ACTG 2020 Chapter 4 Cost-Volume-Profit Analysis .docx

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ACTG 2020 – Chapter 4: Cost-Volume-Profit Analysis Cost-Volume-Profit Relationships Using Operating Income in Cost-Volume-Profit Analysis - Variable Cost examples: o direct materials o direct labour o variable factory overhead o variable selling and administrative costs - Fixed Costs examples: o Fixed factory overhead o Fixed selling and admin expenses - Contribution Margin income statement: income statement format that separates costs into fixed and variable components - Contribution margin = Sales – Variable Cost - Contribution Margin ratio: indicates the % of sales dollar available to cover fixed costs and to contribute to operating income o Contribution Margin Ratio = CM / Sales Unit Contribution Margin - Unit Contribution Margin = Sales price per unit – Variable Cost per unit Break-Even Point in Units - Break-even point (BEP): is the point where total revenue is equal to total cost (zero profit) - Operating income = Sales – VC – FC Break-Even Point in Sales Dollar - Variable Cost Ratio: proportion of each sales dollar that must be used to cover variable costs Equation Formula Approach to Break-Even Analysis

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