Textbook Notes (369,072)
MGAB03H3 (37)
G.Quan Fun (22)
Chapter 3

# AB03 Chapter 3.docx

6 Pages
80 Views

Department
Financial Accounting
Course Code
MGAB03H3
Professor
G.Quan Fun

This preview shows pages 1 and half of page 2. Sign up to view the full 6 pages of the document.
Description
MGAB03 Week 3 09/16/13 Chapter Three: Cost-Volume-Profit Analysis Cost-Volume-Profit Analysis  Cost-volume-profit analysis: the technique that examines s in profits in response to s in sales volumes, costs, & prices Profit Equation & Contribution Margin  Profit equation  Separate fixed category  valuable tools when considering the effects of volume on profit  Contribution margins: total revenue minus total variable costs  Contribution margin per unit (CM ): thu selling price per unit minus the variable cost per unit  how much revenue from each unit sold can be applied toward fixed costs or contributed to cover them  Once fixed costs r covered the remaining is profit  Earning before Taxes  ( ) ( ) Where  EBT = Earnings Before taxes  S = Selling price per unit  V = variable cost per unit  (S – V) = Contribution margin per unit  Q = Quantity of product sold (units of goods or services)  F = Total fixed costs  We use the profit equation to plan for different volumes of operations.  CVP analysis can be performed using either  Units (quantity) of product sold  Revenues (in dollars) CVP Analysis In Units  Assuming that fixed costs remain constaint; solve for expected quanitity of gooda/services that must b sold to achieve a target level of profit  ( )  ( -) ( ) CVP Analysis in Revenues  contribution margin ratio (CMR): is the percentage by which the selling price (or revenue) per unit exceeds the variable cost per unit  % of revenue  CMR for a single product  1 | P a g e MGAB03 Week 3 09/16/13  To analyze CVP in terms of total revenue instead of units, we sub the CMR foruCM  ( )⁄  CMR of 0.625 means that 62.5% of the revenue from each unit contributes first to fixed costs and then to profit after fixed costs are covered  CMR in terms of total revenue; will give same value as per unit  ( )⁄  Where  TS = Total sales revenue  TVC = total variable revenue  Ex. For Magikbike III, we could use the forecast information about volume (12,000 bikes) to determine the contribution margin ratio: Contribution Income Statement Per Unit Total % Sales revenue (12,000 bikes) \$800 \$9,600,000 100.00 Less: variable cost 300 3,600,000 37.50 Contribution margin 500 6,000,000 62.50 Less: fixed costs 5,500,000 Operating income (profit) before taxes \$ 500,000 Performing CVP Analysis  Breakeven point: level of operating activity at which revenues cover all fixed and variable costs, resulting in zero profit  Contributions is the same as fixed costs ~ no profit  Cost-Volume-Profit Graph  Cost-volume-profit (CVP) graph: Diagram of the relationship between total revenues and total costs; illustrates expected changes in an organization's profits under different volumes of activity 2 | P a g e MGAB03 Week 3 09/16/13 CVP w/ Income Taxes  ( )  ( )  ( )  Pretax Earnings:  ( ) CVP w/ Variable Amount of Earning  ( ) OPTIMISM BIAS OPTI
More Less

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document

Unlock to view full version

Unlock Document
Me

OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Just a few more details

So we can recommend you notes for your school.