Managerial Accounting Chapter 7
-A change in volume is the only factor that affects costs. If we sell more, we have more costs. Volume discounts are not included.
-What factor affects costs according to CVP.
-relevant range
-When projecting profits, managers must keep in mind the
- dividing line
-all variable expenses go above the line, and all fixed expenses go below the line.
-The contribution margin per unit and contribution margin ratio
-help managers quickly and easily project income at different sales volumes.
-CVP analysis
-helps managers determine how many units they need to sell to earn a target amount of profit.
-CVP analysis
-helps managers prepare for and respond to economic changes, such as increasing costs and pressure to drop sales prices, so companies can remain competitive and profitable.
-The unit contribution margin
-indicates how much profit each unit provides before fixed costs are considered.
-Sensitivity analysis
-is a "what if" technique that asks what results will be if the actual process or costs change, if the sales price changes, or if an underlying assumption such as sales mix changes.
-Contribution Margin
-is stated as a total amount on the contribution margin income statement.
-Sales mix
-is the combination of products that make up total sales.
-The contribution margin
-is the excess of sales revenue over variable expenses.
-contribution margin income statement
-separates costs by behavior rather than function
-The Contribution Margin
-tells managers how much profit they make on each unit before considering fixed costs.
-unit contribution margin
-tells managers how much revenue is left after paying variable expenses for contributing toward covering fixed costs and then generating a profit.
-The contribution margin
-tells managers how much revenue is left—after paying variable expenses—for contributing toward covering fixed costs and then generating a profit
-total expenses
-the breakeven point is also the point at which total sales will be equal to
-Breakeven point in sales dollars
-the fixed expenses plus the operating income divided by the contribution margin ratio.
--A product's contribution margin per unit—or unit contribution margin
—is the excess of the selling price per unit over the variable cost of obtaining and selling each unit.
-CVP Analysis
- we are determining the sales level needed to earn a desired amount of profit.
-not change, meaning the amount produced will always equal the amount sold.
-According to CVP Inventory levels will? And this means?
-Sale Price
-According to CVP _____ _____ will be the same regardless of the number of units sold.
-linear
-According to CVP revenues are _______ throughout relevant range
-will not change
-According to CVP the sales mix of products _________.
-Slide 12
-Break even point example
-Sales price per unit -Volume sold -Variable costs per unit -Fixed costs -Profit or loss
-CVP analysis relies on the interdependency of five components, or pieces of information
-No volume discounts
-CVP assumes what when it comes to discounts?
-What if the sales price changes? -What if costs change? -What if the sales mix changes
-Conducts "What if" analysis
-per unit basis and as a percentage, or ratio
-Contribution Margin is stated as a total amount on the contribution margin income statement. However, managers often state the contribution margin on a
-Contribution margin ratio
-Contribution margin per unit / Sales price per unit
-Contribution margin ratio
-Contribution margin/ Sales revenue
-Cost-Volume-Profit (CVP) Analysis
-Determines how much the company must sell each month just to cover costs or to break even
-covering the firm's fixed costs.
-Each unit first contributes its profits towards
-Slide 14
-Example of Units to Be Sold
-Finding Volume Needed For Target Profit Using Unit Contribution Margin
-Fixed expenses + Operating income /Contribution margin per unit
-Sales $needed or Sales need to reach a Target Profit
-Fixed expenses + Target operating income/ Contribution margin ratio
-Total contribution margin
-Fixed expenses ='s what for breakeven?
-sales level
-For established products and services, managers are more interested in the ______ ______ needed to earn a target profit than in the breakeven point.
-Cost-Volume-Profit (CVP) Analysis
-Helps managers determine the sales volume needed to earn a target profit
-then profit
-If sales above breakeven then
-loss
-If sales below breakeven, then
-Components of CVP Analysis
-If you know or can estimate four of these five components, you can compute the remaining unknown amount.
-variable or fixed.
-In CVP Managers can classify each cost as either______ (or the components of mixed costs) as either _______
-These costs are linear throughout relevant range of volume.
-In CVP the variable and fixed cost are?
-Cost Volume Profit Analysis
-Is a powerful tool that helps managers make important business decisions
-Cost-Volume-Profit (CVP) Analysis
-Is a relationship among costs, volume, and profit or loss
-the profits they can expect to earn
-Managers of new business ventures are also interested in.
-sensitivity analysis
-Managers use CVP analysis to conduct _______ _______.
-gives them the information for CVP analysis in a "ready-to-use" format
-Many managers prefer the contribution margin income statement because it
-Using contribution margin ratio to calculate breakeven point in sales dollars
-Note that the operating income at breakeven would be zero.
-contributes directly to profit
-Once the company sells enough units to cover its fixed costs, the unit contribution margin
-directly to profit.
-Once the company sells enough units to cover its fixed costs, the unit contribution margin contributes
-CVP Example
-Slide 5
-Examples of Contribution Margin
-Slide 9 and 10
-the total contribution margin
-The breakeven point can also be defined as the point at which fixed expenses equal
-"dividing line"
-The contribution margin is the _____
-the operating income divided by the contribution margin per unit
-To determine the breakeven units, use the fixed expenses plus the _____ ______ divided by the ______ ______ _____ ____.
-Units to Be Sold
2.) Fixed expenses + Operating Income/ Contribution Margin Per Unit.
-Contribution margin ratio
= percentage of each sales dollar that is available for covering fixed expenses and generating a profit.
will
For example, Art.com may sell 15% posters, 25% unframed photographs, and 60% framed prints. If profits differ across products, changes in sales mix ____ affect CVP analysis.
Breakeven Point
Sales level at which operating income is zero
-Total expenses
Total sales = what for break even?