Cost-Volume-Profit Analysis Study Guide Do You Know…? Learning Objective 1: Classify costs as variable costs, fixed costs, or mixed costs. □ The characteristics of variable costs, fixed costs, and mixed costs? (See exercises 1–3) □ How to use the high-low method to determine the fixed and variable costs? (See exercises 4–6) Learning Objective 2: Compute the contribution margin, the contribution margin ratio, and the unit contribution margin. □ How to calculate the contribution margin, contribution margin ratio, and unit contribution margin? (See exercises 7–9) □ How to determine the impact on income from operations using the contribution margin ratio and unit contribution margin? (See exercises 10–12) Learning Objective 3: Determine the break-even point and sales necessary to achieve a target profit. □ How to calculate the break-even sales point in dollars and units? (See exercises 13–15) □ The effect of changes in fixed costs, unit selling price, and unit variable costs on the break-even point? (See exercises 16–18) □ The sales in dollars and units needed to achieve a target profit? (See exercises 19–21) Learning Objective 4: Using a cost-volume-profit chart and a profit-volume chart, determine the break-even point and sales necessary to achieve a target profit. □ How to prepare and interpret a cost-volume-profit chart? (See exercises 22, 24, and 26) □ How to prepare and interpret a profit-volume chart? (See exercises 23, 25, and 27)
Learning Objective 5: Compute the break-even point for a company selling more than one product, the operating leverage, and the margin of safety. □ How to determine the break-even point if more than one product is sold? (See exercises 28–30) □ How to calculate and interpret operating leverage? (See exercises 31–33) □ How to calculate the margin of safety in dollars, units, and percent of current sales? (See exercises 34–36) Fill-in-the-Blank Equations 1. = Difference in total cost/Difference in units produced (under the high-low method) 2. = Total costs – (Variable cost per unit × Units produced) (under the high- low method) 3. Contribution margin = Sales – 4. Contribution margin ratio = /Sales 5. Change in income from operations = × Contribution margin ratio 6. = Sales price per unit – Variable cost per unit 7. Change in income from operations = × Unit contribution margin 8. = Fixed costs/Unit contribution margin 9. Break-even sales (dollars) = Fixed costs/ 10. Sales (units) = ( + Target profit)/Unit contribution margin 11. Sales (dollars) = (Fixed costs + Target profit)/ 12. Operating leverage = Contribution margin/ 13. = Percent change in sales × Operating leverage 14. Margin of safety (percent of current sales) = (Sales – Sales at break-even point)/ 15. Margin of safety (dollars) = Sales (dollars) – 16. Margin of safety (units) = – Break-even sales (units)
2004006008001000 0 0 A B C 2000 1500 1000 500 Exercises 1. Determine if each of the following would be considered a fixed cost, variable cost, or mixed cost.
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- Spring '14