1、5-1Learning Objective 1Explain how changes in activity affect contribution margin and net operating income.5-2CVP Analysis A powerful tool for managers to understand the relationship among cost,volume,and profit.Affected by the following five factors:1.selling prices 2.sales volume 3.unit variable c
2、osts 4.total fixed costs 5.mix of product sold5-3Basics of Cost-Volume-Profit AnalysisContribution Margin(CM)is the amount remaining from sales revenue after variable expenses have been deducted.The contribution income statement is helpful to managers in judging the impact on profits of changes in s
3、elling price,cost,or volume.The emphasis is on cost behavior.5-4Basics of Cost-Volume-Profit AnalysisCM is used first to cover fixed expenses.Any remaining CM contributes to net operating income.5-5The Contribution Approach Sales,variable expenses,and contribution margin can also be expressed on a p
4、er unit basis.If Racing sells an additional bicycle,$200 additional CM will be generated to cover fixed expenses and profit.5-6The Contribution ApproachEach month,RBC must generate at least$80,000 in total contribution margin to break-even(which is the level of sales at which profit is zero).5-7The
5、Contribution ApproachIf RBC sells 400 units in a month,it will be operating at the break-even point.5-8The Contribution ApproachIf RBC sells one more bike(401 bikes),net operating income will increase by$200.5-9The Contribution ApproachWe do not need to prepare an income statement to estimate profit
6、s at a particular sales volume.Simply multiply the number of units sold above break-even by the contribution margin per unit.5-10CVP Relationships in Equation FormThe contribution format income statement can be expressed in the following equation:Profit=(Sales Variable expenses)Fixed expenses5-11CVP
7、 Relationships in Equation FormThis equation can be used to show the profit RBC earns if it sells 401.Notice,the answer of$200 mirrors our earlier solution.Profit=(Sales Variable expenses)Fixed expenses401 units$500401 units$300$80,000Profit=($200,500 Variable expenses)FixedProfit=($200,500$120,300)
8、Fixed expensesProfit=($200,500$120,300)$80,000$200=($200,500$120,300)$80,0005-12CVP Relationships in Equation FormWhen a company has only one product we can further refine this equation as shown on this slide.Profit=(Sales Variable expenses)Fixed expensesProfit=(P Q V Q)Fixed expenses5-13CVP Relatio
9、nships in Equation FormThis equation can also be used to show the$200 profit RBC earns if it sells 401 bikes.Profit=(Sales Variable expenses)Fixed expensesProfit=(P Q V Q)Fixed expensesProfit=($500 401$300 401)$80,000=($500 401$300 401)$80,0005-14CVP Relationships in Equation FormUnit CM=Selling pri
10、ce per unit Variable expenses per unitIt is often useful to express the simple profit equation in terms of the unit contribution margin(Unit CM)as follows:Profit=(P Q V Q)Fixed expensesProfit=(P V)Q Fixed expensesProfit=Unit CM Q Fixed expensesUnit CM=P V5-15CVP Relationships in Equation FormProfit=
11、(P Q V Q)Fixed expensesProfit=(P V)Q Fixed expensesProfit=Unit CM Q Fixed expensesProfit=($500$300)401$80,000Profit=$200 401$80,000Profit=$80,200$80,000Profit=$200This equation can also be used to compute RBCs$200 profit if it sells 401 bikes.5-16Learning Objective 2Prepare and interpret a cost-volu
12、me-profit(CVP)graph and a profit graph.5-17CVP Relationships in Graphic FormThe relationships among revenue,cost,profit,and volume can be expressed graphically by preparing a CVP graph.Racing Bicycle developed contribution margin income statements at 0,200,400,and 600 units sold.We will use this inf
13、ormation to prepare the CVP graph.5-18$0$50,000$100,000$150,000$200,000$250,000$300,000$350,0000100200 300 400 500 600 Preparing the CVP GraphUnitsDollarsIn a CVP graph,unit volume is usually represented on the horizontal(X)axis and dollars on the vertical(Y)axis.5-19$0$50,000$100,000$150,000$200,00
14、0$250,000$300,000$350,0000100200 300 400 500 600 Fixed expensesPreparing the CVP GraphUnitsDollarsDraw a line parallel to the volume axis to represent total fixed expenses.5-20$0$50,000$100,000$150,000$200,000$250,000$300,000$350,0000100200 300 400 500 600 Total expensesFixed expensesPreparing the C
15、VP GraphUnitsDollars5-21$0$50,000$100,000$150,000$200,000$250,000$300,000$350,0000100200 300 400 500 600 SalesTotal expensesFixed expensesPreparing the CVP GraphUnitsDollars5-22$0$50,000$100,000$150,000$200,000$250,000$300,000$350,0000100200 300 400 500 600 SalesTotal expensesFixed expensesPreparing
16、 the CVP GraphUnitsDollarsLoss AreaProfit Area5-23Preparing the CVP GraphProfit=Unit CM Q Fixed Costs An even simpler form of the CVP graph is called the profit graph.5-24Preparing the CVP GraphBreak-even point,whereprofit is zero,is 400 units sold.5-25Learning Objective 3Use the contribution margin
17、 ration(CM ratio)to compute changes in contribution margin and net operating income resulting from changes in sales volume.5-26Contribution Margin Ratio(CM Ratio)$100,000$250,000=40%The CM ratio is calculated by dividing the total contribution margin by total sales.5-27Contribution Margin Ratio(CM R
18、atio)The contribution margin ratio at Racing Bicycle is:The CM ratio can also be calculated by dividing the contribution margin per unit by the selling price per unit.CM per unitSP per unitCM Ratio =40%$200$500=5-28Contribution Margin Ratio(CM Ratio)A$50,000 increase in sales revenue results in a$20
19、,000 increase in CM($50,000 40%=$20,000).If Racing Bicycle increases sales from 400 to 500 bikes($50,000),contribution margin will increase by$20,000($50,000 40%).Here is the proof:5-29Quick Check Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of
20、coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expense per month is$1,300.An average of 2,100 cups are sold each month.What is the CM Ratio for Coffee Klatch?a.1.319b.0.758c.0.242d.4.1395-30 Coffee Klatch is an espresso stand in a downtown office building.The avera
21、ge selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expense per month is$1,300.An average of 2,100 cups are sold each month.What is the CM Ratio for Coffee Klatch?a.1.319b.0.758c.0.242d.4.139Quick Check Unit contribution marginUnit selling p
22、riceCM Ratio=($1.49-$0.36)$1.49=$1.13$1.49=0.7585-31Contribution Margin Ratio(CM Ratio)The relationship between profit and the CM ratio can be expressed using the following equation:Profit=(CM ratio Sales)Fixed expensesProfit=(40%$250,000)$80,000Profit=$100,000$80,000Profit=$20,000If Racing Bicycle
23、increased its sales volume to 500 bikes,what would management expect profit or net operating income to be?5-32Learning Objective 4Show the effect on net operating income of changes in variable costs,fixed costs,selling price,and volume.5-33The Variable Expense RatioThe variable expense ratio is the
24、ratio of variable expenses to sales.It can be computed by dividing the total variable expenses by the total sales,or in a single product analysis,it can be computed by dividing the variable expenses per unit by the unit selling price.5-34Changes in Fixed Costs and Sales VolumeWhat is the profit impa
25、ct if Racing Bicycle can increase unit sales from 500 to 540 by increasing the monthly advertising budget by$10,000?5-35Changes in Fixed Costs and Sales Volume5-36Changes in Fixed Costs and Sales VolumeA shortcut solution using incremental analysis5-37Change in Variable Costs and Sales VolumeWhat is
26、 the profit impact if Racing Bicycle can use higher quality raw materials,thus increasing variable costs per unit by$10,to generate an increase in unit sales from 500 to 580?5-38Change in Variable Costs and Sales Volume5-39Change in Fixed Cost,Sales Price,and VolumeWhat is the profit impact if RBC:(
27、1)cuts its selling price$20 per unit,(2)increases its advertising budget by$15,000 per month,and(3)increases sales from 500 to 650 units per month?5-40Change in Fixed Cost,Sales Price,and Volume5-41Change in Variable Cost,Fixed Cost,and Sales VolumeWhat is the profit impact if RBC:(1)pays a$15 sales
28、 commission per bike sold instead of paying salespersons flat salaries that currently total$6,000 per month,and(2)increases unit sales from 500 to 575 bikes?5-42Change in Variable Cost,Fixed Cost,and Sales Volume5-43Change in Regular Sales PriceIf RBC has an opportunity to sell 150 bikes to a wholes
29、aler without disturbing sales to other customers or fixed expenses,what price would it quote to the wholesaler if it wants to increase monthly profits by$3,000?5-44Change in Regular Sales Price5-45Learning Objective 5Determine the level of sales needed to achieve a desired target profit.5-46Target P
30、rofit AnalysisWe can compute the number of units that must be sold to attain a target profit using either:(1)Equation method,or(2)Formula method.5-47Equation MethodProfit =Unit CM Q Fixed expensesOur goal is to solve for the unknown“Q”which represents the quantity of units that must be sold to attai
31、n the target profit.5-48Target Profit AnalysisSuppose RBCs management wants to know how many bikes must be sold to earn a target profit of$100,000.Profit =Unit CM Q Fixed expenses$100,000 =$200 Q$80,000$200 Q =$100,000$80,000Q =($100,000+$80,000)$200Q =9005-49The Formula MethodThe formula uses the f
32、ollowing equation.Target profit+Fixed expensesCM per unit =Unit sales to attainthe target profit5-50Target Profit Analysis in Terms of Unit Sales Suppose Racing Bicycle Company wants to know how many bikes must be sold to earn a profit of$100,000.Target profit+Fixed expensesCM per unit =Unit sales t
33、o attainthe target profitUnit sales=900$100,000+$80,000$200Unit sales=5-51Target Profit AnalysisWe can also compute the target profit in terms of sales dollars using either the equation method or the formula method.EquationMethodFormulaMethodOR5-52Equation MethodProfit =CM ratio Sales Fixed expenses
34、Our goal is to solve for the unknown“Sales,”which represents the dollar amount of sales that must be sold to attain the target profit.Suppose RBC management wants to know the sales volume that must be generated to earn a target profit of$100,000.$100,000 =40%Sales$80,00040%Sales=$100,000+$80,000Sale
35、s=($100,000+$80,000)40%Sales=$450,0005-53Formula Method We can calculate the dollar sales needed to attain a target profit(net operating profit)of$100,000 at Racing Bicycle.Target profit+Fixed expenses CM ratio=Dollar sales to attainthe target profit Dollar sales=$450,000$100,000+$80,00040%Dollar sa
36、les=5-54Quick Check Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expense per month is$1,300.Use the formula method to determine how many cups of coffee would ha
37、ve to be sold to attain target profits of$2,500 per month.a.3,363 cupsb.2,212 cupsc.1,150 cupsd.4,200 cups5-55 Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expe
38、nse per month is$1,300.Use the formula method to determine how many cups of coffee would have to be sold to attain target profits of$2,500 per month.a.3,363 cupsb.2,212 cupsc.1,150 cupsd.4,200 cupsQuick Check Target profit+Fixed expensesUnit CMUnit salesto attaintarget profit=3,363 cups=$3,800$1.13$
39、2,500+$1,300$1.49-$0.36=5-56Quick Check Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expense per month is$1,300.Use the formula method to determine the sales do
40、llars that must be generated to attain target profits of$2,500 per month.a.$2,550b.$5,013c.$8,458d.$10,5555-57 Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expe
41、nse per month is$1,300.Use the formula method to determine the sales dollars that must be generated to attain target profits of$2,500 per month.a.$2,550b.$5,013c.$8,458d.$10,555Quick Check Target profit+Fixed expensesCM ratioSales$to attaintarget profit=$5,013=$3,8000.758$2,500+$1,300($1.49 0.36)$1.
42、49=5-58Learning Objective 6Determine the break-even point.5-59Break-even AnalysisThe equation and formula methods can be used to determine the unit sales and dollar sales needed to achieve a target profit of zero.Lets use the RBC information to complete the break-even analysis.5-60Break-even in Unit
43、 Sales:Equation Method$0 =$200 Q +$80,000Profits =Unit CM Q Fixed expensesSuppose RBC wants to know how many bikes must be sold to break-even (earn a target profit of$0).Profits are zero at the break-even point.5-61Break-even in Unit Sales:Equation Method$0 =$200 Q +$80,000$200 Q=$80,000Q =400 bikes
44、Profits =Unit CM Q Fixed expenses5-62Break-even in Unit Sales:Formula Method Lets apply the formula method to solve for the break-even point.Unit sales=400$80,000$200Unit sales=Fixed expensesCM per unit =Unit sales to break even5-63Break-even in Dollar Sales:Equation MethodSuppose Racing Bicycle wan
45、ts to compute the sales dollars required to break-even(earn a target profit of$0).Lets use the equation method to solve this problem.Profit =CM ratio Sales Fixed expensesSolve for the unknown“Sales.”5-64Break-even in Dollar Sales:Equation MethodProfit =CM ratio Sales Fixed expenses$0 =40%Sales$80,00
46、040%Sales=$80,000Sales=$80,000 40%Sales=$200,0005-65Break-even in Dollar Sales:Formula MethodNow,lets use the formula method to calculate the dollar sales at the break-even point.Dollar sales=$200,000$80,00040%Dollar sales=Fixed expenses CM ratio=Dollar sales tobreak even5-66Quick Check Coffee Klatc
47、h is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expense per month is$1,300.An average of 2,100 cups are sold each month.What is the break-even sales dollars?a.$1,300b.$1,715c.
48、$1,788d.$3,1295-67 Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.The average fixed expense per month is$1,300.An average of 2,100 cups are sold each month.What is the break-even s
49、ales dollars?a.$1,300 b.$1,715 c.$1,788 d.$3,129Quick Check Fixed expensesCM RatioBreak-evensales$1,3000.758=$1,715=5-68Quick Check Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 and the average variable expense per cup is$0.36.T
50、he average fixed expense per month is$1,300.An average of 2,100 cups are sold each month.What is the break-even sales in units?a.872 cups b.3,611 cups c.1,200 cups d.1,150 cups5-69 Coffee Klatch is an espresso stand in a downtown office building.The average selling price of a cup of coffee is$1.49 a
