ACTG2020_Week4_2014_Ch5_6_7CMD

Salaries and commission a 008 per unit a 008 per unit

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Unformatted text preview: unit b. $0.10 per unit c.. $0.12 per unit c $0.12 per unit d. $0.125 per unit d. $0.125 per unit LO 2 Quick Check Sales salaries and commissions are $10,000 Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the highwhen 120,000 units are sold. Using the highlow method, what is the ffixed portion of sales low method, what is the ixed portion of sales salaries and commissions? salaries and commissions? a. $ 2,000 a. $ 2,000 b. $ 4,000 b. $ 4,000 c.. $10,000 c $10,000 d. $12,000 d. $12,000 LO 2 The Contribution Format Sales Revenue Less: Variable costs Contribution margin Total $ 100,000 60,000 $ 40,000 Less: Fixed costs Net operating income Unit $ 50 30 $ 20 30,000 $ 10,000 The contribution margin format emphasizes cost The contribution margin format emphasizes cost The behaviour. Contribution margin covers fixed behaviour. Contribution margin covers fixed costs and provides for income. costs and provides for income. costs costs LO 3 The Contribution Format Comparison of the Contribution Income Statement w ith the Traditional Income Statement Traditional Approach (costs organized by function) Contribution Approach (costs organized by behavior) Sales $ 100,000 Less cost of goods sold 70,000 Gross margin $ 30,000 Less operating expenses 20,000 Net operating income $ 10,000 Sales $ 100,000 Less variable expenses 60,000 Contribution margin $ 40,000 Less fixed expenses 30,000 Net operating income $ 10,000 Used primarily for Used external reporting. Used primarily by management. LO 3 Uses of the Contribution Format The contribution income statement format is used as The contribution income statement format is used as an internal planning and decision making tool. an internal planning and decision making tool. We will use this approach for: We will use this approach for: 1. 1. Cost-volume-profit analysis (Chapter 7). Cost-volume-profit analysis (Chapter 7). 2. 2. Budgeting (Chapter 9). Budgeting (Chapter 9). 3. 3. Segmented reporting of profit data (Chapter 11). Segmented reporting of profit data (Chapter 11). 4. 4. Special decisions such as pricing and make-orSpecial decisions such as pricing and make-orbuy analysis (Chapter 12). buy analysis (Chapter 12). LO 3 Accounting 2020 Chapter 7 - Cost-Volume-Profit Relationships Week 4 Cost-Volume Profit Analysis (CVP) Also known as break-even analysis Answers questions like: What sales volume is needed to earn a target income? What is the change in income if selling prices are reduced and sales volume increases? How much will income increase if we install a new machine to reduce labour costs? What is the income effect if we change the sales mix of our products? Joelle Pokrajac, MBA, CMA Cost-Volume Profit Analysis (CVP) How many units do we need to sell at a given price point in order to cover the variable cost per unit and our fixed costs? Uses of break-even analysis New Product Decisions Pricing Decisions Modernization Decisions Expansion Decisions J...
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