Cost-Volume-Profit Analysis Examples

This dashboard contains one randomized CVP scenario. The values here feed the contribution margin, break-even, target profit, margin of safety, sales mix, and operating leverage sections below.

Use the button to generate a new CVP scenario with new prices, costs, planned volume, target profit, and sales mix assumptions.

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CVP Chart

This table shows how changes in price, variable cost, or fixed cost alter break-even and target-profit revenue.

Concept Summary: Break-even analysis finds the activity level where contribution margin exactly covers fixed costs. Operating profit equals zero at break-even.

Example A: Solve for unit contribution margin

Objective: Determine how much each unit contributes toward fixed costs and profit.

Unit contribution margin
= Selling price per unit − Variable cost per unit

Example B: Solve for break-even units

Objective: Determine the number of units required for zero operating profit.

Break-even units
= Fixed costs ÷ Unit contribution margin

Example C: Solve for break-even sales dollars

Objective: Determine the sales revenue required for zero operating profit.

Break-even sales dollars
= Fixed costs ÷ Contribution margin ratio

Example D: Solve for fixed costs from break-even sales

Objective: Rearrange the sales-dollar break-even formula to determine fixed costs.

Break-even sales = Fixed costs ÷ CM ratio

Fixed costs
= Break-even sales × CM ratio

Example E: Solve for contribution margin ratio from fixed costs and break-even sales

Objective: Determine the contribution margin ratio required by a given fixed-cost and break-even-sales relationship.

Break-even sales = Fixed costs ÷ CM ratio

CM ratio
= Fixed costs ÷ Break-even sales

Concept Summary: Target-profit analysis adds desired operating profit to fixed costs. The result is the total contribution margin required to reach the profit goal.

Example A: Solve for required contribution margin

Objective: Determine how much total contribution margin is needed to cover fixed costs and target profit.

Required contribution margin
= Fixed costs + Target profit

Example B: Solve for target-profit units

Objective: Determine the units required to earn the target profit.

Target-profit units
= (Fixed costs + Target profit) ÷ Unit contribution margin

Example C: Solve for target-profit sales dollars

Objective: Determine the sales revenue required to earn the target profit.

Target-profit sales dollars
= (Fixed costs + Target profit) ÷ CM ratio

Example D: Solve for target profit from planned units

Objective: Determine expected profit from planned sales volume.

Operating profit
= (Unit CM × Units sold) − Fixed costs

Example E: Solve for fixed costs supported by planned sales and target profit

Objective: Rearrange the profit formula to determine the fixed-cost amount supported by planned volume and profit.

Profit = Total contribution margin − Fixed costs

Fixed costs
= Total contribution margin − Profit

Concept Summary: Margin of safety measures how far planned or actual sales sit above break-even. It can be stated in sales dollars, units, or as a percentage of sales.

Example A: Solve for margin of safety sales dollars

Objective: Determine the sales cushion above break-even.

Margin of safety sales
= Planned sales − Break-even sales

Example B: Solve for margin of safety units

Objective: Determine the unit cushion above break-even.

Margin of safety units
= Planned units − Break-even units

Example C: Solve for margin of safety ratio

Objective: Express the sales cushion as a percentage of planned sales.

Margin of safety ratio
= Margin of safety sales ÷ Planned sales

Example D: Solve for planned sales from margin of safety and break-even sales

Objective: Rearrange the margin of safety formula to determine planned sales.

Margin of safety sales = Planned sales − Break-even sales

Planned sales
= Break-even sales + Margin of safety sales

Concept Summary: CVP decision-making compares alternatives by showing how changes in price, variable cost, fixed cost, and volume change contribution margin, break-even, and operating profit.

Example A: Compare current and proposed price-volume decision

Objective: Determine whether a proposed price change improves operating profit.

Example B: Solve required units after a price change

Objective: Determine the unit volume required under the proposed price to earn the current profit.

Required units
= (Fixed costs + Required profit) ÷ Proposed unit CM

Example C: Solve allowable variable cost for a target unit CM

Objective: Determine the variable cost that supports the target contribution margin after a price change.

Unit CM = Selling price − Variable cost

Variable cost
= Selling price − Unit CM

Example D: Interpret sensitivity analysis

Objective: Compare each sensitivity scenario by deriving unit contribution margin, contribution margin ratio, break-even sales, and target-profit sales.

Unit CM = Selling price − Variable cost
CM ratio = Unit CM ÷ Selling price
Break-even sales = Fixed costs ÷ CM ratio
Target-profit sales = (Fixed costs + Target profit) ÷ CM ratio

Example E: Select the strongest sensitivity case

Objective: Select the alternative that best supports both break-even and target-profit objectives using the completed sensitivity analysis.

Concept Summary: Cost structure describes the mix of fixed and variable costs. Operating leverage measures how strongly profit changes when sales change.

Example A: Compare two cost structures

Objective: Compare a lower-fixed-cost option with a higher-fixed-cost, lower-variable-cost option.

Example B: Solve degree of operating leverage

Objective: Determine profit sensitivity at the planned sales level.

Degree of operating leverage
= Contribution margin ÷ Operating profit

Example C: Estimate profit change from a sales change

Objective: Use degree of operating leverage to estimate profit change from a percentage change in sales.

Estimated profit change %
= Sales change % × Degree of operating leverage

Example D: Solve for operating profit from contribution margin and DOL

Objective: Rearrange the DOL formula to determine operating profit.

DOL = Contribution margin ÷ Operating profit

Operating profit
= Contribution margin ÷ DOL

Concept Summary: Multi-product CVP uses a weighted-average contribution margin when multiple products are sold in a consistent sales mix.

Example A: Solve weighted-average unit contribution margin

Objective: Determine the contribution margin per composite unit.

Weighted-average unit CM
= (Product A CM × A mix) + (Product B CM × B mix)

Example B: Solve composite break-even units

Objective: Determine total break-even units at the assumed sales mix.

Composite break-even units
= Fixed costs ÷ Weighted-average unit CM

Example C: Split composite units into product units

Objective: Determine product-level break-even units using the assumed mix.

Example D: Solve required weighted-average CM for a target break-even level

Objective: Rearrange the composite break-even formula to determine the weighted-average contribution margin needed.

Composite break-even units = Fixed costs ÷ Weighted-average unit CM

Weighted-average unit CM
= Fixed costs ÷ Composite break-even units