In the study of accounting and financial management CVP analysis is very important in measuring the relationship among the variables with profit

Profit is the main objective of any business organization. To earn a lot of money is the objective of a business. Revenue earning is related with profit. How much the company will make profit depends on some variables. These variables are cost, volume of output, price of the product, price index, etc. All of these variables also are interrelated with the externally active force. In the study of accounting and financial management to make these relationship is very important. An accountant or other operation manager is responsible to search and establishe thes relationships. These wuestion is very common for all of the business ownerd to predict an effective answer to gain large revenue. These are just like what will be the profit from the business organization. What volume should be produce? What will be the cost of the business operation. CVP analysis search these answers. CVP analysis can easily and can say Cost Volume Profit analysis. CVP analysis explain the effects of cost and output of the production on the profit of the business.

Break even analysis

Break even analysis is a system that determine an activity of organization where the total cost is equal to the total selling price. Simply to say that break even analysis is an activity of identifying the break even point. It is an identification and determination of the point where business performance is in no profit and no loss condition. For a smooth business operation break even point is very important for management and organization. Break even analysis identifies breK even point. It helps managers for an effecting business forcasting.It helps managers in effective pricing policies implementation.

Break Even Point

Break even poit refers such level of poit where the total cost of the goods is equal to the selling price of the goods. Break Even Poit highlights that there is no profit and no loss. If the selling price exceed to the upper of the point then it can say that business have gain some profit. On the other hand the lowest value that lies below the break even point indicate that business have losses. The break even point is expressed as BEP. There are different formula of calculating break even point in output and selling price. In terms of output volume the break even point is equal to the fixed cost devided by the contribution per unit. On the other hand in terms of selling price break even point is fixed cost devided by total contribution multiplied eith total selling price. If that is extended than it is to say that the break even point in terms of selling price is fixed cost devided by P/V ratio.

Difference between an accountant and an economist in terms of calculating monetary value

In terms of calculating the monetary value account conceot is so far different from an economist. Where an economist considers the inflation of the money there an accountant necer consider the inflationary value if money. Not only that when an accountant accounts the total earning of your business organisation there an economist consider the money if you were do job in other organisation instead of spending time in your organisation. In this case an economist consider the the value of your labour as the capital of the organisation that is added with all other capital. The value of the money of today is not equal with the value of the money of ten years past.

Marginal cost

Marginal cost is the cost of production of aditional per unit of product. The production cost are found to change in per unit with the increasing of total volume of output of the product. Let us explain marginal cost with an example. Let you are producing 100 pices of any specific product with the cost of 1000$. You increased your production volume of output into 150 pices and the cost is 1200$. The increased cost is about 200$. Increased output is 50 pices. The cost of per unit of output is 4$. But before increasing the output cost of per unit of production was 10$. Hence, it is clear that the cost of per unit of output is changed with the change of total volume of output.

Economist concept of marginal cost vs accountant concept of marginal cost

The concept of marginal cost is not same when an accountant and an economist calculate marginal cost.  An economist define marginal cost is the cost of producing an aditional unit of product. In this case the fixed cost is considered. On the other hand when an accountant calculates marginal cost he never consider fixed cost. An accountant considers marginal cost is constant in per unit of output when aditional number of production is produced. This is not applicable in front of an economist.  In a mote analysis it is found that in increasing of the number of output the cost of the product of per unit of output is decreased. If we plot a graph the cost per unit of output vs production unit, we will find a graph production cost of per unit of output is decreases gradually. With an equation marginal cost can be calculated by substracting fixed cost from total cost.

Shut down cost

In a business there have some indirect cost besides of direct cost. Shut down cost is a well known indirect cost. In different uncertain or certain type of cause a company or any organization may shut down. The all of the activities of the organization may stop. These may be caused by labour strite, uncertain shut down of any machinaries activities or other causes. In this case some indirect cost are arise in the business organization. In managerial decision making process these type of cost of any organization must have to under considered. Suppose a company in a shut down possition the salaries of the management and other employees are a continuous process. These are considered as the cost in accounting. If the sbut down cost of a business organization is take under considerition then the future efficiency of the company increases and it significantly reduces risk of the company.