ACCT 2230 Chapter Notes - Chapter 4: Operating Leverage, Earnings Before Interest And Taxes, Contribution Margin

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blackcamel395

19 Oct 2016

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Cost-volume-profit (cvp): analysis is a powerful tool that helps managers understand the relationship among cost, volume, and profit. Cvp focuses on how profits are affected by the following five elements: prices of products, volume or level of activity, per unit variable costs, total fixed costs, mix of products sold. Is the amount remaining from sales revenue after variable expenses have been deducted. This is the amount available to cover fixed expenses and then provide profits or the period. If cm is not sufficient to cover the fixed expenses, then a loss occurs for the period. Is the level of sales at which profit is zero. Relationships among revenue, cost, profit, and volume can be expressed graphically by a cost-volume-profit (cvp) graph. A cvp graph is sometimes referred to as a break-even chart. Unit volume is commonly represented on the horizontal x-axis and dollars on the vertical y-axis.

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Cost-volume-profit (CVP)

posted Nov 28, 2016, 4:07 AM

Cost-volume-profit (CVP) analysis is a key step in manydecisions. CVP analysis involves specifying a model of therelations among the prices of products, the volume or level ofactivity, unit variable costs, total fixed costs, and the salesmix. This model is used to predict the impact on profits of changesin those parameters. Explain how changes in activity affectcontribution margin and net operating income.

sapphireprairie-dog466

Can I get the step by step methods and explainations?

CVP Analysis and Price Changes

(LO 3-1)

Argentina Partners is concerned about the possible effects of inflation on its operations. Presently, the company sells 60,000 units for $30 per unit. The variable production costs are $15, and fixed costs amount to $700,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the $15 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 5 percent as a result of increased taxes and other miscellaneous fixed charges.

The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 6 percent during the year.

Required

Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.

Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.

If the volume of sales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in profits?

salmonhyena78

Overview: Classifying a companyâs costs allows for an in-depthanalysis of the impact that changes in output have on revenues,costs, and net income or net loss. A cost-volume-profit (CVP)analysis will be completed in order to determine the breakevenpoint. Relevant costs will be used to prepare a flexible budget.Additionally, an appropriate costing system should be selected andthe choice should be substantiated with reasonable rationale.Finally, a memo should be prepared for management that summarizesthe results of the quantitative analysis and makes recommendationsfor an optimal costing system to be ethically used by key decisionmakers. For Milestone One, you will use the MDE ManufacturingBudget (Table I) to analyze costs, contribution margin, andbreakeven point for the bird feeder division of the company. In Tab1 of your Student Workbook, classify costs as either product orperiod costs. Briefly explain the difference between the types ofcosts. Then, analyze the actual costs and, using Tab 2 of yourStudent Workbook, complete a cost-volume-profit analysis todetermine how many bird feeders must be sold at the current costand sales price level to earn a 10% profit and how much the salesprice would have to increase to earn a 10% profit at the same costand sales volume level. Submit the Student Workbook with Tabs 1 and2 completed with your cost calculations and a 1â2 page Worddocument that explains the implications of your findings andaddresses all of the critical elements in Section I.

I. Salesand Manufacturing Expenses: Budget and Actual (2014)

You will use this table to complete Milestones One and Two.

	Budget ($)	Actual ($)

Sales	1,050,000	991,700

Expenses
Materials â Cedar	225,000	248,160
Materials â Plastic	37,500	37,741
Factory Worker Labor	300,000	332,760
Materials â Indirect	3,000	2,585
Factory Depreciation	78,000	78,000
Factory Utilities	12,000	12,000
Factory Maintenance and Repairs	5,000	4,500
Shipping ($2.25/each)	112,500	105,750
Sales Commissions ($2.00/unitsold)	100,000	94,000
Office Rent	12,000	12,000
Advertising	20,000	20,000
Liability insurance	5,000	5,000
Office Depreciation	1,000	1,000
Office Salaries	48,000	48,000

Total Expenses	959,000	1,001,496

II. Contribution Margin: Static Budget and Actual Results (2014)

You will use this table to complete Milestone Two.

	Actual Results	Static Budget Amount

Units Sold	47,000	50,000
Revenues ($)	991,700	1,050,000
Manufacturing Costs ($)
Variable	621,246	565,500
Fixed	94,500	95,000
Gross Margin	275,954	389,500

Milestone One,Part I




	Product Costs









	Period Costs





		Totals	Totals
		Budget	Actual
Sales Price per Unit

Variable Costs
	Materials - Cedar
	Materials - Plastic
	Factory Worker Labor
	Materials - Indirect
	Shipping ($2.25/ea)
	Sales Commissions ($2/unit sold)

Variable Cost per Unit

Contribution Margin


Fixed Costs
	Factory Depreciation
	Factory Utilities
	Factory Maintenance and Repairs
	Office Rent
	Advertising
	Liability Insurance
	Office Depreciation
	Office Salaries
Total Fixed Costs


Using Budgeted Amounts
Breakeven Point -				Breakeven Point -


Using Actual Amounts				Units at Current Sales Price
+ 10,000 profit

Using actual amounts				New Contribution Margin
+ 10,000 profit				Current Variable Costs
				New Sales Price

ceruleanwombat580

ACCT 2230 Chapter Notes - Chapter 4: Operating Leverage, Earnings Before Interest And Taxes, Contribution Margin

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