TAILIEUCHUNG - Issues in Financial Accounting (30)

PART III: Decision Tools. Lecture 30 Cost Volume Profit. Learning. Learning Objectives. Objectives. 1. Distinguish between variable and fixed costs 2. Explain the significance of the relevant range 3. Explain the concept of mixed costs 4. List the five components of cost-volume-profit analysis 5. Indicate what contribution margin is and how it can be. expressed. 6. Identify the three ways to determine the break-even point 7. Give the formulas for determining sales required to earn target. net income. 8. Define margin of safety, and give the formulas for computing it 9. Describe the essential features of a cost-volume-profit statement. Preamble. Preamble To manage any business, you must understand: How costs respond to changes in sales volume. and. The effect of costs and revenues on profit To understand cost-volume-profit (CVP), you must. know how costs Cost-Volume-Profit. Cost-Volume-Profit Cost Behavior Cost-Volume-. Analysis Profit Analysis Variable costs Basic components. Fixed costs CVP income. statement. Relevant range. Break-even analysis. Mixed costs. Target net income. Identifying. variable and fixed Margin of safety. costs Changes in business. environment. CVP statement revisited Cost. Cost Behavior. Behavior Analysis. Analysis. Cost Behavior Analysis is. the study of how specific costs respond to. changes in the level of business activity. Some costs change; others remain the same Helps management plan operations and decide. between alternative courses of action Applies to all types of businesses and entities5. LO 1: Distinguish between variable and fixed costs. Cost. Cost Behavior. Behavior Analysis. Analysis -- continued. continued. Starting point is measuring key business activities Activity levels may be expressed in terms of:. Sales dollars (in a retail company). Miles driven (in a trucking company). Room occupancy (in a hotel). Dance classes taught (by a dance studio) Many companies use more. than one measurement base6 LO 1: Distinguish between variable and fixed costs. Cost. Cost Behavior. Behavior Analysis. Analysis -- continued. continued. For an activity level to be useful:. Changes in the level or volume of activity. should be correlated with changes in costs The activity level selected is called the. activity or volume index The activity index:. Identifies the activity that causes changes in the. behavior of costs. Allows costs to be classified according to their. response to changes in activity as either:. Variable Costs Fixed Costs Mixed . LO 1: Distinguish between variable and fixed costs. Variable. Variable Costs. Costs Costs that vary in total directly and proportionately. with changes in the activity level Example: If the activity level increases 10 percent,. total variable

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• Issues in economics today
• Lecture Issues in economics today
• Macroeconomic issues
• International issues
• Price control issues
• Opportunity cost
• Demand model
• Elasticity of demand
• Firm production
• Perfect competition
• Gross domestic product
• Federal spending
• Fiscal policy
• Monetary policy
• Flaws in the CPI
• International trade
• International monetary fund
• Trade agreements
• Economic model
• Environmental problems
• Economic models of health care
• Medicaid costs
• Public insurance
• Prescription drugs
• Economics of crime
• Human capital
• Measuring poverty
• Social security
• Head start
• Affirmative action