Cost volume profit analysis chapter 6 l.jpg
This presentation is the property of its rightful owner.
Sponsored Links
1 / 27

Cost Volume Profit Analysis Chapter 6 PowerPoint PPT Presentation


  • 361 Views
  • Updated On :
  • Presentation posted in: General

Breakeven Analysis Differential Cost Analysis. Cost Volume Profit Analysis Chapter 6. INTRODUCTION The Profit Function. The Profit Equation. Operating Profit. Total Revenue. Total Costs. =. –. Operating profit equals total revenue less total costs. The Profit Equation. Operating

Download Presentation

Cost Volume Profit Analysis Chapter 6

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Cost volume profit analysis chapter 6 l.jpg

  • Breakeven Analysis

  • Differential Cost Analysis

Cost Volume Profit AnalysisChapter 6

INTRODUCTION

The Profit Function


The profit equation l.jpg

The Profit Equation

Operating

Profit

Total

Revenue

Total

Costs

=

Operating profit equals total revenue

less total costs.


The profit equation3 l.jpg

The Profit Equation

Operating

Profit

Total

Revenue

Total

Costs

=

= TR – TC


The profit equation4 l.jpg

The Profit Equation

Total

Revenue

Average Selling

Price Per Unit

Units of

Output

=

×

TR = P × X


The profit equation5 l.jpg

The Profit Equation

Total

Costs

Variable Costs

Per Unit

Units of

Output

Fixed

Costs

+

=

×

TC = (V × X) + F


The profit equation6 l.jpg

The Profit Equation

Now, we’ll expand our

original equation for profits!

(P × X) - [(V × X) + F]

=


The profit equation7 l.jpg

The Profit Equation

Now, we’ll expand our

original equation for profits!

(P × X) - [(V × X) + F]

=

(P – V)X – F

=


Example l.jpg

Example

Here is the information from the Hap Bikes:


Example9 l.jpg

Example

(P – V)X – F

=


Finding target volumes l.jpg

Finding Target Volumes

The formula to find a volume expressed in units for a target profit is . . .

Target

Volume

(units)

Fixed costs + Target profit

Contribution margin per unit

=

How many bikes must Hap sell to

earn an annual profit of $100,000?


Finding target volumes11 l.jpg

Finding Target Volumes

Target

Volume

(units)

Fixed costs + Target profit

Contribution margin per unit

=


Proof l.jpg

Proof

If Hap sells 900 bikes, its operating profit would be . . .

(P – V)X – F

=


Finding the break even point l.jpg

Finding the Break-Even Point

The Break-Even Point is the volume level where profits equal zero.

  • To find the break-even point in units, we use the target volume in units equation and set the profit to zero.

  • To find the break-even point in sales dollars, we use the target volume in sales dollars equation and set the profit to zero.


Break even in units l.jpg

Break-Even in Units

Let’s use the Hap Bikes information again.

Contribution margin ratio


Break even in units15 l.jpg

Break-Even in Units

Break-Even

Volume

(units)

Fixed costs + Target profit

Contribution margin per unit

=


Break even in sales dollars l.jpg

Break-Even in Sales Dollars

Break-Even

Volume

(sales $)

Fixed costs + Target profit

Contribution margin ratio

=

$80,000 + $0

.40

=


Target volume in sales dollars l.jpg

Target Volume in Sales Dollars

We can calculate the target volume in sales dollars using the contribution margin ratio.

Contribution margin per unit

Sales price per unit


Target volume in sales dollars18 l.jpg

Target Volume in Sales Dollars

The equation for finding the target volume in sales dollars is . . .

Target

Volume

(sales $)

Fixed costs + Target profit

Contribution margin ratio

=


Graphic presentation l.jpg

Graphic Presentation

Consider the following information for Hap Bikes:


Graphic presentation20 l.jpg

Graphic Presentation

Dollars

Volume per period (X)


Graphic presentation21 l.jpg

Graphic Presentation

Dollars

Break-even point

Volume per period (X)


Using cvp to analyze different cost structures l.jpg

Using CVP to Analyze Different Cost Structures

  • Cost structure - The proportion of fixed and variable to total costs of an organization.

  • Operating leverage - The extent to which an organization’s costs structure is made up of fixed costs.

Let’s look at an example of different costs

structures for different companies.


Using cvp to analyze different cost structures23 l.jpg

Using CVP to Analyze Different Cost Structures


Using cvp to analyze different cost structures24 l.jpg

Using CVP to Analyze Different Cost Structures

Let’s see what happens when both companies

experience a 10% increase in sales.


Using cvp to analyze different cost structures25 l.jpg

Using CVP to Analyze Different Cost Structures


Margin of safety l.jpg

Margin of Safety

  • Excess of projected (or actual) sales over the break-even volume.

  • The amount by which sales can fall before the company is in the loss area of the break-even graph.

Sales Break-even

volume sales volume

= Margin of Safety


Margin of safety27 l.jpg

Margin of Safety

Hap is currently selling 500 bikes, and we calculated the break-even to be 400 units ($80,000 fixed costs ÷ $200 contribution margin).


  • Login