# CVP Analysis and Break-Even Analysis

Does CVP Analysis help you decide whether to make or buy, sell at a special price to a customer not in your customer base, etc.?

What about break even analysis?

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#### Solution Preview

Please see the attached files for a more effectively formatted response, as well as more detailed background information on CVP.

INTRODUCTION

CVP analysis aids strategic business plan decisions across an organization. It can aid in deciding how much of something to make, and then in what the price point of a good should be. Specifically, CVP analysis can illustrate how low an introductory price can go in order to epand a customer base, or market share. Break even analysis is simply a specific CVP calculation that illustrates either the minimum price for a good, or the minimum sales volume for the same good required to net zero profit or loss, (Accounting For Management, nd).

CVP ANALYSIS AND BREAK EVEN POINT

CVP can be calculated a couple different ways. The most common is to figure out the break even analysis-either for ...

#### Solution Summary

Illustrates use of Cost, Volume, Profit (CVP) Analysis and break-even point calculations. Shows detailed formula for both general CVP calculation as well as the specific break-even point. Also includes discussion on the limitations of CVP analysis. APA format with references.

CVP analysis-Breakeven Analysis

JetSet Machinations, Inc. expects to become very successful in the manufacture and sales of its fuel-efficient high speed airplane, the S2S-900. This plane will be sold at about $70 million per plane. JMI executive staff has asked you to provide them a slide presentation in the next staff meeting which gives calculations for profit and break-even. This presentation will be the basis of the meeting discussion.

Assume that JMI's annual fixed costs for the S2S-900 are $950 million, and its variable cost per airplane is $45 million.

1. Compute JMI's break-even point for the number of S2S-900 airplanes and dollars of sales.

2. Suppose JMI plans to sell forty-two S2S-900 airplanes in 2002. Compute JMI's projected operating profit.

3. Suppose JMI increased its fixed costs by $84 million and reduced variable costs per airplane by $2 million. Compute its operating profit if forty-two S2S-900 airplanes are sold. Compute the break-even point. Comment on your results.

4. Next, ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 10% before deliveries of S2S-900 airplanes begin for the year. Compute the new break-even point.

Individual portion- Build your own spreadsheet for these calculations:

1. What would happen to expected cash flows under different discount rates?

2. How will the present value of the project vary according to cash flows different from a set forecast?

3. Create test numbers to show the effects under varying circumstances.