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CVP Analysis is a technique to judge how changes in costs and volume will affect a company’s operating income and net income.

Contribution Margin ratio is the difference between a company’s total sales and variable costs which is express in percentage. A high contribution margin can help the company to cover all the fixed cost and to generate profit. In this case of Starbucks, it has a very stable contribution margin ratio around 25.9% each year start from 2011 to 2015. In 2015, the contribution margin ratio is 25.59%, this means each $1.0 increase in sales will result in an increase of $0.2559 of total contribution margin. From the table, we can point out that both sales and variable expense increase in a similar constant rate, therefore the contribution margin ratios are similar each year. We can say that Starbucks is a profitable company and it runs business smoothly with reference to the contribution margin ratio analysis.

Break – even sales refers to the revenue from sales necessary to cover the expense and prevent a company from operating at a loss. From the table, Starbucks’ break – even sales increase steadily each year from 2011 to 2015. It is because the variable expense increases constantly each year while the fixed expense remains unchanged. Starbucks has to sell more products than the previous year in order to achieve the break – even sales. In 2015, the break – even sales is $15,771 million.

Margin of safety refers to the difference between the actual sales and the break – even sales. This indicator can analyze the business vitality of a company. Starbucks’ margin of safety has increased continuously each year, in 2015, Starbucks’ margin of safety is $3,390 million. The increasing amount of margin of safety is because of the percentage increase in sales is larger than the percentage increase in variable and fixed costs. From these figures, we can point out that Starbucks is maintaining good business vitality. Having a high margin of safety can...