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Chapter 7 - lecture Friday 10-7-students

Chapter 7 - lecture Friday 10-7-students - Chapter 7...

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Chapter 7 Continued Please pick up handout
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Cost-Volume-Profit (CVP) Analysis Is a powerful tool that helps managers make important business decisions Is a relationship among costs, volume, and profit or loss Determines how much the company must sell each month just to cover costs or to break even Helps managers decide how sales volume would need to change to achieve the same profit level
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Components of CVP Analysis CVP analysis relies on the interdependency of five components or pieces of information Sales price per unit Volume sold Variable costs per unit Fixed costs Operating income If you know or can estimate four of these five components, you can compute the remaining unknown amount 3
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Breakeven Point Breakeven point: Sales level at which operating income is zero If sales above breakeven, then profit If sales below breakeven, then loss Fixed expenses = total contribution margin Total sales = total expenses 4
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Two Approaches
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