22107 Lecture Notes - Lecture 10: Cash Flow, Budget, Contribution Margin
Document Summary
Evaluating business information is important when making assumptions for cvp analysis (e. g. interest rates-future prediction: nature & behaviour of fixed and variable costs. Variable: ^ volume (customers) = ^ level of costs (e. g. labour) Fixed: remains the same regardless of activity (leasing) Relevant range: cost is fixed within a given range/time period. E. g. restaurant seats (capacity: break-even point using contribution margin approach. Cm fixed expenses = net profit (cm & fe should be same) Contribution margin ratio: cvp analysis for profit planning. Target profit: differences between variable costing & absorption costing. Absorption costing: costs attach to product (external view) Used for preparation of fs under gaap/income tax reporting. Variable costing: used for internal decision- making. Only variable costs are product costs: analyse what if decisions using cvp analysis. If a company need to ^ net income/maintain high quality products: reduce variable costs (cm will increase reduce labour)
