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

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 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 the relationship of costs and revenues to profit. Cost depends on various factors like Volume of production Product mix Internal efficiency Methods of production Size of plant; etc. The cost volume profit (CVP) analysis furnishes a picture of the profit at various levels of activity. From this management identifies effects of changes in sales volume, price or costs upon profits. The cost volume profit (CVP) relationship is determined by distinguishing fixed and variable costs and then depicting in a form of chart how changes in output affect them. For volume changes within the capacity fixed costs do not change with variation in output volume. Fixed cost per unit decreases as volume increases. Chapter Five 1

2 Full costing system seeks to allocate the fixed costs to products and create problems of apportionment as these costs as stated above have little relationship with output The variable cost is constant per unit of production as it varies with volume. Volume is expressed as a % of sales capacity or a % of production capacity or in number of production units or some times in labour or machine hours. The relationship among cost, volume and profit is expressed by a] reports or statements ; b] charts or graphs or c] a mathematical deduction. 2. Objectives of Cost Volume Profit Analysis a] To know relationships between profit and costs on one hand & volume on the other. b] To set up flexible budgets that indicates costs at various levels of activity. c] To assist performance evaluation for the purposes of control. d] To review profit achieved and costs incurred, evaluate effects on costs of changes in volume. e] Pricing plays an important part in stabilizing and fixing up volumes. Cost Volume Profit Analysis assists formulation of pricing policies. Chapter Five 2

3 3. Profit Volume Ratio The ratio or percentage of contribution margin to sales is known as P/V ratio. It is also known as Equations : marginal income ratio; contribution to sales ratio; variable profit ratio. Variable Cost = Contribution. P/V ratio = or Contribution sales value variable cost sales value Fixed Cost + Profit Value or or Change in Profits Contribution. Products with higher P/V ratio are profitable. P/V ratio can be improved by : Increasing selling price per unit. Reducing direct and variable costs. Switching production to products with greater P/V ratio. Chapter Five 3

4 4. Break Even Analysis The categorization of costs into variable and fixed elements and their relationship with sales and profits has been developed as break-even analysis. It plays a major role in managerial decisions including profit planning. Break-even is the point where total revenues equal the total costs (fixed plus variable). Below the break even point (BEP) revenues are unable to cover the costs and firm incurs losses. Only when actual sales are greater, than the level indicated by the BEP, that the firm starts earning profit. 5. Methods for determining Break Even Points Algebraic Methods : a] Contribution Margin Approach. b] Equation Techniques. Graphic Presentation: a] Break-even Chart b] Profit Volume Chart Algebraic Methods : a] Contribution Margin Approach. Break-even points (BEP) units = Total Fixed Costs (Selling Price per unit Marginal Cost per unit. Or Total fixed cost Contribution per unit. Chapter Five 4

5 Illustration A A product is sold at a sales price Rs. 120/- per unit and its variable cost Rs. 80/- per unit. The fixed expenses of the business are Rs 8,000/- per year. Find i] BEP in Rs. and units. ii] required to earn a profit of Rs. 8,000/- a year. BEP = Rs. 8,000 (120 80) = 200 units. or 200 x 120 = Rs 24,000/- To calculate the level of sales required to earn a particular profit, the formula is Required = (Fixed Cost + Desired Profit) P/V Ratio Using earlier Illustration A, ii] required sales to earn a profit of Rs. 5,000/- P/V Ratio = = 33⅓ % Required = (8, ,000) 33⅓ % = Rs. 39,000/- Break-even Chart : It is a chart that shows profit or loss at various levels activity. The level at which there is neither profit nor loss is termed as break-even point. Chapter Five 5

6 Assumptions : 1. Costs are bifurcated into fixed & variable portions. 2. Fixed costs will not change with change in levels of output. 3. Variable cost per unit will remain constant as they vary in proportion to change in volumes. 4. Selling price remains unchanged at various level of activity. 5. The number of units produced and sold is the same & there are no opening / closing stocks. 6. Operating efficiency is constant (economies of scale absent). 7. In case of multi product company, sales mix remains unchanged. Break-even Chart : a typical method. & Cost Loss BE Point Profit Variable Cost Fixed Cost 0 Units Chapter Five 6

7 Break-even Chart: alternate method & Cost Loss BE Point Profit Total Cost Variable Cost 0 Units Contribution Break-even Chart : & Cost BEP Contribution Fixed Cost 0 Units Here Break-Even point is indicated where total contribution equals total Fixed Cost; and thus there is no profit no loss. Chapter Five 7

8 6. Margin of Safety Margin of safety is the difference between actual sale and sales at the break even point. Management ensures that margin of safety is always adequate, else little fall in sales activity can prove disastrous (as firm will incur loss). Margin of safety is also calculated using P/V ratio. Margin of Safety = Profit P/V ratio. Margin of safety can be measured in absolute terms as Rs ---- or as a % of sales i.e. (Margin of Safety Total ) x 100. Steps to improve margin of safety. Lower fixed costs. Lower variable cost and thereby increase contribution. Increase sales activity & utilize fully available capacity. Increase sales price per unit. Improve contribution by optimizing product mix. 7. Practical Application of Profit volume Ratio Problems where profit-volume ratio can be used gainfully. 1. To ascertain profit at particular level of sales. 2. To determine break-even point. Chapter Five 8

9 3. To calculate sales required to achieve desired profit. 4. To compare relative profitability of a] product lines, b] sales area, c] methods of sale, d] two or more companies & e] two or more businesses. 8. Other Uses of CVP Analysis 1. To forecast cost & profits as a result of change in volume. 2. To measure effect of change in volume due to plant expansion. 3. To determine relative profitability of each product, line, project or profit plan 4 Allows intelligent inter-firm comparison of profitability. 5. Determine cash requirements at different levels of output using cash break even charts. 6. Determine profit potentialities, requirements of capital, financial stability, and incidence of fixed & variable costs. Chapter Five 9

10 9. Advantages of Break-Even Charts 1. Data is depicted in simple & clear terms. 2. Besides the level at which there is no profit no loss, profitability of different products is known from the chart. 3. Effects of change in volume on costs shown graphically for understanding by all employees. 4. The role played by Fixed Costs in profits is highlighted. To sum up, break-even analysis provides data for analysis of economies of scale, capacity utilization, comparative plant efficiencies etc. Break-even analysis is a very helpful tool for forecasting, long-term planning, growth & stability. 10. Limitations of Break-Even Analysis Fixed costs do not always remain constant. Variable costs do not always vary proportionately and unit variable cost does not remain constant. revenue does not always vary proportionately. Firm sells many unlike products in the market. Ignores quantity produced and held in opening or closing stocks. Chapter Five 10

11 Ignores continuous change in growth & expansion of an organization. Limited data can be presented in a single chart. Identical data can be presented by other tabulations. In spite of all these limitations break even analysis has wide application as a quick and generalized technique in cost volume profit relationship. Chapter Five 11

12 Next, Chapter Six Methods of Costing bye.. Chapter Five 12

### 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

### Module 12 : Cost Volume Profit Analysis. Lecture 1 : Cost Volume Profit Analysis

Module 12 : Cost Volume Profit Analysis Lecture 1 : Cost Volume Profit Analysis Objectives In this lecture you will learn the following Cost Volume Profit (CVP) Introduction. Fixed costs. Variable costs.

### The following purposes are served by analysis of cost-volume-profit relationship : i. To forecast profit fairly accurately. ii. iii. iv.

1. CVP analysis and purposes: Profit per unit of a product depends on its selling price and cost of sales. Total profit depends on sales volume which in turn depends inter alia on selling price. By and

### Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there

### Limited factor and break-even analysis

Chapter 7 Limited factor and break-even analysis Syllabus Content D - Marginal costing and decision-making 15% Contribution concept. Limiting factor analysis. Break-even charts, profit/volume graphs, break-even

### 12 Marginal Costing. 12.1 Definitions

12 Marginal Costing Learning Objectives When you have finished studying this chapter, you should be able to Understand the difference between absorption costing and marginal costing Understand the concept

### 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

### 3. Contribution is a) sales total cost, b) sales variable cost, c) sales fixed cost, d) none of these.

1. The term budget is derived from the French word -------- (a) Boget (b) Bougette (c ) Bogeget (d) None of these 2. Profit will be the same under absorption costing and marginal costing only when a) there

### 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

### 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,

### 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

### COST & BREAKEVEN ANALYSIS

COST & BREAKEVEN ANALYSIS http://www.tutorialspoint.com/managerial_economics/cost_and_breakeven_analysis.htm Copyright tutorialspoint.com In managerial economics another area which is of great importance

### 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

### 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

### 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,

### COST DATA FOR SHORT-RUN TACTICAL DECISION MAKING

COST DATA FOR SHORT-RUN TACTICAL DECISION MAKING To decide on the acceptance or rejection of a special order from a supplier, marginal costing and contribution analysis should be applied. The company may

### 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.

### 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

### 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

### Identify how changes in volume affect costs

Chapter 18 Identify how changes in volume affect Total variable change in direct proportion to changes in the volume of activity Unit variable cost remains constant Units produced 3 5 Total direct materials

### Part Five. Cost Volume Profit Analysis

Part Five Cost Volume Profit Analysis 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

### CHAPTER II LITE RATURE STUDY

CHAPTER II LITE RATURE STUDY 2.1. Cost Terminology Based on Charles T.Horngren (2009: 53), cost is a resource sacrificed or forgone to achieve a specific objective. A cost is usually measured as the monetary

### Chapter. Cost-Volume-Profit Relationships

Chapter 6 Cost-Volume-Profit Relationships 6-2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain how changes in activity affect contribution margin. 2. Compute the contribution

### 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

### 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

### 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

### Marginal Costing and Absorption Costing

Marginal Costing and Absorption Costing Learning Objectives To understand the meanings of marginal cost and marginal costing To distinguish between marginal costing and absorption costing To ascertain

### 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

### Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum

Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum Course 1 : Contemporary Perspectives on Accounting Unit 8 : Cost Accounting

### COST-VOLUME-PROFIT RELATIONSHIPS

TM 5-1 COST-VOLUME-PROFIT RELATIONSHIPS Cost-volume-profit (CVP) analysis is concerned with the effects on net operating income of: Selling prices. Sales volume. Unit variable costs. Total fixed costs.

### Revision point: Fixed costs are those that do not change with changes in production levels, e.g. rent.

SECTION ONE BREAK-EVEN ANALYSIS Break-even point What is meant by the term break even? A firm breaks even when income is sufficiently high to exactly cover total costs therefore neither a profit nor 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

### ANSWERS. QUESTION ONE a) MJENGO BUILDERS: CONTRACT ACCOUNT

ANSWERS QUESTION ONE a) MJENGO BUILDERS: CONTRACT ACCOUNT.. Direct wages 240,000 Material returns 2,500 Accrued wages 10,000 Plant & equipment value c/d 100,000 Materials issued 275,000 Materials closing

### 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

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

Math 1314 Lesson 8: Business Applications: Break Even Analysis, Equilibrium Quantity/Price Cost functions model the cost of producing goods or providing services. Examples: rent, utilities, insurance,

### CHAPTER 22 COST-VOLUME-PROFIT ANALYSIS

CHAPTER 22 COST-VOLUME-PROFIT ANALYSIS Related Assignment Materials Student Learning Objectives Conceptual objectives: C1. Describe different types of cost behavior in relation to production and sales

### Chapter 5 Revenue & Cost Analysis

Chapter 5 Revenue & Cost Analysis 1. General Cost data are subject to great misunderstanding than are value data. The main reason: although the various categories of costs have precise meaning to the accountant,

### 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,

### 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

### 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

### Tutorial 3a Cost-Volume-Profit Analysis

Tutorial 3a Cost-Volume-Profit Analysis J. E. Cairnes School of Business and Economics NUI Galway Cost-Volume-Profit (CVP) Analysis This is a method used to examine the relationship between changes in

### Institute of Certified Management Accountants of Sri Lanka. Operational Level November 2012 Examination

Copyright Reserved Serial No Operational Level November 2012 Examination Examination Date : 11 th November 2012 Number of Pages : 08 Examination Time: 9.30 a:m. 12.30 p:m. Number of Questions: 07 Instructions

### 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

### Paper 3A: Cost Accounting Chapter 9 CA. Dharmendra Gupta

Paper 3A: Cost Accounting Chapter 9 CA. Dharmendra Gupta Introduction Cost classification Profit Volume Ratio ( P V ) ratio Break Even Point Margin of Safety Shut Down Point Cost Indifference Point Cash

### Applications of Linear Equations. Chapter 5

5-2 Applications of Linear Equations Chapter 5 5-3 After completing this chapter, you will be able to: > Solve two linear equations in two variables > Solve problems that require setting up two linear

### 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

### 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.

### 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

### 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

### Topic Overview BAFS Elective Part Accounting Module Cost Accounting A10: Cost-Volume-Profit Analysis S5 / S6 2 lessons (40 minutes per lesson)

: Cost-Volume-Profit Analysis Topic Overview P.1 Topic Level Duration Topic Overview Accounting Module Cost Accounting A10: Cost-Volume-Profit Analysis S5 / S6 2 lessons (40 minutes per lesson) Learning

### Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams, etc.

Sample Paper 2008 COST ACCOUNTING Level 3 Subject Code: 3017 Time allowed: 3 hours INSTRUCTIONS FOR CANDIDATES Answer all 5 questions. All questions carry equal marks. Write your answers in blue or black

### 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/

### Level 3 Cost Accounting

LCCI International Qualifications Level 3 Cost Accounting Syllabus Effective for examinations to be held after 1 January 2008 For further information contact us: Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com

### Removing the Constraining Assumption of No Joint Products in Breakeven Analysis

American International Journal of Contemporary Research Vol. 2 No. 5; May 2012 Removing the Constraining Assumption of No Joint Products in Breakeven Analysis Enyi Patrick Enyi Babcock Business School

### P2 Performance Management

Performance Pillar P2 Performance Management 26 May 2010 Wednesday Afternoon Session Instructions to candidates You are allowed three hours to answer this question paper. You are allowed 20 minutes reading

### WJEC Applied Business A level. ABUS 1 and ABUS 5

1 WJEC Applied Business A level ABUS 1 and ABUS 5 Additional information: formulae, layout and terminology ABUS 1 and ABUS 5 Accounting terminology A number of the terms used in Accounting are changing,

### LESSON 11 MARGINAL COSTING CONTENTS

Accounting and Finance for Managers LESSON 11 MARGINAL COSTING 178 CONTENTS 11.0 Aims and Objectives 11.1 Introduction 11.2 Meaning & Definition of Marginal Costing 11.3 Why Marginal Cost is called as

### Factors Influencing Price/Earnings Multiple

Learning Objectives Foundation of Research Forecasting Methods Factors Influencing Price/Earnings Multiple Passive & Active Asset Management Investment in Foreign Markets Introduction In the investment

### Cost-Volume-Profit Analysis

HOSP 2110 (Management Acct) Learning Centre Cost-Volume-Profit Analysis The basic principles of CVP analysis were covered in business math. CVP analysis can be done both graphically, through plotting the

### SAPAN NIKHIL COMMERCE CLASSES

TY BAF-6 Costing Marginal costing Q.1. Q.2. A Company produces and sells a single article at 10 each. The marginal cost of production is 6 each and fixed cost is 400 per annum. [15] Calculate: 1. P/V ratio

### Annual Qualification Review

LCCI International Qualifications Level 3 Certificate in Cost Accounting Annual Qualification Review 2008 For further information contact us: Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com www.lcci.org.uk

### 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

### Cost Volume Profit [CVP] Analysis

CA BUSINESS SCHOOL POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE SEMESTER 1 : FINANCIAL PLANNING AND CONTROL Cost Volume Profit [CVP] Analysis M B G Wimalarathna (FCA, ACMA, ACIM, SAT, ACPM)(MBA PIM/USJ)

### Chapter 6. Chapter 6-1. Basics of Cost-Volume-Profit Analysis. Basics of Cost-Volume-Profit Analysis. Cost-Volume-Profit Relationships

Chapter 6-1 Chapter 6 Cost-Volume-Profit Relationships McGraw-Hill /Irwin The McGraw-Hill Companies, Inc., 2007 Basics of Cost-Volume-Profit Analysis Contribution Margin (CM) is the amount remaining from

### Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum

Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum Course 1 : Contemporary Perspectives on Accounting Unit 7 : Marginal and Absorption

### 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

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

Math 1314 Lesson 8: Business Applications: Break Even Analysis, Equilibrium Quantity/Price Cost functions model the cost of producing goods or providing services. Examples: rent, utilities, insurance,

### Cost Behavior and Cost-Volume-Profit Analysis QUESTIONS

Chapter 18 Cost Behavior and Cost-Volume-Profit Analysis QUESTIONS 1. A variable cost is one that varies proportionately with the volume of activity. For example, direct materials and direct labor (when

### ICASL - Business School Programme

ICASL - Business School Programme Quantitative Techniques for Business (Module 3) Financial Mathematics TUTORIAL 2A This chapter deals with problems related to investing money or capital in a business

### Chapter-3D CVP ANALYSIS AND OPERATING LEVERAGE. BSNL, India For Internal Circulation Only 1

Chapter-3D CVP ANALYSIS AND OPERATING LEVERAGE BSNL, India For Internal Circulation Only 1 CVP ANALYSIS AND OPERATING LEVERAGE Introduction: Cost Volume Profit analysis is a study of the interrelationship

### UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :-

UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :- * Cost classification and approach :- A- Marginal costing :- - variable and fixed. - Variable cost is charged to the product unit.

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

### Fundamentals Level Skills Module, Paper F5. 1 Hair Co. (a)

Answers Fundamentals Level Skills Module, Paper F5 Performance Management December 2012 Answers 1 Hair Co Weighted average contribution to sales ratio (WA C/S ratio) = total contribution/total sales revenue.

### 3 SYSTEMS DESIGN AND CAPACITY

Systems Design and Capacity 53 3 SYSTEMS DESIGN AND CAPACITY CHAPTER OUTLINE 3.1 Introduction 3.2 Manufacturing and Service Systems 3.3 Design and Systems Capacity 3.4 Capacity Planning 3.5 Process of

### Paper F5. Performance Management. Monday 3 December 2012. Fundamentals Level Skills Module. The Association of Chartered Certified Accountants

Fundamentals Level Skills Module Performance Management Monday 3 December 2012 Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted. Formulae

### Managing Working Capital

Financial Management (the 2 nd best subject) PRESENTED BY Thinus Nienaber Managing Working Capital Learning Unit 3 1 Learning Outcomes. Calculate the level of working capital in a business; Identify and

### Topic 4: Cost Volume Profit analysis

Topic 4: Cost Volume Profit analysis Ana Mª Arias Alvarez University of Oviedo Department of Accounting amarias@uniovi.es School of Business Administration Course: Financial Statement Analysis and Management

### CE2451 Engineering Economics & Cost Analysis. Objectives of this course

CE2451 Engineering Economics & Cost Analysis Dr. M. Selvakumar Associate Professor Department of Civil Engineering Sri Venkateswara College of Engineering Objectives of this course The main objective of

### CASH BUDGETS AND RELATED TOPICS

CASH BUDGETS AND RELATED TOPICS Article relevant to Formation 2 Management Accounting Author: Neil Hayden, current Examiner. In projected cash flow statements the information can be presented in a variety

### USE OF THE COST/VOLUME/PROFIT ANALYSIS IN TERMS OF EARNINGS

USE OF THE COST/VOLUME/PROFIT ANALYSIS IN TERMS OF EARNINGS Ms. Indu Patni Dept.: Applied science and humanities Assistant Professor, Institute of Technology Gopeshwar Chamoli, India e-mail: indupatni9@gmail.com

### Managerial Accounting Cost Volume Profit (CVP) Homework problems

Managerial Accounting Cost Volume Profit (CVP) Homework problems Problem #29 CVP Analysis using CM per unit The controller of Sawdust Furniture Company has determined the following estimates for a new

### Understanding A Firm s Financial Statements

CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,

### MANAGERIAL ACCOUNTING 7e Al L. Hartgraves Wayne J. Morse

MANAGERIAL ACCOUNTING 7e Al L. Hartgraves Wayne J. Morse Learning Objective 1 CHAPTER 3 Cost Volume Profit Analysis and Planning Identify the uses and limitations of traditional cost volume profit analysis.

NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE GRADUATE SCHOOL OF BUSINESS GENERAL MASTER OF BUSINESS ADMINISTRATION MANAGERIAL ACCOUNTING [GMB 5162] FINAL EXAMINATION: DECEMBER 2013

### elements of costs like material, labour and expenses can be classified into direct and indirect. They are mentioned below. i. Direct and Indirect

3. Costing: [12] Importance and basic principles, a brief introduction to methods of costing and elements of cost. Marginal costing, nature, scope and importance, Break-even analysis, its use and limitations,

### The application of linear programming to management accounting

The application of linear programming to management accounting Solutions to Chapter 26 questions Question 26.16 (a) M F Contribution per unit 96 110 Litres of material P required 8 10 Contribution per

### 6. Financial Planning. Break-even. Operating and Financial Leverage.

6. Financial Planning. Break-even. Operating and Financial Leverage. Financial planning primarily involves anticipating the impact of operating, investment and financial decisions on the firm s future

### Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants

Fundamentals Pilot Paper Skills module Financial Management Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Do NOT open this paper

### MANAGEMENT ACCOUNTING

CIPFA PROFESSIONAL QUALIFICATION CIPFA CERTIFICATE IN INTERNATIONAL PUBLIC FINANCIAL MANAGEMENT MANAGEMENT ACCOUNTING Instructions to candidates There are two sections in the examination. Section A contains

### 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

### 2013 Accounting. Higher - Solutions. Finalised Marking Instructions

2013 Accounting Higher - Solutions Finalised Marking Instructions Scottish Qualifications Authority 2013 The information in this publication may be reproduced to support SQA qualifications only on a non-commercial

### Suggested Study Notes ACCA F2 Paper

for F2 ACCA Examinations REVIEW OF SOME KEY FUNDALMENTALS 1 Know difference in type of accountant Management Accountant Planning Controlling Decision Making Internal Reporting Financial Accountant Accounts

### 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

### 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

### Decision Making using Cost Concepts and CVP Analysis

CHAPTER 2 Decision Making using Cost Concepts and CVP Analysis Basic Concepts Absorption Costing * Assigns direct costs and all or part of overhead to cost units using one or more overhead absorption rates.

### COST ACCOUNTING STANDARD ON OVERHEADS

COST ACCOUNTING STANDARD ON OVERHEADS The following is the text of the COST ACCOUNTING STANDARD 3 (CAS- 3) issued by the Council of the Institute of Cost and Works Accountants of India on Overheads. The

### COST AND MANAGEMENT ACCOUNTING

EXECUTIVE PROGRAMME COST AND MANAGEMENT ACCOUNTING SAMPLE TEST PAPER (This test paper is for practice and self study only and not to be sent to the institute) Time allowed: 3 hours Maximum marks : 100