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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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cost volume profit analysis
Cost-Volume-Profit Analysis
  • Break Even
    • Units
    • Dollars of Sales
  • Target Income
    • Units
    • Sales
cost volume profit analysis1
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 analysis2
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 analysis3
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