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Cost-Volume-Profit Relationships: Chapter Six
Cost-Volume-Profit Relationships: Chapter Six
Cost-Volume-Profit
Relationships
Chapter Six
6-2
Learning Objective 1
6-3
6-4
6-5
6-6
6-7
6-8
6-9
If Racing sells
430 bikes, its
net income will
be $6,000.
6-10
Learning Objective 2
6-11
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
6-12
Dollars
CVP Graph
Units
6-13
Dollars
CVP Graph
Fixed Expenses
Units
6-14
Dollars
CVP Graph
Total Expenses
Fixed Expenses
Units
6-15
CVP Graph
Dollars
Total Sales
Total Expenses
Fixed Expenses
Units
6-16
CVP Graph
Break-even point
(400 units or $200,000 in sales)
Dollars
Los
a
e
r
sA
Units
a
e
r
A
t
i
f
ro
6-17
Learning Objective 3
6-18
6-19
Unit CM
CM Ratio =
Unit
selling price
For Racing Bicycle
Company
the ratio is:
$200 = 40%
$500
6-20
400
400 Bikes
Bikes
Sales
$$200,000
Sales
200,000
Less:
Less: variable
variable expenses
expenses 120,000
120,000
Contribution
80,000
Contribution margin
margin
80,000
Less:
80,000
Less: fixed
fixed expenses
expenses
80,000
Net
$$
-Net operating
operating income
income
500
500 Bikes
Bikes
$$250,000
250,000
150,000
150,000
100,000
100,000
80,000
80,000
$$ 20,000
20,000
6-21
Quick Check
6-22
Quick Check
CM Ratio =
($1.49-$0.36)/
=
$1.49
=
$1.13/
= 0.758
$1.49
6-23
Learning Objective 4
6-24
6-25
6-26
6-27
6-28
6-29
6-30
6-31
6-32
6-33
6-34
==
==
==
$$ 20
20 per
per bike
bike
300
300 per
per bike
bike
$$ 320
320 per
per bike
bike
6-35
Learning Objective 5
6-36
Break-Even Analysis
6-37
Equation Method
6-38
Break-Even Analysis
Total
Total
Sales
$$250,000
Sales(500
(500bikes)
bikes)
250,000
Less:
Less:variable
variable expenses
expenses 150,000
150,000
Contribution
$$100,000
Contributionmargin
margin
100,000
Less:
80,000
Less:fixed
fixedexpenses
expenses
80,000
Net
$$ 20,000
Netoperating
operatingincome
income
20,000
Per
PerUnit
Unit
$$ 500
500
300
300
$$ 200
200
Percent
Percent
100%
100%
60%
60%
40%
40%
6-39
Equation Method
6-40
Equation Method
6-41
Equation Method
X = 0.60X + $80,000 + $0
Where:
X = Total sales dollars
0.60 = Variable expenses as a % of
sales $80,000 = Total fixed expenses
6-42
Equation Method
X = 0.60X + $80,000 + $0
0.40 X = $80,000
X = $80,000 0.40
X = $200,000
6-43
Break-even point
=
in units sold
Fixed expenses
CM per unit
Break-even point in
Fixed expenses
=
total sales dollars
CM ratio
6-44
Break-even point in
total sales dollars =
$80,000
40%
Fixed expenses
CM ratio
6-45
Quick Check
6-46
Quick Check
$1,300
$1.13/cup
= 1,150 cups
6-47
Quick Check
6-48
Quick Check
Fixed expenses/
CM Ratio
$1,300/
=
0.758
Break-even
=
sales
= $1,715
6-49
Learning Objective 6
6-50
6-51
6-52
= 900 bikes
6-53
Quick Check
6-54
Quick Check
Unit sales
Fixed expenses + Target profit
to attain =
Unit CM
target profit
Coffee Klatch is an espresso
stand
in a downtown
$1,300
+ $2,500
=
office building. The average
selling
price of a cup of
$1.49
- $0.36
coffee is $1.49 and the average variable expense per
cup is $0.36. The average
fixed expense per month is
$3,800
= of coffee would have to be
$1,300. How many cups $1.13
sold to attain target profits of $2,500 per month?
= 3,363 cups
a. 3,363 cups
b. 2,212 cups
c. 1,150 cups
d. 4,200 cups
6-55
Learning Objective 7
6-56
6-57
Actual
Actual sales
sales
500
500 units
units
$$ 250,000
250,000
150,000
150,000
100,000
100,000
80,000
80,000
$$
20,000
20,000
6-58
Break-even
Break-even
sales
sales
400
400 units
units
Sales
$$ 200,000
Sales
200,000
Less:
120,000
Less: variable
variable expenses
expenses
120,000
Contribution
80,000
Contribution margin
margin
80,000
Less:
80,000
Less: fixed
fixed expenses
expenses
80,000
Net
$$
-Net operating
operating income
income
Actual
Actual sales
sales
500
500 units
units
$$ 250,000
250,000
150,000
150,000
100,000
100,000
80,000
80,000
$$
20,000
20,000
6-59
Margin of
Safety in units
$50,000/
$500
= 100 bikes
6-60
Quick Check
6-61
Quick Check
6-62
6-63
6-64
Learning Objective 8
6-65
Operating Leverage
Contribution margin
Net operating income
6-66
Operating Leverage
Actual
Actual sales
sales
500
500 Bikes
Bikes
Sales
$$ 250,000
Sales
250,000
Less:
150,000
Less: variable
variable expenses
expenses
150,000
Contribution
100,000
Contribution margin
margin
100,000
Less:
80,000
Less: fixed
fixed expenses
expenses
80,000
Net
$$ 20,000
Net income
income
20,000
$100,000
$20,000
6-67
Operating Leverage
10%
5
50%
6-68
Operating Leverage
6-69
Quick Check
6-70
Quick Check
6-71
Quick Check
6-72
Quick Check
6-73
Actual
sales
2,100 cups
Sales
$ 3,129
Less: Variable expenses
756
Contribution margin
2,373
Less: Fixed expenses
1,300
Net operating income
$ 1,073
% change in sales
% change in net operating income
Increased
sales
2,520 cups
$
3,755
907
2,848
1,300
$
1,548
20.0%
44.2%
6-74
6-75
6-76
6-77
Learning Objective 9
6-78
6-79
$265,000
= 48.2% (rounded)
$550,000
6-80
Fixed expenses
=
CM Ratio
$170,000
=
48.2%
= $352,697
6-81
6-82
End of Chapter 6