Lecture 10_15_10 - ManagerialAccounting...

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Managerial Accounting Chapter 6 – Cost-Volume-Profit  Relationships
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Profits are affected by: 1.Selling prices 2.Sales volume 3.Unit variable costs 4.Total fixed costs 5.Mix of products sold Cost-volume-profit (CVP) helps management understand the relationships among these factors.
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The behavior of costs is used in Cost-Volume-Profit (CVP)  analysis to judge the  impact on profits  when  selling  price, cost, or volume changes. GM strategy: increase profits by price cuts Results: sold 395,000 additional trucks, 75,000 cars, brought in additional $3 billion of profits
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Sales history – Month of June
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Contribution margin of selling 1 unit
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Contribution margin of selling 1 additional unit : Contribution margin helps cover fixed expenses
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AT 350 units the company will break even. Break even point: level of sales at which profit is zero
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After achieving break even, net operating income will increase by the amount of unit contribution margin for each unit sold.
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To estimate profit at any sales volume above the break- even point.
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CVP relationships in equation forms
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BE 6.1
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This note was uploaded on 02/08/2011 for the course ACCOUNTING 275 taught by Professor Ngo during the Spring '11 term at Rutgers.

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Lecture 10_15_10 - ManagerialAccounting...

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