Chapter 6

Chapter 6 - Cost-Volume-Profit Relationships Chapter Six...

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Accounting 2102 Chapter Six Cost-Volume-Profit Relationships
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2 Accounting 2102 Contribution Income Statement What information does this type of  income statement give you that a  “normal” income statement does not?  behavior What does the CM tell us? 1.    amt by which SR exceeds VC 1.    amt available to convert FC;  make profit Sales Revenue less Variable Costs Contribution Margin less Fixed Costs Operating Income so what does it mean for a company to  break even ? Opy=0 SR=VC+FC CM=FC
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3 Accounting 2102 Break Even/Target Profit Analysis Break even analysis can be approached in two ways: 1. Equation method 1. Contribution margin method let’s look at each one . . . 
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4 Accounting 2102 Break Even Analysis . . . basic equation . . . equation method Operating Income = Revenue – Expenses OPY=SR-VC-FC OPY=CM-FC OPY + FC= CM/units x # of units CM/unit = SP –VC/unit requires calculation of units to arrive at a sales revenue figure
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5 Accounting 2102 Quench Your Thirst, I nc. You have decided to open a lemonade stand. You have saved $30.00 for the venture.  After researching the lemonade market, you have determined the following: Cost of Pitcher, Mixing Spoon, Measuring Cups, and Stand . . . $30.00 Rent Expense . . . $10.00 per week  Advertising Expense . . . $5.00 per week Utility Expense . . . $0.10 per cup of water  Cost of Cups . . . $0.30 per paper cup Cost of Lemons . . . $0.20 per lemon Cost of Sugar . . . $0.25 per ¼ cup of sugar Cost of Ice . . . $0.01 per cube of ice Anticipated sales price for a serving of lemonade . . . $1.50 Recipe for one serving . . . 2 lemons, ¼ cup of sugar, 2 cups of water, 5 cubes of ice
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6 Accounting 2102 Quench Your Thirst, I nc. (equation method) Approximately how many servings must you sell to break even  (assuming you are in operation for 4 weeks)? What is the related sales  revenue?
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This note was uploaded on 05/08/2008 for the course ACCT 2102 taught by Professor Farmer during the Spring '08 term at UGA.

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Chapter 6 - Cost-Volume-Profit Relationships Chapter Six...

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