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Cost-Volume Profit Analysis
- Focus on how profits are affected by:
- Selling pries
- Sales volume
- Unit variable costs
- Total fixed costs
- Mix of product sold
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Contribution Margin approach
- Sales revenue - all variable expenses
- It is the amount available to cover fixed expenses and then to provide profits for the period
- Unit contribution margin stays constant as long as selling price and unit variable cost do not change
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Break-Even Point
- Level of sales where profit is 0
- When sales renenue equals total expenses (v and f)
- Total contribution margin = total fixed expenses
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Contribution Margin Ratio
 - The percent you recieve from this ratio represents how much a change in sales will effect contripution margin and net income
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Break even, Equation Method
- At Break-even Point, Profits = 0
- Therefore: Sales= Var Ex. + Fix Ex.
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Break even, Contribution Method
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Target Profit Analysis
- Can use equation method and put wanted profit in instead of 0
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Margin of Safety
- Excess of budgeted ( or actual) sales dollars over the break-even volume of sales dollars.
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- For percentge: Margin of safety in dollars/ Total sales
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Operating Leverage
- Meausure how a given percentage change in sales affects net operating income
- It acts as a multiplier: degree of leverage x % change in sales
- Degree changes with level of sales
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Absorption Costing (Full cost)
- Treats all Manufacturing costs as product costs, regardless of whether they are variable or fixed
- Consists of DM, DL, and both V and F OH
- Produces highest values for WIP and FG inventories
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Variable Costing (direct or marginal)
- Only those manufacturing costs that vary with output are treated as product costs.
- Include DM, DL, and V of OH
- Fixed is treated as period cost
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Production > Sales
- Inventory increases
- Absorbtion > Variable
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Production < Sales
- Inventory Decreases
- Absorbtion < Variable
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Production = Sales
- No change
- Absorbtion = Variable
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