Chapter 7 Full Student Version

Chapter 7 Full Student Version - 7-1MANAGERIAL

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Unformatted text preview: 7-1MANAGERIAL ACCOUNTINGRSM222Cost-Volume-Profit RelationshipsChapter 77-2Cost-Volume-Profit Relationship InteractionsCost-volume-profit (CVP) analysis is a powerful tool that managers use to help them understand the interrelationship among cost, volume and profit in an organization by focusing on interactions among the following five elements:1.prices of products2.volume or level of activity3.per unit variable costs4.total fixed costs5.mix of products soldLO 17-3Cost-Volume-Profit RelationshipRevenue (Fixed Costs + Variable Costs) = Profit p*Q = f + v*Q + NI; p Price; Q units sold; v unit variable cost; f total fixed cost; NI profit. 7-4Basics of Cost-Volume-Profit AnalysisContribution Margin (CM) is the amount remaining from sales revenue after variable expenses have been deducted.Contribution Margin (CM) is the amount remaining from sales revenue after variable expenses have been deducted.Sales (500 bicycles)250,000$ Less: Variable expenses150,000Contribution margin100,000Less: Fixed expenses80,000Net operating income20,000$ Racing Bicycle CompanyContribution Income StatementFor the Month of JuneThe contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. The emphasis is on cost behaviour.The contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. The emphasis is on cost behaviour.LO 17-5Contribution Margin (CM)TotalPer UnitCM RatioSales (500 bicycles)250,000$ 500$ 100%Less: Variable expenses150,00030060%Contribution margin100,000200$ 40%Less: Fixed expenses80,000Net operating income20,000$ Racing Bicycle CompanyContribution Income StatementFor the Month of JuneSales, variable expenses, and contribution margin can also be expressed on a per unit basis. If Racing sells an additional bicycle, $200 additional CM will be generated to cover fixed expenses and profit....
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Chapter 7 Full Student Version - 7-1MANAGERIAL

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