Part Five. Cost Volume Profit Analysis

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Part Five. Cost Volume Profit Analysis"

Transcription

1 Part Five Cost Volume Profit Analysis

2 COST VOLUME PROFIT ANALYSIS Study of the effects of changes of costs and volume on a company s profits A critical factor in management decisions Important in profit planning

3 COST VOLUME PROFIT ANALYSIS Considers the interrelationships among the five components of CVP analysis:

4 ASSUMPTIONS UNDERLYING CVP ANALYSIS(Assumptions) Behavior of both costs and revenues is linear throughout the relevant range of the activity index All costs can be classified as either variable or fixed with reasonable accuracy Changes in activity are the only factors that affect costs All units produced are sold When more than one type of product is sold, the sales mix will remain constant

5 CVP INCOME STATEMENT A statement for internal use Classifies costs and expenses as fixed or variable Reports contribution margin in the body of the statement. Contribution margin amount of revenue remaining after deducting variable costs Reports the same net income as a traditional income statement

6 CVP INCOME STATEMENT Contribution Margin Per Unit Contribution margin is available to cover fixed costs and to contribute to income Formula for contribution margin per unit: Unit Selling Price Unit Variable Costs = Contribution Margin per Unit Example: Computation for Vargo Video Unit Selling Price $500 Unit Variable Costs $300 = Contribution Margin per Unit $200

7 CVP INCOME STATEMENT Contribution Margin Ratio Shows the percentage of each sales dollar available to apply toward fixed costs and profits Contribution Margin per Unit Unit Selling Price = Contribution Margin Ratio Example: Computation for Vargo Video Contribution Margin per Unit S200 Unit Selling Price = $500 Contribution Margin Ratio 40%

8 BREAK EVEN ANALYSIS Process of finding the break even point Break even point Level of activity at which total revenues equal total costs (both fixed and variable) Can be computed or derived from a mathematical equation by using contribution margin from a cost volume profit (CVP) graph Expressed either in sales units or in sales dollars

9 BREAK EVEN ANALYSIS Mathematical Equation Example using the Vargo Video data: Sales Variable Costs $300 Q Fixed Costs $500 Q = + + $200,000 Net Income $0 = $200 Q $200,000 Q = 1000 units Where: Q = sales volume; $500 = selling price; $300 = variable cost per unit; $200,000 total fixed costs To find sales dollars required to break even: 1000 units X $500 = $500,000 (break even sales dollars)

10 Breakeven point Volume of sales needed to earn no profit or no loss Revenues = total costs Fixed cost + target profit Contribution margin per unit = number of units Fixed cost + target profit Contribution margin percentage = dollars of sales

11 The breakeven formulas allow us to play what if games What happens if Sales price is increased (or decreased) Variable costs are replaced by fixed costs Volume increases Additional amounts spent on advertising will increase sales volume Etc.

12 Margin of safety The excess of current sales volume over the breakeven point In units Current unit sales breakeven unit sales In percentage (Current sales breakeven sales) / current sales The sales figures may be in dollars or units

13 BREAK EVEN ANALYSIS Margin of Safety Difference between actual or expected sales and sales at the break even point May be expressed in dollars or as a ratio Example To determine the margin of safety in dollars for Vargo Video assuming that actual (expected) sales are $750,000: Actual (Expected) Sales S750,000 Break even Sales = $500,000 Margin of Safety in Dollars $250,000

14 BREAK EVEN ANALYSIS Margin of Safety Ratio Computed by dividing the margin of safety in dollars by the actual or expected sales (using Vargo Video data) Margin of Safety in Dollars $250,000 Actual (Expected) Sales = $750,000 Margin of Safety Ratio 33% Results indicate that Vargo Video s sales could fall by 33 percent before it would be operating at a loss. The higher the dollars or the percentage, the greater the margin of safety.

15 BREAK EVEN ANALYSIS Contribution Margin Technique At the break even point, contribution margin must equal total fixed costs (CM = total revenues variable costs) The break even point can be computed using either contribution margin per unit or contribution margin ratio When the break even point in units is desired, contribution margin per unit is used in the following formula Fixed Costs Contribution Margin per Unit = Break even Point in Units When the break even point in dollars is desired, contribution margin ratio is used in the following formula Fixed Costs Contribution Margin Ratio = Break even Point in Dollars

16 BREAK EVEN ANALYSIS Contribution Margin Technique Example using Vargo Video data: Fixed Costs $200,000 Contribution Margin per Unit = $200 Break even Point in Units 1,000 units Fixed Costs $200,000 Contribution Margin per Unit = 40% Break even Point in Dollars $500,000

17 BREAK EVEN ANALYSIS Graphic Presentation A cost volume profit (CVP) graph shows costs, volume, and profits Used to visually find the break even point To construct a CVP graph, Plot the total revenue line starting at the zero activity level Plot the total fixed cost by 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 revenue line

18 BREAK EVEN ANALYSIS CVP Graph for Vargo Video

19 Cost Volume Profit Graph Sales in Dollars 450, , , , , , , ,000 50,000 Break even even point Total expenses Loss area Total sales Profit area Fixed expenses Units Sold

20 Profit Volume Graph $100,000 Some managers like the profit volume graph because it focuses on profits and volume. $80,000 Profit $60,000 $40,000 $20,000 $ $ $50 $100 $150 $200 $250 $300 $350 $400 $(20,000) $(40,000) $(60,000) $(80,000) Loss area Profit area Break even point $(100,000) Units sold (00s)

21 BREAK EVEN ANALYSIS Target Net Income Level of sales necessary to achieve a specified income Can be determined from each of the approaches used to determine break even sales/units May be expressed either in sales dollars or sales units

22 Sensitivity analysis Change in Sales Price Change in Variable Costs Change in Fixed Costs Change in Volume

23 Operating leverage Measures the relative mix of fixed and variable costs Contribution margin / operating income Can determine the change in operating income that will result from a change in sales by multiplying the % change in sales by the operating leverage High operating leverage implies high risk, high reward

24 Breakeven calculations in a multi product environment Assume the mix of products sold remains constant Determine the contribution margin for a basket of goods (the normal sales mix) Calculate the breakeven point as the number of baskets needed to break even

25 Breakeven calculations in a multi product environment Normal Contribution Total Product sales mix per unit contribution Laptops 6 $ 70 $ 420 Printers Scanners 1 20 $ If fixed costs are $800,000, the breakeven point is $800,000 / 500 = 1,600 "baskets" 9,600 laptops 3,200 printers 1,600 scanners

26 Computing Multiproduct Break Even Point Unit contribution margin is replaced with contribution margin for a composite unit. A composite unit is composed of specific numbers of each product in proportion to the product sales mix. Sales mix is the ratio of the volumes of the various products.

27 Computing Multiproduct Break Even Point The resulting break even formula for composite unit sales is: Break even point in composite units = Fixed costs Contribution margin per composite unit

28 Computing Multiproduct Break Even Point A company sells windows and doors. They sell 4 windows for every door. Windows Doors Selling Price $200 $500 Variable Cost Unit Contribution $ 75 $ 150 Sales Mix Ratio 4 1

29 Computing Multiproduct Break Even Point Step 1: Compute contribution margin per composite unit. Windows Doors Selling Price $200 $500 Variable Cost Unit Contribution $ 75 $ 150 Sales Mix Ratio Composite C/M

30 Computing Multiproduct Break Even Point Step 2: Compute break even point in composite units. Break even point in composite units = Fixed costs Contribution margin per composite unit

31 Computing Multiproduct Break Even Point Step 2: Compute break even point in composite units. Break even point in composite units Break even point in composite units = = Fixed costs Contribution margin per composite unit $900,000 $450 per composite unit Break even point in composite units = 2,000 composite units

32 Computing Multiproduct Break Even Point Step 3: Determine the number of windows and doors that must be sold to break even. Sales Composite Product Mix Units Units Window 4 2,000 = 8,000 Door 1 2,000 = 2,000

33 Multiproduct Break Even Income Statement Step 4: Verify the results. Windows Doors Combined Selling Price $200 $500 Variable Cost Unit Contribution $ $ Sales Volume 8,000 2,000 Total Contribution $ 600,000 $ 300,000 $ 900,000 Fixed Costs 900,000 Income $ 0

34 Thanks for Your Attention

Assumptions of CVP Analysis. Objective 1: Contribution Margin Income Statement. Assumptions of CVP Analysis. Contribution Margin Example

Assumptions of CVP Analysis. Objective 1: Contribution Margin Income Statement. Assumptions of CVP Analysis. Contribution Margin Example Assumptions of CVP Analysis Cost-Volume-Profit Analysis Expenses can be classified as either variable or fixed. CVP relationships are linear over a wide range of production and sales. Sales prices, unit

More information

Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Fourteen: Cost-volume-profit Relationships

Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Fourteen: Cost-volume-profit Relationships Accounting Building Business Skills Paul D. Kimmel Chapter Fourteen: Cost-volume-profit Relationships PowerPoint presentation by Kate Wynn-Williams University of Otago, Dunedin 2003 John Wiley & Sons Australia,

More information

Chapter 6 Cost-Volume-Profit Relationships

Chapter 6 Cost-Volume-Profit Relationships Chapter 6 Cost-Volume-Profit Relationships Solutions to Questions 6-1 The contribution margin (CM) ratio is the ratio of the total contribution margin to total sales revenue. It can be used in a variety

More information

volume-profit relationships

volume-profit relationships Slide 1.3.1 1. Accounting for decision making 1.3 Cost-volume volume-profit relationships Slide 1.3.2 Introduction This chapter examines one of the most basic planning tools available to managers: cost

More information

Cost VOLUME RELATIONS & BREAK EVEN ANALYSIS

Cost VOLUME RELATIONS & BREAK EVEN ANALYSIS 1. Introduction The cost volume profit (CVP) analysis helps management in finding out the relationship of costs and revenues to profit. Cost depends on various factors like Volume of production Product

More information

Cost-Volume-Profit. Managerial Accounting Fifth Edition Weygandt Kimmel Kieso. Page 5-2

Cost-Volume-Profit. Managerial Accounting Fifth Edition Weygandt Kimmel Kieso. Page 5-2 5-1 Cost-Volume-Profit Managerial Accounting Fifth Edition Weygandt Kimmel Kieso 5-2 study objectives 1. Distinguish between variable and fixed costs. 2. Explain the significance of the relevant range.

More information

01 In any business, or, indeed, in life in general, hindsight is a beautiful thing. If only we could look into a

01 In any business, or, indeed, in life in general, hindsight is a beautiful thing. If only we could look into a 01 technical cost-volumeprofit relevant to acca qualification paper F5 In any business, or, indeed, in life in general, hindsight is a beautiful thing. If only we could look into a crystal ball and find

More information

Break-Even Point and Cost-Volume-Profit Analysis

Break-Even Point and Cost-Volume-Profit Analysis 9 Break-Even Point and Cost-Volume-Profit Analysis Objectives After completing this chapter, you should be able to answer the following questions: LO.1 LO.2 LO.3 LO.4 LO.5 LO.6 What is the break-even point

More information

Chapter 6: Break-Even & CVP Analysis

Chapter 6: Break-Even & CVP Analysis HOSP 1107 (Business Math) Learning Centre Chapter 6: Break-Even & CVP Analysis One of the main concerns in running a business is achieving a desired level of profitability. Cost-volume profit analysis

More information

Summary. Chapter Five. Cost Volume Relations & Break Even Analysis

Summary. Chapter Five. Cost Volume Relations & Break Even Analysis Summary Chapter Five Cost Volume Relations & Break Even Analysis 1. Introduction : The main aim of an undertaking is to earn profit. The cost volume profit (CVP) analysis helps management in finding out

More information

C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM

C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information ACRONYMS (ABBREVIATIONS) FOR USE WITH MANAGERIAL ACCOUNTING RELATING TO COST-VOLUME-PROFIT ANALYSIS. CM Contribution Margin in total dollars

More information

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis Cost-Volume-Profit Analysis Cost-Volume-Profit Assumptions and Terminology 1 Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units produced

More information

Breakeven, Leverage, and Elasticity

Breakeven, Leverage, and Elasticity Breakeven, Leverage, and Elasticity Dallas Brozik, Marshall University Breakeven Analysis Breakeven analysis is what management is all about. The idea is to compare where you are now to where you might

More information

The term marginal cost refers to the additional costs incurred in providing a unit of

The term marginal cost refers to the additional costs incurred in providing a unit of Chapter 4 Solutions Question 4.1 A) Explain the following The term marginal cost refers to the additional costs incurred in providing a unit of product or service. The term contribution refers to the amount

More information

1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income.

1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. 1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. B. Sales Fixed costs Variable costs Operating expenses = Net income. C. Sales

More information

Part II Management Accounting Decision-Making Tools

Part II Management Accounting Decision-Making Tools Part II Management Accounting Decision-Making Tools Chapter 7 Chapter 8 Chapter 9 Cost-Volume-Profit Analysis Comprehensive Business Budgeting Incremental Analysis and Decision-making Costs Chapter 10

More information

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Three functions of importance in business are cost functions, revenue functions and profit functions. Cost functions

More information

The term used for the relative proportion in which a company's products are sold is:

The term used for the relative proportion in which a company's products are sold is: The term used for the relative proportion in which a company's products are sold is: profit ~ Your answer is correct. break-even sales price The correct answer Is shown. In order to convert the margin

More information

Costing For Decision-Making Break Even Analysis. Break-even even Analysis

Costing For Decision-Making Break Even Analysis. Break-even even Analysis Costing For Decision-Making Break Even Analysis CHAPTER 18 Introduction CVP Analysis Behaviour of Fixed and Variable Costs CVP Analysis and Break-even even Analysis Break-even even Analysis Break-even

More information

Chapter 19 (4) Cost Behavior and Cost-Volume-Profit Analysis Study Guide Solutions Fill-in-the-Blank Equations

Chapter 19 (4) Cost Behavior and Cost-Volume-Profit Analysis Study Guide Solutions Fill-in-the-Blank Equations Chapter 19 (4) Cost Behavior and Cost-Volume-Profit Analysis Study Guide Solutions Fill-in-the-Blank Equations 1. Variable cost per unit 2. Fixed cost 3. Variable costs 4. Contribution margin 5. Change

More information

Chapter. Break-even analysis (CVP analysis)

Chapter. Break-even analysis (CVP analysis) Chapter 5 Break-even analysis (CVP analysis) 1 5.1 Introduction Cost-volume-profit (CVP) analysis looks at how profit changes when there are changes in variable costs, sales price, fixed costs and quantity.

More information

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis Chapter 6 Notes Page 1 Cost-Volume-Profit Analysis Understanding the relationship between a firm s costs, profits and its volume levels is very important for strategic planning. When you are considering

More information

Helena Company reports the following total costs at two levels of production.

Helena Company reports the following total costs at two levels of production. Chapter 22 Helena Company reports the following total costs at two levels of production. 10,000 Units 20,000 Units Direct materials $20,000 $40,000 Maintenance 8,000 10,000 Direct labor 17,000 34,000 Indirect

More information

Accounting 610 2C Cost-Volume-Profit Relationships Page 1

Accounting 610 2C Cost-Volume-Profit Relationships Page 1 Accounting 610 2C Cost-Volume-Profit Relationships Page 1 I. OVERVIEW A. The managerial accountant uses analytical tools to advise line managers in decision making functions. C-V-P (CVP) analysis provides

More information

CHAPTER LEARNING OBJECTIVES. Identify common cost behavior patterns.

CHAPTER LEARNING OBJECTIVES. Identify common cost behavior patterns. c04.qxd 6/2/06 2:53 PM Page 124 CHAPTER 4 LEARNING OBJECTIVES 1 2 3 4 5 6 Identify common cost behavior patterns. Estimate the relation between cost and activity using account analysis and the high-low

More information

Chapter 25 Cost-Volume-Profit Analysis Questions

Chapter 25 Cost-Volume-Profit Analysis Questions Chapter 25 Cost-Volume-Profit Analysis Questions 1. Cost-volume-profit analysis is used to accomplish the first step in the planning phase for a business, which involves predicting the volume of activity,

More information

C 5 - COST BEHAVIOR: ANALYSIS AND USE notes-c5.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM

C 5 - COST BEHAVIOR: ANALYSIS AND USE notes-c5.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM C 5 - COST BEHAVIOR: ANALYSIS AND USE notes-c5.doc CHAPTER LEARNING OBJECTIVES: MAJOR: - Use the High-Low method to determine and calculate the structure of a cost. - Define, explain and use variable,

More information

Algebra I. In this technological age, mathematics is more important than ever. When students

Algebra I. In this technological age, mathematics is more important than ever. When students In this technological age, mathematics is more important than ever. When students leave school, they are more and more likely to use mathematics in their work and everyday lives operating computer equipment,

More information

In this chapter, you will learn to use cost-volume-profit analysis.

In this chapter, you will learn to use cost-volume-profit analysis. 2.0 Chapter Introduction In this chapter, you will learn to use cost-volume-profit analysis. Assumptions. When you acquire supplies or services, you normally expect to pay a smaller price per unit as the

More information

BREAK-EVEN ANALYSIS. In your business planning, have you asked questions like these?

BREAK-EVEN ANALYSIS. In your business planning, have you asked questions like these? BREAK-EVEN ANALYSIS In your business planning, have you asked questions like these? How much do I have to sell to reach my profit goal? How will a change in my fixed costs affect net income? How much do

More information

2. Cost-Volume-Profit Analysis

2. Cost-Volume-Profit Analysis Cost-Volume-Profit Analysis Page 1 2. Cost-Volume-Profit Analysis Now that we have discussed a company s cost function, learned how to identify its fixed and variable costs. We will now discuss a manner

More information

Business and Economic Applications

Business and Economic Applications Appendi F Business and Economic Applications F1 F Business and Economic Applications Understand basic business terms and formulas, determine marginal revenues, costs and profits, find demand functions,

More information

You and your friends head out to a favorite restaurant

You and your friends head out to a favorite restaurant 19 Cost-Volume-Profit Analysis Learning Objectives 1 Identify how changes in volume affect costs 2 Use CVP analysis to compute breakeven points 3 Use CVP analysis for profit planning, and graph the CVP

More information

BASIC CONCEPTS AND FORMULAE

BASIC CONCEPTS AND FORMULAE 12 Marginal Costing BASIC CONCEPTS AND FORMULAE Basic Concepts 1. Absorption Costing: a method of costing by which all direct cost and applicable overheads are charged to products or cost centers for finding

More information

House Published on www.jps-dir.com

House Published on www.jps-dir.com I. Cost - Volume - Profit (Break - Even) Analysis A. Definitions 1. Cost - Volume - Profit (CVP) Analysis: is a means of predicting the relationships among revenues, variable costs, and fixed costs at

More information

INCORPORATION OF LEARNING CURVES IN BREAK-EVEN POINT ANALYSIS

INCORPORATION OF LEARNING CURVES IN BREAK-EVEN POINT ANALYSIS Delhi Business Review Vol. 2, No. 1, January - June, 2001 INCORPORATION OF LEARNING CURVES IN BREAK-EVEN POINT ANALYSIS Krishan Rana Suneel Maheshwari Ramchandra Akkihal T HIS study illustrates that a

More information

Section 1.5 Linear Models

Section 1.5 Linear Models Section 1.5 Linear Models Some real-life problems can be modeled using linear equations. Now that we know how to find the slope of a line, the equation of a line, and the point of intersection of two lines,

More information

Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed

Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed Breakeven Analysis Variable Vary directly in proportion to activity: Example: if sales increase by 5%, then the Variable will increase by 5% Remain the same, regardless of the activity level Mixed Combines

More information

The Point-Slope Form

The Point-Slope Form 7. The Point-Slope Form 7. OBJECTIVES 1. Given a point and a slope, find the graph of a line. Given a point and the slope, find the equation of a line. Given two points, find the equation of a line y Slope

More information

Chapter 22: Cost-Volume-Profit

Chapter 22: Cost-Volume-Profit Chapter 22: Cost-Volume-Profit DO IT! 1 Types of Costs Helena Company reports the following total costs at two levels of production. 10,000 Units 20,000 Units Direct materials $20,000 $40,000 Maintenance

More information

Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay Lecture - 26 Cost Volume Profit Analysis Dear participations in our early session,

More information

Exhibit 7.5: Graph of Total Costs vs. Quantity Produced and Total Revenue vs. Quantity Sold

Exhibit 7.5: Graph of Total Costs vs. Quantity Produced and Total Revenue vs. Quantity Sold 244 13. 7.5 Graphical Approach to CVP Analysis (Break-Even Chart) A break-even chart is a graphical representation of the following on the same axes: 1. Fixed costs 2. Total costs at various levels of

More information

Cost-Volume-Profit Analysis: Additional Issues

Cost-Volume-Profit Analysis: Additional Issues 6-1 Cost-Volume-Profit Analysis: Additional Issues 6-2 Managerial Accounting Fifth Edition Weygandt Kimmel Kieso study objectives 1. Describe the essential features of a cost-volume-profit income statement.

More information

3.3 Applications of Linear Functions

3.3 Applications of Linear Functions 3.3 Applications of Linear Functions A function f is a linear function if The graph of a linear function is a line with slope m and y-intercept b. The rate of change of a linear function is the slope m.

More information

Indiana State Core Curriculum Standards updated 2009 Algebra I

Indiana State Core Curriculum Standards updated 2009 Algebra I Indiana State Core Curriculum Standards updated 2009 Algebra I Strand Description Boardworks High School Algebra presentations Operations With Real Numbers Linear Equations and A1.1 Students simplify and

More information

Break-even analysis. On page 256 of It s the Business textbook, the authors refer to an alternative approach to drawing a break-even chart.

Break-even analysis. On page 256 of It s the Business textbook, the authors refer to an alternative approach to drawing a break-even chart. Break-even analysis On page 256 of It s the Business textbook, the authors refer to an alternative approach to drawing a break-even chart. In order to survive businesses must at least break even, which

More information

Session 07. Cost-Volume-Profit Analysis

Session 07. Cost-Volume-Profit Analysis Session 07 Cost-Volume-Profit Analysis Programme : Executive Diploma in Business & Accounting (EDBA 2014) Course : Cost Analysis in Business Lecturer : Mr. Asanka Ranasinghe BBA (Finance), ACMA, CGMA Contact

More information

It is important to know the following assumptions in CVP analysis before we can use it effectively.

It is important to know the following assumptions in CVP analysis before we can use it effectively. Cost-Volume-Profit analysis (Relevant to AAT Examination Paper 3 Management Accounting) Li Tak Ming, Andy, Deputy Head, Department of Business Administration, Hong Kong Institute of Vocational Education

More information

21. Cost-volume-profit analysis

21. Cost-volume-profit analysis This book is licensed under a Creative Commons Attribution 3.0 License 21. Cost-volume-profit analysis Learning objectives After studying this chapter, you should be able to: Explain and describe cost

More information

Management Accounting Fundamentals

Management Accounting Fundamentals Management Accounting Fundamentals Module 4 Cost behaviour and cost-volume-profit analysis Lectures and handouts by: Shirley Mauger, HB Comm, CGA Part 1 2 3 Module 4 - Table of Contents Content 4.1 Variable

More information

Models of a Vending Machine Business

Models of a Vending Machine Business Math Models: Sample lesson Tom Hughes, 1999 Models of a Vending Machine Business Lesson Overview Students take on different roles in simulating starting a vending machine business in their school that

More information

Managerial Accounting. 2011 First semester Takayuki Asada

Managerial Accounting. 2011 First semester Takayuki Asada Managerial Accounting 2011 First semester Takayuki Asada 1 Chapter4 Cost-Volume-Profit Analysis After reading this chapter, you will be able to: Identify common cost behavior patterns. Estimate the relation

More information

Part Three. Cost Behavior Analysis

Part Three. Cost Behavior Analysis Part Three Cost Behavior Analysis Cost Behavior Cost behavior is the manner in which a cost changes as some related activity changes An understanding of cost behavior is necessary to plan and control costs

More information

Solutions to Homework Problems for Basic Cost Behavior by David Albrecht

Solutions to Homework Problems for Basic Cost Behavior by David Albrecht Solutions to Homework Problems for Basic Cost Behavior by David Albrecht Solution to Problem #11 This problem focuses on being able to work with both total cost and average per unit cost. As a brief review,

More information

Financial Analysis, Modeling, and Forecasting Techniques

Financial Analysis, Modeling, and Forecasting Techniques Financial Analysis, Modeling, and Forecasting Techniques Course #5710A/QAS-5710A Course Material Financial Analysis, Modeling, and Forecasting Techniques (Course #5710A/QAS-5710A) Table of Contents PART

More information

Costing and Break-Even Analysis

Costing and Break-Even Analysis W J E C B U S I N E S S S T U D I E S A L E V E L R E S O U R C E S. 28 Spec. Issue 2 Sept 212 Page 1 Costing and Break-Even Analysis Specification Requirements- Classify costs: fixed, variable and semi-variable.

More information

1.3 LINEAR EQUATIONS IN TWO VARIABLES. Copyright Cengage Learning. All rights reserved.

1.3 LINEAR EQUATIONS IN TWO VARIABLES. Copyright Cengage Learning. All rights reserved. 1.3 LINEAR EQUATIONS IN TWO VARIABLES Copyright Cengage Learning. All rights reserved. What You Should Learn Use slope to graph linear equations in two variables. Find the slope of a line given two points

More information

ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING

ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING MARGINAL COSTING OBJECTIVE To be able to: Explain the relevance to management decisions of: Fixed costs Variable costs Contribution Prepare an operating

More information

Linear Equations and Inequalities

Linear Equations and Inequalities Linear Equations and Inequalities Section 1.1 Prof. Wodarz Math 109 - Fall 2008 Contents 1 Linear Equations 2 1.1 Standard Form of a Linear Equation................ 2 1.2 Solving Linear Equations......................

More information

An Income Statement Teaching Approach for Cost-Volume-Profit (CVP) Analysis by Using a Company s CVP Model

An Income Statement Teaching Approach for Cost-Volume-Profit (CVP) Analysis by Using a Company s CVP Model An Statement Teaching Approach for Cost-Volume-Profit (CVP) Analysis by Using a Company s CVP Model Freddie Choo San Francisco State University Kim B. Tan California State University Stanislaus This paper

More information

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis CHAPTER 3 Overview Cost-Volume-Profit Analysis This chapter explains a planning tool called costvolume-profit (CVP) analysis. CVP analysis examines the behavior of total revenues, total costs, and operating

More information

Name Date. Break-Even Analysis

Name Date. Break-Even Analysis Name Date Break-Even Analsis In our business planning so far, have ou ever asked the questions: How much do I have to sell to reach m gross profit goal? What price should I charge to cover m costs and

More information

1.2 Break-Even Analysis and Market Equilibrium

1.2 Break-Even Analysis and Market Equilibrium Math 142 c Roberto Barrera, Fall 2015 1 1.2 Break-Even Analysis and Market Equilibrium Mathematical models of cost, revenue, and profits Two types of costs: 1. Fixed costs: 2. Variable costs: Total cost:

More information

Week 1: Functions and Equations

Week 1: Functions and Equations Week 1: Functions and Equations Goals: Review functions Introduce modeling using linear and quadratic functions Solving equations and systems Suggested Textbook Readings: Chapter 2: 2.1-2.2, and Chapter

More information

ACC 121 PRINCIPLES OF MANAGERIAL ACCOUNTING

ACC 121 PRINCIPLES OF MANAGERIAL ACCOUNTING PRINCIPLES OF MANAGERIAL ACCOUNTING COURSE DESCRIPTION: Prerequisites: ACC 120 Corequisites: None This course includes a greater emphasis on managerial and cost accounting skills. Emphasis is on managerial

More information

Their point of intersection is the break-even point. The graph. Loss at right represents a break-even situation.

Their point of intersection is the break-even point. The graph. Loss at right represents a break-even situation. Chapter Financial arithmetic 17 Break-even analysis The success or failure of any business enterprise can be expressed mathematically as follows: P = R C or L = C R where: P = profit made by a business

More information

Pre-Test Chapter 8 ed17

Pre-Test Chapter 8 ed17 Pre-Test Chapter 8 ed17 Multiple Choice Questions 1. The APC can be defined as the fraction of a: A. change in income that is not spent. B. change in income that is spent. C. specific level of total income

More information

Proving the Price is Right

Proving the Price is Right #3 B R E A K - E V E N A N A L Y S I S Proving the Price is Right CPA... Imagine the possibilities! Intro Learning Activity Learning Objectives 1. Understand the meaning of variable costs and fixed costs,

More information

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

More information

3.3. Solving Polynomial Equations. Introduction. Prerequisites. Learning Outcomes

3.3. Solving Polynomial Equations. Introduction. Prerequisites. Learning Outcomes Solving Polynomial Equations 3.3 Introduction Linear and quadratic equations, dealt within Sections 3.1 and 3.2, are members of a class of equations, called polynomial equations. These have the general

More information

Management Accounting 303 Segmental Profitability Analysis and Evaluation

Management Accounting 303 Segmental Profitability Analysis and Evaluation Management Accounting 303 Segmental Profitability Analysis and Evaluation Unless a business is a not-for-profit business, all businesses have as a primary goal the earning of profit. In the long run, sustained

More information

EQUATIONS and INEQUALITIES

EQUATIONS and INEQUALITIES EQUATIONS and INEQUALITIES Linear Equations and Slope 1. Slope a. Calculate the slope of a line given two points b. Calculate the slope of a line parallel to a given line. c. Calculate the slope of a line

More information

Graphing Linear Equations in Two Variables

Graphing Linear Equations in Two Variables Math 123 Section 3.2 - Graphing Linear Equations Using Intercepts - Page 1 Graphing Linear Equations in Two Variables I. Graphing Lines A. The graph of a line is just the set of solution points of the

More information

CORRELATED TO THE SOUTH CAROLINA COLLEGE AND CAREER-READY FOUNDATIONS IN ALGEBRA

CORRELATED TO THE SOUTH CAROLINA COLLEGE AND CAREER-READY FOUNDATIONS IN ALGEBRA We Can Early Learning Curriculum PreK Grades 8 12 INSIDE ALGEBRA, GRADES 8 12 CORRELATED TO THE SOUTH CAROLINA COLLEGE AND CAREER-READY FOUNDATIONS IN ALGEBRA April 2016 www.voyagersopris.com Mathematical

More information

is the degree of the polynomial and is the leading coefficient.

is the degree of the polynomial and is the leading coefficient. Property: T. Hrubik-Vulanovic e-mail: thrubik@kent.edu Content (in order sections were covered from the book): Chapter 6 Higher-Degree Polynomial Functions... 1 Section 6.1 Higher-Degree Polynomial Functions...

More information

Calculating The Break-Even Point. Cost-Volume-Profit Analysis. Sales Revenue = Px Total Costs = Vx + F When Firm Breaks Even (BE):

Calculating The Break-Even Point. Cost-Volume-Profit Analysis. Sales Revenue = Px Total Costs = Vx + F When Firm Breaks Even (BE): Cost-Volume-Profit Analysis Calculating The Break-Even Point P = Selling Price Per Unit Units Produced and Sold V = Variable Cost Per Unit F = Total Fixed Costs OP = Operating Profits-Before Tax t = Tax

More information

MANAGEMENT ACCOUNTING Cost-Volume-Profit Analysis

MANAGEMENT ACCOUNTING Cost-Volume-Profit Analysis MANAGEMENT ACCOUNTING Cost-Volume-Profit Analysis Zofia Krokosz-Krynke, Ph.D., MBA zofia.krokosz-krynke@pwr.edu.pl Wroclaw University of Technology, Building B4 Room 521 http://www.ioz.pwr.edu.pl/pracownicy/krokosz/

More information

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900 INCOME APPROACH The Income Approach considers the return on Investment and is similar to the method that investors typically use to make their investment decisions. It is most directly applicable to income

More information

Breakeven Analysis. Breakeven for Services.

Breakeven Analysis. Breakeven for Services. Dollars and Sense Introduction Your dream is to operate a profitable business and make a good living. Before you open, however, you want some indication that your business will be profitable, if not immediately

More information

1. Sales = variable cost + fixed cost + target operating profit 30,000($65) = 30,000($34) + $480,500 + N N = $449,500

1. Sales = variable cost + fixed cost + target operating profit 30,000($65) = 30,000($34) + $480,500 + N N = $449,500 9-35 Connelly Inc., a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Since her business has grown, Jan Delany, the president, believes

More information

Lab 17: Consumer and Producer Surplus

Lab 17: Consumer and Producer Surplus Lab 17: Consumer and Producer Surplus Who benefits from rent controls? Who loses with price controls? How do taxes and subsidies affect the economy? Some of these questions can be analyzed using the concepts

More information

Glencoe. correlated to SOUTH CAROLINA MATH CURRICULUM STANDARDS GRADE 6 3-3, 5-8 8-4, 8-7 1-6, 4-9

Glencoe. correlated to SOUTH CAROLINA MATH CURRICULUM STANDARDS GRADE 6 3-3, 5-8 8-4, 8-7 1-6, 4-9 Glencoe correlated to SOUTH CAROLINA MATH CURRICULUM STANDARDS GRADE 6 STANDARDS 6-8 Number and Operations (NO) Standard I. Understand numbers, ways of representing numbers, relationships among numbers,

More information

Optimization Application:

Optimization Application: GOLDen Mathematics: Intermediate Algebra Copyright 2000 Sally J. Keely. All Rights Reserved. Hi. Today's lesson is a bit different. It is one huge multi-part real-life application of quadratic functions

More information

AGENDA: MANAGERIAL ACCOUNTING AND COST CONCEPTS

AGENDA: MANAGERIAL ACCOUNTING AND COST CONCEPTS TM 2-1 A. Cost classifications for: AGENDA: MANAGERIAL ACCOUNTING AND COST CONCEPTS 1. Financial statement preparation. 2. Predicting cost behavior. 3. Assigning costs to cost objects. 4. Making decisions

More information

Chapter 3: Cost-Volume-Profit Analysis and Planning

Chapter 3: Cost-Volume-Profit Analysis and Planning Chapter 3: Cost-Volume-Profit Analysis and Planning Agenda Direct Materials, Direct Labor, and Overhead Traditional vs. Contribution Margin Income Statements Cost-Volume-Profit (CVP) Analysis Profit Planning

More information

Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization

Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization 2.1. Introduction Suppose that an economic relationship can be described by a real-valued

More information

Mc Graw Hill Education

Mc Graw Hill Education Managerial Accounting for Managers F o u r t h Edition Eric W. Noreen, Ph.D., CMA Professor Emeritus University of Washington Peter C. Brewer, Ph.D. Wake Forest University Ray H. Garrison, D.B.A., CPA

More information

Solving Systems of Equations

Solving Systems of Equations Solving Sstems of Equations When we have or more equations and or more unknowns, we use a sstem of equations to find the solution. Definition: A solution of a sstem of equations is an ordered pair that

More information

Module 4: Cost behaviour and cost-volume-profit analysis

Module 4: Cost behaviour and cost-volume-profit analysis Page 1 of 28 Module 4: Cost behaviour and cost-volume-profit analysis Required reading Chapter 5, pages 187-213 Chapter 6, pages 230-253 Appendix 6A, pages 256-258 Overview The way in which a cost responds

More information

Section 12.1 Financial Ratios Section 12.2 Break-Even Analysis

Section 12.1 Financial Ratios Section 12.2 Break-Even Analysis Section 12.1 Financial Ratios Section 12.2 Break-Even Analysis OBJECTIVES Explain what a financial ratio is Describe how income statements are used for financial analysis Compare operating ratios and return-on-sales

More information

Practical Business Application of Break Even Analysis in Graduate Construction Education

Practical Business Application of Break Even Analysis in Graduate Construction Education Journal of Construction Education Spring 1999, Vol. 4, No. 1, pp. 26-37 Copyright 1999 by the Associated Schools of Construction 1522-8150/99/$3.00/Educational Practice Manuscript Practical Business Application

More information

Prentice Hall: Middle School Math, Course 1 2002 Correlated to: New York Mathematics Learning Standards (Intermediate)

Prentice Hall: Middle School Math, Course 1 2002 Correlated to: New York Mathematics Learning Standards (Intermediate) New York Mathematics Learning Standards (Intermediate) Mathematical Reasoning Key Idea: Students use MATHEMATICAL REASONING to analyze mathematical situations, make conjectures, gather evidence, and construct

More information

Numeracy and mathematics Experiences and outcomes

Numeracy and mathematics Experiences and outcomes Numeracy and mathematics Experiences and outcomes My learning in mathematics enables me to: develop a secure understanding of the concepts, principles and processes of mathematics and apply these in different

More information

CHAPTER 19 (FIN MAN); CHAPTER 4 (MAN) COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS

CHAPTER 19 (FIN MAN); CHAPTER 4 (MAN) COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS (FIN MAN); CHAPTER 4 (MAN) COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS 1. Total variable costs change in proportion to changes in the level of activity. Unit variable costs remain the same regardless

More information

College Algebra. Barnett, Raymond A., Michael R. Ziegler, and Karl E. Byleen. College Algebra, 8th edition, McGraw-Hill, 2008, ISBN: 978-0-07-286738-1

College Algebra. Barnett, Raymond A., Michael R. Ziegler, and Karl E. Byleen. College Algebra, 8th edition, McGraw-Hill, 2008, ISBN: 978-0-07-286738-1 College Algebra Course Text Barnett, Raymond A., Michael R. Ziegler, and Karl E. Byleen. College Algebra, 8th edition, McGraw-Hill, 2008, ISBN: 978-0-07-286738-1 Course Description This course provides

More information

5 Systems of Equations

5 Systems of Equations Systems of Equations Concepts: Solutions to Systems of Equations-Graphically and Algebraically Solving Systems - Substitution Method Solving Systems - Elimination Method Using -Dimensional Graphs to Approximate

More information

Section 3-7. Marginal Analysis in Business and Economics. Marginal Cost, Revenue, and Profit. 202 Chapter 3 The Derivative

Section 3-7. Marginal Analysis in Business and Economics. Marginal Cost, Revenue, and Profit. 202 Chapter 3 The Derivative 202 Chapter 3 The Derivative Section 3-7 Marginal Analysis in Business and Economics Marginal Cost, Revenue, and Profit Application Marginal Average Cost, Revenue, and Profit Marginal Cost, Revenue, and

More information

PART TWO. management accounting

PART TWO. management accounting PART TWO management accounting CHAPTER TWELVE Management accounting, cost volume profit examined and applied Learning objectives After studying this chapter you should be able to: 1. Explain the need

More information

> DO IT! Chapter 6. CVP Income Statement D-1. Solution. Action Plan

> DO IT! Chapter 6. CVP Income Statement D-1. Solution. Action Plan Chapter 6 CVP Income Statement Use the CVP income statement format. Use the formula for contribution margin per unit. Use the formula for the contribution margin ratio. Garner Inc. sold 20,000 units and

More information

Ministry of Education. The Ontario Curriculum. Mathematics. Mathematics Transfer Course, Grade 9, Applied to Academic

Ministry of Education. The Ontario Curriculum. Mathematics. Mathematics Transfer Course, Grade 9, Applied to Academic Ministry of Education The Ontario Curriculum Mathematics Mathematics Transfer Course, Grade 9, Applied to Academic 2 0 0 6 Contents Introduction....................................................... 2

More information