Upload
wsampath
View
226
Download
0
Embed Size (px)
Citation preview
7/30/2019 Cost Volume Profit Analysis Lecture
1/24
Cost Behavior
7/30/2019 Cost Volume Profit Analysis Lecture
2/24
Jason Inc. produces stereo sound systemsunder the brand name of J-Sound. The partsfor the stereo are purchased from an outside
supplier for Rs10 per unit (a variable cost).
Variable Cost
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
3/24
Total Variable Cost Graph
TotalCost
s
Rs300,000
Rs250,000
Rs200,000
Rs150,000
Rs100,000
Rs50,00010 20 300
Units Produced
(in thousands)
Variable Cost
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
4/24
Unit Variable Cost Graph
Rs20
Rs15
Rs10
Rs5
0
CostperU
nit
10 20 30Units Produced
(000)
Variable Cost
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
5/24
TotalCosts
Rs300,000
Rs250,000
Rs200,000
Rs150,000
Rs100,000
Rs50,000
10 20 300
Rs20
Rs15Rs10
Rs5
0CostperU
nit
10 20 30
Number of
Units
Produced
Units Produced (000)
Units Produced (000)
Direct
Materials
Cost per Unit
Total Direct
Materials
Cost
5,000 units Rs10 Rs 50,000
10,000 10 l00,000
15,000 10 150,000
20,000 10 200,000
25,000 10 250,000
30,000 10 300,000
Variable Cost
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
6/24
The productionsupervisor for Minton
Inc.s Los Angeles plant
is Jane Sovissi. She ispaid Rs75,000 per year.The plant produces from
50,000 to 300,000
bottles of perfume.
La Fleur
Fixed Costs
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
7/24
Number of
Bottles
Produced
Total Salary
for Jane
Sovissi
50,000 bottles Rs75,000 Rs1.500
100,000 75,000 0.750
150,000 75,000 0.500
200,000 75,000 0.375
250,000 75,000 0.300300,000 75,000 0.250
Salary per
Bottle
Produced
Fixed Costs
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
8/24
Fixed Costs
Total Fixed Cost Graph
TotalCosts Rs150,000
Rs125,000
Rs100,000
Rs75,000
Rs50,000
Rs25,000
100 200 3000
Unit Fixed Cost Graph
Bottles Produced (000)
Number of
Bottles
Produced
CostperUnitRs1.50
Rs1.25
Rs1.00
Rs.75
Rs.50
Rs.25
100 200 3000
Units Produced (000)
Total Salary
for Jane
Sovissi
50,000 bottles Rs75,000 Rs1.500
100,000 75,000 0.750
15,000 75,000 0.500
20,000 75,000 0.375
25,000 75,000 0.30030,000 75,000 0.250
Salary per
Bottle
Produced
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
9/24
Simpson Inc. manufacturessails using rented equipment.
The rental charges areRs15,000 per year, plus Rs1
for each machine hour usedover 10,000 hours.
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
10/24
Mixed Costs
Total Mixed Cost Graph
TotalCosts
0
Total Machine Hours (000)
Rs45,000
Rs40,000
Rs35,000Rs30,000
Rs25,000
Rs20,000
Rs15,000
Rs10,000
Rs5,000
10 20 30 40
Mixed costs are
usually separated into
their fixed and
variable componentsfor management
analysis.
Mixed costs are
sometimes called
semivariable or
semifixed costs.
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
11/24
The high-low method is a simple wayto separate mixed costs into theirfixed and variable components.
Mixed Costs
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
12/24
Actual costs incurred
Production Total(Units) Cost(Rs)
June 1,000 45,000
July 1,500 52,000
August 2,100 61,500September 1,800 57,500
October 750 41,250
High-Low Method
Variable cost per unit =
Highest level of activity (Rs) minus
lowest level of activity (Rs)
Highest level of activity (n) minus
lowest level of activity (n)
What month has
the highest level
of activity interms of cost?
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
13/24
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
14/24
Contribution Margin Income Statement
Sales (50,000 units) Rs1,000,000Variable costs 600,000
Total Contribution Rs 400,000
Fixed costs 300,000
Profit Rs 100,000
The Total
Contribution is
available to cover
the fixed costs
and Profit .
FIXED
COSTS
Contribution
Profit
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
15/24
Contribution Margin Ratio
100%60%
40%
30%
10%
Contribution margin ratio =SalesVariable costs
Sales
Contribution margin ratio = Rs1,000,000600,000Rs1,000,000
Contribution margin ratio = 40%
Sales (50,000 units) Rs1,000,000Variable costs 600,000
Contribution margin Rs 400,000
Fixed costs 300,000
Income from operations Rs 100,000
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
16/24
Summary of Effects of Changes on
Break-Even Point
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
17/24
Target Profit
Fixed costs are estimated at Rs200,000, and thedesired profit is Rs100,000. The unit selling
price is Rs75 and the unit variable cost is Rs45.
The firm wishes to make a Rs100,000 profit.
Sales (? units) Rs ?
Variable costs ?
Contribution margin Rs ?
Fixed costs 200,000Income from operations Rs 0
Rs75
45
Rs30
In
Units
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
18/24
Sales (? units) Rs ?
Variable costs ?
Contribution margin Rs ?
Fixed costs 200,000Income from operations Rs 0
Sales (units) = Unit contribution margin
Fixed costs + desired profitRs200,000 + Rs100,000
Rs3010,000 units
Target Profit InUnits
Rs75
45
Rs30
Target profit is
used here to refer
to Income from
operations.
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
19/24
Rs75
45
Rs30
Sales (10,000 units x Rs75) Rs750,000
Variable costs (10,000 x Rs45) 450,000
Contribution margin Rs300,000
Fixed costs 200,000Income from operations Rs100,000
Proof that sales of 10,000 units
will provide a profit of
Rs100,000.
Target Profit
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
20/24
Graphic Approach toCost-Volume-Profit
Analysis
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
21/24
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
22/24
Marginof Safety
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
23/24
Margin of Safety = Sales
Sales at break-even pointSales
The margin of safety indicates thepossible decrease in sales that may occur
before an operating loss results.
Margin of Safety =Rs250,000Rs200,000
Rs250,000
Margin of Safety = 20%
LESTER MARTINO
7/30/2019 Cost Volume Profit Analysis Lecture
24/24
Assumptions of Cost-Volume-Profit Analysis
1. Total sales and total costs can berepresented by straight lines.
2. Within the relevant rangeof operatingactivity, the efficiency of operations doesnot change.
3. Costs can be accurately divided into fixed
and variablecomponents.4. The sales mix is constant.
5. There is no change in the inventoryquantities during the period.
The reliability of cost-volume-profit analysis
depends upon several assumptions.
LESTER MARTINO