1 / 17

Chapter 6

Chapter 6. Cost-Volume-Profit (CVP) Analysis. CVP Analysis. Cost Fixed costs Variable costs Volume Changes in activity Profit Selling price Sales mix Desired profit. CVP Assumptions. Selling price is constant Costs are linear Variable and fixed cost behavior Sales mix is constant

merritt-davidson
Download Presentation

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. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 6 Cost-Volume-Profit (CVP) Analysis

  2. CVP Analysis • Cost • Fixed costs • Variable costs • Volume • Changes in activity • Profit • Selling price • Sales mix • Desired profit

  3. CVP Assumptions • Selling price is constant • Costs are linear • Variable and fixed cost behavior • Sales mix is constant • Inventories do not change

  4. Contribution Income Statement • Three column approach • Basic format • Per unit • Percent Bike example handout

  5. Practice Problems Units Variable Contribution Fixed Net Sold Sales Expenses Margin/Unit Expenses Income/Loss ? $400,000 ? $15 $160,000 $50,000 30,000 ? $260,000 $6 ? $40,000 Contribution Margin = $50,000 + $160,000 = $210,000 Variable Expenses = $400,000 - $210,000 = $190,000 Units Sold = $210,000 / 15 = 14,000 Contribution Margin = $6 * 30,000 = $180,000 Sales = $180,000 + $260,000 = $440,000 Fixed Expenses = $180,000 - $40,000 = $140,000

  6. Practice Problems Variable Contribution Fixed Net Sales Expenses Margin % Expenses Income/Loss $400,000 ? 30% ? $70,000 ? ? 40% $650,000 ($90,000) Contribution Margin = $400,000 x 30% = $120,000 Variable Expenses = $400,000 - $120,000 = $280,000 Fixed Expenses = $120,000 - $70,000 = $50,000 Contribution Margin = $650,000 - $90,000 = $560,000 Sales = $560,000 / 40% = $1,400,000 Variable Expenses = $1,400,000 - $560,000 = $840,000

  7. CVP Graph Total Revenue Break-even Profit Costs Total Expense Loss Fixed Expense Activity

  8. Break-even Income Statement

  9. Coach Keen Says…. • Redo Bike Example and Practice Problem • Review pages 234-244 • Read pages 244-257 • Do homework 6-1 and 6-8 • Attempt homework 2, 3, 4, 5, 6, & 7

  10. Break-even Analysis • Contribution margin (CM) ratio Contribution Margin Sales Bike example

  11. Equation Method Sales – Variable Expenses – Fixed Expense = Profits • Break-even in unit sales Sales(Q) = Variable(Q) + Fixed + Profits • Break-even in sales dollars Sales(X) = Variable(X) + Fixed + Profits

  12. Contribution Margin Method • Break-even in unit sales Fixed expense + Target profit Unit contribution margin • Break-even in sales dollars Fixed expense + Target profit Contribution margin ratio Bike example

  13. CVP Graph Bike example Total Revenue Break-even Profit Costs Total Expense 200,000 120,000 Loss Fixed Expense 80,000 200 400 600 Bikes

  14. Operating Leverage • Degree of Operating Leverage Contribution margin Net Income • Increase in net income Operating leverage x Increase in sales = INI

  15. Margin of Safety • Margin of safety Margin of Safety = Total sales – Break-even sales • Margin of safety percentage Margin of safety Sales Problem 6-12 page 265

  16. Multiproduct Break-even Analysis • When a company has multiple products, the overall (combined) contribution margin ratio is used in break-even analysis. • If the sales mix changes, then the overall contribution margin ratio with change. Problem 6-11 page 265

  17. Coach Keen Says…. • Redo Bike Example and Practice Problem • Redo all problems done in class, 6-11 & 6-12 Review text material for Chapter 6 • Do all homework 1, 2, 3, 4, 5, 6, 7, & 8 • Read Chapter 16 but ignore the multiple step process presented in the book • Do homework exercise 16-1

More Related