Ch6 - Chapter 6 Cost-Volume-Profit Analysis: 1. BREAK-EVEN...

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Chapter 6 Cost-Volume-Profit Analysis: 1. BREAK-EVEN POINT IN UNITS AND SALES The break-even point is the point where total revenue equal total cost, the point of zero profit. A. Using Operating Income in CVP Analysis A functional income statement was used that classified expenses by function as: 1. manufacturing costs (both fixed and variable) 2. selling and administrative costs (both fixed and variable) The format used when costs are classified by function for absorption costing is: Sales – Cost of goods sold (Manufacturing costs) = Gross margin – Selling and administrative expenses = Net income For CVP analysis, a contribution margin income statement is used that classifies costs by behavior as: 1. variable costs variable manufacturing variable selling and administrative 2. fixed costs fixed manufacturing fixed selling and administrative The format used for a contribution margin income statement follows: Sales – Variable expenses: Variable cost of goods sold Variable selling and administrative = Contribution margin – Fixed expenses: Fixed overhead Fixed selling and administrative = Net income Contribution margin equals sales less all variable expenses. It is the amount left after variable expenses are covered, the amount that contributes to covering fixed expenses and operating income. 30
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31 Chapter 3 B. Break-Even Point in Units If the contribution margin income statement is recast as an equation, the operating-income equation is: Operating income = Sales – Total variable expenses – Total fixed expenses or Operating income = (Price × Units sold) – (Variable cost per unit × Units sold) – Total fixed expenses At breakeven, this can also be expressed as: Total revenue – Total variable cost – Total fixed cost = $0 or Total revenue = Total variable cost + Total fixed cost C. Shortcut to Calculating Break-Even Units To determine how many units must be sold in order to break even, solve for X (the number of
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This note was uploaded on 02/28/2012 for the course ACCT 2361 taught by Professor Severance during the Spring '08 term at Texas State.

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Ch6 - Chapter 6 Cost-Volume-Profit Analysis: 1. BREAK-EVEN...

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