Lecture 09 - Cost-Volume-Profit Analysis & Profit Planning Flashcards
How do you calculate the profit?
Profit = Total revenue - total costs
→ PI = R - Y
How do you calculate the revenue?
Revenue = Sales price per unit * number of units sold
→ R = pX
How do you calculate the total costs for a time period?
Total cost (equation) = Total fixed costs + (variable costs per unit x number of units sold)
→ Y = bX + a
What is the expanded formula (profit)?
→ PI = pX - (a +bx)
Profit (PI)= Sales price per Unit * Number of Units sold - (Total fixed costs + Variable Cost * Number of Units sold)
What value does the profit have with the break even point and with a profit of 1500 CHF? (2)
● PI = 0 for break even point
● PI = 1500 for profit of 1500 CHF
What is the difference between contribution income statement and functional income statement? (4)
- Cost
- Margin
Mark the following variable and fixed components in bold if they are also classified as cost of good sold? (4)
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Variable selling and administrative cost
- Fixed manufacturing overhead
- Fixed selling and administrative costs
Solution:
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Variable selling and administrative cost
- Fixed manufacturing overhead
- Fixed selling and administrative costs
What is the break-even point?
Total revenue = total costs
What happens if the company operates below and above break-even?
● Below: Loss
● Above: Profit
How do you calculate the contribution margin per unit?
Contribution margin per unit = Sales price per unit - variable costs per unit
How do you calculate the contribution margin ratio? (2)
- Contribution margin per unit / Sales price per unit
- 1 - Percentage of sales for variable costs
It represents the portion of sales revenue that is available to cover fixed costs and contribute to profit.
How do you calculate the break-even unit sales volume?
Break-even volume = Fixed costs/ (Sales price per unit - variable costs per unit) = fixed costs/Contribution margin per unit
What does operating leverage?
Measures the degree to which an organization’s costs are fixed
How do you determine the before-tax profit?
Before-tax profit = After-tax profit. / (1-tax rate)
How do you calculate DOL Degree of Operating Leverage?
- = Contribution Margin / Operating Income
- = Q (P – V) / Q (P – V) – F
Q = number of units.
P = price per unit.
V = variable cost per unit.
F = fixed costs.
How to calculate profit of a product, service or event?
How to calculate Revenue?
How to calculate total cost for a time period?
Cost-Volume-Profit (CVP) Analysis
What are the Applications? (5)
-
p roduction level determination
p ricing strategies - I mpact assessment of cost structure changes
- f easibility evaluation for new products or services.
- decision-making
