Chap6gnposting - Chapter 6: Cost-Volume-Profit Analysis...

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Chapter 6: Cost-Volume-Profit Relationships 29 Chapter 6: Cost-Volume-Profit Analysis Study of the effects of changes in revenues, costs and volume on a company's profits. Essential for profit planning future or forward looking Break-even Point starting point for planning; where NI = $0 Limitations costs are linear and constant over relevant range of activity and time period Contribution Margin Approach Two ways to arrive at the same Mathematical Equation Approach answer. CM approach is faster. Graphic Presentation Margin of Safety in Dollars = Actual (or Expected) Sales minus Breakeven Sales Margin of Safety Ratio = Margin of Safety in Dollars Actual (or Expected) Sales Sales $ Units of product $0 Total Fixed Costs Total Variable Costs Total Sales Total Costs Breakeven Point Loss Profit Margin of safety provides a measure of potential loss of sales prior to incurring a net loss. Margin of safety in $. Margin of safety in units. Sales = Production
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Chapter 6: Cost-Volume-Profit Relationships 30 Mathematical Equation: Sales Variable Costs Fixed Costs = Net Income Selling price Quantity Variable cost Quantity Fixed Net per unit Quantity per unit Quantity Costs Income Remember: Sales and variable costs will increase as the units sold increase. Fixed costs will remain unchanged
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This note was uploaded on 05/28/2011 for the course ACC 272 taught by Professor Bird during the Spring '08 term at University of Michigan.

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Chap6gnposting - Chapter 6: Cost-Volume-Profit Analysis...

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