Chap 007 managerial accounting Hilton

8/9/2019 Chap 007 managerial accounting Hilton

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Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

Chapter 7

Cost-Volume-Profit Analysis


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LearningObjective

1


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The rea!-"ven PointThe rea!-"ven Point

The brea!-even point is the point in thevolume of activity #here the organi$ation%s

revenues an& e'penses are e(ual)

Sales 250,000$Less: variable expenses 150,000

Contribution margin 100,000 Less: fixed expenses 100,000 Net income $

Sales 250,000$Less: variable expenses 150,000

Contribution margin 100,000 Less: fixed expenses 100,000 Net income $


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LearningObjective

*


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Contribution-+argin ApproachContribution-+argin Approach

,or each a&&itional surf boar& sol& Curlgenerates .*// in contribution margin)

+otal er !nit ercentSales #500 surf boards% 250,000$ 500$ 100-Less: variable expenses 150,000 &00 .0-

Contribution margin 100,000$ 200$ *0-Less: fixed expenses (0,000 Net income 20,000$

+otal er !nit ercentSales #500 surf boards% 250,000$ 500$ 100-Less: variable expenses 150,000 &00 .0-

Contribution margin 100,000$ 200$ *0-Less: fixed expenses (0,000 Net income 20,000$

Consi&er the follo#ing information&evelope& by the accountant at Curl 0nc)


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,i'e& e'penses,i'e& e'penses 2nit contribution margin2nit contribution margin 33

rea!-even pointrea!-even point4in units54in units5

+otal er !nit ercentSales #500 surf boards% 250,000 $ 500$ 100-Less: variable expenses 150,000 &00 .0-Contribution margin 100,000 $ 200$ *0-Less: fixed expenses (0,000 Net income 20,000$

+otal er !nit ercentSales #500 surf boards% 250,000 $ 500$ 100-Less: variable expenses 150,000 &00 .0-Contribution margin 100,000 $ 200$ *0-Less: fixed expenses (0,000 Net income 20,000$

$$6/ ///6/ ///

$$*//*//33 // surf boar&s// surf boar&s


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8ere is the proof9

+otal er !nit ercentSales #*00 surf boards% 200,000$ 500$ 100-Less: variable expenses 120,000 &00 .0-Contribution margin (0,000$ 200$ *0-

Less: fixed expenses (0,000 Net income $

+otal er !nit ercentSales # *00 surf boards% 200,000$ 500$ 100-Less: variable expenses 120,000 &00 .0-Contribution margin (0,000$ 200$ *0-

Less: fixed expenses (0,000 Net income $

// : .;// 3 .*// ///// : .;// 3 .*// ///// : .


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Contribution +argin =atioContribution +argin =atio

Calculate the brea!-even point in sales dollars rather thanunits by using the contribution margin ratio)

Contribution margin

>ales

3 C+

=atio ,i'e& e'pense,i'e& e'pense

C+ =atioC+ =atiorea!-even pointrea!-even point4in sales &ollars54in sales &ollars53

3


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+otal er !nit ercentSales #*00 surf boards% 200,000$ 500$ 100-Less: variable expenses 120,000 &00 .0-Contribution margin (0,000$ 200$ *0-Less: fixed expenses (0,000

Net income $

+otal er !nit ercent

Sales # *00 surf boards% 200,000$ 500$ 100-Less: variable expenses 120,000 &00 .0-Contribution margin (0,000$ 200$ *0-Less: fixed expenses (0,000 Net income $

Contribution +argin =atioContribution +argin =atio

.6/ ///.6/ ///

/?/?.*// /// sales.*// /// sales33


11/53Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

LearningObjective

ome managers li!e the profit-volume

graph because it focuses on profits an& volume)>ome managers li!e the profit-volume

graph because it focuses on profits an& volume)

L o s s

a r e a

P r o f i t a

r e area!-even

pointrea!-even

point


19/53Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin

LearningObjective


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Target et ProfitTarget et Profit

Be can &etermine the number of surfboar&sthat Curl must sell to earn a profit of .1// ///

using the contribution margin approach)

Be can &etermine the number of surfboar&sthat Curl must sell to earn a profit of .1// ///

using the contribution margin approach)

/ixed expenses +arget profit !nit contribution margin )

!nits sold to earnt e target profit

$6/ /// .1// /// .*// 3 // surf boar&s


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"(uation Approach"(uation Approach

Sales revenue Variable expenses Fixed expenses = Profit

#$500 " %" % #$&00 " %" % ' ' ' ' $(0,000 ) $100,000$100,000$(0,000 ) $100,000$100,000

#$200 %% ) $1(0,000) $1(0,000

) 00 surf boards ) 00 surf boards


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Applying CVP Analysis Applying CVP Analysis

Safety MarginD The &ifference bet#een bu&gete& sales

revenue an& brea!-even sales revenue)D The amount by #hich sales can &rop before

losses begin to be incurre&)

Safety MarginD The &ifference bet#een bu&gete& sales

revenue an& brea!-even sales revenue)D The amount by #hich sales can &rop before

losses begin to be incurre&)


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>afety +argin>afety +argin

Curl, 3nc4 as a brea even point of $200,00043f actual sales are $250,000, t e safet6 margin is

$50,000 or 100 surf boards4


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Changes in ,i'e& CostsChanges in ,i'e& Costs

D Curl is currently selling ;// surfboar&s peryear)

D The o#ner believes that an increase of.1/ /// in the annual a&vertising bu&get#oul& increase sales to ; / units)

>houl& the company increase the a&vertisingbu&getE

D Curl is currently selling ;// surfboar&s peryear)

D The o#ner believes that an increase of.1/ /// in the annual a&vertising bu&get#oul& increase sales to ; / units)

>houl& the company increase the a&vertisingbu&getE


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$(0,000 $10,000 advertising ) $ 0,000$(0,000 $10,000 advertising ) $ 0,000

5*0 units " $500 per unit ) $270,0005*0 units " $500 per unit ) $270,000


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Sales 8ill increase b6$20,000, but net income

decreaseddecreased b6 $2,000 ))

Sales 8ill increase b6$20,000, but net income

decreaseddecreased b6 $2,000 ))


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Changes in 2nitChanges in 2nitContribution +arginContribution +argin

9ecause of increases in cost of ra8 materials,Curl s variable cost per unit as increasedfrom $&00 to $&10 per surfboard4 ;it no

c ange in selling price per unit, 8 at 8ill bet e ne8 brea even point

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Chap 007 managerial accounting Hilton