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Chapter 4

Chapter 4 - Cost Volume Profit Analysis - A Managerial Planning Tool

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Ryerson University
ACC 406
Vincent Cappelli

thWednesday January 25 2012 Chapter 4 CostVolumeProfit Analysis A Managerial Planning Tool Break Even Point in Units and in Sales Dollars cost volume profit CVP analysis estimates how changes in cost both variable and fixed sales volume and price affect a companys profitIt is a powerful tool for planning and decision makingOne of the most versatile and widely applicable tools used by managerial accountants to help managers make better decision breakeven point is the point where total revenuetotal costs ex the point of zero profit much more useful to organize costs into fixed and variable components costs refer to all costs of the company production selling and administration variable costs are all costs that increase as more units are sold including direct materials direct labour variable overhead and variable selling and administration costs fixed costs include overhead and fixed selling and administrative expenses income statement format that is based on the separation of costs into fixed and variable components is called contribution margin income statementContribution Margin is defined as the excess of sales over variable costs Contribution MarginSalesVariable Costs refers to the amount left after the variable cost are covered to contribute towards the fixed costs once fixed costs are
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