ACCT 226 Week 5 Notes
ACCT 226 Week 5 Notes ACCT 226 - 002
Popular in Introduction to Managerial Accounting
ACCT 226 - 002
verified elite notetaker
Popular in Accounting
This 3 page Class Notes was uploaded by Rachel Whitbeck on Tuesday February 23, 2016. The Class Notes belongs to ACCT 226 - 002 at University of South Carolina taught by Debbie Huguley Brumbaugh in Spring 2016. Since its upload, it has received 27 views. For similar materials see Introduction to Managerial Accounting in Accounting at University of South Carolina.
Reviews for ACCT 226 Week 5 Notes
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/23/16
ACCT 226 TR 10:05 Tuesday, February 16, 2016 Cost Volume Profit (CVP) primary purpose o To estimate how profits are affected by Sales price Sales volume Unit VC Total VC Mix of products o Focus on cost behavior o Relevant range: key assumptions of CVP analysis Selling price is constant Costs are linear and can be accurately divided into variable (constant per unit) and fixed (constant in total) elements In multiproduct companies, the sales mix is constant o Why study this? Helps managers decided What goods or services to offer? What prices to change? What cost structure should be set? o Basics of cost-volume-profit analysis The contribution margin income statement (used internally) is helpful to managers for judging the impact on profits of changes in selling price, cost, or volume, with an emphasis on cost behavior Contribution Margin (CM) is the amount remaining from sales revenue after variable expenses have been deducted Used first to cover fixed expenses Any remaining CM contributes to net operating income (profit $) Sales, variable expenses, and CM can also be expressed on a per unit basis o Can help determine the break even number (Where profit is exactly $0) o To estimate profits, just multiply the number of units sold above the break even mark by the CM per unit CVP equation Profit = (sales – variable expenses) – Fixed expenses o Sales = quantity sold x selling price per unit o Variable expenses = variable expenses per unit x units sold Profit = (PQ – VQ) – Fixed expenses Preparing the CVP graph Choose some sales volume and plot the point representing total expenses (fixed and variable) Breakeven point is the intersection of sales and total expenses The area between sales and total expenses (to the right of the breakeven point, that little triangle shape) represents profit o Contribution Margin Ratio- calculated by dividing the total contribution margin by total sales. Remember CM is total sales minus variable expenses To find the change in net operating income from an increase in total sales, you multiple the increase in total sales by the CM ratio Thursday, February 18, 2016 We can use CM ratio to predict the impact on profit (could go up or down) In the bike example in class, if we sell 100 more bikes and generate $50,000 more in sales, our net operating income actually goes down! o Just remember that increasing sales doesn’t necessarily equate to increasing income Quick check: selling price is $1.49, variable expense per cup of coffee is $0.36, fixed monthly expenses is $1,300, 2,100 cups are sold per month. What’s the CM ratio? o We know that CM = total sales – variable expenses o Total sales= 2,100 x $1.49 = $3,129 o Variable expenses = $0.36 x 2,100 = o Wait a second, there’s an easier way: CM ratio= unit contribution margin/unit sales ! o So now we can use the unit CM (which is the sales price per unit – variable cost per unit) to find the CM ratio Unit CM= $1.49 – 0.36 = $1.13 Unit CM/unit sales = $1.13/1.36 = CM ratio! Adding variable costs reduces contribution margin Just make sure you know all the formulas and you’ll be able to answer pretty much any question
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'