Managerial Accounting for Business Professionals ACC 330

UNIT UNIT 33

Dr. Doug Letsch

• Wiley Plus Instr

uctions

• Fixed, Variable, and Mixed

Costs

• What is CVP

• Break Even

• Questions

WILEY PLUS

How do we find these assigned problems?

COST BEHAVIOR

Kick Starting the Cost Discussions?

COST BEHAVIORCOST BEHAVIORCOST BEHAVIORCOST BEHAVIOR

Variable, Fixed, or Mixed Costs

Variable:These costs follow revenues everywhere they

go

Direct costs, sales commissions, eBooks for universities, or instructors paid per student.

– Revenues are the tractor and variable costs are the

trailer.

COST BEHAVIORCOST BEHAVIORCOST BEHAVIORCOST BEHAVIOR

Variable, Fixed, or Mixed Costs

Fixed:These costs do not change within the relevant

range

Rent, salaries of managers, some depreciation, taxes, insurance, LMS (rent), or software.

– Fixed costs are like a tight rope – rigid line until you

move it to another location

COST BEHAVIORCOST BEHAVIORCOST BEHAVIORCOST BEHAVIOR

Variable, Fixed, or Mixed Costs

Mixed:These costs share the behaviors of both fixed

and variable costs. They change in total –not in proportion.

Rent at shopping malls is a good example. There is a fixed portion of rent plus a percentage of store sales.

– Mix costs are like our iphones- the promised bill is

never the same!

Which of the following is not a variable cost?

a.a. Warehouse rent.Warehouse rent.

b. CEO salary.

c. All of the above.

d. None of the above is correct

Poll QuestionPoll Question

Select your answer on the poll question. Remember to get credit you must answer all poll questions during a session.

Which of the following is not a variable cost?

a.a. Warehouse rent.Warehouse rent.

b. CEO salary.

c. All of the above.

d. None of the above is correct

Poll QuestionPoll Question

COSTVOLUMEPROFITThe purpose behind the analysis!

COST VOLUME PROFIT - CVPCOST VOLUME PROFIT - CVPCOST VOLUME PROFIT - CVPCOST VOLUME PROFIT - CVP

Behavioral Analysis & its Effect on ProfitJacobs, Inc., produces and sales a single product.

Here is a copy of their most recent income statement.

What can you tell me by analyzing these number?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales PriceVariable Cost Per UnitContribution Margin Per UnitContribution Margin PercentageBreak Even in DollarsBreak Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per UnitContribution Margin Per UnitContribution Margin PercentageBreak Even in DollarsBreak Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit

Contribution Margin Percentage

Break Even in Dollars

Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage

Break Even in Dollars

Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars

Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM%

Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM%

Break Even in Units Fixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits $ 25.00

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM%

Break Even in Units Fixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units $ 14.00

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM%

Break Even in Units Fixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units $ 11.00

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM%

Break Even in Units Fixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars 44%

Break Even in Dollars Fixed/CM%

Break Even in Units Fixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM% $ 90,909

Break Even in Units Fixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?COST VOLUME PROFIT – CVP – WHAT DO WE KNOW?

Sales Units 5,000

Sales Dollars $ 125,000

Variable expenses $ 70,000

Contribution margin $ 55,000

Fixed expenses $ 40,000

Net Income $ 15,000

Unit Sales Price Sales$/SalesUnits

Variable Cost Per Unit Variable$/Units

Contribution Margin Per Unit CM/Sales Units

Contribution Margin Percentage CM/Sales Dollars

Break Even in Dollars Fixed/CM%

Break Even in Units Fixed/Cmunit 3,636.4

COST VOLUME PROFIT – CVP – POLL QUESTIONCOST VOLUME PROFIT – CVP – POLL QUESTIONCOST VOLUME PROFIT – CVP – POLL QUESTIONCOST VOLUME PROFIT – CVP – POLL QUESTION

Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.Required:

a. What is the breakeven point in batteries?

This is your final Poll Question for the week. Calculate this – I will give you a few minutes to determine the answer. When I open the poll question, please respond.

COST VOLUME PROFIT – CVP – POLL QUESTIONCOST VOLUME PROFIT – CVP – POLL QUESTIONCOST VOLUME PROFIT – CVP – POLL QUESTIONCOST VOLUME PROFIT – CVP – POLL QUESTION

Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.Required:

a. What is the breakeven point in batteries?

N = Breakeven units$50N -$40N -$10,000 -$8,000 = 0

$10N -$18,000 = 0N = $18,000/$10 = 1,800 batteries

Unit CM

COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP

Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.Required:

b. What is the margin of safety, assuming projected sales are $100,000?

COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP

Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.Required:

b. What is the margin of safety, assuming projected sales are $100,000?

Margin of safety = $100,000 -($50 ×1,800) = $10,000

B/E Units

COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP COST VOLUME PROFIT – CVP

Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.Required:

c. What is the breakeven level in batteries, assuming variable costs increase by 20% and sales price increases by 14%?

COST VOLUME PROFIT – CVPCOST VOLUME PROFIT – CVPCOST VOLUME PROFIT – CVPCOST VOLUME PROFIT – CVP

Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.Required:

c. What is the breakeven level in batteries, assuming variable costs increase by 20% and sales price increases by 14%? N = Breakeven units

$57N -$48N -$10,000 -$8,000 = 0$9N -$18,000 = 0

N = $18,000/$9 = 2,000 batteries

Are there any questions?

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