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ACC 410 (13)
Lecture

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3 Pages
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Department
Accounting
Course Code
ACC 410
Professor
Keith Whelan

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Chatper 3 Cost-volume-Profit Analysis
Cost-volume-profit (CVP) analysis examines relationship between selling prices, sales
volumes, costs and profits
Future levels of operating activities
Which products/services to emphasize
The amount of revenue required to avoid losses
Whether to increase fixed costs
How much to budget for discretionary expenditures
Profit Equation and Contribution Margin
-Contribution margin: CM = R V
Tells us how much revenue from each unit sold can be applied toward fixed costs
or contributed to cover fixed costs
-Contribution margin per unit: CMu = Su Vu
-CVP analysis can be performed using either:
Units (quantity) of product sold
Revenues (in dollars)
CVP Analysis in Units
-Earnings (profit) equation:
EBT = S * Q V * Q F = (S V) * Q FSolving for Q ,
CVP Analysis in Revenues
-Contribution margin ratio (CMR) percentage by which selling price per unit exceed
variable cost per unit, or contribution margin as a percentage of revenue
OR
Breakeven Point level of operating activity at which revenues cover all fixed and variable
costs
-In other words, contribution = fixed costs
-
Cost-volume-profit Graph shows the relationship between total revenues and total costs
CVP with Income Taxes
-Earnings after taxes (EAT) = EBT Taxes = EBT (Tax rate*EBT) = EBT * (1
Tax Rate)
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Description
Chatper 3 Cost-volume-Profit Analysis Cost-volume-profit (CVP) analysis examines relationship between selling prices, sales volumes, costs and profits - Used to provide information about: Future levels of operating activities Which productsservices to emphasize The amount of revenue required to avoid losses Whether to increase fixed costs How much to budget for discretionary expenditures Profit Equation and Contribution Margin - Contribution margin: CM = R V Tells us how much revenue from each unit sold can be applied toward fixed costs or contributed to cover fixed costs - Contribution margin per unit: CMu = Su Vu - CVP analysis can be performed using either: Units (quantity) of product sold Revenues (i
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