SlideShare uma empresa Scribd logo
1 de 59
Baixar para ler offline
Cost-Volume-Profit Analysis
Learning Objective 1 ,[object Object],[object Object],[object Object]
Cost-Volume-Profit Assumptions and Terminology 1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units produced and sold. 2. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
Cost-Volume-Profit Assumptions and Terminology 3. When graphed, the behavior of total revenues and total costs is linear (straight-line) in relation to output units within the relevant range (and time period). 4. The unit selling price, unit variable costs, and fixed costs are known and constant.
Cost-Volume-Profit Assumptions and Terminology 5. The analysis either covers a single product or assumes that the sales mix when multiple products are sold will remain constant as the level of total units sold changes. 6. All revenues and costs can be added and compared without taking into account the time value of money.
Cost-Volume-Profit Assumptions and Terminology Operating income = Total revenues from operations –  Cost of goods sold and operating costs (excluding income taxes) Net income = Operating income – Income taxes
Learning Objective 2 ,[object Object],[object Object]
Essentials of Cost-Volume-Profit (CVP) Analysis Example Assume that the Pants Shop can purchase pants for $32 from a local factory; other variable costs amount to $10 per unit. The local factory allows the Pants Shop to return all unsold pants and receive a full $32 refund per pair of pants within one year. The average selling price per pair of pants is $70 and total fixed costs amount to $84,000.
Essentials of Cost-Volume-Profit (CVP) Analysis Example How much revenue will the business receive if 2,500 units are sold? 2,500  ×  $70 = $175,000 How much variable costs will the business incur? 2,500  ×  $42 = $105,000 $175,000 – 105,000 – 84,000 = ($14,000)
Essentials of Cost-Volume-Profit (CVP) Analysis Example What is the contribution margin per unit? $70 – $42 = $28 contribution margin per unit What is the total contribution margin when 2,500 pairs of pants are sold? 2,500  ×  $28 =  $70,000
Essentials of Cost-Volume-Profit (CVP) Analysis Example Contribution margin percentage (contribution margin ratio) is the contribution margin per unit divided by the selling price. What is the contribution margin percentage? $28 ÷ $70 = 40%
Essentials of Cost-Volume-Profit (CVP) Analysis Example If the business sells 3,000 pairs of pants, revenues will be $210,000 and contribution margin would equal 40%  ×  $210,000 = $84,000.
Learning Objective 3 ,[object Object],[object Object],[object Object],[object Object],[object Object]
Breakeven Point Sales Variable expenses Fixed expenses – = Total revenues = Total costs
Abbreviations SP =  Selling  price VCU = Variable cost per unit CMU = Contribution margin per unit CM% = Contribution margin percentage FC = Fixed costs
Abbreviations Q = Quantity of output units sold (and manufactured) OI = Operating income TOI = Target operating income TNI = Target net income
Equation Method $70Q – $42Q – $84,000 = 0 $28Q = $84,000 Q = $84,000 ÷ $28 = 3,000 units Let Q = number of units to be sold to break even (Selling price  ×  Quantity sold) – (Variable unit cost ×  Quantity sold) – Fixed costs = Operating income
Contribution Margin Method $84,000 ÷ $28 = 3,000 units $84,000 ÷ 40% = $210,000
Graph Method Revenue Total costs Breakeven Fixed costs
Target Operating Income (Fixed costs + Target operating income) divided either by Contribution margin percentage or Contribution margin per unit
Target Operating Income Assume that management wants to have an operating income of $14,000. How many pairs of pants must be sold? ($84,000 + $14,000) ÷ $28 = 3,500 What dollar sales are needed to achieve this income? ($84,000 + $14,000) ÷ 40% = $245,000
Learning Objective 4 ,[object Object],[object Object]
Target Net Income and Income Taxes Example Management would like to earn an after tax income of $35,711. The tax rate is 30%. What is the target operating income? Target operating income = Target net income ÷ (1 – tax rate) TOI = $35,711 ÷ (1 – 0.30) = $51,016
Target Net Income and Income Taxes Example How many units must be sold? Revenues – Variable costs – Fixed costs = Target net income ÷ (1 – tax rate)  $70Q – $42Q – $84,000 = $35,711 ÷ 0.70 $28Q = $51,016 + $84,000 Q = $135,016 ÷ $28 = 4,822 pairs of pants
Target Net Income and Income Taxes Example Proof: Revenues: 4,822  ×  $70 $337,540 Variable costs: 4,822  ×  $42   202,524 Contribution margin $135,016 Fixed costs   84,000 Operating income   51,016 Income taxes: $51,016  ×  30%   15,305 Net income $  35,711
Learning Objective 5 ,[object Object],[object Object],[object Object],[object Object]
Using CVP Analysis Example Suppose the management anticipates selling 3,200 pairs of pants. Management is considering an advertising campaign that would cost $10,000. It is anticipated that the advertising will increase sales to 4,000 units. Should the business advertise?
Using CVP Analysis Example 3,200 pairs of pants sold with no advertising: Contribution margin $89,600 Fixed costs   84,000 Operating income $  5,600 4,000 pairs of pants sold with advertising: Contribution margin $112,000 Fixed costs   94,000 Operating income $  18,000
Using CVP Analysis Example Instead of advertising, management is considering reducing the selling price to $61 per pair of pants. It is anticipated that this will increase sales to 4,500 units. Should management decrease the selling price per pair of pants to $61?
Using CVP Analysis Example 3,200 pairs of pants sold with no change in the selling price: Operating income = $5,600 4,500 pairs of pants sold at a reduced selling price: Contribution margin: (4,500  ×  $19) $85,500 Fixed costs   84,000 Operating income $  1,500
Sensitivity Analysis and Uncertainty Example Assume that the Pants Shop can sell 4,000 pairs of pants. Fixed costs are $84,000. Contribution margin ratio is 40%. At the present time the business cannot handle more than 3,500 pairs of pants.
Sensitivity Analysis and Uncertainty Example To satisfy a demand for 4,000 pairs, management must acquire additional space for $6,000.  Should the additional space be acquired? Revenues at breakeven with existing space are $84,000 ÷ .40 = $210,000. Revenues at breakeven with additional space are $90,000 ÷ .40 = $225,000
Sensitivity Analysis and Uncertainty Example Operating income at $245,000 revenues with existing space = ($245,000  ×  .40) –  $84,000 = $14,000. (3,500 pairs of pants  ×  $28) – $84,000 =  $14,000
Sensitivity Analysis and Uncertainty Example Operating income at $280,000 revenues with additional space = ($280,000  ×  .40) – $90,000 = $22,000. (4,000 pairs of pants  ×  $28 contribution margin) –  $90,000 = $22,000
Learning Objective 6 ,[object Object],[object Object]
Alternative Fixed/Variable Cost Structures Example What is the new contribution margin? Decrease the price they charge from $32 to $25 and charge an annual administrative fee of $30,000. Suppose that the factory the Pants Shop is using to obtain the merchandise offers the following:
Alternative Fixed/Variable Cost Structures Example $70 – ($25 + $10) = $35 Contribution margin increases from $28 to $35. What is the contribution margin percentage? $35 ÷ $70 = 50% What are the new fixed costs? $84,000 + $30,000 = $114,000
Alternative Fixed/Variable Cost Structures Example Management questions what sales volume would yield an identical operating income regardless of the arrangement. 28x – 84,000 = 35x – 114,000 114,000 – 84,000 = 35x – 28x 7x = 30,000 x = 4,286 pairs of pants
Alternative Fixed/Variable Cost Structures Example Cost with existing arrangement = Cost with new arrangement .60x + 84,000 = .50x + 114,000 .10x = $30,000    x = $300,000 ($300,000  ×  .40) – $  84,000 = $36,000 ($300,000  ×  .50) – $114,000 = $36,000
Operating Leverage Operating leverage describes the effects that fixed costs have on changes in operating income as changes occur in units sold. Organizations with a high proportion of fixed costs have high operating leverage.
Operating Leverage Example Degree of operating leverage = Contribution margin ÷ Operating income What is the degree of operating leverage of the Pants Shop at the 3,500 sales level under both arrangements? Existing arrangement: 3,500  ×  $28 = $98,000 contribution margin
Operating Leverage Example $98,000 contribution margin – $84,000 fixed costs = $14,000 operating income $98,000 ÷ $14,000 = 7.0 New arrangement: 3,500  ×  $35 = $122,500 contribution margin
Operating Leverage Example $122,500 contribution margin –  $114,000 fixed costs = $8,500 $122,500 ÷ $8,500 = 14.4 The degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating income.
Learning Objective 7 ,[object Object],[object Object]
Effects of Sales Mix on Income Pants Shop Example  Management expects to sell 2 shirts at $20 each for every pair of pants it sells. This will not require any additional fixed costs.
Effects of Sales Mix on Income What is the contribution margin of the mix? Contribution margin per shirt: $20 – $9 = $11 $28 + (2  ×  $11) = $28 + $22 = $50
Effects of Sales Mix on Income $84,000 fixed costs ÷ $50 = 1,680 packages 1,680  ×  2  = 3,360 shirts 1,680  ×  1  =  1,680  pairs of pants Total units = 5,040
Effects of Sales Mix on Income What is the breakeven in dollars? 3,360 shirts  ×  $20 = $  67,200 1,680 pairs of pants  ×  $70 =   117,600 $184,800
Effects of Sales Mix on Income What is the weighted-average budgeted  contribution margin? Pants: 1  ×  $28 + Shirts: 2  ×  $11 = $50 ÷ 3 = $16.667
Effects of Sales Mix on Income The breakeven point for the two products is: $84,000 ÷ $16.667 = 5,040 units   5,040  ×  1/3 = 1,680 pairs of pants   5,040  ×  2/3 = 3,360 shirts
Effects of Sales Mix on Income Sales mix can be stated in sales dollars:   Pants   Shirts Sales price $70 $40 Variable costs   42   18 Contribution margin $28 $22 Contribution margin ratio   40%   55%
Effects of Sales Mix on Income Assume the sales mix in dollars is 63.6% pants and 36.4% shirts. Weighted contribution would be: 40%  ×  63.6% = 25.44% pants 55%  ×  36.4% =  20.02%  shirts 45.46%
Effects of Sales Mix on Income Breakeven sales dollars is $84,000 ÷ 45.46% = $184,778 (rounding). $184,778  ×  63.6% = $117,519 pants sales $184,778  ×  36.4% = $ 67,259 shirt sales
Learning Objective 8 ,[object Object],[object Object],[object Object]
Multiple Cost Drivers Example Suppose that the business will incur an additional cost of $10 for preparing documents associated with the sale of pants to various customers. Assume that the business sells 3,500 pants to 100 different customers. What is the operating income from this sale?
Multiple Cost Drivers Example Revenues: 3,500  ×  $70 $245,000 Variable costs: Pants: 3,500  ×  $42 147,000 Documents: 100  ×  $10   1,000 Total   148,000 Contribution margin   97,000 Fixed costs   84,000 Operating income $  13,000
Multiple Cost Drivers Would the operating income of the Pants Shop be lower or higher if the business sells pants to more customers? The cost structure depends on two cost drivers: 1. Number of units 2. Number of customers
Learning Objective 9 ,[object Object],[object Object],[object Object]
Contribution Margin versus Gross Margin Contribution income statement emphasizes contribution margin. Financial accounting income statement emphasizes gross margin.

Mais conteúdo relacionado

Mais procurados (20)

Process Costing
Process CostingProcess Costing
Process Costing
 
Chapter 07 Marginal Costing
Chapter 07   Marginal CostingChapter 07   Marginal Costing
Chapter 07 Marginal Costing
 
Job order costing
Job order costingJob order costing
Job order costing
 
Process costing
Process costingProcess costing
Process costing
 
COST-VOLUME-PROFIT (CVP) analysis
COST-VOLUME-PROFIT (CVP) analysis COST-VOLUME-PROFIT (CVP) analysis
COST-VOLUME-PROFIT (CVP) analysis
 
Basics of cost accounting
Basics of cost accounting Basics of cost accounting
Basics of cost accounting
 
Breakeven analysis 0
Breakeven analysis 0Breakeven analysis 0
Breakeven analysis 0
 
Process costing
Process costingProcess costing
Process costing
 
Marginal costing
Marginal costing Marginal costing
Marginal costing
 
BREAK EVEN ANALYSIS
BREAK EVEN ANALYSISBREAK EVEN ANALYSIS
BREAK EVEN ANALYSIS
 
Differential Cost Analysis chapter7
Differential Cost Analysis chapter7Differential Cost Analysis chapter7
Differential Cost Analysis chapter7
 
Absorption/Variable Costing and Cost-Volume-Profit Analysis
Absorption/Variable Costing and Cost-Volume-Profit AnalysisAbsorption/Variable Costing and Cost-Volume-Profit Analysis
Absorption/Variable Costing and Cost-Volume-Profit Analysis
 
Chap005 abc
Chap005 abcChap005 abc
Chap005 abc
 
An Introduction to Cost Accounting
An Introduction to Cost AccountingAn Introduction to Cost Accounting
An Introduction to Cost Accounting
 
Cost accounting ppt
Cost accounting pptCost accounting ppt
Cost accounting ppt
 
Cost allocation
Cost allocationCost allocation
Cost allocation
 
Cvp analysis
Cvp analysisCvp analysis
Cvp analysis
 
Chapter4 job costing
Chapter4 job costingChapter4 job costing
Chapter4 job costing
 
PPT on break even analysis
PPT on break even analysisPPT on break even analysis
PPT on break even analysis
 
Break even analysis
Break even analysisBreak even analysis
Break even analysis
 

Semelhante a Cost volume-profit analysis

Break-Even-Analysis.pptx
Break-Even-Analysis.pptxBreak-Even-Analysis.pptx
Break-Even-Analysis.pptxMdSabujHossen2
 
Total revenue cost volume and even break relationship.pptx
Total revenue cost volume and even break relationship.pptxTotal revenue cost volume and even break relationship.pptx
Total revenue cost volume and even break relationship.pptxMIANMNADEEM
 
Cost volume analysis
Cost volume analysisCost volume analysis
Cost volume analysisJanak Secktoo
 
Analisis Hubungan Biaya, volume, laba
Analisis Hubungan Biaya, volume, labaAnalisis Hubungan Biaya, volume, laba
Analisis Hubungan Biaya, volume, labaWulan280944
 
Chapter 11 Cost Volume Profit Analysis : A Managerial Planning Tool
Chapter 11 Cost Volume Profit Analysis : A Managerial Planning ToolChapter 11 Cost Volume Profit Analysis : A Managerial Planning Tool
Chapter 11 Cost Volume Profit Analysis : A Managerial Planning ToolYesica Adicondro
 
COST-VOLUME-PROFIT (CVP) ANALYSIS
COST-VOLUME-PROFIT (CVP) ANALYSISCOST-VOLUME-PROFIT (CVP) ANALYSIS
COST-VOLUME-PROFIT (CVP) ANALYSISshewit
 
7 breakeven analysis
7 breakeven analysis7 breakeven analysis
7 breakeven analysisDr.R. SELVAM
 
Absorptionandmarginalcosting 120601013706-phpapp02
Absorptionandmarginalcosting 120601013706-phpapp02Absorptionandmarginalcosting 120601013706-phpapp02
Absorptionandmarginalcosting 120601013706-phpapp02gkibuye
 
Marginal Costing for IPCC
Marginal Costing for IPCCMarginal Costing for IPCC
Marginal Costing for IPCCRoopa Kamath
 
Cost Volume Analysis
Cost Volume AnalysisCost Volume Analysis
Cost Volume Analysiskafi6240
 
2015 DMC2523 Topic 9 cost control-profit relationship
2015 DMC2523 Topic 9 cost control-profit relationship2015 DMC2523 Topic 9 cost control-profit relationship
2015 DMC2523 Topic 9 cost control-profit relationshipLaura Law
 
Break Even Analysis
Break Even AnalysisBreak Even Analysis
Break Even AnalysisARIES TIBAR
 
Breakeven_Analysis_0[1].ppt
Breakeven_Analysis_0[1].pptBreakeven_Analysis_0[1].ppt
Breakeven_Analysis_0[1].pptJYOTI111651
 
IPCC_Marginal Costing
IPCC_Marginal CostingIPCC_Marginal Costing
IPCC_Marginal CostingRoopa Kamath
 
Profit contribution analysis breakeven
Profit contribution analysis breakevenProfit contribution analysis breakeven
Profit contribution analysis breakevenAyush Malviya
 
Absorption and marginal costing
Absorption and marginal costingAbsorption and marginal costing
Absorption and marginal costingTrisha Dookhony
 

Semelhante a Cost volume-profit analysis (20)

CVP-2203workshop
CVP-2203workshopCVP-2203workshop
CVP-2203workshop
 
breakeven point
breakeven pointbreakeven point
breakeven point
 
Cvp 2203workshop
Cvp 2203workshopCvp 2203workshop
Cvp 2203workshop
 
Break-Even-Analysis.pptx
Break-Even-Analysis.pptxBreak-Even-Analysis.pptx
Break-Even-Analysis.pptx
 
Total revenue cost volume and even break relationship.pptx
Total revenue cost volume and even break relationship.pptxTotal revenue cost volume and even break relationship.pptx
Total revenue cost volume and even break relationship.pptx
 
Cvp & be analysis
Cvp & be analysisCvp & be analysis
Cvp & be analysis
 
Cost volume analysis
Cost volume analysisCost volume analysis
Cost volume analysis
 
Analisis Hubungan Biaya, volume, laba
Analisis Hubungan Biaya, volume, labaAnalisis Hubungan Biaya, volume, laba
Analisis Hubungan Biaya, volume, laba
 
Chapter 11 Cost Volume Profit Analysis : A Managerial Planning Tool
Chapter 11 Cost Volume Profit Analysis : A Managerial Planning ToolChapter 11 Cost Volume Profit Analysis : A Managerial Planning Tool
Chapter 11 Cost Volume Profit Analysis : A Managerial Planning Tool
 
COST-VOLUME-PROFIT (CVP) ANALYSIS
COST-VOLUME-PROFIT (CVP) ANALYSISCOST-VOLUME-PROFIT (CVP) ANALYSIS
COST-VOLUME-PROFIT (CVP) ANALYSIS
 
7 breakeven analysis
7 breakeven analysis7 breakeven analysis
7 breakeven analysis
 
Absorptionandmarginalcosting 120601013706-phpapp02
Absorptionandmarginalcosting 120601013706-phpapp02Absorptionandmarginalcosting 120601013706-phpapp02
Absorptionandmarginalcosting 120601013706-phpapp02
 
Marginal Costing for IPCC
Marginal Costing for IPCCMarginal Costing for IPCC
Marginal Costing for IPCC
 
Cost Volume Analysis
Cost Volume AnalysisCost Volume Analysis
Cost Volume Analysis
 
2015 DMC2523 Topic 9 cost control-profit relationship
2015 DMC2523 Topic 9 cost control-profit relationship2015 DMC2523 Topic 9 cost control-profit relationship
2015 DMC2523 Topic 9 cost control-profit relationship
 
Break Even Analysis
Break Even AnalysisBreak Even Analysis
Break Even Analysis
 
Breakeven_Analysis_0[1].ppt
Breakeven_Analysis_0[1].pptBreakeven_Analysis_0[1].ppt
Breakeven_Analysis_0[1].ppt
 
IPCC_Marginal Costing
IPCC_Marginal CostingIPCC_Marginal Costing
IPCC_Marginal Costing
 
Profit contribution analysis breakeven
Profit contribution analysis breakevenProfit contribution analysis breakeven
Profit contribution analysis breakeven
 
Absorption and marginal costing
Absorption and marginal costingAbsorption and marginal costing
Absorption and marginal costing
 

Mais de Babasab Patil

Segmentation module 4 mba 1st sem by babasab patil (karrisatte)
Segmentation module 4  mba 1st sem by babasab patil (karrisatte)Segmentation module 4  mba 1st sem by babasab patil (karrisatte)
Segmentation module 4 mba 1st sem by babasab patil (karrisatte)Babasab Patil
 
Marketing management module 1 core concepts of marketing mba 1st sem by baba...
Marketing management module 1 core concepts of marketing  mba 1st sem by baba...Marketing management module 1 core concepts of marketing  mba 1st sem by baba...
Marketing management module 1 core concepts of marketing mba 1st sem by baba...Babasab Patil
 
Marketing management module 2 marketing environment mba 1st sem by babasab pa...
Marketing management module 2 marketing environment mba 1st sem by babasab pa...Marketing management module 2 marketing environment mba 1st sem by babasab pa...
Marketing management module 2 marketing environment mba 1st sem by babasab pa...Babasab Patil
 
Marketing management module 4 measuring andforecasting demand mba 1st sem by...
Marketing management module 4  measuring andforecasting demand mba 1st sem by...Marketing management module 4  measuring andforecasting demand mba 1st sem by...
Marketing management module 4 measuring andforecasting demand mba 1st sem by...Babasab Patil
 
Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...
Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...
Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...Babasab Patil
 
Notes managerial communication 3 business correspondence and report writing ...
Notes managerial communication  3 business correspondence and report writing ...Notes managerial communication  3 business correspondence and report writing ...
Notes managerial communication 3 business correspondence and report writing ...Babasab Patil
 
Notes managerial communication mod 2 basic communication skills mba 1st sem ...
Notes managerial communication mod 2  basic communication skills mba 1st sem ...Notes managerial communication mod 2  basic communication skills mba 1st sem ...
Notes managerial communication mod 2 basic communication skills mba 1st sem ...Babasab Patil
 
Notes managerial communication mod 4 the job application process mba 1st sem ...
Notes managerial communication mod 4 the job application process mba 1st sem ...Notes managerial communication mod 4 the job application process mba 1st sem ...
Notes managerial communication mod 4 the job application process mba 1st sem ...Babasab Patil
 
Notes managerial communication mod 5 interviews mba 1st sem by babasab patil...
Notes managerial communication mod 5 interviews  mba 1st sem by babasab patil...Notes managerial communication mod 5 interviews  mba 1st sem by babasab patil...
Notes managerial communication mod 5 interviews mba 1st sem by babasab patil...Babasab Patil
 
Notes managerial communication part 1 mba 1st sem by babasab patil (karrisatte)
Notes managerial communication part 1  mba 1st sem by babasab patil (karrisatte)Notes managerial communication part 1  mba 1st sem by babasab patil (karrisatte)
Notes managerial communication part 1 mba 1st sem by babasab patil (karrisatte)Babasab Patil
 
Principles of marketing mba 1st sem by babasab patil (karrisatte)
Principles of marketing mba 1st sem by babasab patil (karrisatte)Principles of marketing mba 1st sem by babasab patil (karrisatte)
Principles of marketing mba 1st sem by babasab patil (karrisatte)Babasab Patil
 
Segmentation module 4 mba 1st sem by babasab patil (karrisatte)
Segmentation module 4  mba 1st sem by babasab patil (karrisatte)Segmentation module 4  mba 1st sem by babasab patil (karrisatte)
Segmentation module 4 mba 1st sem by babasab patil (karrisatte)Babasab Patil
 
Marketing management module 1 important questions of marketing mba 1st sem...
Marketing management module 1  important questions of marketing   mba 1st sem...Marketing management module 1  important questions of marketing   mba 1st sem...
Marketing management module 1 important questions of marketing mba 1st sem...Babasab Patil
 
Discovery shuttle processing NASA before launching the rocket by babasab ...
Discovery shuttle processing  NASA   before  launching the rocket by babasab ...Discovery shuttle processing  NASA   before  launching the rocket by babasab ...
Discovery shuttle processing NASA before launching the rocket by babasab ...Babasab Patil
 
Corporate lessons from__iim__calcutta by babasab patil
Corporate lessons from__iim__calcutta by babasab patil Corporate lessons from__iim__calcutta by babasab patil
Corporate lessons from__iim__calcutta by babasab patil Babasab Patil
 
Communication problems between men and women by babasab patil
Communication problems between men and women by babasab patil Communication problems between men and women by babasab patil
Communication problems between men and women by babasab patil Babasab Patil
 
Brasil waterfall byy babasab patil
Brasil waterfall  byy babasab patil Brasil waterfall  byy babasab patil
Brasil waterfall byy babasab patil Babasab Patil
 
Best aviation photography_ever__bar_none by babasab patil
Best aviation photography_ever__bar_none by babasab patil Best aviation photography_ever__bar_none by babasab patil
Best aviation photography_ever__bar_none by babasab patil Babasab Patil
 
Attitude stone cutter
Attitude stone cutterAttitude stone cutter
Attitude stone cutterBabasab Patil
 
Attitude stone cutter
Attitude stone cutterAttitude stone cutter
Attitude stone cutterBabasab Patil
 

Mais de Babasab Patil (20)

Segmentation module 4 mba 1st sem by babasab patil (karrisatte)
Segmentation module 4  mba 1st sem by babasab patil (karrisatte)Segmentation module 4  mba 1st sem by babasab patil (karrisatte)
Segmentation module 4 mba 1st sem by babasab patil (karrisatte)
 
Marketing management module 1 core concepts of marketing mba 1st sem by baba...
Marketing management module 1 core concepts of marketing  mba 1st sem by baba...Marketing management module 1 core concepts of marketing  mba 1st sem by baba...
Marketing management module 1 core concepts of marketing mba 1st sem by baba...
 
Marketing management module 2 marketing environment mba 1st sem by babasab pa...
Marketing management module 2 marketing environment mba 1st sem by babasab pa...Marketing management module 2 marketing environment mba 1st sem by babasab pa...
Marketing management module 2 marketing environment mba 1st sem by babasab pa...
 
Marketing management module 4 measuring andforecasting demand mba 1st sem by...
Marketing management module 4  measuring andforecasting demand mba 1st sem by...Marketing management module 4  measuring andforecasting demand mba 1st sem by...
Marketing management module 4 measuring andforecasting demand mba 1st sem by...
 
Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...
Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...
Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karri...
 
Notes managerial communication 3 business correspondence and report writing ...
Notes managerial communication  3 business correspondence and report writing ...Notes managerial communication  3 business correspondence and report writing ...
Notes managerial communication 3 business correspondence and report writing ...
 
Notes managerial communication mod 2 basic communication skills mba 1st sem ...
Notes managerial communication mod 2  basic communication skills mba 1st sem ...Notes managerial communication mod 2  basic communication skills mba 1st sem ...
Notes managerial communication mod 2 basic communication skills mba 1st sem ...
 
Notes managerial communication mod 4 the job application process mba 1st sem ...
Notes managerial communication mod 4 the job application process mba 1st sem ...Notes managerial communication mod 4 the job application process mba 1st sem ...
Notes managerial communication mod 4 the job application process mba 1st sem ...
 
Notes managerial communication mod 5 interviews mba 1st sem by babasab patil...
Notes managerial communication mod 5 interviews  mba 1st sem by babasab patil...Notes managerial communication mod 5 interviews  mba 1st sem by babasab patil...
Notes managerial communication mod 5 interviews mba 1st sem by babasab patil...
 
Notes managerial communication part 1 mba 1st sem by babasab patil (karrisatte)
Notes managerial communication part 1  mba 1st sem by babasab patil (karrisatte)Notes managerial communication part 1  mba 1st sem by babasab patil (karrisatte)
Notes managerial communication part 1 mba 1st sem by babasab patil (karrisatte)
 
Principles of marketing mba 1st sem by babasab patil (karrisatte)
Principles of marketing mba 1st sem by babasab patil (karrisatte)Principles of marketing mba 1st sem by babasab patil (karrisatte)
Principles of marketing mba 1st sem by babasab patil (karrisatte)
 
Segmentation module 4 mba 1st sem by babasab patil (karrisatte)
Segmentation module 4  mba 1st sem by babasab patil (karrisatte)Segmentation module 4  mba 1st sem by babasab patil (karrisatte)
Segmentation module 4 mba 1st sem by babasab patil (karrisatte)
 
Marketing management module 1 important questions of marketing mba 1st sem...
Marketing management module 1  important questions of marketing   mba 1st sem...Marketing management module 1  important questions of marketing   mba 1st sem...
Marketing management module 1 important questions of marketing mba 1st sem...
 
Discovery shuttle processing NASA before launching the rocket by babasab ...
Discovery shuttle processing  NASA   before  launching the rocket by babasab ...Discovery shuttle processing  NASA   before  launching the rocket by babasab ...
Discovery shuttle processing NASA before launching the rocket by babasab ...
 
Corporate lessons from__iim__calcutta by babasab patil
Corporate lessons from__iim__calcutta by babasab patil Corporate lessons from__iim__calcutta by babasab patil
Corporate lessons from__iim__calcutta by babasab patil
 
Communication problems between men and women by babasab patil
Communication problems between men and women by babasab patil Communication problems between men and women by babasab patil
Communication problems between men and women by babasab patil
 
Brasil waterfall byy babasab patil
Brasil waterfall  byy babasab patil Brasil waterfall  byy babasab patil
Brasil waterfall byy babasab patil
 
Best aviation photography_ever__bar_none by babasab patil
Best aviation photography_ever__bar_none by babasab patil Best aviation photography_ever__bar_none by babasab patil
Best aviation photography_ever__bar_none by babasab patil
 
Attitude stone cutter
Attitude stone cutterAttitude stone cutter
Attitude stone cutter
 
Attitude stone cutter
Attitude stone cutterAttitude stone cutter
Attitude stone cutter
 

Último

Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toumarfarooquejamali32
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Reportamberjiles31
 
Tata Kelola Bisnis perushaan yang bergerak
Tata Kelola Bisnis perushaan yang bergerakTata Kelola Bisnis perushaan yang bergerak
Tata Kelola Bisnis perushaan yang bergerakEditores1
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessAPCO
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsIntellect Design Arena Ltd
 
Plano de marketing- inglês em formato ppt
Plano de marketing- inglês  em formato pptPlano de marketing- inglês  em formato ppt
Plano de marketing- inglês em formato pptElizangelaSoaresdaCo
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsP&CO
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGlokeshwarmaha
 
Slicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinSlicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinAnton Skornyakov
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsyasinnathani
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...Brian Solis
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023Steve Rader
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Intellectual Property Licensing Examples
Intellectual Property Licensing ExamplesIntellectual Property Licensing Examples
Intellectual Property Licensing Examplesamberjiles31
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Winbusinessin
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHelene Heckrotte
 

Último (20)

Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb to
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Report
 
Tata Kelola Bisnis perushaan yang bergerak
Tata Kelola Bisnis perushaan yang bergerakTata Kelola Bisnis perushaan yang bergerak
Tata Kelola Bisnis perushaan yang bergerak
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking Applications
 
Plano de marketing- inglês em formato ppt
Plano de marketing- inglês  em formato pptPlano de marketing- inglês  em formato ppt
Plano de marketing- inglês em formato ppt
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizations
 
Investment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV IndustriesInvestment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV Industries
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
 
Slicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinSlicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup Berlin
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story points
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
WAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdfWAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdf
 
Intellectual Property Licensing Examples
Intellectual Property Licensing ExamplesIntellectual Property Licensing Examples
Intellectual Property Licensing Examples
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
 

Cost volume-profit analysis

  • 2.
  • 3. Cost-Volume-Profit Assumptions and Terminology 1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units produced and sold. 2. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
  • 4. Cost-Volume-Profit Assumptions and Terminology 3. When graphed, the behavior of total revenues and total costs is linear (straight-line) in relation to output units within the relevant range (and time period). 4. The unit selling price, unit variable costs, and fixed costs are known and constant.
  • 5. Cost-Volume-Profit Assumptions and Terminology 5. The analysis either covers a single product or assumes that the sales mix when multiple products are sold will remain constant as the level of total units sold changes. 6. All revenues and costs can be added and compared without taking into account the time value of money.
  • 6. Cost-Volume-Profit Assumptions and Terminology Operating income = Total revenues from operations – Cost of goods sold and operating costs (excluding income taxes) Net income = Operating income – Income taxes
  • 7.
  • 8. Essentials of Cost-Volume-Profit (CVP) Analysis Example Assume that the Pants Shop can purchase pants for $32 from a local factory; other variable costs amount to $10 per unit. The local factory allows the Pants Shop to return all unsold pants and receive a full $32 refund per pair of pants within one year. The average selling price per pair of pants is $70 and total fixed costs amount to $84,000.
  • 9. Essentials of Cost-Volume-Profit (CVP) Analysis Example How much revenue will the business receive if 2,500 units are sold? 2,500 × $70 = $175,000 How much variable costs will the business incur? 2,500 × $42 = $105,000 $175,000 – 105,000 – 84,000 = ($14,000)
  • 10. Essentials of Cost-Volume-Profit (CVP) Analysis Example What is the contribution margin per unit? $70 – $42 = $28 contribution margin per unit What is the total contribution margin when 2,500 pairs of pants are sold? 2,500 × $28 = $70,000
  • 11. Essentials of Cost-Volume-Profit (CVP) Analysis Example Contribution margin percentage (contribution margin ratio) is the contribution margin per unit divided by the selling price. What is the contribution margin percentage? $28 ÷ $70 = 40%
  • 12. Essentials of Cost-Volume-Profit (CVP) Analysis Example If the business sells 3,000 pairs of pants, revenues will be $210,000 and contribution margin would equal 40% × $210,000 = $84,000.
  • 13.
  • 14. Breakeven Point Sales Variable expenses Fixed expenses – = Total revenues = Total costs
  • 15. Abbreviations SP = Selling price VCU = Variable cost per unit CMU = Contribution margin per unit CM% = Contribution margin percentage FC = Fixed costs
  • 16. Abbreviations Q = Quantity of output units sold (and manufactured) OI = Operating income TOI = Target operating income TNI = Target net income
  • 17. Equation Method $70Q – $42Q – $84,000 = 0 $28Q = $84,000 Q = $84,000 ÷ $28 = 3,000 units Let Q = number of units to be sold to break even (Selling price × Quantity sold) – (Variable unit cost × Quantity sold) – Fixed costs = Operating income
  • 18. Contribution Margin Method $84,000 ÷ $28 = 3,000 units $84,000 ÷ 40% = $210,000
  • 19. Graph Method Revenue Total costs Breakeven Fixed costs
  • 20. Target Operating Income (Fixed costs + Target operating income) divided either by Contribution margin percentage or Contribution margin per unit
  • 21. Target Operating Income Assume that management wants to have an operating income of $14,000. How many pairs of pants must be sold? ($84,000 + $14,000) ÷ $28 = 3,500 What dollar sales are needed to achieve this income? ($84,000 + $14,000) ÷ 40% = $245,000
  • 22.
  • 23. Target Net Income and Income Taxes Example Management would like to earn an after tax income of $35,711. The tax rate is 30%. What is the target operating income? Target operating income = Target net income ÷ (1 – tax rate) TOI = $35,711 ÷ (1 – 0.30) = $51,016
  • 24. Target Net Income and Income Taxes Example How many units must be sold? Revenues – Variable costs – Fixed costs = Target net income ÷ (1 – tax rate) $70Q – $42Q – $84,000 = $35,711 ÷ 0.70 $28Q = $51,016 + $84,000 Q = $135,016 ÷ $28 = 4,822 pairs of pants
  • 25. Target Net Income and Income Taxes Example Proof: Revenues: 4,822 × $70 $337,540 Variable costs: 4,822 × $42 202,524 Contribution margin $135,016 Fixed costs 84,000 Operating income 51,016 Income taxes: $51,016 × 30% 15,305 Net income $ 35,711
  • 26.
  • 27. Using CVP Analysis Example Suppose the management anticipates selling 3,200 pairs of pants. Management is considering an advertising campaign that would cost $10,000. It is anticipated that the advertising will increase sales to 4,000 units. Should the business advertise?
  • 28. Using CVP Analysis Example 3,200 pairs of pants sold with no advertising: Contribution margin $89,600 Fixed costs 84,000 Operating income $ 5,600 4,000 pairs of pants sold with advertising: Contribution margin $112,000 Fixed costs 94,000 Operating income $ 18,000
  • 29. Using CVP Analysis Example Instead of advertising, management is considering reducing the selling price to $61 per pair of pants. It is anticipated that this will increase sales to 4,500 units. Should management decrease the selling price per pair of pants to $61?
  • 30. Using CVP Analysis Example 3,200 pairs of pants sold with no change in the selling price: Operating income = $5,600 4,500 pairs of pants sold at a reduced selling price: Contribution margin: (4,500 × $19) $85,500 Fixed costs 84,000 Operating income $ 1,500
  • 31. Sensitivity Analysis and Uncertainty Example Assume that the Pants Shop can sell 4,000 pairs of pants. Fixed costs are $84,000. Contribution margin ratio is 40%. At the present time the business cannot handle more than 3,500 pairs of pants.
  • 32. Sensitivity Analysis and Uncertainty Example To satisfy a demand for 4,000 pairs, management must acquire additional space for $6,000. Should the additional space be acquired? Revenues at breakeven with existing space are $84,000 ÷ .40 = $210,000. Revenues at breakeven with additional space are $90,000 ÷ .40 = $225,000
  • 33. Sensitivity Analysis and Uncertainty Example Operating income at $245,000 revenues with existing space = ($245,000 × .40) – $84,000 = $14,000. (3,500 pairs of pants × $28) – $84,000 = $14,000
  • 34. Sensitivity Analysis and Uncertainty Example Operating income at $280,000 revenues with additional space = ($280,000 × .40) – $90,000 = $22,000. (4,000 pairs of pants × $28 contribution margin) – $90,000 = $22,000
  • 35.
  • 36. Alternative Fixed/Variable Cost Structures Example What is the new contribution margin? Decrease the price they charge from $32 to $25 and charge an annual administrative fee of $30,000. Suppose that the factory the Pants Shop is using to obtain the merchandise offers the following:
  • 37. Alternative Fixed/Variable Cost Structures Example $70 – ($25 + $10) = $35 Contribution margin increases from $28 to $35. What is the contribution margin percentage? $35 ÷ $70 = 50% What are the new fixed costs? $84,000 + $30,000 = $114,000
  • 38. Alternative Fixed/Variable Cost Structures Example Management questions what sales volume would yield an identical operating income regardless of the arrangement. 28x – 84,000 = 35x – 114,000 114,000 – 84,000 = 35x – 28x 7x = 30,000 x = 4,286 pairs of pants
  • 39. Alternative Fixed/Variable Cost Structures Example Cost with existing arrangement = Cost with new arrangement .60x + 84,000 = .50x + 114,000 .10x = $30,000  x = $300,000 ($300,000 × .40) – $ 84,000 = $36,000 ($300,000 × .50) – $114,000 = $36,000
  • 40. Operating Leverage Operating leverage describes the effects that fixed costs have on changes in operating income as changes occur in units sold. Organizations with a high proportion of fixed costs have high operating leverage.
  • 41. Operating Leverage Example Degree of operating leverage = Contribution margin ÷ Operating income What is the degree of operating leverage of the Pants Shop at the 3,500 sales level under both arrangements? Existing arrangement: 3,500 × $28 = $98,000 contribution margin
  • 42. Operating Leverage Example $98,000 contribution margin – $84,000 fixed costs = $14,000 operating income $98,000 ÷ $14,000 = 7.0 New arrangement: 3,500 × $35 = $122,500 contribution margin
  • 43. Operating Leverage Example $122,500 contribution margin – $114,000 fixed costs = $8,500 $122,500 ÷ $8,500 = 14.4 The degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating income.
  • 44.
  • 45. Effects of Sales Mix on Income Pants Shop Example Management expects to sell 2 shirts at $20 each for every pair of pants it sells. This will not require any additional fixed costs.
  • 46. Effects of Sales Mix on Income What is the contribution margin of the mix? Contribution margin per shirt: $20 – $9 = $11 $28 + (2 × $11) = $28 + $22 = $50
  • 47. Effects of Sales Mix on Income $84,000 fixed costs ÷ $50 = 1,680 packages 1,680 × 2 = 3,360 shirts 1,680 × 1 = 1,680 pairs of pants Total units = 5,040
  • 48. Effects of Sales Mix on Income What is the breakeven in dollars? 3,360 shirts × $20 = $ 67,200 1,680 pairs of pants × $70 = 117,600 $184,800
  • 49. Effects of Sales Mix on Income What is the weighted-average budgeted contribution margin? Pants: 1 × $28 + Shirts: 2 × $11 = $50 ÷ 3 = $16.667
  • 50. Effects of Sales Mix on Income The breakeven point for the two products is: $84,000 ÷ $16.667 = 5,040 units 5,040 × 1/3 = 1,680 pairs of pants 5,040 × 2/3 = 3,360 shirts
  • 51. Effects of Sales Mix on Income Sales mix can be stated in sales dollars: Pants Shirts Sales price $70 $40 Variable costs 42 18 Contribution margin $28 $22 Contribution margin ratio 40% 55%
  • 52. Effects of Sales Mix on Income Assume the sales mix in dollars is 63.6% pants and 36.4% shirts. Weighted contribution would be: 40% × 63.6% = 25.44% pants 55% × 36.4% = 20.02% shirts 45.46%
  • 53. Effects of Sales Mix on Income Breakeven sales dollars is $84,000 ÷ 45.46% = $184,778 (rounding). $184,778 × 63.6% = $117,519 pants sales $184,778 × 36.4% = $ 67,259 shirt sales
  • 54.
  • 55. Multiple Cost Drivers Example Suppose that the business will incur an additional cost of $10 for preparing documents associated with the sale of pants to various customers. Assume that the business sells 3,500 pants to 100 different customers. What is the operating income from this sale?
  • 56. Multiple Cost Drivers Example Revenues: 3,500 × $70 $245,000 Variable costs: Pants: 3,500 × $42 147,000 Documents: 100 × $10 1,000 Total 148,000 Contribution margin 97,000 Fixed costs 84,000 Operating income $ 13,000
  • 57. Multiple Cost Drivers Would the operating income of the Pants Shop be lower or higher if the business sells pants to more customers? The cost structure depends on two cost drivers: 1. Number of units 2. Number of customers
  • 58.
  • 59. Contribution Margin versus Gross Margin Contribution income statement emphasizes contribution margin. Financial accounting income statement emphasizes gross margin.