Decision Making: Cost-Volume-Profit
CVP Income Statement
Calculating Break-even Point
Sales required to earn target operating income
Margin of safety
Concepts of CVP in changing environment
Sales-mix
Cost structure
Operating leverage
Variable and fixed costs
How changes in cost and volume affect profits
Contribution margin
Revenues - Variable costs
Differs from GAAP Income Statement since it states CM
Gapp emphasizes gross profit
Contribution margin per unit
Unit selling price - unit variable costs
Contribution margin ratio
Contribution margin per unit / unit selling price
Variable cost ratio
V Costs as a % of sales
Contribution margin
(CVP) Graph
Math equation
Fixed costs / unit contribution margin
Variable costs + fixed cost + operating income= Sales
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Before tax
After tax
Required Sales in Dollar
Required Sales In units
Fixed Costs + Operating Incomes before taxes / Unit Contribution Margin
Fixed Costs + Operating
Incomes before taxes / Contribution Margin Ratio
Operating Income after taxes = operating income before taxes * (1 - tax rate)
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Operating income before taxes = operating income after taxes / (1 - tax rate)
The cushion that a level of sales provide above break-even point
In dollars
Ratio
Actual(Expected) Sales - Break-even sales
Margin of safety in dollars / actual(Expected) sales
How would a discount affect Break even
It would increase the break-even
How new equipment affect break-even
It would decrease break-even
Increase price of raw mats affect on BEP
Increases break-even
Weighted- averaged unit contribution margin
Relative proportion in which one
product out many is sold.
Breakeven of multiple products
Unit contribution margin (1) + Sale mix % * Unit contribution margin (2) + Sale mix %
Break - even point in units
Fixed costs / Weight-Average Unit Contribution Margin
Weighted - average contribution margin ratio
contribution margin ratio (1) + Sale mix % * contribution margin ratio (2) + Sale mix %
Break-Even Points in dollars
Fixed Costs / Weighted - Average Contribution Margin Ratio
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Proportion of tixed vs variable cost a company incurs