Chapter 3Cost-Volume-Profit Analysis.ppt

1、Chapter 3Cost-Volume-Profit Analysis,Cost-Volume-Profit Analysis,Examines the behaviour of total revenues, total costs, and operating income as changes occur in the output level, selling price, variable costs or fixed costs Assumptions of CVP Analysis revenues change in relation to production and sa

2、les costs can be divided in variable and fixed categories revenues and costs behave in a linear fashion costs and prices are known if more than one product exists, the sales mix is constant we can ignore the time value of money,Page 67,Contribution Margin,Contribution margin is equal to the differen

3、ce between total revenue and total variable costs Contribution margin per unit =Selling price - Variable cost per unit Contribution margin percentage =Contribution margin per unit / selling price per unit,Pages 68 - 69,Contribution Margin Income Statement,Packages Sold 0122540 Revenue$0$200$400$5,00

4、0$8,000 Variable costs 01202403,0004,800 Contribution margin0801602,0003,200 Fixed costs2,0002,0002,0002,0002,000 Operating income$(2,000)$(1,920)$(1,840)$0$1,200,Income statement that groups line items by cost behaviour to highlight the contribution margin,Page 69,Breakeven Point,Quantity of output

5、 where total revenues equal total costs Point where operating income equals zero,Breakeven point in units =Fixed costs / Contribution margin per unit =$2,000 / $80 = 25 units Breakeven point in dollars =Fixed costs / contribution margin % =$2,000 / 40% = $5,000,Page 71,Cost-Volume-Profit Graph,$10,0

6、00 $8,000 $6,000 $4,000 $2,000 $0,01020304050 Units Sold,Total revenues line,Breakeven Point 25 units,Operating income,Operating loss,Page 72,Total costs line,Target Operating Income,For most firms in the private sector, the main objective is not to breakeven Convert after-tax desired net income to

7、its before-tax equivalent operating income Target operating income =Target net income / (1 - tax rate) Target Unit Sales =(Fixed costs + Target operating income) / Contribution margin per unit Target Dollar Sales = (Fixed costs + Target operating income) / Contribution margin %,Pages 73 - 75,Sensiti

8、vity Analysis,sensitivity analysis is a “what-if” technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes What will happen to operating income if volume declines by 5%? What will happen to operating income if variable co

9、sts increase by 10% per unit? sensitivity analysis broadens managements perspectives about possible outcomes,Pages 76 - 77,Alternative Cost Structures,CVP helps managers assess the risks and potential benefits of adopting alternative cost structures,Pages 77 - 78,Example: Alternative rental arrangem

10、ents,Revenue Mix,Revenue mix (or sales mix) is the relative combination of quantities of products or services that make up total revenue Sales mix of Do-All : Superword = 2 : 1 Breakeven point in units = 30 units 20 units of Do-All 10 units of Superword,Do-All,Do-All,Superword,Pages 73 - 75,Multiple

11、 Cost Drivers,In many cases there may be multiple cost drivers Do-All Software Example Variable costs:$40 per software package sold $15 per invoice issued Operating income = Revenue ($40 x packages sold) ($15 x invoices issued) Fixed costs In cases where there are multiple cost drivers there are mul

12、tiple breakeven points,Pages 81 - 82,Contribution Margin & Gross Margin,Merchandising Sector,Pages 82 - 83,Contribution Margin Format Revenues$200 Variable costs: Cost of goods sold$120 Other variable43163 Contribution margin37 Fixed costs: Cost of goods sold5 Other fixed1924 Operating income$13,Gro

13、ss Margin Format Revenues$200 Cost of goods sold (120+5)125 Gross margin75 Operating costs (43+19)62 Operating income$13,Contribution Margin & Gross Margin,Manufacturing Sector,Pages 81 - 82,Contribution Margin Format Revenues$1,000 Variable costs: Manufacturing$250 Non-manufacturing270520 Contribut

14、ion margin480 Fixed costs: Manufacturing160 Non-manufacturing138298 Operating income$182,Gross Margin Format Revenues$1,000 Cost of goods sold (250+160)410 Gross margin590 Non-manufacturing (270+138)408 Operating income$182,Decision Models and Uncertainty,Managers make predictions and decisions in a

15、 world of uncertainty Estimate events that are likely to occur and assign probabilities to each outcome Probability distribution describes the likelihood of each mutually exclusive and collectively exhaustive set of events (must add to 1.00) Expected value is a weighted average of the outcomes with the probability of each outcome serving as the weight,Pages