Ch5 Slides.pdf - 3-1Gost-Volume-ProfitRelationshipsChapter...

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Unformatted text preview: 3-1Gost-Volume-ProfitRelationshipsChapter FiveBasics of Cost-Volume-Profit Analysis'-4 * en t@ -!d rqcd Id B" d'se nE4lsal6 fsu Drryrs, lAU.uu 'LN: Variables expensA 150,000Conldbulion marqin 100,000Contribution Margin (CM) is the amountremaining from sales revenue after variableLearning Objective 1Basics of Gost-Volume-Profit Analysis!b qd q 1@ @ I+ Qdr g,e lEF::.,i:4 ::i 6 43. 1L. itu,3;,,9 A;ryct r".py ICM is used first to cover fixedexpenses. Any remaining GMThe Gontribution ApproachRacing must generate at leasttotal CM to break evenS.les (S0 hirydeslThe Contribution ApproachSales, variable expenses, and contribution margin canalso be expressed on a] sar*@tirycte) -ffiLss Vadahles oxpeEos 1S,0mI ftnfibdon m.'gln 1m,0mLes: tixed expeEs m,0Ufler income i 4,qq;tlf€rar@t@J-ZThe Contribution Approachin a month, it will beI o*r:rY\ rr' 'ilrI .nn1.I- TnritThe Contribution ApproachWe do not need to prepare an income statementto estimate profits at a particular sales volumeSimply multiply the number of units sold abovebreak-even by the contribution margin per unit.Learning Objective 2The Contribution Approachlf Racing sells one more bikerrrL'r,i il!,:l! | r{,t )r',i,rru'y'E .rrcrr," e':rune"t.nAtr (*it' t'a .hil|-/rM5.16 (1r1 birycl€9 $2m,500Les: Variables erpens$ 120,300ftntdbulion margin 80,200tes: Fixed expen*s 80,000Ner income $ 200CVP Relationships in Graphic FormThe relationship among revenue, cost, proflt andvolume can be expressed graphically by preparinga CVP graph Racing developed contributionmargin income statements at 300, 400, and 500units sold We will use this information to preparethe CVP graphlncome lncome lncomegxt units 400 units 500 qnilsSales $ 16oPoo S ,oo,ooo $25o.oooLes: variable expenes 90,000 120,@0 150,000Contribution margin t 60,m0 3 80,000 tl00,0(]()Les: fixed exp€n$s 80,000 80,000Net opeEtine in@me _q__Cq900I _t_!9400CVP Graph450 000400 000 i350 ooo i3oo ooo !I zso ooo i! zoo,ooo i150,000r00000 i50 000100 200 300 400 500 600 70a a00tJnitsJ-JCVP Graph100 200300 400 500 600 700 800Un lsCVP Graph450 000400 000350 000300 000I zso ooo8 2oo ooo150 000100 00050 000450 000400 000350 000300 000I 250 ooo-9 200 000150 000100 00050 000GVP Graph100 200 300 400 500 600 700 e00Un ts!50 000400 000350 000300 000g 250 ooo3 200 oo01 50 0001 00 00050 00000 200 300 !00 500 600 700 800UnsLearning Objective 3Contribution Margin RatioThe contributron margin ratio is:cM Ratio = -Total cMTotal salesFor Racing Bicycle Company the ratio is:Jr'o?0,%1 = oo*Each $1 00 increase in sales results in atotal contribution margin increase of 401.3-4Contribution Margin RatioOr, in terms of units, the contribution margin ratio is:cM Ratio = ----unj! t!!--Unit selling priceFor Racing Bicycle Company the ratio is:s20o _ 4Oo/"$s00Contribution Margin RatioSalesLess: variable expensesContribution marginLess: fixed expensesNet operating income$ 200,000120,000500 Bikes$ 250,0001 50,00080,000 I000A $50,000 increase in sales revenueresults in a $20,000 rncrease in CM.results in a $20,000 rncrease in CM....
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This note was uploaded on 09/08/2010 for the course BUS 21 at San Jose State University .

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Ch5 Slides.pdf - 3-1Gost-Volume-ProfitRelationshipsChapter...

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