ACCT-311 Lecture Notes - Lecture 8: Operating Leverage, Contribution Margin, Income Statement

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harlequinporcupine348

18 Mar 2016

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Companies use cvp analysis to be able to see what impact different assumptions make to their net income. Cvp analysis looks at revenues, variable expenses and fixed expenses to see the changes in net income. If we know our per unit information then were just gonna multiply to get our $ amount. Sales vc = cm fc = ni. Break even analysis: at breakeven, sales/revenues = total expenses (variable +fixed expenses). Profit at breakeven is zero: breakeven can be calculated for the number of units or the total sales amount, the cvp template can be used or formulas can be used to calculate break- even. Margin of safety: how much sales are over the breakeven point. Can be calculated in units or in dollars: margin of safety units = sales units . Breakeven units: margin of safety $ = sales $ - breakeven $ Margin of safety units= sales units breakeven units.

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Cost-volume-profit (CVP)

posted Nov 28, 2016, 4:07 AM

Cost-volume-profit (CVP) analysis is a key step in manydecisions. CVP analysis involves specifying a model of therelations among the prices of products, the volume or level ofactivity, unit variable costs, total fixed costs, and the salesmix. This model is used to predict the impact on profits of changesin those parameters. Explain how changes in activity affectcontribution margin and net operating income.

sapphireprairie-dog466

Not sure how to complete this multi production CM incomestatement at breakeven. If you can be detailed inyour answers so I can understand it, that would be awesome! Thanksin advance!

Applicable to thecompany as a whole:
Net income earned during mostrecent period:				$ 65,000
Contribution marginratio:				15%
Fixed costs incurred duringmost recent period:				$ 175,000
Statutory tax rate:				37%
Operating income generated atbreakeven:				$ -
Applicable to the FootballDivision
Selling price perfootball				$ 18.00
Total variable cost dollarsincurred by Football Division				$ 952,088
Quantity of footballs soldduring most recent period:				64,000
Applicable to the BaseballDivision
Variable cost perbaseball:				$ 3.24

	Footballs			Baseballs			Total
	Total $	$ per Unit	Sales Ratios	Total $	$ per Unit	Sales Ratios	Total $	Sales Ratios*
Revenues	$ 1,152,000	$ 18.00	62%	$ 702,497	$ 3.65	38%	$ 1,854,497.35	100%
Variable Costs	$ 952,088	$ 14.88	60%	$ 624,235	$ 3.24	40%	$ 1,576,323	100%
Contribution Margin	$ 199,912	$ 3.12	72%	$ 78,263	$ 0.41	28%	$ 278,175	100%
Fixed Costs							$ 175,000
Operating income							$ 103,175
Income Tax							$ 38,174.60
Net income							$ 65,000

	Footballs			Baseballs			Total
	Total $	$ per Unit	Sales Ratios	Total $	$ per Unit	Sales Ratios	Total $	Sales Ratios
Revenues							$ 1,166,666.67
Variable Costs
Contribution Margin
Fixed Costs
Operating income
Income Tax
Net income

pearweasel731

Basic information
Exhibit 1 Hallstead Jewelers
Income Statements for YearsEnded January 31 (thousands of dollars)
	2003	2004	2006

Sales	$9,000,000	$8,000,000	$11,000,000
Cost of goods sold	4,050,000	3,600,000	4,950,000
Gross margin	$4,950,000	$4,400,000	$6,050,000
Expenses
Selling expense
Salaries	2,021,000	2,081,000	4,085,000
Commissions	450,000	400,000	550,000
Advertising	254,000	250,000	257,000
Administrative expenses	418,000	425,000	535,000
Rent	420,000	420,000	840,000
Depreciation	84,000	84,000	142,000
Miscellaneous expenses	53,000	93,000	122,000
Total expenses	$3,700,000	$3,753,000	$6,531,000
Net income	$1,250,000	$647,000	$(481,000)

Exhibit 2 Hallstead JewelersOperating Statistics

	2003	2004	2006

Sales space (square feet)	10,000	10,000	15,000
Sales per square foot	$900	$800	$733
Sales tickets	5,000	5,000	7,000
Average sales ticket	$1,800	$1,600	$1,571

Assumptions:

Sales price per ticket = $1,572

Variable cost per unit = $786 (cost of goods sold of $707 +Sales commissions of $79)

Complete the table below:

*Alternative #1*	*Per unit*	*Total*	*Per unit*	*Total*
# of sales tickets	7000
Selling price per ticket	$1,572	$11,000,000
Variable cost per ticket	$786	$5,500,000
Contribution margin per ticket	$786	$5,500,000
Total fixed costs	5,981,000
Net income	$(481,000)
Change in net income if accept alternative
Breakeven point in units	7,610

Review of Question #4 requirements. Increase advertisingby $20,000, increase sales revenue (volume) by 2%.

For each question, answer yes or no for each piece ofinformation listed.

Information	For this alternative only, is there a change in this item thataffects calculation of net income? Yes or No	For this alternative only, is there a change in this item thateffects the calculation of the new breakeven point? Yes or No
Selling price per unit
Variable cost per unit
Total fixed costs
Net income
Sales volume

Complete the table below:

*Alternative #3*	*Per unit*	*Total*	*Per unit*	*Total*
# of sales tickets	7000
Selling price per ticket	$1,572	$11,000,000
Variable cost per ticket	$786	$5,500,000
Contribution margin per ticket	$786	$5,500,000
Total fixed costs	5,981,000
Net income	$(481,000)
Change in net income if accept alternative
Breakeven point in units	7,610

Alternatives	Change in Net Income	New Breakeven point in units	Change in Breakeven point in units
#1 Decrease SP, Increase sales volume
#2 Eliminate sales commissions	Increases by $550,000	6,914	Decreases by 696
#3 increase Fixed costs by $20,000 to get increase of 2% salesrevenue (volume)

periwinklemink994

ACCT-311 Lecture Notes - Lecture 8: Operating Leverage, Contribution Margin, Income Statement

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