FINC 577 Chapter 5 Notes Outline

To construct a cvp graph plot the total sales line

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Unformatted text preview: he total-sales line starting at the zero activity level, Plot the total fixed cost using a horizontal line, Plot the total-cost line (starts at the fixed-cost line at zero activity), Determine the break-even point from the intersection of the total-cost line and the total-sales line. Chapter 5-36 BreakBreak-Even Analysis: Graphic Presentation Chapter 5-37 BreakBreak-Even Analysis: Target Net Income Rather than just breaking even, management usually sets an income objective called “target net income.” Indicates sales or units necessary to achieve this specified level of income. Can be determined from each of the approaches used to determine break-even sales/units: break- From a mathematical equation, By using contribution margin, or From a cost-volume profit (CVP) graph. Expressed either in sales units or in sales dollars. Chapter 5-38 BreakBreak-Even Analysis: Target Net Income Mathematical Equation Using the basic formula for the break-even point, simply include the desired net income as a factor. The computation for Vargo Video is...
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