Cost-Volume-Profit Analysis

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# Cost-Volume-Profit Analysis - PowerPoint PPT Presentation

Cost-Volume-Profit Analysis. Break Even Units Dollars of Sales Target Income Units Sales. Cost-Volume-Profit Analysis. Multiple Products Assume constant sales mix CMU for each product Then calculate break even based on sales mix Apples CMU \$1; Oranges CMU \$.50 Fixed costs: \$100

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## Cost-Volume-Profit Analysis

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Presentation Transcript
Cost-Volume-Profit Analysis
• Break Even
• Units
• Dollars of Sales
• Target Income
• Units
• Sales
Cost-Volume-Profit Analysis
• Multiple Products
• Assume constant sales mix
• CMU for each product
• Then calculate break even based on sales mix
• Apples CMU \$1; Oranges CMU \$.50
• Fixed costs: \$100
• Sales mix: 40% apples, 60% oranges
• Breakeven units?
Cost-Volume-Profit Analysis
• Evaluating alternatives
• Increase in CM – Increase in Fixed Costs
• Margin of safety
• Sales – breakeven sales
• Can be in units or dollars
• Assume constant sales mix
Cost-Volume-Profit Analysis
• Operating leverage = CM/Operating Income
• Cost structure: variable versus fixed costs
• Higher fixed costs = more risk
• Higher fixed costs better = lower variable costs
• Higher fixed costs better = higher CMU
• Higher CMU = greater increase in income for each increase in units sold