chap 007 managerial accounting hilton
TRANSCRIPT
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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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Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin
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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Copyright 2009 by The McGraw-Hill Companies, Inc. llMcGraw-Hill#Irwin
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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Contribution-+argin ApproachContribution-+argin Approach
,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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Contribution-+argin ApproachContribution-+argin Approach
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
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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
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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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Changes in ,i'e& CostsChanges in ,i'e& Costs
$(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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Changes in ,i'e& CostsChanges in ,i'e& Costs
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