ACC 226 – STRATEGIC COST MANAGEMENTCost-Volume-Profit & Break-Even AnalysisVariable Costing Income Statement (Contribution Format)SalesxxLess: Variable cost of goods sold(DM, DL, VOH)xxManufacturing marginxxLess: Variable selling & administrative cost(commission, shipping)xxContribution marginxxLess: Fixed costs:Fixed factory overheadxxFixed selling & administrative costsxxxxProfit (loss)xxCVP Analysis– is a useful management tool that helps managers in planning for profit by way of a systematic examination ofthe interrelationship among costs, volume (activity level) and profit.Factors affecting profitCeteris paribus, If there is an increase in…Then profit will…1.Selling PriceIncrease2.Variable Cost Per UnitDecrease3.Fixed CostDecrease4.Unit Sales (Volume)Increase10,000%11,000%BEPPER UNITUNITSSALES(P10)P 100,000100%P 110,000100???66,666.67P 106,666.67VC (P7)70,00070%77,00070P 76,666.67CM (P3)30,00030%33,0003020,000P 36,666.67FC20,00020%20,00018.1820,000PROFIT/LOSSP 10,00010%P 13,00011.820CVP-related terminologiesContribution Margin– is the difference between sales and variable cost. It is otherwise known as marginal income, profitcontribution, contribution to fixed cost or incremental contribution.CM Ratio = CM ÷ Sales; orCM per unit ÷ SP per unit; or∆ CM ÷ ∆ SalesNote: Under CVP assumptions,CM ratio is constant regardless of the number of units sold or produced.Break-Even Point– is a level of activity, in units (break-even volume) or in pesos (breakeven sales), at which total revenuesequal total costs, i.e., there is neither a profit nor a loss.BEP unit = Fixed costs ÷ CM per unitBEP peso sales = Fixed costs ÷ CM ratioNOTE:At Break Even Point CM Is Always = To FCBEP unit = Total FC / CM per unitIllustration: Break-even point computationsClark Company manufactures and sells a single product. The company’s sales and expenses for a recent month follow:Sales (15,000 units)P 600,000Less: Variable costs420,000Contribution MarginP 180,000Less: Fixed costs150,000ProfitP30,000Required:1.Determine the following:a. Selling price per unit
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