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| Details |
Case Code: CLFIN021
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| Case Length: 4 pages |
| Period: 2020 |
| Pub Date: 2020 |
| Teaching Note:Available |
| Subject : Finance |
| Price:Rs.150 |
| Organization :Anirudh Solar Energy Solutions (Fictitious) |
| Industry : Solar Items Manufacturing Industry |
| Countries : India |
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CVP Analysis - Profitability Assessment and Production Planning |
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| After successfully completing one and half years of production and distribution of Solar LED lanterns of three categories, Anirudh wanted to determine the profitability from the manufacture and sale of each category. The case study provides scope to evaluate and understand the various cost components and their role in determining profitability. Specifically, it helps in discussing the concept of Cost-Volume-Profit (CVP) analysis, break-even analysis, and the contribution margin and their role in the decision-making process of profitability assessment and production planning.
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Issues: |
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- Cost-Volume-Profit (CVP) Analysis.
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- Contribution Margin and its applications .
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- Break-even analysis and its applications .
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- Profit and Production Planning using Contribution Margin and Break-even point.
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| Introduction |
Anirudh Solar Energy Solutions (ASES) had successfully delivered orders for solar LED lanterns of different types during the financial year 2019-20. During the year, the profit from the retailers' orders was estimated to be Rs.56,000, profit from the wholesalers' orders was estimated at Rs. 67,000, and the profit from an NGO's order for LED lanterns of Category-3 (C3) was estimated to be Rs. 50,000 (Refer to Exhibit-I for the Break-up of orders received by ASES during 2019-20).
The profit margins on the LED lanterns of each category were arbitrarily fixed based on the market demand or on the production activities that were either recurring in nature or incidental . In addition to these production expenses, Anirudh incurred other expenses on running the business operations i.e., on administration, marketing, sales, and distribution.
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Keywords |
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Accounting, Marginal Costing, Absorption Costing, Contribution Margin, Break-even analysis, Break-even point, Break-even sales, Decision-making involving alternative choices, Variable Costs, Fixed Costs, Profitability, Profit, Production Planning
* This caselet is intended for use only in class discussions.
** More comprehensive case studies are priced at Rs.200 to Rs.700 (US $5 to US
$16) per copy.
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