Break Even Analysis Mathematical Equation for Dollars
The break-even point in dollars is found by expressing variable
costs as a percentage of unit selling price.
For Vargo Video, the percentage is 60% ($300 $500).
Sales must be $500,000 for Vargo V
Absorption versus Variable Costing Unit Production Cost
The per unit production cost under each costing approach is:
The difference in total unit cost of $4 ($13 - $9) occurs
because fixed manufacturing costs are a product cost
under absorption cost
Contribution Margin Notes
One of the key relationships in CVP analysis is contribution
margin (CM). Contribution margin is the amount of revenue
remaining after deducting variable costs. The CM is then
available to cover fixed costs and to contribute inco
Budgeting Basics Notes
Budgeting is used as a planning tool.
A budget is a formal written summary (or statement) of
managements plans for a specified time period, expressed
in financial terms.
It normally represents the primary means of communicating
Behavior of a Mixed Cost Notes
Mixed costs contain both a variable cost element and a fixed
Sometimes called semi variable costs, mixed costs change in
total but not proportionately with changes in the activity level.
Cost Behavior Analysis Notes
Cost behavior analysis is the study of how specific costs
respond to changes in the level of activity within a company.
The starting point in cost behavior analysis is measuring the
key activities in the companys business.
Cost Volume Profit Analysis Notes
Cost-volume-profit (CVP) analysis is the study of the effects
of changes of costs and volume on a companys profits.
CVP analysis involves a consideration of the
interrelationships among the following components:
The Master Budget Notes
The master budget is a set of interrelated budgets that
constitutes a plan of action for a specified time period.
The individual budgets included in a master budget are
shown on the next slide.
Hayes Company, which sells a single p
The Budgeting Process Notes
In many companies, the responsibility for coordinating the
preparation of the budget is assigned to a budget
The budget committee is headed by a budget director and
usually includes the president, treasurer, chief ac
Margin of Safety Notes
The margin of safety is another relationship that may be
calculated in CVP analysis. Margin of safety is the difference
between actual or expected sales and sales at the break-even
This relationship measures the breathing room
CVP Income Statement Notes
The CVP income statement classifies costs and expenses
as variable or fixed and specifically reports contribution
margin in the body of the statement.
The CVP income statement format is sometimes called the
contribution margin f
CVP and Changes in the Business Environment Notes
Business conditions change rapidly and management must
respond intelligently to these changes.
CVP analysis can be used in responding to change.
The original VCR sales and cost data for Vargo Video