to: * Describe the differences between the accountant’s and the economist’s model of cost volume profit analysis. * Apply the cost volume profit approaches in the calculation of breakeven point‚ margin of safety‚ target selling price and sales volume. * Construct breakeven‚ contribution and profit volume graph. * Apply cost volume profit analysis in a multi product setting * Identify and explain the assumptions and limitations of cost volume profit analysis. INTRODUCTION CVP Analysis
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Chapter 2 Questions 2-1. I agree with this statement. I would also like to add that cost behavior is also identifying the key resources that are performed‚ resources used in performing these activities‚ costs of the resources‚ and what the cost is driven from. 2-2. Two rules of thumb when analyzing cost behavior are to manage what the company manufactures‚ sells‚ and to give advice as to where costs can be reduced. 2-3. Three examples of a variable cost are a 12% increase in the production of
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Price taker: act on our margin When I go to a tailor: I buy time(labor‚ expertise ‚experience) and materials Raw material Work days Rent cost/ depreciation cost Transportation in Oursourcing cost Utility cost Design cost Advertisng cost Margin 20% Final price Dress 1 3000 200dh/ day 2000 400 100 500 30 1000 100 1426 Before margin: 7130 After margine8556 Dress 2 200 200/ day 400 400 100 0 30 0 - 228 Before margin:1140 After margin:1368 Can trace easily
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Managerial Accounting Mid-Term 1.) a.) Snack-Foods division president may want to play the end-of-year games because there may be a bonus for the division president if they get certain earnings for the year. Not only a bonus for the division president; but there may be a bonus for the division itself. With that being said he could use that for the other employees to help participate in the year-end games. If corporate has seen them fallen behind‚ then these year-end games maybe able to apply
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expanding it by 50% more space and selling staff. This move resulted in a five-year lease as well as extensive and expensive renovations. They also made some changes in product offerings and offered more sales potential at the cost of minor reductions in margins. During the year it took to complete the Hallstead’s renovation the industry started showing major changes toward internet based jewellery sales. Tiffany & Company‚ a business with an origin much like Hallstead Jewelers‚ grew into an international
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d. to purchase grapes instead of mosto or bulk wine to ensure the quality of the product. A. The presentation below shows the Income Statement using the contribution margin approach to have a better view on the costs which are variable and fixed AZIENDA VINICOLA ITALIANA Income Statement (Contribution Margin Approach) For the Year 1993 Production Capacity – 871‚850 bottles Unit Cost In Lire
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000 Formula : Revenue = Units Sold * Unit price Contribution Margin = Revenue – All Variable Cost Contribution Margin Ratio = Contribution Margin/Selling Price Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio Margin of Safety = Revenue - Break Even Points in Sales Degree of Operating Leverage = Contribution Margin/Net Income Net Income = Revenue – Total Variable
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205 hours 138 hours 343 hours 205 * $400 = $82‚000 138 * $800 = $110‚400 Contribution Margin Income Statement Intra-comp sales $82‚000 Commercial sales $110‚400 Total Revenue $192‚400 Less Variable costs Operations hourly wage ($24*343) $8‚232 Sales Promotions ($4.70*343) $1‚612 $9‚844 Contribution Margin $182‚256 Less Fixed costs Space costs $9‚240 Equipment costs
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volume or level of activity 3. per unit variable costs 4. total fixed costs 5. mix of products sold Unit Contribution Margin: p – v Total Contribution Margin: (p - v) *Q Contribution Margin Ratio: (p-v) /p Breakeven Point: The point at which revenues equal total cost‚ and the profit is zero. * Equation Method: p*Q = f + v*Q * Contribution Margin Method Breakeven in Units: Q = f / (p-v) (Fixed expenses / CM per unit) Breakeven in Dollars: Y = p*Q = p*f / (p-v)
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sales manager is right‚ what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.) Requirement 2 (continued) Incremental method Variable expense ($14 per unit) Contribution Margin $340‚000 Sales increased 238‚000 VE increased 102‚000 CM increased Fixed Expenses 98‚000 Net Operating Income $4‚000 Sales (17000 units x 20) $70‚000/20 = 3500 units $189‚000/13500 = $14 per unit $90‚000 + 8‚000= $98‚000 $70‚000 49‚000
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