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1、3-1,Cost-Volume-Profit Analysis,Chapter 3,3-2,Learning Objective 1,Understand the assumptions underlying cost-volume-profit(CVP)analysis.,3-3,Cost-Volume-Profit Assumptionsand Terminology,1.Changes in the level of revenues and costs arise only because of changes in the number of product(or service)u
2、nits produced and sold.,2.Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.,3-4,Cost-Volume-Profit Assumptionsand Terminology,3.When graphed,the behavior of total revenues and total costs is linear(straight-line)in relation to out
3、put units within the relevant range(and time period).,4.The unit selling price,unit variable costs,and fixed costs are known and constant.,3-5,Cost-Volume-Profit Assumptionsand Terminology,5.The analysis either covers a single product or assumes that the sales mix when multiple products are sold wil
4、l remain constant as the level of total units sold changes.,6.All revenues and costs can be added and compared without taking into account the time value of money.,3-6,Cost-Volume-Profit Assumptionsand Terminology,Operating income=Total revenues from operations Cost of goods sold and operating costs
5、(excluding income taxes),Net income=Operating income Income taxes,3-7,Learning Objective 2,Explain the featuresof CVP analysis.,3-8,Essentials of Cost-Volume-Profit(CVP)Analysis Example,Assume that the Pants Shop can purchase pantsfor$32 from a local factory;other variable costsamount to$10 per unit
6、.,The local factory allows the Pants Shop toreturn all unsold pants and receive a full$32refund per pair of pants within one year.,The average selling price per pair of pants is$70and total fixed costs amount to$84,000.,3-9,Essentials of Cost-Volume-Profit(CVP)Analysis Example,How much revenue will
7、the business receive if2,500 units are sold?,2,500$70=$175,000,How much variable costs will the business incur?,2,500$42=$105,000,$175,000 105,000 84,000=($14,000),3-10,Essentials of Cost-Volume-Profit(CVP)Analysis Example,What is the contribution margin per unit?,$70$42=$28 contribution margin per
8、unit,What is the total contribution margin when2,500 pairs of pants are sold?,2,500$28=$70,000,3-11,Essentials of Cost-Volume-Profit(CVP)Analysis Example,Contribution margin percentage(contributionmargin ratio)is the contribution margin perunit divided by the selling price.,What is the contribution
9、margin percentage?,$28$70=40%,3-12,Essentials of Cost-Volume-Profit(CVP)Analysis Example,If the business sells 3,000 pairs of pants,revenues will be$210,000 and contributionmargin would equal 40%$210,000=$84,000.,3-13,Learning Objective 3,Determine the breakeven pointand output level needed to achie
10、vea target operating income using the equation,contribution margin,and graph methods.,3-14,Breakeven Point,Sales,Variableexpenses,Fixedexpenses,=,Total revenues=Total costs,3-15,Abbreviations,SP=Selling price,VCU=Variable cost per unit,CMU=Contribution margin per unit,CM%=Contribution margin percent
11、age,FC=Fixed costs,3-16,Abbreviations,Q=Quantity of output units sold(and manufactured),OI=Operating income,TOI=Target operating income,TNI=Target net income,3-17,Equation Method,$70Q$42Q$84,000=0$28Q=$84,000Q=$84,000$28=3,000 units,Let Q=number of units to be sold to break even,(Selling price Quant
12、ity sold)(Variable unit cost Quantity sold)Fixed costs=Operating income,3-18,Contribution Margin Method,$84,000$28=3,000 units,$84,000 40%=$210,000,3-19,Graph Method,Revenue,Total costs,Breakeven,Fixed costs,3-20,Target Operating Income,(Fixed costs+Target operating income)divided either by Contribu
13、tion marginpercentage or Contribution margin per unit,3-21,Target Operating Income,Assume that management wants to have anoperating income of$14,000.,How many pairs of pants must be sold?,($84,000+$14,000)$28=3,500,What dollar sales are needed to achieve this income?,($84,000+$14,000)40%=$245,000,3-
14、22,Learning Objective 4,Understand how incometaxes affect CVP analysis.,3-23,Target Net Incomeand Income Taxes Example,Management would like to earnan after tax income of$35,711.,The tax rate is 30%.,What is the target operating income?,Target operating income=Target net income(1 tax rate),TOI=$35,7
15、11(1 0.30)=$51,016,3-24,Target Net Incomeand Income Taxes Example,How many units must be sold?,Revenues Variable costs Fixed costs=Target net income(1 tax rate),$70Q$42Q$84,000=$35,711 0.70,$28Q=$51,016+$84,000,Q=$135,016$28=4,822 pairs of pants,3-25,Target Net Incomeand Income Taxes Example,Proof:R
16、evenues:4,822$70$337,540Variable costs:4,822$42 202,524Contribution margin$135,016Fixed costs 84,000Operating income 51,016Income taxes:$51,016 30%15,305Net income$35,711,3-26,Learning Objective 5,Explain CVP analysisin decision making andhow sensitivity analysis helpsmanagers cope with uncertainty.
17、,3-27,Using CVP Analysis Example,Suppose the management anticipatesselling 3,200 pairs of pants.,Management is considering an advertisingcampaign that would cost$10,000.,It is anticipated that the advertising willincrease sales to 4,000 units.,Should the business advertise?,3-28,Using CVP Analysis E
18、xample,3,200 pairs of pants sold with no advertising:,Contribution margin$89,600Fixed costs 84,000Operating income$5,600,4,000 pairs of pants sold with advertising:,Contribution margin$112,000Fixed costs 94,000Operating income$18,000,3-29,Using CVP Analysis Example,Instead of advertising,management
19、isconsidering reducing the selling priceto$61 per pair of pants.,It is anticipated that this will increasesales to 4,500 units.,Should management decrease the sellingprice per pair of pants to$61?,3-30,Using CVP Analysis Example,3,200 pairs of pants sold with no changein the selling price:,Operating
20、 income=$5,600,4,500 pairs of pants sold at a reduced selling price:,Contribution margin:(4,500$19)$85,500Fixed costs 84,000Operating income$1,500,3-31,Sensitivity Analysis andUncertainty Example,Assume that the Pants Shop can sell4,000 pairs of pants.,Fixed costs are$84,000.,Contribution margin rat
21、io is 40%.,At the present time the business cannothandle more than 3,500 pairs of pants.,3-32,Sensitivity Analysis andUncertainty Example,To satisfy a demand for 4,000 pairs,managementmust acquire additional space for$6,000.,Should the additional space be acquired?,Revenues at breakeven with existin
22、g space are$84,000.40=$210,000.,Revenues at breakeven with additional space are$90,000.40=$225,000,3-33,Sensitivity Analysis andUncertainty Example,Operating income at$245,000 revenues withexisting space=($245,000.40)$84,000=$14,000.,(3,500 pairs of pants$28)$84,000=$14,000,3-34,Sensitivity Analysis
23、 andUncertainty Example,Operating income at$280,000 revenues withadditional space=($280,000.40)$90,000=$22,000.,(4,000 pairs of pants$28 contribution margin)$90,000=$22,000,3-35,Learning Objective 6,Use CVP analysis to plan fixed and variable costs.,3-36,Alternative Fixed/Variable CostStructures Exa
24、mple,What is the new contribution margin?,Decrease the price they charge from$32 to$25 andcharge an annual administrative fee of$30,000.,Suppose that the factory the Pants Shop is using toobtain the merchandise offers the following:,3-37,Alternative Fixed/Variable Cost Structures Example,$70($25+$10
25、)=$35,Contribution margin increases from$28 to$35.,What is the contribution margin percentage?,$35$70=50%,What are the new fixed costs?,$84,000+$30,000=$114,000,3-38,Alternative Fixed/Variable Cost Structures Example,Management questions what sales volumewould yield an identical operating incomerega
26、rdless of the arrangement.,28x 84,000=35x 114,000,114,000 84,000=35x 28x,7x=30,000,x=4,286 pairs of pants,3-39,Alternative Fixed/Variable Cost Structures Example,Cost with existing arrangement=Cost with new arrangement,.60 x+84,000=.50 x+114,000,.10 x=$30,000 x=$300,000,($300,000.40)$84,000=$36,000,
27、($300,000.50)$114,000=$36,000,3-40,Operating Leverage,Operating leverage describes the effects thatfixed costs have on changes in operatingincome as changes occur in units sold.,Organizations with a high proportion of fixedcosts have high operating leverage.,3-41,Operating Leverage Example,Degree of
28、 operating leverage=Contribution margin Operating income,What is the degree of operating leverageof the Pants Shop at the 3,500 sales levelunder both arrangements?,Existing arrangement:3,500$28=$98,000 contribution margin,3-42,Operating Leverage Example,$98,000 contribution margin$84,000 fixed costs
29、=$14,000 operating income,$98,000$14,000=7.0,New arrangement:3,500$35=$122,500 contribution margin,3-43,Operating Leverage Example,$122,500 contribution margin$114,000 fixed costs=$8,500,$122,500$8,500=14.4,The degree of operating leverage at a given levelof sales helps managers calculate the effect
30、 offluctuations in sales on operating income.,3-44,Learning Objective 7,Apply CVP analysis to a companyproducing different products.,3-45,Effects of Sales Mix on Income,Pants Shop Example,Management expects to sell 2 shirts at$20 each for every pair of pants it sells.,This will not require any addit
31、ional fixed costs.,3-46,Effects of Sales Mix on Income,What is the contribution margin of the mix?,Contribution margin per shirt:$20$9=$11,$28+(2$11)=$28+$22=$50,3-47,Effects of Sales Mix on Income,$84,000 fixed costs$50=1,680 packages,1,680 2=3,360 shirts1,680 1=1,680 pairs of pantsTotal units=5,04
32、0,3-48,Effects of Sales Mix on Income,What is the breakeven in dollars?,3,360 shirts$20=$67,2001,680 pairs of pants$70=117,600$184,800,3-49,Effects of Sales Mix on Income,What is the weighted-average budgeted contribution margin?,Pants:1$28+Shirts:2$11,=$50 3=$16.667,3-50,Effects of Sales Mix on Inc
33、ome,The breakeven point for the two products is:$84,000$16.667=5,040 units,5,040 1/3=1,680 pairs of pants 5,040 2/3=3,360 shirts,3-51,Effects of Sales Mix on Income,Sales mix can be stated in sales dollars:,Pants ShirtsSales price$70$40Variable costs 42 18Contribution margin$28$22Contribution margin
34、 ratio 40%55%,3-52,Effects of Sales Mix on Income,Assume the sales mix in dollarsis 63.6%pants and 36.4%shirts.,Weighted contribution would be:40%63.6%=25.44%pants55%36.4%=20.02%shirts45.46%,3-53,Effects of Sales Mix on Income,Breakeven sales dollars is$84,000 45.46%=$184,778(rounding).,$184,778 63.
35、6%=$117,519 pants sales$184,778 36.4%=$67,259 shirt sales,3-54,Learning Objective 8,Adapt CVP analysis to situations in which a product has more than one cost driver.,3-55,Multiple Cost Drivers Example,Suppose that the business will incur an additionalcost of$10 for preparing documents associatedwit
36、h the sale of pants to various customers.,Assume that the business sells 3,500pants to 100 different customers.,What is the operating income from this sale?,3-56,Multiple Cost Drivers Example,Revenues:3,500$70$245,000Variable costs:Pants:3,500$42147,000Documents:100$10 1,000Total 148,000Contribution
37、 margin 97,000Fixed costs 84,000Operating income$13,000,3-57,Multiple Cost Drivers,Would the operating income of the Pants Shopbe lower or higher if the business sells pantsto more customers?,The cost structure depends on two cost drivers:,1.Number of units,2.Number of customers,3-58,Learning Objective 9,Distinguish betweencontribution marginand gross margin.,3-59,Contribution Margin versusGross Margin,Contribution income statement emphasizescontribution margin.,Financial accounting income statementemphasizes gross margin.,3-60,End of Chapter 3,
