ACCT 204 Chapter 5 Print

# ACCT 204 Chapter 5 Print - Chapter 5 Cost-Volume-Profit...

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Click to edit Master subtitle style 9/7/11 Chapter 5 Cost-Volume-Profit ACCT 204

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9/7/11 What Is CVP Analysis Predicting the effect on profit if: 1.There is a change in sales _______ 2.There is a change in sales ______ 3.There is a change in ______ cost 4.There is a change in _______ cost 5.There is a change in product _____
9/7/11 Three Methods Of CVP Analysis Equation Method Contribution margin in dollars per unit Contribution margin ratio (percentage)

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9/7/11 Contribution Margin Contribution Margin (CM): o Revenue - Variable Costs o The amount of “new revenue” that is being “contributed” to cover fixed costs Usefulness of CM o Focuses attention on the change in earnings that result from a change in sales o Focuses attention on the change in earnings that result from a change in a
9/7/11 Basics of Cost-Volume-Profit Analysis The contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. The emphasis is on cost behavior Contribution Margin (CM) is the amount remaining from sales revenue after variable expenses have been deducted. CM is used first to cover fixed expenses. Any remaining CM contributes to net

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9/7/11 The Contribution Approach We do not need to prepare an income statement to estimate profits at a particular sales volume. Simply multiply the number of units sold above break- even by the contribution margin per unit. Profit = (Sales – Variable expenses) – Fixed expenses
9/7/11 Equation Method of CVP Company “breaks-even” when o Sales = Total Costs = Variable costs + Fixed costs So, if Q = Number of units SP = Selling price per unit VC = Variable cost per unit FC= Fixed cost Then break-even occurs where: o SP (Q) = VC (Q) + FCand

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9/7/11 CVP Relationships in Equation Form It is often useful to express the simple profit equation in terms of the unit contribution margin (Unit CM) as follows: Unit CM = Selling price per unit – Variable expenses per unit Profit = (SP × Q – VC × Q) – Fixed expenses
9/7/11 CVP Relationships in Graphic Form The relationships among revenue, cost, profit, and volume can be expressed graphically by preparing a CVP graph. Racing Bicycle developed contribution margin income statements at 0, 200, 400, and 600 units sold. We will use this information to prepare the CVP graph. Obj10

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9/7/11 0 50000 100000 150000 200000 250000 300000 350000 Preparing the CVP Graph Break-even point (400 units or \$200,000 in sales) Unit s Dollar s Loss Area Profit Area
9/7/11 CM Ratio (%) Method of CVP The CM % is: CM / Sales o This can be based on “total” or “per- unit” data Sales can be divided into the percentage that goes to pay variable cost and the percentage that remains to pay for fixed cost. This percentage is the CM%.

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## This note was uploaded on 09/07/2011 for the course ACCT 204 taught by Professor Jamesallesio during the Spring '11 term at Berkeley.

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ACCT 204 Chapter 5 Print - Chapter 5 Cost-Volume-Profit...

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