Instructor%20Notes%20-%20Chapter%2012

Instructor%20Notes%20-%20Chapter%2012 - Applications of...

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Management 200T Managerial Accounting and Cost-Volume-Profit Relationships Chapter 12 Managerial Accounting Contrasted to Financial Accounting Managerial accounting supports the Internal planning ( future oriented ) decisions made by Management. Financial accounting has more of a scorekeeping or historical orientation. Some of the data from financial accounting forms the foundation on which plans are based. Management Process Planning Organizing Controlling Cost Classifications Cost mean different things to different people Relationship of Total Cost to Volume of Activity Variable Cost – one that changes in total as the volume of activity changes Fixed Cost – a cost that does not change in total as the volume of activity changes Semivariable Costs – costs with a mixed behavior (partly fixed, partly variable) Total Cost = Variable Cost + Fixed Cost
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Management 200T Managerial Accounting and Cost-Volume-Profit Relationships Chapter 12
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Unformatted text preview: Applications of Cost-Volume-Profit Analysis Contribution margin Revenue Variable Expenses Contribution margin is the contribution to fixed expenses and operating income from the sale of product or provision of service Contribution margin ratio the ratio of contribution margin to revenues (Contribution Margin/Revenues) Example Current Results Results w/ 10% Decline in Revenues Revenues 1,000,000 900,000 Variable Expenses(50%) (500,000) (450,000) Contribution Margin(50%) 500,000 450,000 Fixed Expenses (400,000) (400,000) Operating Income 100,000 50,000 Break-Even Point Analysis Usually expressed as the amount of revenue that must be realized for the firm to have neither profit nor loss. Example Revenue per unit = $20 Management 200T Managerial Accounting and Cost-Volume-Profit Relationships Chapter 12 Variable expenses = $5/unit Fixed expenses = $100,000...
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Instructor%20Notes%20-%20Chapter%2012 - Applications of...

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