Professional Documents
Culture Documents
Fundamentals of
Cost-Volume-Profit Analysis
McGraw-Hill/Irwin
Cost-Volume-Profit Analysis
L.O. 1 Use cost-volume-profit (CVP) analysis
to analyze decisions.
3-2
LO
1
Profit Equation
The Income Statement
Total revenues
Total costs
= Operating profit
The Income Statement written horizontally
Operating profit = Total revenues Total costs
Profit
=
TR
TC
3-3
LO
1
Contribution Margin
3-4
LO
1
Fixed costs
Unit contribution margin
Break-even volume
Fixed costs
=
(sales dollars)
Contribution margin ratio
3-5
LO
1
3-6
3-7
LO
2
Margin of Safety
The excess of projected or actual sales
volume over break-even volume
The excess of projected or actual sales
revenue over break-even revenue
Suppose U-Develop sells 8,000 prints.
At a break-even volume of 6,250, its
margin of safety is:
Sales Break-even = 8,000 6,250 = 1,750 prints
3-8
U-Develop
Price
$0.60
Variable cost
$0.36
Fixed cost
$1,500
Profit
($300)
Volume
5,000
Price
$0.60
Variable cost
$0.36
Profit
$0.00
Volume
6,250
U-Develop
Fixed cost
$1,500
3-9
3 - 10
LO
4
Extensions of the CVP Model:
Multiproduct Analysis
Prints
Enlargements
$0.60
.36
$0.24
$1.00
.56
$0.44
3 - 11
LO
4
3 - 12
LO
4
6,300 prints
700 enlargements
7,000
3 - 13
LO
4
3 - 14
LO
4
3 - 15
3 - 16
End of Chapter 3
McGraw-Hill/Irwin