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Study Unit 8

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Study Unit 8

CVP Analysis and Marginal Analsyis

- CVP = Break-even analysis
- Allows us to analyze the relationship between revenue and fixed and variable expenses
- It allows us to study the effects of changes in
- Sales volume
- Sales price
- Product mixes
- What else……?

- CVP analysis is done with what assumptions?
- What is the break-even point and where is it on a graph?
Continue

- Other terms and def.
- Margin of safety
- Mixed costs
- Revenue or sales mix
- Sensitivity analysis
- Unit Contribution Margin (UCM)
Continued

- Break-even point in units
Fixed costs

UCM

- Break-even point in dollars
Fixed costs

CMR

- Review of questions:
- 1 – Diff. gross margin and contribution margin
- 5 – Effect of an increase in CM
- 6 – Effects on BEP by changes in CM

- Problems
- 8, 9, 12 & 13 on page 330

- Target Operating Income
Fixed costs + Target operating income

UCM

- Target Net Income
Fixed costs + Target net income / (1.0 – tax rate)

UCM

- Problem 15, 16 and 18 on page 333

- Multiple Products (or Services)
S = FC + VC

- Choice of Product decisions
- Special Orders

- Accounting Costs vs. Economic Costs
- Explicit vs. Implicit Costs
- Accounting vs. Economic Profit
- Marginal Revenue and Marginal Cost
- Profit Maximization
- Short-Run Cost Relationship

- Pure Competition
- Monopoly
- Monopolistic Competition
- Oligopoly
Quiz questions