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Cm cm covers fcs and provides for net income 14 uses

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Unformatted text preview: f the Contribution (CM) Format Th The CM income statement format is used as an internal planning and decision making tool. Uses of this approach include: 1. CVP analysis 2. Budgeting 3. Segmented reporting of profit data 4. Special decisions such as pricing and make-orbuy analysis 15 Contribution (CM) Format Used primarily for external reporting. Used primarily by management. 16 Mixed Costs The The total mixed cost line can be expressed as an equation: Y = a + bX Where: Y = the total mixed cost a = the total FC (the Y intercept) Y Total Utility Cost b = the VC per unit of activity (the slope of the line) X = the level of activity Variable Cost per KW KW X Activity (Kilowatt Hours) Fixed Monthly Utility Charge 17 Mixed Costs Example If your fixed monthly utility charge is $40, your VC is $0.03 per kwh, and your monthly activity level is 2,000 kwh, what is the amount of kwh, your utility bill? Y = a + bX Y = $40 + ($0.03 × 2,000) Y = $100 18 Scattergraph Method Maintenance Cost 1,000’s of Dollars Use one data point to estimate the total level of activity and and the total cost. Y Total maintenance cost = $11,000 20 ** ** 10 * ** * ** Intercept = FC: $10,000 0 0 1 2 3 4 X Patient-days in 1,000’s Patient days = 800 19 Scattergraph Method Make a quick estimate of VC per unit and determine the cost cost equation. Total Total maintenance at 800 patients Less: Fixed cost Estimated total variable cost for 800 patients VC per unit = $1,000 800 $ 11,000 10,000 $ 1,000 = $1.25/patient-day Y = $10,000 + $1.25X Total maintenance cost Number of patient days...
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