Unit 8 CVP Analysis - BFA103 Financial Accounting and...

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Unformatted text preview: BFA103 Financial Accounting and Decision Making 2 nd Semester 2009 ___________________________________ School of Accounting & Corporate Governance School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Unit 8 Cost-Volume-Profit Analysis ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Objectives: For students to be able to: develop an understanding of cost and cost behaviour explain the meaning of the following terms breakeven point, contribution, margin of safety, operating gearing, relevant range explain the use of relevant range to solve problems about whether to accept special contracts identify the assumptions underlying cost-volume-profit analysis, and the limits on the usefulness of CVP analysis use cost-volume-profit analysis to solve a variety of short-term operating problems ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making References: Atrill, McLaney, Harvey & Jenner. Chapter 7 ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Cost-Volume-Profit Analysis This week we will consider a management decision-making tool called cost-volume-profit (CVP) analysis. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making The volume of activity of a business may be measured in terms of the units to be sold, or in the case of a manufacturing business, the number of units to be produced. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Managers need answers to questions like: If we need to make a profit of $X, how many units do we need to sell: in other words, what is the required activity level ? ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Managers need answers to questions like: How many units do we need to sell to break-even (to cover costs and not make a loss)? ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making The answers to such questions will depend on the relationship between the level of activity of a business and its costs , and this in turn will affect the amount of profit that can be expected . ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Cost behaviour For CVP analysis, we assume that all costs may be classified as either: fixed variable ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Fixed Costs (FC) Fixed Costs do not change with the level of activity....
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Unit 8 CVP Analysis - BFA103 Financial Accounting and...

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