tailieunhanh - Lecture Fundamentals of cost accounting - Chapter 3: Fundamentals of cost-volume-profit analysis

In order to be a well prepared leader and manager, one must have a systematic method of analyzing the ever changing environment. Chapter 3 focuses on how decision-makers analyze changes in the volume of sales. | Fundamentals of Cost-Volume-Profit Analysis Chapter 3 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin In order to be a well prepared leader and manager, one must have a systematic method of analyzing the ever changing environment. Chapter 3 focuses on how decision-makers analyze changes in the volume of sales. Cost-Volume-Profit Analysis . 1 Use cost-volume-profit (CVP) analysis to analyze decisions. CVP analysis explores the relationship between revenue, cost, and volume and their effect on profits. 3 - Managers must make decisions about volume, pricing and costs and are concerned about the impact of their decisions on profit. Therefore, they need to understand the relations among revenues, costs, volume and profit. Cost-volume-profit, or CVP, analysis provides managers with information for decision making. Profit Equation The Income Statement Total revenues – Total costs = Operating profit The Income Statement written horizontally Operating profit Profit = = Total revenues – TC Total costs – TR LO1 3 - In studying CVP we will start with the profit equation. The profit equation is: Operating profit = Total revenues – Total costs. Don’t let the profit equation confuse you. It is nothing more than the income statement written horizontally. Contribution Margin This is the difference between price and variable cost. It is what is leftover to cover fixed costs and then add to operating profit. Contribution margin = Price per unit – Variable cost per unit P – V LO1 3 - Let’s review the contribution margin from Chapter 2. The unit contribution margin is the difference between the sales price per unit and variable costs per unit. That is (P-V). CVP Summary: Break-Even Break-even volume (units) = Fixed costs Unit contribution margin Break-even volume (sales dollars) = Fixed costs Contribution margin ratio LO1 3 - In summary, at break-even target profit is zero. Therefore, break-even sales volume | Fundamentals of Cost-Volume-Profit Analysis Chapter 3 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin In order to be a well prepared leader and manager, one must have a systematic method of analyzing the ever changing environment. Chapter 3 focuses on how decision-makers analyze changes in the volume of sales. Cost-Volume-Profit Analysis . 1 Use cost-volume-profit (CVP) analysis to analyze decisions. CVP analysis explores the relationship between revenue, cost, and volume and their effect on profits. 3 - Managers must make decisions about volume, pricing and costs and are concerned about the impact of their decisions on profit. Therefore, they need to understand the relations among revenues, costs, volume and profit. Cost-volume-profit, or CVP, analysis provides managers with information for decision making. Profit Equation The Income Statement Total revenues – Total costs = Operating profit The Income Statement written .