ACC 406 Lecture Notes - Lecture 2: Contribution Margin, Break Even, Fixed Cost
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Break-even point in units and in sales dollars. Cost volume profit (cvp) analysis estimates how changes in costs (both variable and fixed), sales (cid:448)olu(cid:373)e, a(cid:374)d pri(cid:272)e affe(cid:272)t a (cid:272)o(cid:373)pa(cid:374)(cid:455)"s profit. Cvp is a po(cid:449)erful tool for pla(cid:374)(cid:374)i(cid:374)g a(cid:374)d de(cid:272)isio(cid:374) (cid:373)aki(cid:374)g. i(cid:374) fact, cvp is one of the most versatile and widely applicable tools used by managerial accountants to help managers make better decisions. Normally cvp starts with a break even analysis. The break-even point (bep): is the point where total revenue equals total cost. Can address number of units that must be sold to break even. The impact of a given reduction in fixed costs on the break even point. The impact of an increase in price on profit. For cvp analysis it is useful to organize the costs into the fixed and variable components; the focus is on the firm as a whole. Therefore the costs refer to all costs of the company.
