Escolar Documentos
Profissional Documentos
Cultura Documentos
2011
First semester
Takayuki Asada
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Chapter4 Cost-Volume-Profit Analysis
After reading this chapter, you will be able to:
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1. Introduction
Mary Stuart is the vice president of operations for CodeConnet,a company that
manufacturers and sells bar code readers.
As senior mamanger,she must answer a variety of questions dealing with
planning,control and decision making.
Planning:Code Connect sold 20,000 bar code readers at $200 per unit. The cost of
manufacturing these items was $2,940,000 ,and sellin g and administrative
costs were $800,000. Total profit was $260,000. In the coming year,the
company expects to sell 25,000 units. What level of profit should be in the
budget for the coming year?
Decision Making: The current Price for a bar code reader is $200 per unit. If the
price is increased to $225 per unit, sales will drop from 20,000 to 17,000.
Should the price be increased ?
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2. Common Cost behavior patterns
To perform cost-volume-profit analysis,you need to know
how costs behave when business activity changes. This
section describes some common patterns of cost
behavior.
1).Variable costs:variable costs are costs that change in proportion to changes
involume or activity. Thus,if activity increases by 10 percent,variable costs
are assumed to increase by 10 percent.
2).Fixed costs:Fixed costs are costs that do not change in response to changes
in activity levels.
In the short run,some fixed costs can be changed while others cannot,
discretionary fixed costs are those fixed costs that management can easily
change in the short run. Committed fixed costs are those fixed costs that
cannot be easily changed in a relatively brief period of time.
3). Mixed costs:Mixed costs are costs that contain both a variable cost element
and a fixed cost element. These costs are sometimes referred to as
semivarible costs.
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4)Step costs: Step costs are those costs that are fixed for a range of
volume but increase to a higher level when the upper bound of the range
is exeeded.
In this section,we cover three techniquies for estimating the amount of fixed
and variable cost : account analysis ,hight-low method, and regression
analysis.
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2) Scattergraphs: Suppose the monthly production and
cost information provided in illustration 4-7 is
available for CodeCOnnect. We can gain insight into
the relation between production cost and activity by
plotting these costs and activity levels. The plot of the
data is referred to as a Scattergraph.
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4)Regression Analysis
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4.Cost-Volume-Profit Analysis: How the use of product
cost information defines its focus and form
1)Financial accountants and management accountants define
and think about cost very differently , particulary product
costs.
2)Using product cost information outside the organization
Since no one knows how the investors,etc. use the costs
numbers in financial statements, generally accepted
accoutning principles that specify the focus,content and form
of financial statements focus on methods for computing costs
rather than how they might be best calculated to support a
given decision.
3)The profit equation
The profit equation states that profit is equal to revenue (selling
price times quantity),minu variable cost ,minus total foxed
cost. 8
Using Cost information to predict costs and profits
Cost-Volume-Proft Analysis is a procedure for combining information about variable
and fixed costs with revenue information for different levels of volume.
Profit=(units sold × revenue per unit) – (units sold × variable cost per unit) –
Fixed costs (4.3)
Profit = (unit sold × (revenue per unit – variable cost per unit) ) – fixed costs (4.4)
Profit = (units sold × Contribution margin per unit ) –fixed costs (4.5)
Units required to earn a target profit = (target profit + fixed
cost) / contribution margin per unit (4.6)
Breakeven unit sales = Fixed costs / contribution margin per
unit (4.7)
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Expenditures,Costs and Expenses
Expenses are the costs of assets that the financial accountants deems have
been used up when goods or services are sold.
Product Costs
for manufacturing firms,financial accoutants include only manufacturing
costs in the cost they report for product inventory,and threfore,as the
expense they report for the goods sold.
in summary,for a manufacturing firms, product cost reported on the
balance sheet
include only manufacturing costs ad almost always reflected historical
costs.
Using Product Cost Information inside the organization
two broad categories which mean Planning and evaluation
1)Selling price based on cost as a reference point
2)budgeting use
3)planning and control use
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.Understanding Cost Behavior to Predict Costs
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The CVP Chart:
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Extending CVP analysis for multiproduct organizations
Lynn’s Landscaping Services,Lynn would construct an average product by
weighting each of her company’s three real products-lawn mowing,layout
design, and other maintenance-by their respective proportions in the
estimated product mix.
Exhibit 2-6
Lawn Mowing Layout Design Other maintenance
unit total unit Total Unit Total
Units sold 4600 350 1250
Revenues 50,000 230,000 500 175,000 200 250,000
Variable
costs 27.17 125,000 160 56,000 116 145,000
Fixed Costs 105,343 80,153 114,504
Profit -343 38,847 -9,504
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Exhibit 2-7 Lynn’s Landscapeing Services:Composite Product
Calculation
Lawn Moving Layout Design Other Maintenance Total
unit %Total unit %Total Unit %total
Unit Sold 4,600 74.193548% 350 5.645161% 1,250 20.161290% 6200
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Using Cost Information to develop Product Costs
We are faced with the problems of how to incorporate fixed
costs into a product cost.
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5.Multiproduct Analysis
The previous examples illustrates CVP analysis for a single
product. But CVP analysis can be extended to cover multiple
products.
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6.Assumptions in CVP Analysis
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7. Code Connect Example reviseted
Mary’s questions
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8.Operationg Leverage
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9.Constraints
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Summary
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