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McKittrick_ppt_for_chapter_6_Oct_21_without_in_class_assignment

# McKittrick_ppt_for_chapter_6_Oct_21_without_in_class_assignment

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ACC 200 Fall 2010 Chapter 6 Cost-Volume-Profit (Day 2) October 21, 2010 Christopher T. McKittrick CPA, MBA, CFE College of Management

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October 21, 2010 Enter 1 on clicker for attendance (response card channel is 35) Reminders: Please DO NOT sit in rows O, P, Q or R Next Exam is Thursday, November 11, 2010 30 33 49
Chapter 6 Objectives – Cost Volume Profit Analysis and Variable Costing Construct a contribution margin income statement and compare it to a traditional income statement Describe the relationship between activity level and contribution margin, fixed costs, and net income Describe and compute contribution margin per unit, contribution margin ratio, and operating leverage Use contribution margin and operating leverage in "what-if" analysis Calculate the breakeven point in both units and dollars Compute the breakeven point in a multiple product environment Compute the number of units and sales dollars to reach a target profit (both before and after-tax) Describe the assumptions of cost-volume-profit analysis

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Introduction To CVP Cost-volume-profit (CVP) analysis focuses on the following factors: 1. The prices of products or services 2. The volume of products or services produced and sold 3. The per-unit variable costs 4. The total fixed costs 5. The mix of products or services produced
Income Statement Comparison TRADITIONAL CONTRIBUTION MARGIN Sales Less: Cost of Goods Sold: Variable Costs Fixed Costs Total Cost of Goods Sold Gross Profit Less: SG&A Costs: Variable Costs Fixed Costs Total SG&A Costs Net Income Sales Less:Variable Costs: Manuf. Costs SG&A Costs Total Variable Costs Contribution Margin Less: Fixed Costs: Manuf. Costs SG&A Costs Total Fixed Costs Net Income \$1,000 350 150 \$ 500 \$ 500 \$ 50 250 \$ 300 \$ 200 \$ 1,000 \$350 50 \$400 \$600 \$150 250 \$400 \$200

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Function vs. Behavior TRADITION AL INCOME STATEMEN T CONTRIBUTIO N MARGIN INCOME STATEMENT
Contribution Margin Calculations Contribution Margin = Sales - All Variable Costs Net Income = Contribution Margin - All Fixed Costs Contribution Margin per Unit = (Sales – All Variable Costs) / Unit Sales Contribution Margin Ratio = Contribution Margin (in \$) / Sales (in \$)

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The Break-Even Point Volume \$ Sales Revenue Total Costs  (Fixed and Variable) Break-Even Point Break-Even Point in Volume Break-Even Point in \$ Loss Income
Break-Even Analysis - Units or Sales \$ Fixed Costs Contribution Margin Per Unit Break- Even (Sales \$)   Break- Even (units) = Fixed Costs Contribution Margin Ratio =

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Break-Even Calculations for Multiple Products When more than one product is produced and sold, managers must calculate a “weighted average” contribution margin for all products and estimate the sales mix. Break-Even (Units) = Fixed Costs Weighted Average Contribution Margin Per Unit
Break-Even Calculations with Multiple Products The calculation of “average” contribution margin is really a weighted average Break-Even Units Point = Fixed Costs Weighted Average Contribution Margin Per Unit

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12 Calculating the Breakeven Point With Multiple Products Remember - Must divide FC by the weighted average CM/unit Weight the CM for each product by the sales mix
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