ch6 - Ch 6 COST Behaviour-CVP How do changes in activity...

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1 Ch6 CVP Managerial Accounting ADM2341 1 Ch 6. COST Behaviour-CVP How do changes in activity affect net income? Break even point Margin of safety and operating leverage How do changes in variable costs, selling price sales mix affect the contribution margin? Ch6 CVP Managerial Accounting ADM2341 2 Sales (units) .................... 500 Sales ($’s) ................. 250,000 VC .......................... 150,000 CM .......................... 100,000 FC ............................ 80,000 NI ........................... 20,000 NORD COMPANY Ch6 CVP Managerial Accounting ADM2341 3 Amount contributed per unit toward fixed costs and then toward profits for the period Remains constant so long as the selling price and variable cost per unit do not change CONTRIBUTION MARGIN PER UNIT (CM/UNIT)
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2 Ch6 CVP Managerial Accounting ADM2341 4 CM/Unit = (Revenue - Variable Costs)/ Units or (Selling price - Variable cost/unit) Break-Even Point (Units) Fixed Cost ---------- Contribution Margin/Unit = Ch6 CVP Managerial Accounting ADM2341 5 The percentage of sales dollars contributed toward fixed costs, then profits for the period Very useful for multiple product situations in particular (assumes mix constant)
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