The subject of cost-volume profit analysis under uncertainty has had extensive literature collected in recent years even though the topic has been ignored in most textbooks. In many cases, entire chapters are devoted to cost-volume profit analysis but they ignore the possibility that one or more parameters of the problem are completely random and therefore the future values are unknown at the time the decision is made. The reluctance of textbook authors to discuss stochastic CVP models can be attributed to the diversity of the literature published. Since numerous models have been proposed and examined, such as single product versus multi-product, it doesn’t really matter the model you use because it is likely to be complicated because it involves various concepts from mathematical statistics. It is a well known fact that real world decision making takes place under conditions of uncertainty and the basic cost-volume profit model helps to create a clearer picture of the variables by generalizing the model to any uncertain situation. In this paper I will present, analyze and apply a stochastic CVP model that can be used as a gateway to decision-making under uncertainty. While

the full mathematical derivations of the results shown herein are probably too complicated for most undergraduates, the results themselves are fairly straightforward, and they facilitate a precise focus on such fundamental concepts in decision-making under uncertainty as the tradeoff between expected profits and breakeven probability. There is an inevitable tradeoff between the comprehensiveness and realism of a model (which tend to generate mathematical complexity) and its practicality and ease-of-use (the extent to which it can readily provide definite answers to specific questions). The model presented here attempts to strike an appropriate balance between these two competing criteria. It is a much simpler model than many of those found in the research literature. For example, the model...

...(Snap Fitness, 2011). Better known as entities, forms of business organizations are used to weigh the pros and con’s of entrepreneurship. Additional factors such as taxes, legalities, and business related concerns should be considered. More important, how ones business can break-even or be profitable should be of utmost concern.
This paper covers break-even analysis, fixed costs, and variable factors of Snap Fitness franchise ownership.
CVPAnalysisCVPanalysis considers the relationship among volume or activity level, unit selling prices, variable cost per unit, total fixed costs, and sales mix. When managers know how costs will behave at specific levels of activity, they may prepare more accurate budgets as well as project how profitable products will be, it serves as an aid in making good business decisions. These statements are different from traditional statements in that they classify costs as variable or fixed and compute a contribution margin, the balance of revenue after deducing variable costs. The contribution margin is the amount that is available for fixed costs (Kimmel, etal, 2009).
Break-Even Analysis
A break-even point is the point at which total revenues equal total fixed and variable costs. At this level of activity, the company’s net income is zero. When managers know the break-even point, they are better equipped to price products, both old and new. The...

...CHAPTER 1: COST VOLUME PROFIT ANALYSIS
LEARNING OBJECTIVES:
At the end of this chapter, you should be able to:
* Describe the differences between the accountant’s and the economist’s model of cost volume profit analysis.
* Apply the cost volume profit approaches in the calculation of breakeven point, margin of safety, target selling price and sales volume.
* Construct breakeven, contribution and profit volume graph.
* Apply cost volume profitanalysis in a multi product setting
* Identify and explain the assumptions and limitations of cost volume profit analysis.
INTRODUCTION
CVPAnalysis is a method of examining the relationship between changes in activity (i.e. output) and changes in total sales revenue, expenses and net profit. It is used as a tool for decision making. CIMA’s Official Terminology defined CVPanalysis as “the study of the effects on the future profit of changes in fixed cost, variable cost, sales price, quantity and mix”.
A break-even analysis is a more commonly used term but it is often mislead as being synonym to the cost volume profit analysis. In fact, cost volume profit analysis provides much greater significance than break-even analysis.
DIFFERENCES BETWEEN CVP AND BREAKEVEN ANALYSIS
BREAKEVEN ANALYSIS...

...QUESTION
a). Name five assumptions that underline the use of break – even analysis.
It is essential that anyone preparing or interpreting CVP information is aware of the underlying assumptions on which the information has been prepared. If these assumptions are not recognized, serious errors may result and incorrect conclusions may be drawn from the analysis.(Drury, 2004).
Breakeven analysis (cost-volume-profitanalysis) is an approach to profit planning that requires derivation of various relationships among revenue, fixed costs, and variable costs in order to determine units of production or volume of sales at which firm “breaks even” (where total revenues equal total of fixed and variable costs). The analysis is built on various assumptions.
Below is a brief explanation of five assumptions underlying the use of break-even analysis or the CVPanalysis.
1. All other variables remain constant.
It is assumed that all variables other than the particular one under consideration remain constant throughout the analysis. In other words, it is assumed that volume is the only factor that will cause costs and revenues to change. However, changes in other variables such as production efficiency, sales mix, price levels and production methods can have an important influence on sales revenue and costs. If significant changes in these other...

...CVP and Break-Even Analysis Paper
Learning Team A
ACC/561
Instructor
2013
CVP and Break-Even Analysis Paper
When starting a business or buying a franchise it is critical for one to determine the star-up cost associated with the business. However, the most import item one must look at is the breakeven point. The breakeven point is important because it helps one plan out its activities to gives business owners an idea of the sales needed to cover its cost before one can make a profit. Within this paper, Learning Team A will examine the start-up cost and breakeven point for a Snap Fitness franchise owner.
Variable Costs
“Snap Fitness estimates that each location incurs $4,000 per month in fixed operating expenses plus $2,000 to lease equipment, which brings at total of $6,000 in fix cost” (Kimmel, Weygandt & Kieso, 2009). However, in order for Snap Fitness to break even, it needs to have 300 members. With the “information provided above and our knowledge of CVPanalysis, we will now estimate the amount of variable costs for Snap Fitness” (Kimmel, Weygandt & Kieso, 2009).
The CVPanalysis is important for Snap Fitness because “it is a critical factor in such management decisions as setting selling prices, determining product mix, and maximizing use of production facilities” (Kimmel, Weygandt & Kieso, 2009, p. 921). Variable cost “are...

...1. Business overview & Cost analysis
In order to compete with other milkshake shacks on the same beach of the resort, the small shake in my shack is priced at $5.00, a medium shake costs $7.00, and a large shake is priced at $10.00. My shack offers classic flavors of chocolate, strawberry and vanilla, but also caters to eclectic tastes with raspberry, mocha, Oreo shakes and many other different flavors. I use chocolate, strawberry and other flavored syrup to provide the flavor chosen by customers. The data for milkshake costs is base on the study of existing restaurants, industry reports and research on expected minimum costs to be incurred in operating the business.
The cost of materials needed to make milkshakes is shown in table 1.
Table 1 Variable and Fixed costs to make milkshakes
Small (8oz.size) Medium (10oz.size) Large (12oz.size)
Variable costs
Whole milk ($15 for a 5 gallon=740oz.) 2oz. 2.5oz. 3oz.
Cream ($20 for 1 gallon = 128oz.) 2oz. 2.5oz. 3oz.
Sugar ($10 for a 15 lb.bag=30cups) 1/4cups 1/2cups 3/4cups
Flavored syrup ($13.5 for a 96oz. bottle ) 0.5oz. 1oz. 1.5oz.
Vanilla ice cream ($24 for 600oz.) 6oz. 8oz. 10oz.
Whipped cream ($2.50 for 6.5oz. can) 0.15oz. 0.2oz. 0.25oz.
Straws 5” Color Flex Straws
0.05/piece 6” Color Flex Straws
0.06/piece 8” Color Flex Straws
0.08/piece
Cups 8oz. cups
0.4/piece 10oz. cups
0.5/piece 12oz.cups
0.6/piece
Fixed costs
Shack rental $500/mo...

...A cost-volume-profit analysis is a vital factor to a company. It is very important to profit planning. Cost-volume-profit (CVP) analysis is the study of the effects of changes in cost and volume on a company’s profits. It is also a factor in management decisions such as setting selling prices, determining product mix, and maximizing use of production facilities. There are five components that make up a CVPanalysis. They are volume or level of activity, unit selling prices, variable cost per unit, total fixed costs, and sales mix. The CVPanalysis considers the relationships that each of these components have with each other. A better understanding of what these components are will help set the basis of understanding how the CVPanalysis works.
The volume or the level of activity is the current condition of the market and the company. It is a snapshot of what the sales look like. It tells if products are moving or if the business is dead in the water. Unit selling prices are the current selling prices of the products at that point of time. The variable costs per unit are the costs that vary in total directly and proportionately with changes in the activity level. The total fixed costs are the totals of the costs that remain the same in total regardless of changes in the activity level. The sales mix is the percentage that each product...

...The relationship between cost volume and profit is shown by cost-volume-profit analysis. it is an analytical tool for analyzing the relationship among cost, price, profit, sales and production volume. Mainly there are three element in cost-volume-profit analysis.
It is highly essential for the management to have the complete knowledge about the inter relationship among the cost, volume and profit. for this purpose cost-volume-profit analysis can be regarded as a sophisticated method or analytical tool used in management.
A. Introduction:
Cost-volume-profit (CVP) analysis is one of the most powerful tools that managers at their command. It helps them understand the interrelationship between cost, volume, and profit in an organization by focusing on interaction among the following five elements;
1. prices of products
2. volume or level of activity
3. per unit variable costs
4. total fixed costs
5. mix of products sold
Because CVPanalysis helps managers understand the interrelationships among cost, volume, and profit, it is vital tool in many business decisions. These decisions include, for example;
a. what products to manufacture or sell
b. what pricing policy to follow
c. what marketing strategy to employ, and
d. what type of productive facilities to acquire
B. Marginal and absorption costing: different rationales.
Absorption...