Professional Documents
Culture Documents
22 Accounting
22 Accounting
Cost-Volume-Profit
Relationships
deducted.
Irwin/McGraw-Hill
Irwin/McGraw-Hill
Unit
500
300
200
Unit
500
300
200
Irwin/McGraw-Hill
CM Ratio =
Irwin/McGraw-Hill
Sales
Sales
Less:
Less: variable
variable expenses
expenses
Contribution
Contribution margin
margin
Less:
Less: fixed
fixed expenses
expenses
Net
Net income
income (loss)
(loss)
Irwin/McGraw-Hill
Income
Income
300
300 units
units
$$ 150,000
150,000
90,000
90,000
$$ 60,000
60,000
80,000
80,000
$$ (20,000)
(20,000)
Income
Income
400
400 units
units
$$ 200,000
200,000
120,000
120,000
$$ 80,000
80,000
80,000
80,000
$$
--
Income
Income
500
500 units
units
$$250,000
250,000
150,000
150,000
$$100,000
100,000
80,000
80,000
$$ 20,000
20,000
CVP Graph
400,000
350,000
300,000
Total Expenses
Dollars
250,000
200,000
Fixed expenses
150,000
100,000
50,000
Irwin/McGraw-Hill
800
700
600
500
400
300
200
100
Units
8
CVP Graph
400,000
350,000
300,000
Total Sales
Dollars
250,000
200,000
150,000
100,000
50,000
Irwin/McGraw-Hill
800
700
600
500
400
300
200
100
Units
9
CVP Graph
400,000
350,000
300,000
ea
r
tA
i
f
ro
Dollars
250,000
200,000
Break-even point
150,000
100,000
Lo
50,000
ea
r
sA
Irwin/McGraw-Hill
800
700
600
500
400
300
200
100
Units
10
Irwin/McGraw-Hill
11
Operating Leverage
A measure of how sensitive net income is to
Irwin/McGraw-Hill
12
Contribution margin
Net income
Operating Leverage
With a measure of operating leverage of 5,
if Wind increases its sales by 10%, net
income would increase by 50%.
Percent increase in sales
Degree of operating leverage
Percent increase in profits
10%
5
50%
13
Irwin/McGraw-Hill
14
15