Cost Value Profite Cvp
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Cost Value Profite Cvp as PDF for free.
More details
- Words: 1,201
- Pages: 19
CHAPTER 3 Cost-Volume-Profit (CVP) Analysis
Basic Assumptions Changes in production/sales volume are the
sole cause for cost and revenue changes Total costs consist of fixed costs and variable costs Revenue and costs behave and can be graphed as a linear function (a straight line)
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-2
Basic Assumptions, continued Selling price, variable cost per unit, and fixed
costs are all known and constant In many cases only a single product will be analyzed. If multiple products are studied, their relative sales proportions are known and constant The time value of money (interest) is ignored
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-3
Basic Formulae Operating Income
=
Net Income
Total Revenues from Operations
=
Operating Income
Cost of Goods Sold
Pretax Operating Expenses
Income Taxes
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-4
Contribution Margin Contribution Margin equals sales less
variable costs
CM = S – VC
Contribution Margin per unit equals unit
selling price less variable cost per unit
CMu = SP – VCu
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-5
Contribution Margin Contribution Margin also equals contribution
margin per unit multiplied by the number of units sold
CM = CMu x Q
Contribution Margin Ratio (percentage)
equals contribution margin per unit divided by selling price
CMR = CMu ÷ SP
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-6
Contribution Margin Income Statement Derivations A horizontal presentation of the Contribution
Margin Income Statement: Sales – VC – FC = Operating Income (OI) (SP x Q) – (VCu x Q) – FC = OI Q (SP – VCu) – FC = OI Q (CMu) – FC = OI
Remember this last equation, it will be used again in a moment
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-7
CVP, Graphically $10,000
y
$8,000
Breakeven point = 25 units
Operating income
Total revenues line
Operating income area
Dollars
$6,000
$5,000
Total costs line
Variable costs
Breakeven point = 25 units
$4,000
Total costs line
$2,000
Operating loss area
Operating loss area x
10
20
25
30
40
Fixed costs
50
Units Sold
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-8
Breakeven Point Recall the last equation in an earlier slide: Q (CMu) – FC = OI A simple manipulation of this formula, and
setting OI to zero will result in the Breakeven Point (quantity):
BEQ = FC ÷ CMu
At this point, a firm has no profit or loss at
a given sales level
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-9
Breakeven Point, continued If per-unit values are not available, the
Breakeven Point may be restated in its alternate format: BE Sales = FC ÷ CMR
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-10
Breakeven Point, extended: Profit Planning With a simple adjustment, the Breakeven
Point formula can be modified to become a Profit Planning tool Profit is now reinstated to the BE formula, changing it to a simple sales volume equation Q = (FC + OI) CM
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-11
CVP and Income Taxes From time to time it is necessary to move back and forth
between pre-tax profit (OI) and after-tax profit (NI), depending on the facts presented After-tax profit can be calculated by:
OI x (1-Tax Rate) = NI
NI can substitute into the profit planning equation
through this form:
OI = I I NI I (1-Tax Rate)
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-12
Sensitivity Analysis CVP provides structure to answer a variety of
“what-if” scenarios “What” happens to profit “if”: Selling price changes Volume changes Cost structure changes
Variable cost per unit changes Fixed cost changes
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-13
Margin of Safety One indicator of risk, the Margin of Safety
(MOS) measures the distance between budgeted sales and breakeven sales:
MOS = Budgeted Sales – BE Sales
The MOS Ratio removes the firm’s size from
the output, and expresses itself in the form of a percentage:
MOS Ratio = MOS ÷ Budgeted Sales
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-14
Operating Leverage Operating Leverage (OL) is the effect that fixed
costs have on changes in operating income as changes occur in units sold, expressed as changes in contribution margin OL = Contribution Margin Operating Income Notice these two items are identical, except for fixed costs
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-15
Effects of Sales-Mix on CVP The formulae presented to this point have assumed a
single product is produced and sold A more realistic scenario involves multiple products sold, in different volumes, with different costs For simplicity’s sake, only two products will be presented, but this could easily be extended to even more products
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-16
Effects of Sales-Mix on CVP A weighted-average CM must be calculated (in this
case, for two products) Weighted ( Product #1 CMu x Product #1 Q ) + ( Product #2 CMu x Product #2 Q ) Average = CMu Total Units Sold (Q) for Both Products
This new CM would be used in CVP equations Multi-
Fixed Costs
Product = Weighted Average CM per unit BE
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-17
Multiple Cost Drivers Variable costs may arise from multiple cost
drivers or activities. A separate variable cost needs to be calculated for each driver. Examples include: Customer or patient count Passenger miles Patient days Student credit-hours
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-18
Contribution Margin vs. Gross Profit Comparative Statements
Contribution Margin Income Statement (Internal-Use Only) Revenues: Less: Variable Cost of Goods Sold Variable Operating Costs Contribution Margin Fixed Operating Costs Operating Income
Financial Accounting Income Statement GAAP - Based
$200 $120 45
165 35 20 $15
Revenues: Less: Cost of Goods Sold
$200 $120
Gross Margin (Profit) Fixed & Variable Operating Costs Operating Income
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
80 65 $15
3-19
Basic Assumptions Changes in production/sales volume are the
sole cause for cost and revenue changes Total costs consist of fixed costs and variable costs Revenue and costs behave and can be graphed as a linear function (a straight line)
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-2
Basic Assumptions, continued Selling price, variable cost per unit, and fixed
costs are all known and constant In many cases only a single product will be analyzed. If multiple products are studied, their relative sales proportions are known and constant The time value of money (interest) is ignored
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-3
Basic Formulae Operating Income
=
Net Income
Total Revenues from Operations
=
Operating Income
Cost of Goods Sold
Pretax Operating Expenses
Income Taxes
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-4
Contribution Margin Contribution Margin equals sales less
variable costs
CM = S – VC
Contribution Margin per unit equals unit
selling price less variable cost per unit
CMu = SP – VCu
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-5
Contribution Margin Contribution Margin also equals contribution
margin per unit multiplied by the number of units sold
CM = CMu x Q
Contribution Margin Ratio (percentage)
equals contribution margin per unit divided by selling price
CMR = CMu ÷ SP
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-6
Contribution Margin Income Statement Derivations A horizontal presentation of the Contribution
Margin Income Statement: Sales – VC – FC = Operating Income (OI) (SP x Q) – (VCu x Q) – FC = OI Q (SP – VCu) – FC = OI Q (CMu) – FC = OI
Remember this last equation, it will be used again in a moment
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-7
CVP, Graphically $10,000
y
$8,000
Breakeven point = 25 units
Operating income
Total revenues line
Operating income area
Dollars
$6,000
$5,000
Total costs line
Variable costs
Breakeven point = 25 units
$4,000
Total costs line
$2,000
Operating loss area
Operating loss area x
10
20
25
30
40
Fixed costs
50
Units Sold
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-8
Breakeven Point Recall the last equation in an earlier slide: Q (CMu) – FC = OI A simple manipulation of this formula, and
setting OI to zero will result in the Breakeven Point (quantity):
BEQ = FC ÷ CMu
At this point, a firm has no profit or loss at
a given sales level
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-9
Breakeven Point, continued If per-unit values are not available, the
Breakeven Point may be restated in its alternate format: BE Sales = FC ÷ CMR
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-10
Breakeven Point, extended: Profit Planning With a simple adjustment, the Breakeven
Point formula can be modified to become a Profit Planning tool Profit is now reinstated to the BE formula, changing it to a simple sales volume equation Q = (FC + OI) CM
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-11
CVP and Income Taxes From time to time it is necessary to move back and forth
between pre-tax profit (OI) and after-tax profit (NI), depending on the facts presented After-tax profit can be calculated by:
OI x (1-Tax Rate) = NI
NI can substitute into the profit planning equation
through this form:
OI = I I NI I (1-Tax Rate)
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-12
Sensitivity Analysis CVP provides structure to answer a variety of
“what-if” scenarios “What” happens to profit “if”: Selling price changes Volume changes Cost structure changes
Variable cost per unit changes Fixed cost changes
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-13
Margin of Safety One indicator of risk, the Margin of Safety
(MOS) measures the distance between budgeted sales and breakeven sales:
MOS = Budgeted Sales – BE Sales
The MOS Ratio removes the firm’s size from
the output, and expresses itself in the form of a percentage:
MOS Ratio = MOS ÷ Budgeted Sales
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-14
Operating Leverage Operating Leverage (OL) is the effect that fixed
costs have on changes in operating income as changes occur in units sold, expressed as changes in contribution margin OL = Contribution Margin Operating Income Notice these two items are identical, except for fixed costs
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-15
Effects of Sales-Mix on CVP The formulae presented to this point have assumed a
single product is produced and sold A more realistic scenario involves multiple products sold, in different volumes, with different costs For simplicity’s sake, only two products will be presented, but this could easily be extended to even more products
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-16
Effects of Sales-Mix on CVP A weighted-average CM must be calculated (in this
case, for two products) Weighted ( Product #1 CMu x Product #1 Q ) + ( Product #2 CMu x Product #2 Q ) Average = CMu Total Units Sold (Q) for Both Products
This new CM would be used in CVP equations Multi-
Fixed Costs
Product = Weighted Average CM per unit BE
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-17
Multiple Cost Drivers Variable costs may arise from multiple cost
drivers or activities. A separate variable cost needs to be calculated for each driver. Examples include: Customer or patient count Passenger miles Patient days Student credit-hours
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
3-18
Contribution Margin vs. Gross Profit Comparative Statements
Contribution Margin Income Statement (Internal-Use Only) Revenues: Less: Variable Cost of Goods Sold Variable Operating Costs Contribution Margin Fixed Operating Costs Operating Income
Financial Accounting Income Statement GAAP - Based
$200 $120 45
165 35 20 $15
Revenues: Less: Cost of Goods Sold
$200 $120
Gross Margin (Profit) Fixed & Variable Operating Costs Operating Income
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.
80 65 $15
3-19
Related Documents
Cost Value Profite Cvp
May 2020 6
Cvp
May 2020 7
Transportation Cost-assessable Value
November 2019 2
Fabrication Cost Value
October 2019 8
Cost Volume Profit Analysis -cvp Exmaples
June 2020 7