Chapter 9 PPT - Cost Accounting Foundations and Evolutions...

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Chapter 9 Break-Even Point and Cost-Volume-Profit Analysis Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn
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Cost-Volume-Profit (CVP) Analysis Relationship of Revenue Costs Volume changes Taxes Profits Applies to Manufacturers Wholesalers Retailers Service industries
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Variable Costing and CVP Variable costing Separates costs into fixed and variable components Shows fixed costs in lump-sum amounts, not on a per-unit basis Does not allow for deferral/release of fixed costs to/from inventory when production and sales volumes differ
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Use CVP Analysis to… Compute the break-even point Study interrelationships of prices volumes fixed and variable costs contribution margins profits
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Use CVP Analysis to… Calculate the level of sales necessary to achieve a target profit Set sales price Answer “what-if” questions to influence current operations and predict future operations
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Cost-Volume-Profit Assumptions Company is operating within the relevant range Revenue per unit remains constant Variable costs per unit remain constant Total fixed costs remain constant Mixed costs are separated into variable and fixed elements
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Equations Break-even point Total Revenues = Total Costs Total Revenues - Total Costs = Zero Profit
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Equations Contribution Margin (CM) Sales Price - Variable Cost = CM per unit Revenue - Total Variable Costs = CM in total Contribution Margin Ratio (CM%) Sales Price – Variable Cost Sales Price
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Break-Even Formula - Units Total Fixed Costs Sales Price (per unit) - Variable Cost (per unit) $100,000 12 - 4 = 12,500 units If fixed costs are $100,000, unit sales price is $12, and unit variable cost is $4, the break-even point is 12,500 units Contribution Margin
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Break-Even Formula - Dollars Total Fixed Costs Sales Price (per unit) - Variable Cost (per unit) Sales Price (per unit) If fixed costs are $100,000, unit sales price is $12, and unit variable cost is $4, the break-even point is $150,000 $100,000 12 - 4 = $150,000 12 Contribution Margin Ratio
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Income Statement Proof Sales Less Total variable costs Contribution Margin Less Total fixed costs Profit before taxes $ 150,000 (12,500 * 12) (50,000) (12,500 * 4) $ 100,000
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This note was uploaded on 03/23/2010 for the course ACC_ 03 taught by Professor Zeegal during the Fall '10 term at Missouri State University-Springfield.

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Chapter 9 PPT - Cost Accounting Foundations and Evolutions...

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