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Chapter 4

Chapter 4

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ACC 406
Maurizio Di Maio

Chapter 4Costvolumeprofit analysis A managerial planning tool Breakeven point in units and in sales dollars y CVP Costvolumeprofit analysis estimates how changes in costs sales volumeprice affect a companys profito CVP is used by managerial accountants to make better decisions y Breakeven point is the point where total revenuetotal cost the point at 0 profit o Examples on pg 124 y CVP analysis helps managers pinpoint problemsfind solutions o It can address issues like theof units that must be sold to reach breakeven the impact of a given reduction in fixed costs on the breakeven pointthe impact of an increase in price on profit Using operating income in costvolumeprofit analysis y The IS format that is based on the separation of costs into fixedvariable components is called the contribution margin IS Exhibit 41 on pg 125 y Contribution margin is the excess of sales over variable costs o CMSalesVariable costs o CM refers to the amount left after the variable costs r covered to contribute toward the fixed costso Once the fixed costs r covered any remaining additional CM increases income from operations y Contribution margin ratio indicates theof each sales dollar available to cover fixed coststo provide income from operationso CM ratioCMSalesEx on pg 125 o Change in income from operationsChange in sales dollars x CM ratioEx on pg 125 o Variable costs as aof sales r equal to 100the CM ratio ex on pg 125 o CM ratio is useful in developing business strategies ex on pg 126 Unit contribution margin y Unit contribution margin is useful for analyzing the profit potential of proposed decisions o Unit CMSales price per unitVariable cost per unit Ex on pg 126 o Change in income from operationsChange in sales units x Unit CM Ex on pg 126 y Ex on bottomCornerstone 41 on pg 126127
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