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ACT202 Chapter 5 New
ACT202 Chapter 5 New
Cost-Volume-Profit
Relationships
Chapter Six
6-2
Learning Objective 1
If Racing sells
430 bikes, its
net income will
be $6,000.
6-10
Learning Objective 2
Income
Income Income
Income Income
Income
300
300 units
units 400
400 units
units 500
500 units
units
Sales
Sales $$ 150,000
150,000 $$ 200,000
200,000 $$250,000
250,000
Less:
Less: variable
variable expenses
expenses 90,000
90,000 120,000
120,000 150,000
150,000
Contribution
Contribution margin
margin $$ 60,000
60,000 $$ 80,000
80,000 $$100,000
100,000
Less:
Less: fixed
fixed expenses
expenses 80,000
80,000 80,000
80,000 80,000
80,000
Net
Net operating
operating income
income $$ (20,000)
(20,000) $$ -- $$ 20,000
20,000
6-12
CVP Graph
Dollars
Units
6-13
CVP Graph
Dollars
Fixed Expenses
Units
6-14
CVP Graph
Dollars
Total Expenses
Fixed Expenses
Units
6-15
CVP Graph
Total Sales
Dollars
Total Expenses
Fixed Expenses
Units
6-16
CVP Graph
Break-even point
(400 units or $200,000 in sales)
re a
fi t A
Pro
Dollars
r e a
s A
L o s
Units
6-17
Learning Objective 3
$80,000
= 40%
$200,000
Each $1.00 increase in sales results in a
total contribution margin increase of 40¢.
6-19
Unit CM
CM Ratio =
For Racing Bicycle Company
Unit the ratio is:
selling price
$200 = 40%
$500
6-20
400
400 Bikes
Bikes 500
500 Bikes
Bikes
Sales
Sales $$200,000
200,000 $$250,000
250,000
Less:
Less: variable
variable expenses
expenses 120,000
120,000 150,000
150,000
Contribution
Contribution margin
margin 80,000
80,000 100,000
100,000
Less:
Less: fixed
fixed expenses
expenses 80,000
80,000 80,000
80,000
Net
Net operating
operating income
income $$ -- $$ 20,000
20,000
Quick Check
a. 1.319
b. 0.758
c. 0.242
d. 4.139
6-22
Quick Check
Learning Objective 4
Volume
Volume
580 units × $310 variable cost/unit = $179,800
Volume
Volume
Volume
Volume
$$ 3,000
3,000 ÷÷ 150
150 bikes
bikes == $$ 20
20 per
per bike
bike
Variable
Variable cost
cost per
per bike
bike == 300
300 per
per bike
bike
Selling
Selling price
price required
required == $$ 320
320 per
per bike
bike
150
150 bikes
bikes ×× $320
$320 per
per bike
bike == $$ 48,000
48,000
Total
Total variable
variable costs
costs == 45,000
45,000
Increase
Increase in
in net
net income
income == $$ 3,000
3,000
6-35
Learning Objective 5
Break-Even Analysis
Equation Method
OR
Break-Even Analysis
Total
Total Per
PerUnit
Unit Percent
Percent
Sales
Sales(500
(500bikes)
bikes) $$250,000
250,000 $$ 500
500 100%
100%
Less:
Less:variable
variable expenses
expenses 150,000
150,000 300
300 60%
60%
Contribution
Contributionmargin
margin $$100,000
100,000 $$ 200
200 40%
40%
Less:
Less:fixed
fixedexpenses
expenses 80,000
80,000
Net
Netoperating
operatingincome
income $$ 20,000
20,000
6-39
Equation Method
We calculate the break-even point as follows:
Where:
Q = Number of bikes sold
$500 = Unit selling price
$300 = Unit variable expense
$80,000 = Total fixed expense
6-40
Equation Method
We calculate the break-even point as follows:
Equation Method
The equation can be modified to calculate the
break-even point in sales dollars.
X = 0.60X + $80,000 + $0
Where:
X = Total sales dollars
0.60 = Variable expenses as a % of sales
$80,000 = Total fixed expenses
6-42
Equation Method
The equation can be modified to calculate the
break-even point in sales dollars.
X = 0.60X + $80,000 + $0
0.40 X = $80,000
X = $80,000 ÷ 0.40
X = $200,000
6-43
$80,000
= $200,000 break-even sales
40%
6-45
Quick Check
a. 872 cups
b. 3,611 cups
c. 1,200 cups
d. 1,150 cups
6-46
Quick Check
Quick Check
a. $1,300
b. $1,715
c. $1,788
d. $3,129
6-48
Quick Check
Learning Objective 6
$200Q = $180,000
Q = 900 bikes
6-52
$80,000 + $100,000
= 900 bikes
$200/bike
6-53
Quick Check
a. 3,363 cups
b. 2,212 cups
c. 1,150 cups
d. 4,200 cups
6-54
Quick Check
Unit sales
Fixed expenses + Target profit
to attain =
Unit CM
target profit
Coffee Klatch is an espresso stand
$1,300 in a downtown
+ $2,500
=
office building. The average selling price of a cup of
$1.49 - $0.36
coffee is $1.49 and the average variable expense per
cup is $0.36. The average fixed expense per month is
$3,800
= of coffee would have to be
$1,300. How many cups $1.13
sold to attain target profits of $2,500 per month?
= 3,363 cups
a. 3,363 cups
b. 2,212 cups
c. 1,150 cups
d. 4,200 cups
6-55
Learning Objective 7
Break-even
Break-even
sales
sales Actual
Actual sales
sales
400
400 units
units 500
500 units
units
Sales
Sales $$ 200,000
200,000 $$ 250,000
250,000
Less:
Less: variable
variable expenses
expenses 120,000
120,000 150,000
150,000
Contribution
Contribution margin
margin 80,000
80,000 100,000
100,000
Less:
Less: fixed
fixed expenses
expenses 80,000
80,000 80,000
80,000
Net
Net operating
operating income
income $$ -- $$ 20,000
20,000
6-58
Break-even
Break-even
sales
sales Actual
Actual sales
sales
400
400 units
units 500
500 units
units
Sales
Sales $$ 200,000
200,000 $$ 250,000
250,000
Less:
Less: variable
variable expenses
expenses 120,000
120,000 150,000
150,000
Contribution
Contribution margin
margin 80,000
80,000 100,000
100,000
Less:
Less: fixed
fixed expenses
expenses 80,000
80,000 80,000
80,000
Net
Net operating
operating income
income $$ -- $$ 20,000
20,000
6-59
Margin of $50,000/
Safety in units = $500 = 100 bikes
6-60
Quick Check
a. 3,250 cups
b. 950 cups
c. 1,150 cups
d. 2,100 cups
6-61
Quick Check
a. 3,250 cups
b. 950 cups
c. 1,150 cups
d. 2,100 cups
6-62
Learning Objective 8
Operating Leverage
Operating Leverage
Actual
Actual sales
sales
500
500 Bikes
Bikes
Sales
Sales $$ 250,000
250,000
Less:
Less: variable
variable expenses
expenses 150,000
150,000
Contribution
Contribution margin
margin 100,000
100,000
Less:
Less: fixed
fixed expenses
expenses 80,000
80,000
Net
Net income
income $$ 20,000
20,000
$100,000
$20,000 = 5
6-67
Operating Leverage
Operating Leverage
Quick Check
a. 2.21
b. 0.45
c. 0.34
d. 2.92
6-70
Quick Check
Actual sales
2,100 cups
Coffee Klatch is an espresso
Sales
stand in a downtown $ 3,129
office building. The average selling price of a cup of
Less: Variable
coffee is $1.49 and the average expenses
variable expense per 756
cup is $0.36. The averageContribution margin
fixed expense per month 2,373
is
Less:each
$1,300. 2,100 cups are sold Fixedmonth
expenses
on average. 1,300
What is the operating leverage?
Net operating income $ 1,073
a. 2.21
b. 0.45
c. 0.34 Operating Contribution margin/
d. 2.92 leverage = Net operating income
$2,373/
= $1,073 = 2.21
6-71
Quick Check
a. 30.0%
b. 20.0%
c. 22.1%
d. 44.2%
6-72
Quick Check
Actual Increased
sales sales
2,100 cups 2,520 cups
Sales $ 3,129 $ 3,755
Less: Variable expenses 756 907
Contribution margin 2,373 2,848
Less: Fixed expenses 1,300 1,300
Net operating income $ 1,073 $ 1,548
% change in sales 20.0%
% change in net operating income 44.2%
6-74
Learning Objective 9
$265,000
= 48.2% (rounded)
$550,000
6-80
End of Chapter 6