Ch.6 - 1 Click to edit Master subtitle style ACIS 2116...

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Unformatted text preview: 1 Click to edit Master subtitle style ACIS 2116 Chapter Six Cost-Volume-Profit Analysis 2 Cost-Volume-Profit (CVP) Analysis Managers make many decisions that involve analyzing the relationship between the following: Cost of products (both variable and fixed) Volume of products or services produced and sold Prices of products or services 3 The Contribution Margin Income Statement Comparison of the Contribution Margin Income Statement with the Traditional Income Statement Traditional Contribution Margin (costs organized by function) (costs organized by behavior) Sales 100,000 $ Sales 100,000 $ Less cost of goods sold 70,000 Less variable expenses 60,000 Gross margin 30,000 $ Contribution margin 40,000 $ Less operating expenses 20,000 Less fixed expenses 30,000 Net operating income 10,000 $ Net operating income 10,000 $ The Contribution Margin Income Statement helps managers make decisions using CVP Analysis 4 Basics of Cost-Volume-Profit Analysis Contribution Margin (CM) is the amount remaining from sales revenue after variable expenses have been deducted. O bj1 0 1 5 Basics of Cost-Volume-Profit Analysis CM is used first to cover fixed expenses. Any remaining CM contributes to net operating income. O bj1 0 2 6 Basics of CVP Analysis If Hokie sells an additional bicycle, $200 additional CM will be generated to cover fixed expenses and profit. O bj1 0 3 7 Basics of CVP Analysis Each month Hokie must generate at least $80,000 in total CM to break even. O bj1 0 4 8 Basics of CVP Analysis If Hokie sells 400 units in a month, it will be operating at the break-even point . O bj1 0 5 9 Basics of CVP Analysis If Hokie sells one more bike ( 401 bikes ), net operating income will increase by $200 . O bj1 0 6 10 Basics of CVP Analysis How can we estimate profits at a particular sales volume without preparing an income statement? If Hokie sells 430 bikes, its net income will be? By multiplying the number of units sold above break-even by the contribution margin per unit. 30 X 200 = $6,000 11 CVP Relationships in Graphic Form Use the following information to prepare a CVP graph. Income 300 units Income 400 units Income 500 units Sales 150,000 $ 200,000 $ 250,000 $ Less: variable expenses 90,000 120,000 150,000 Contribution margin 60,000 $ 80,000 $ 100,000 $ Less: fixed expenses 80,000 80,000 80,000 Net operating income (20,000) $ - $ 20,000 $ 12- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000- 100 200 300 400 500 600 700 800 CVP Graph Units D o l l a r s Unit volume is usually represented on the horizontal (X) axis and dollars on the vertical (Y) axis . 13- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000- 100 200 300 400 500 600 700 800 CVP Graph Units D o l l a r s Fixed Expenses $80,000 14- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000- 100 200 300 400 500 600 700 800 CVP Graph D o l l a r s Units Fixed Expenses Total Expenses 15 CVP Graph- 50,000 100,000 150,000 200,000 250,000...
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This note was uploaded on 08/15/2011 for the course ACIS 2116 taught by Professor Cmeasterwood during the Spring '08 term at Virginia Tech.

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Ch.6 - 1 Click to edit Master subtitle style ACIS 2116...

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