Chpt 3 notes - Cost Accounting Chapt 3 January 18th 2012...

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January 18 th , 2012 Cost-Volume-Profit Analysis Cost-Volume-Profit Analysis - Takes data on volume, price and costs - Classifies them according to their behaviour - Produce information on breakeven volume and/or revenue o The point at which total revenue = total costs - Can use historical or forecast data for analysis Assumptions of CVP Analysis - Total costs can be classified as variable or fixed - Revenues and variable costs change due to changes in volume of finished goods - Total revenues and costs behave in a linear fashion in relation to changes in volume within the relevant range - Unit selling price, variable cost per unit, and fixed costs are all known - Usually single product; if more than one product exists, the revenue mix remains constant - The time value of money is ignored Contribution Margin - Contribution income statement: produced from costs classified according to their behaviour: o Total variable costs (TVC): both inventoriable and period variable costs o Total fixed costs (FC): both inventoriable and period fixed costs o COGS + Opex = TVC + FC = Total Cost - Contribution margin: Total revenue less TVC o TCM = TRev – TVC - Unit contribution margin = unit sales price less unit variable cost - Contribution Margin also equals contribution margin per unit multiplied by the number of units sold (Q) o TCM = UCM x Q - Contribution Margin Ratio: equals unit contribution margin per unit divided by unit selling price o CMR = UCM ÷ USP o Interpretation: how many cents out of every sales dollar are represented by Contribution Margin Contrast Financial & Management Accounting - Contribution income statement: o TRev – TVC = TCM (Contribution margin) o TCM – FC = Operating income - Financial income statement: o TRev – COGS = GM (Gross margin) o GM – Opex = Operating income
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This note was uploaded on 02/02/2012 for the course ACCOUNTING 361 taught by Professor Giarccia during the Spring '11 term at McGill.

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Chpt 3 notes - Cost Accounting Chapt 3 January 18th 2012...

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