Chapter 5 - Lecture 6 CVP Analysis Cost volume Profit...

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Unformatted text preview: Lecture 6 CVP Analysis Cost volume Profit Analysis CVP: analytical technique used by managerial accountants to address What if? questions. This technique summarizes the effects of changes in an organizations volume of activity on its costs, revenue, and profit. What will happen to student enrolment if the Carleton University raise tuition fees for grad studies? Break-Even Point The break-even point is the volume of activity where the organizations revenue and expenses are equal. At this amount of sales, there is no loss or profit; it break- even. Revenues Total cost = Operating Profit =0 $Revenues = $Total Cost $Revenues = $Variable Cost + Fixed Cost Break - Even $Revenues = $Variable Cost + Fixed Cost #units*Price = #units*VC/unit + Fixed Cost #units*(Price- VC) = Fixed Costs #units (B-E) = Fixed Cost (Price VC/unit) The # of units where revenues equals expenses is the break-even point in terms of volume Break-Even (in $) Contribution margin = Price Variable Cost/unit Then B-E (units) = Fixed Cost C. Margin To convert this # into dollars ..*Price Contribution Margin Ratio (%)= (P VC)/P Then B-E ($) = Fixed Cost C. Margin Ratio Example Activity (units) 9000 8000 Sales ($16) $144,000 $128,000 Variable Exp.($10) (90,000 ) (80,000 ) Total Cont. Margin 54,000 48,000 Less Fixed Expenses (48,000 ) (48,000 ) Profit...
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Chapter 5 - Lecture 6 CVP Analysis Cost volume Profit...

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