Lecture 6 SP2007 - Phillip A. Blanchard 2006...

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Unformatted text preview: Phillip A. Blanchard 2006 Cost-Volume-Profit Relationships (TR = TC) (TR = TC) Dependent Variable Independent Variable T o ta l C o s t T o t a l R e v e n u e Breakeven Point Breakeven Point Chapter 6: Phillip A. Blanchard 2006 ALTERNATIVE ALTERNATIVE APPROACHES TO CVP APPROACHES TO CVP CONTRIBUTION INCOME STATEMENT Phillip A. Blanchard 2006 VARIABLE COST VARIABLE COST Sales Sales = VC Ratio = VC Ratio SALES = SP (X) = 100%S- VC = VC (X) = % OF S CM = CM (X) = % OF S- FC = FC = TOTAL NI = NI = NI CONTRIBUTION INCOME CONTRIBUTION INCOME STATEMENT STATEMENT Per Unit Information Phillip A. Blanchard 2006 SALES SALES = SP = SP (X) (X) = 100%S = 100%S- VC- VC = VC (X) = VC (X) = % OF S = % OF S CM CM = CM (X) = CM (X) = % OF S- FC- FC = FC = FC = TOTAL = TOTAL NI NI = NI = NI = NI = NI CONTRIBUTION MARGIN Sales = CM Ratio CONTRIBUTION INCOME CONTRIBUTION INCOME STATEMENT STATEMENT Per Unit Information Phillip A. Blanchard 2006 CONTRIBUTION MARGIN Sales = CM Ratio VARIABLE COST Sales = VC Ratio 1 - vc% = cm% AND 1-cm% = vc% Also, the VC% plus the CM% = 100% AND, the VC$ plus the CM$ = Sales$ You can also find these ratios by algebraically manipulating the numbers that you have readily available: Phillip A. Blanchard 2006 Contribution Income Statement Approach Consider the following information developed by the accountant at Reagan Co.: Expected Camera Sales (in Units) 1,200 units Selling Price per Camera $ 800 Variable Cost per Camera $ 600 Contribution Margin per Camera $ 200 Total Estimated Fixed Costs $120,000 Phillip A. Blanchard 2006 Contribution Income Statement Approach ## Total Per Unit Percent Sales (1200 Cameras) 960,000 $ 800 $ Less: variable costs 720,000 $ 600 $ Contribution margin 240,000 $ 200 $ Less: fixed expenses 120,000 $ Net income 120,000 $ The assumed numbers would produce the following Contribution Margin Income statement: 1,200 X $800 = $960,000 Phillip A. Blanchard 2006 ## Total Per Unit Percent Sales (1200 Cameras) 960,000 $ 800 $ Less: variable costs 720,000 $ 600 $ Contribution margin 240,000 $ 200 $ Less: fixed expenses 120,000 $ Net income 120,000 $ Contribution Income Statement Approach The assumed numbers would produce the following Contribution Margin Income statement: 1,200 X $600 = $720,000 Phillip A. Blanchard 2006 ## Total Per Unit Percent Sales (1200 Cameras) 960,000 $ 800 $ Less: variable costs 720,000 $ 600 $ Contribution margin 240,000 $ 200 $ Less: fixed expenses 120,000 $ Net income 120,000 $ Contribution Income Statement Approach The assumed numbers would produce the following Contribution Margin Income statement: 1,200 X $200 = $240,000 Phillip A. Blanchard 2006 ## Total Per Unit Percent Sales (1200 Cameras) 960,000 $ 800 $ 100% Less: variable costs 720,000 $ 600 $ 75% Contribution margin 240,000 $ 200 $ Less: fixed expenses 120,000 $ Net income 120,000 $ Contribution Income Statement Approach $720,000/$960,000 = 75% Notice we can establish a ratio of Total VC compared to Total Sales revenue. We can do this using Total Dollar information, Phillip A. Blanchard 2006Phillip A....
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Lecture 6 SP2007 - Phillip A. Blanchard 2006...

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