Ch07 ManAcct4eupdated

# Ch07 ManAcct4eupdated - Chapter7 andVariableCosting 1...

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1 Chapter 7 Cost-Volume-Profit Analysis  and Variable Costing

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2 Introduction Cost-volume-profit (CVP) analysis focuses on  the following factors: 1. The prices of products or services 2. The volume of products or services  produced and sold 3. The per-unit variable costs 4. The total fixed costs 5. The mix of products or services produced
3 The Contribution Margin Income  Statement The contribution margin income  statement is  structured by behavior   rather than by function. Sales - All Variable Costs =  Contribution  Margin Contribution Margin - All Fixed Costs =  Net  Income

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4 Income Statements TRADITIONAL CONTRIBUTION MARGIN Sales  Less:  Cost of Goods Sold: Variable Costs Fixed Costs Total Cost of Goods Sold Gross Profit Less:  S, G, & A Costs: Variable Costs Fixed Costs Total S, G, & A Costs Net Income Sales Less: Variable Costs: Manuf. Costs S, G, & A Costs Total Variable Costs Contribution Margin Less: Fixed Costs: Manuf. Costs S, G, & A Costs Total Fixed Costs Net Income \$1,000 350 150 \$ 500 \$ 500 \$ 50 250 \$ 300 \$ 200 \$1,000 \$350 50 \$400 \$600 \$150 250 \$400 \$200
5 The Contribution Margin Income  Statement The contribution margin income  statement is structured to  emphasize cost behavior as  opposed to cost function.

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6 Contribution Margin Per Unit Sales (100,000 units)  Less: Variable Costs           Contribution Margin Less: Fixed Costs Net Income Total \$200,000 80,000 \$120,000 40,000 \$80,000 Per Unit \$2.00 .80 \$1.20
7 Contribution Margin Per Unit Sales (100,001 units)  Less: Variable Costs           Contribution Margin Less: Fixed Costs Net Income Total \$200,002.00 80,000.80 \$120,001.20 40,000.00 \$80,001.20 Per Unit \$2.00 .80 \$1.20 What if Cheri’s Chips sold one more  unit?

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8 Contribution Margin Per Unit For every unit change in sales,  contribution margin will increase  or decrease by the contribution  margin per unit multiplied by the  increase or decrease in sales  volume.
9 Contribution Margin Ratio Contribution Margin Ratio  = Contribution Margin (in \$) Sales (in \$)

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10 Contribution Margin Ratio Sales (100,000 units)  Less: Variable Costs           Contribution Margin Less: Fixed Costs Net Income Total \$200,000 80,000 \$120,000 40,000 \$80,000 Percent 100% 40    60% \$120,000 \$200,000
11 Contribution Margin Ratio The contribution margin per unit  and the contribution margin ratio  will remain constant as long as  sales vary in direct proportion  with volume.

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12 Contribution Margin Ratio For every dollar change in sales,  contribution margin will increase  or decrease by the contribution  margin ratio multiplied by the  increase or decrease in sales  dollars.
13 The Contribution Margin and Its Uses What would happen if sales increase?

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Ch07 ManAcct4eupdated - Chapter7 andVariableCosting 1...

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