STUDENT EDITION

MANAGEMENT
PowerPoint Presentation by ACCOUNTING
Gail B. Wright
Professor Emeritus of Accounting 8th EDITION
Bryant University
BY
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
HANSEN & MOWEN

11 COST-VOLUME-PROFIT ANALYSIS
1
 LEARNING
LEARNING OBJECTIVES
OBJECTIVES
1. Tentukan jumlah unit yang terjual untuk
mencapai titik impas atau mendapatkan
keuntungan yang ditargetkan.
2. Hitung jumlah pendapatan yang dibutuhkan
untuk mencapai titik impas atau
mendapatkan keuntungan yang ditargetkan.
3. Terapkan analisis biaya-volume-laba dalam
pengaturan beberapa produk.
Continued
2
 LEARNING
LEARNING OBJECTIVES
OBJECTIVES
4. Siapkan grafik volume laba & grafik biaya-
volume-laba, dan jelaskan artinya masing-
masing.
5. Jelaskan dampak risiko, ketidakpastian, &
variabel perubahan pada analisis biaya-
volume-laba.
6. Diskusikan dampak penetapan biaya berdasarkan
aktivitas pada analisis biaya-volume-laba.
3
 LO 1

COST-VOLUME-PROFIT (CVP)

CVP expresses:
# units that must be sold to break even
Impact of a given reduction in fixed costs on
break-even point
Impact of an increase in price on profit
Sensitivity analysis of impact of various price or
cost levels on profit

4
 LO 1

BREAK-EVEN
BREAK-EVEN POINT:
POINT: Definition
Definition

Is the point where total revenue

equals total cost; the point of
zero
zero profit.
profit

5
 LO 1

FORMULA: Operating Income

Operating income includes revenues &

expenses from the firm’s normal operations.

Operating Income
= Sales revenue
– Variable expenses
– Fixed expenses
6
 LO 1

NET
NET INCOME:
INCOME: Definition
Definition

Is operating income minus

income taxes.

7
 LO 1

FORMULA: Break-Even
Break-even is 0 profit.

Break-even:
0 = Sales revenue – Variable expenses – Fixed
expenses
0 = ($400 x Units) – ($325 x Units) - $45,000
($75 x Units) = $45,000
Units = 600
8
 LO 1

WHITTIER CO.: √√Income

WHITTIER CO.: Income Statement
Statement

√Check-up on break-even
Sales (600 units @ $400) $ 240,000
Less: Variable expenses 195,000
Contribution margin $ 45,000
Less: Fixed expenses 45,000
Operating income $ 0

9
 LO 1

CONTRIBUTION
CONTRIBUTION MARGIN:
MARGIN:
Definition
Definition

Is sales revenue minus variable

costs (Sales – VC).

10
 LO 1

FORMULA: Break-Even

Break-even using contribution margin.

Break-even units:
# Units = Fixed cost / Unit contribution margin
# Units = $45,000 / ($400 - $325)
= 600

11
 LO 1

FORMULA: Target Profit % Sales

Target profit can be calculated as % of

revenue.

Target profit as % of sales:

0.15 ($400 x Units) =
($400 x Units) – ($325 x Units) - $45,000
$60 x Units = ($75 x Units) - $45,000
# Units = 3,000
12
 LO 2

VARIABLE
VARIABLE COST
COST RATIO:
RATIO:
Definition
Definition

Is the proportion of each sales

dollar used to cover variable
costs.

13
 LO 2

CONTRIBUTION
CONTRIBUTION MARGIN
MARGIN RATIO:
RATIO:
Definition
Definition

Is the proportion of each sales

dollar available to cover fixed
costs & provide profit.

14
 LO 2

WHITTIER
WHITTIER CO.:
CO.: Background
Background

CMR for mulching lawn mower.

Sales (1,000 units @ $400) $ 400,000 100.00%
Less: Variable expenses 325,000 81.25%
Contribution margin $ 75,000 18.75%
Less: Fixed expenses 45,000
Operating income $ 30,000

15
 LO 2

FORMULA: Break-Even CMR

Contribution margin ratio (CMR)

makes calculation easier.

0 = Sales (1 – VC rate) – Fixed Costs

= Sales (1 – 0.8125) - $45,000
Sales = $240,000
OR
Break-even Sales = Fixed cost / CMR
$240,000 = $45,000 / 0.1875
16
 LO 3

Can we use CVP if

Whittier has more than 1
product?

Yes. But we have to add

direct
directfixed
fixedexpenses
expenses into
the analysis.

17
 LO 3

DIRECT
DIRECT FIXED
FIXED EXPENSES:
EXPENSES:
Definition
Definition

Are fixed costs that can be

traced to each product and
would be avoided if the product
did not exist.

18
 LO 3

WHITTIER
WHITTIER CO.:
CO.: Sales
Sales Mix
Mix &
& CVP
CVP
Background
Background

Margin for multiple products

Unit Package
Product Price VC CM Cont. Mix Margin*
Mulching $400 $325 $ 75 3 $ 225
Riding 800 600 200 2 400
Package Total $ 625

*Margin = Units in package x CM

19
 LO 3

FORMULA: Break-Even Packages

Contribution margin approach to

multiple products.

Break-even packages = Fixed cost / Package CM

= $96,250 / $625
= 154 Packages

20
 LO 3

BREAK-EVEN SOLUTION
Mulching mower sales =
$400 x 3 x 154 packages.

EXHIBIT 11-1
21
 LO 4

ASSUMPTIONS OF CVP
CVP analysis assumes
Linear revenue & cost functions
Price, total fixed costs, & unit variable costs can
be accurately identified & remain constant over the
relevant range
What is produced is sold
Sales mix is known
Selling prices & costs are known with certainty

22
 LO 4

COST-PROFIT-VOLUME GRAPH
Yes. CVP will apply so
long as the cost &
revenue functions are
approximately linear over
the relevant range.

EXHIBIT 11-4b
23
 LO 5

What can Whittier do to

increase sales of mulching
mowers?

Sales can be increased by some

combination of increased
advertising and decreased
prices.

24
 LO 5

ALTERNATIVES
For
Forthe
themulching
mulchingmower
mowerare:
are:
#1
#1IfIfadvertising
advertisingexpenditures
expendituresincrease
increasebyby$8,000,
$8,000,
sales
saleswill
willincrease
increasefrom
from1,600
1,600toto1,725
1,725mowers.
mowers.
#2
#2AAprice
pricedecrease
decreasefrom
from$400
$400toto$375
$375per
permower
mower
will
willincrease
increasesales
salesfrom
from1,600
1,600toto1,900.
1,900.
#3
#3Decreasing
Decreasingprice
pricetoto$375
$375and
andincreasing
increasing
advertising
advertisingexpenditures
expendituresbyby$8,000
$8,000will
willincrease
increase
sales
salesfrom
from1,600
1,600toto2,600
2,600mowers.
mowers.

25
 LO 5

How should Whittier use

the results of analysis in
the 3 alternatives?

Whittier should consider its

choice in the context of Risk &
risk & Uncertainty.
uncertainty.

26
 LO 5

RISK & UNCERTAINTY

For
ForWhittier,
Whittier,risk
riskincludes
includesthethefact
factthat
thatprices
pricesand
and
costs
costscan
cannot
notbe
bepredicted
predictedwithwithcertainty.
certainty.Risk
Risk
assumes
assumesthat
thatthe
thedistributions
distributionsof ofthe
thevariables
variables
ininquestion
questionare
areknown
known(i.e.,
(i.e.,we
weknow
knowhowhow
sales
saleswill
willreact
reactininresponse
responsetotochanges
changesininprice
price
ororcost).
cost).Under
Underuncertainty,
uncertainty,these
thesedistributions
distributions
are
arenot
notknown.
known.

27
 LO 5

SENSITIVITY
SENSITIVITY ANALYSIS:
ANALYSIS:
Definition
Definition

Is the use of “what if” to

examine the impact of changes
in underlying assumptions on
operating results.

28
 LO 5

SENSITIVITY ANALYSIS
Under 2 systems, the same
change in price will have
different effects on elements
of CVP, & response to risk
& uncertainty.

EXHIBIT 11-8
29
 LO 6

ABC & CVP

ABC
ABCdivides
dividescosts
costsinto
intounit-based
unit-based&
&
non-unit-based
non-unit-basedcategories.
categories.CVP
CVP
has
hasto
toadjust
adjustits
itsformulas
formulastoto
incorporate
incorporatethis
thisdivision.
division.

30
 LO 6

What are the strategic

implications of the 2
approaches to analyzing
CVP?

An ABC approach to CVP allows

for a better defined breakdown of
costs to analyze alternative
recommendations.

31
CHAPTER 11

THE
THE END
END

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