Case Study: Shabbir Company – CVP Analysis for Plant Purchase
Introduction
Shabbir Company sought to evaluate the financial impact of purchasing an automatic plant. This case study highlights the CVP analysis used to make an informed decision on the plant purchase.
Client Overview
Shabbir Company aimed to improve production efficiency and profitability through a significant investment in new technology.
Challenge
The primary challenge was to determine if purchasing the automatic plant would be beneficial despite increased fixed costs.
Solution
Our team conducted a CVP analysis, revealing:
- Cost Reduction: Variable costs reduced by 20%.
- Fixed Costs Increase: An additional Rs. 100,000.
- Increased Sales: A 10% increase in units sold due to improved product quality.
Results
The analysis demonstrated that the increased profits from higher sales outweighed the additional fixed costs, making the plant purchase advantageous.