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Ch 7 CVP_Lecture 3-students

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Unformatted text preview: Copyright © 2010 School of Accountancy, Arizona State University Chapter 7 C-V-P Copyright © 2010 School of Accountancy, Arizona State University Cost-Volume-Profit (CVP) Analysis • CVP analysis is a method for analyzing how operating decisions and marketing decisions affect profit • CVP relies on an understanding of the relationship between variable costs, fixed costs, unit selling price, and output level (volume) Operating Income Sales price per unit Fixed costs Variable cost per unit Units sold If you know or can estimate four of these five components, you can compute the remaining unknown amount The equations for CVP is: Revenues - Total Variable Costs - Total Fixed Costs = Profit sx- vx – f = P OR Shortcut Formulas Total Fixed Costs (TFC) Contribution Margin Per Unit FORMULA Total Fixed Costs (TFC) Contribution Margin Ratio TFC + Target Profit Contribution Margin Per Unit TFC + Target Profit Contribution Margin Ratio To determine the breakeven point in units . PURPOSE To determine the breakeven point in sales dollars . To determine the unit sales required to achieve a target profit. To determine the sales dollars required to achieve a target profit. The Impact of Taxes If After-Tax Profit = Before-Tax Profit (1-tax rate)...
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