Chapter 3 - Cost Volume Profit

Chapter 3 - Cost Volume Profit - Chapter 3 Cost Volume...

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Chapter 3 – Cost Volume Profit Analysis I. Essentials of CVP Analysis a. CVP Analysis: i. Examines the behavior of total revenues, total costs, and operating income as changes occur in the units sold, the selling price, the variable cost per unit, or the fixed costs of a product ii. Steps: 1. Identify the problems and uncertainties 2. Obtain information 3. Make predictions about the future 4. Make decisions by choosing among alternatives 5. Implement the decision, evaluate performance, and learn iii. Contribution Margin: 1. Difference between total revenues and total variable costs a. Indicates why operating income changes as the number of units sold changes 2. CM Per Unit: a. Difference between the selling price and variable cost per unit 3. CM Ratio: a. CM Per Unit / Selling Price iv. CVP Methods 1. Equation Method: [Selling Price * Quantity Sold] – [VC * Quantity Sold] – FC = Operating Income 2. CM Method:
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CM Per Unit * Quantity Sold – FC = Operating Income II. Cost-Volume-Profit Assumptions
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This note was uploaded on 04/24/2011 for the course MGMT 505 taught by Professor Staff during the Spring '08 term at Purdue.

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Chapter 3 - Cost Volume Profit - Chapter 3 Cost Volume...

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