ACC 406 Lecture Notes - Contribution Margin, Earnings Before Interest And Taxes, Fixed Cost

• School: Ryerson University
• Department: Accounting
• Course: ACC 406
• Professor: Vincent Cappelli

Document Summary

Chapter 4- cost volume profit analysis; a managerial planning tool. Cost volume-profit (cvp) analysis estimates how changes in costs (both variable and fixed), sales volume, and price affect a company"s profit. Cvp is a powerful tool for planning and decision making. Cvp is one of the most versatile and widely applicable tools used by managerial accountants to help managers make better decisions. The break-even point is the point where total revenue equals total cost. (id. In a cvp analysis, cost refer to all costs of the company-production, selling, and administration. So variable costs are all costs that increase as more unit sold, including direct materials, direct labour, variable overhead and variable selling and administrative costs. Similarly, fixed costs include fixed overhead and fixed selling and administrative expenses. The income statement format that is based on the separation of costs into fixed and variable components is called the contribution margin income statement.