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