which the business entity has neither profit nor loss. In practice, three methods are used to calculate the break-even point:

1. Graphical method. Finding the break-even point comes down to building a comprehensive schedule "costs production volume profit". The sequence of plotting is as follows:

1. a line of fixed costs (FC) is drawn on the graph, for which a straight line is drawn parallel to the x-axis;
2. any point is selected on the abscissa axis, that is, any volume value; to find the break-even point, the amount of total costs (fixed and variable) is calculated; a direct TS is plotted on the graph corresponding to this value;
3. any point on the x-axis is again selected and the amount of sales proceeds is found for it; a straight line (TR) corresponding to the given value is constructed.

Rice. 1. Break-even chart by accounting model

Shown in fig. 1 break-even point (profitability threshold) this is the point of intersection of the gross revenue and total costs graphs. The break-even point, on the chart, is point A, located at the intersection of straight lines built according to the value of costs and revenue.

At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The revenue corresponding to the break-even point is called the threshold revenue. The volume of production (sales) at the break-even point is called the threshold volume of production (sales). If the company sells products less than the threshold sales volume, then it suffers losses, if more than it makes a profit.

2. Method of equations: based on the calculation of the profit of the enterprise by the following formula:

Revenue Variable Costs Fixed Costs = Profit; (1)

Detailing the procedure for calculating the indicators of this formula for calculating the break-even point, it can be represented as follows:

Р*Х Yvc*X Yfc = 0; (2)

where P unit price;

Yvc variable costs per unit of output;

Y fc fixed costs;

Х threshold volume of production.

X= Y FC /(P-Yv c ); (3)

3. A variation of the method of equations is the marginal income method, in which the break-even point (profitability threshold) is determined by the following formula:

X \u003d Y f s / Nmd; (4)

where Nmd the rate of marginal income.

The rate of marginal income is the share of marginal income in sales proceeds or (for an individual product) the share of the average marginal income in the price of goods (value P-Yvc from formula 3).

In addition to the indicators considered in the analysis of "costs production volume profit", it is necessary to calculate the indicators of the marginal safety margin and the level of production leverage. The use of these indicators will help to quickly solve some problems, for example, to determine the amount of profit for various output volumes.

Marginal margin of safety (MZP) is a value showing the excess of the actual proceeds from the sale of products (works, services) over the threshold that ensures break-even sales. This indicator is determined by the following formula:

(5)
The higher the margin of safety, the better for the enterprise.

1. System information support CVP analysis

The CVP-analysis information support system should include the following main types of information:

1. Accounting sources of information

• accounting and reporting data,
• management accounting and internal reporting data,
• statistical accounting and reporting data,
• selective credentials;

2. Non-accounting sources of information:

• materials of permanent production meetings,
• meeting materials labor collectives and shareholders
• information from statistical authorities published in statistical offices and magazines, as well as additional, provided at the request of the user on commercial terms,
• scientific and technical information about modern world and domestic achievements in a particular field,
• scientific and technical information about the technical and technological capabilities of manufacturers and competitors,
• information about prices for products and raw materials for it, the commodity market,
• information about possible sales markets and their capacity,
• information about the possibilities of internal and external funding, consumer solvency, etc.

1. Relevance of application CVP -analysis in cost management

This topic is very relevant due to the fact that the formation and management of profit is the basis entrepreneurial activity. The amount of profit received is a characteristic of the efficiency of business entities. One of the fairly simple and at the same time effective methods of analysis for the purpose of operational and strategic planning and management of the financial and economic activities of an enterprise is operational analysis, also called cost-volume-profit analysis, or CVP analysis. This method allows you to identify the dependence financial results activities from changes in costs, prices, volumes of production and sales of products. It is extremely important for raising the economy of the enterprise in a market environment.

CVP-analysis allows you to find the most favorable ratio between variable and fixed costs, price and volume of production. The main role in choosing an enterprise behavior strategy belongs to the indicator of marginal income.

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What is the operational analysis of the enterprise? What is it used for? What allows you to know?

general information

Operational analysis is aimed at identifying the dependence of the financial results of enterprises on sales volumes and costs. It uses the cost/volume/profit ratio. Thanks to this, it is possible to determine the relationship between existing costs and incomes at different volumes of production. Operational analysis aims to discover the most beneficial combination of variables. This approach is considered one of the most effective means of planning and forecasting the company's activities. As an alternative, the phrase "CVP analysis" is also often used to denote it. This is most often found in foreign literature. The analysis has the following categories:

1. Manufacturing lever.
2. Break even.
3. Stock of financial strength.
4. Marginal income.

Manufacturing Lever

This indicator gives an idea of ​​how profit will change if sales revenue changes by one percent. Production leverage is defined as the ratio of gross margin to profit. The bigger specific gravity have fixed costs, the more power it has. It should be noted that operational analysis and provide not only the calculation of coefficients, but also their correct interpretation. That is, conclusions should be drawn that will improve the situation in the future. Based on the coefficients obtained, it is necessary to develop probable scenarios for the development of the enterprise, where final results at a certain time interval. To do this, you should look for the most favorable ratio between variable and fixed costs, production volume and product price. Also, on the basis of the coefficients, it is possible to draw a conclusion about which direction of the enterprise's activity should be expanded and which should be curtailed. Also, CVP analysis gives an idea of ​​the state of affairs, which is why its results are often referred to as trade secret enterprises.

Break even

This is the revenue or quantity of production that allows for full coverage of all existing costs and when there is a zero profit. Can be found both analytically and graphically. Any change will result in a loss or profit. This is especially evident when using the graphical method. The analytical approach is more convenient in terms of finding the value and in terms of the labor involved. The break-even point can be calculated not only for the entire enterprise, but also for certain types of services and products. As soon as the actual revenue begins to exceed the threshold, the company makes a profit. The higher this indicator, the more profitable the company. And all this allows us to define operational analysis.

Margin of financial strength

This parameter indicates how much the actual revenue is above the profitability threshold. A search for the difference between the actual and the threshold can also be carried out. This allows you to talk about how much the company needs to sell products in order to maintain its work at the current level, and also find out how much its cost can be reduced if it is necessary to compete. To determine this coefficient, the following formula is used:

margin of financial strength = the company's revenue - the threshold of profitability (necessarily in monetary terms).

At market economy the answer to the question of how the enterprise will prosper depends on the amount of profit it receives. Therefore, it is necessary to make reasonable and balanced strategic and tactical decisions. The margin of financial strength will allow you to find out what kind of insurance cushion the company has in case of an error.

Marginal income

Now let's look at the last category. In this case, we are interested in the gross margin ratio. It is defined as the difference between revenue and variable costs. This coefficient is needed to characterize the change in the volume of gross sales made in the current period in relation to the past. It can be used to judge how effectively the team of managers and analysts is working. Additionally, production cost factors for products sold and general and administrative costs can be calculated on the basis of marginal income.

Additional useful information

Operational analysis allows you to get a wide range of indicators, on the basis of which you can effectively influence the final performance of the company. Among them it should be noted:

1. The most profitable assortment in terms of implementation with a limited amount of resources.
2. Breakeven sales volume.
3. minimum selling price.
4. Possibility of lowering the price while increasing the volume of sales of products.
5. The ability to trace how structural shifts in the assortment affect the profit of the enterprise.
6. Solving problems by the type of purchase / production of parts and / or semi-finished products.

Also, the use of operational analysis allows you to judge the minimum values ​​of orders, which should be taken under certain circumstances.

What can you pay attention to?

For starters, we can recommend the book by I. Eremeev “Operational Analysis as a Basic Element of the CVP Model Management Process”. Here it is very well considered how this approach allows you to evaluate the performance of the organization, as well as develop recommendations for improving performance. This is not the only work that can be recommended to read. We should also mention A. Brown's book "Operational Analysis as an Approach to Pricing". Familiarization with this literature will allow you to understand, if not all, then at least the vast majority of aspects and nuances of using operational analysis. The authors pay the most important role to the indicator of marginal income. Then the break-even point value is calculated, the formation of a margin of safety is searched for and calculated. The more correct the decision made by the management, the more the enterprise will receive. With the help of operational analysis, you can identify reserves, ensure their objective assessment and degree of use, get acquainted with the potential or real shortage or abundance of resources in warehouses, and so on. This approach is operational and internal in nature, thanks to which it is possible to assess the real state of affairs.

Conclusion

An integral part of operational analysis is a careful consideration and study of the cost structure of the enterprise. It is not possible to give specific recommendations here (even if we consider not the entire economy, but only one industry). To optimize the ratio, the operating conditions, the influencing factors, the long-term trend and many other variables must be taken into account. For the best result, the analysis is divided into separate stages, at each of which the specialist studies certain questions and provides answers to them. At the same time, one should observe the edge of reason and not work them out extremely scrupulously, because this will not ultimately give the desired result, but will require a lot of resources.