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Cost-VolumeProfit Analysis
Accounting: A Malaysian Perspective, 4th ed
(Adapted from Accounting 22nd ed)
Warren, Reeve and Duchac
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Contents
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Contribution margin / Contribution margin
ratio / Unit contribution margin
Break-even point
Cost-volume-profit chart
Volume-profit chart
Margin of safety
Operating leverage
Assumptions underlying CVP analysis
8-2
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Margin Income Statement
4
style
8-2
RM1,000,000
600,000
RM 400,000
300,000
RM 100,000
RM1,000,000
600,000
RM 400,000
300,000
RM 100,000
8-2
100%
60%
40%
30%
10%
Unit
Contribution
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to editMargin
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8-2
style
8-2
65,000
units
Sales (RM20)
RM1,000,000 RM1,300,000
780,000
Variable costs (RM12)
600,000
Contribution margin (RM8)RM400,000 RM 520,000
300,000
Fixed costs
300,000
Net profit
RM 100,000 RM220,000
RM1,000,000
600,000
RM 400,000
300,000
RM 100,000
100%
60%
40%
30%
10%
8-2
RM20
12
RM 8
Review
RM1,000,000
600,000
RM 400,000
300,000
RM 100,000
100%
60%
40%
30%
10%
8-2
RM20
12
RM 8
10
8-2
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8-3
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Break-Even
Point
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8-3
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8-3
Fixed Costs
Unit Contribution Margin
RM90,000
Break-even point (units) =
RM10
Break-even point (units) = 9,000 units
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17
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ProofClick
of the Preceding
Computation
style
8-3
18
Effect
of Changes
Fixed Costs
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If
Fixed
Costs
Then
BreakEven
If
Fixed
Costs
Then
BreakEven
8-3
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19
Increasing
Click toFixed
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8-3
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8-3
Fixed Costs
Unit Contribution Margin
RM600,000
30,000
=
units
RM20
RM700,000
35,000
=
units
RM20
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Effect
of to
Changes
in
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Unit Variable Costs
If
Unit
Variable
Cost
If
Unit
Variable
Costs
title style
Then
BreakEven
Then
BreakEven
8-3
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8-3
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8-3
Fixed Costs
Unit Contribution Margin
RM840,000
8,000
=
units
RM105
RM840,000
8,400
=
units
RM100
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Effect
of to
Changes
in the
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Unit Selling Price
If
Unit
Selling
Price
Then
If
Unit
Selling
Price
Then
title style
8-3
BreakEven
BreakEven
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8-3
RM600,000 RM600,000
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8-3
Fixed Costs
Unit Contribution Margin
RM600,000
30,000
=
units
RM20
RM600,000
20,000
=
units
RM30
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Summary
of Effects
of
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Changes on Break-Even
Point
Effect of Change
Direction of
Change
on Break-even
Point (Units)
Fixed cost
Increase
Decrease
Increase
Decrease
Increase
Decrease
Increase
Decrease
Increase
Decrease
Decrease
Increase
Types of Change
8-3
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8-3
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Target
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8-3
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Units
Required
for Target
Profittitle
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8-3
RM200,000
RM100,000
Fixed Costs + Target
Profit
Sales (units) =
Unit
Contribution Margin
RM30
Sales (units) = 10,000 units
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Proof
of earlier
calculation:
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to edit
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8-3
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8-4
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Cost-Volume-Profit
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(Break-Even) Chart
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8-4
A cost-volume-profit chart,
sometimes called a break-even
chart, may assist management
in understanding relationships
among costs, sales, and
operating profit or loss.
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8-4
Example: Question 1
RM50
RM30
RM20
RM100,000
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Dollar
amounts
are
indicated
along the
vertical
axis.
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8-4
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
Volume is (Continued)
shown on the horizontal axis.
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Cost-Volume-Profit
Chart (Continued)
8-4
Point A
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
2 3 4 5
6 7 8
Units of Sales (in thousands)
9 10
At sales of RM500,000 and knowing that each unit sells for RM50, we
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can find the values of the two axis. Where the horizontal sales and costs
line intersects the vertical 10,000 unit of sales line is Point A.
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Cost-Volume-Profit
Chart (Continued)
8-4
Point A
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
2 3 4 5
6 7 8
Units of Sales (in thousands)
9 10
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Cost-Volume-Profit
Chart (Continued)
8-4
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
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Cost-Volume-Profit
Chart (Continued)
8-4
Point B
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
Similar to the sales line, a point is determined on the total cost line40
(10,000 x RM30) + RM100,000 = RM400,000 (Point B).
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Cost-Volume-Profit
Chart (Continued)
8-4
Point B
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
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Cost-Volume-Profit
Chart (Continued)
8-4
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
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Cost-Volume-Profit
Chart (Continued)
8-4
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
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Cost-Volume-Profit
Chart (Concluded)
8-4
Profit area
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
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RM80,000
0
2 3
4 5
6 7
8
Units of Sales (in thousands)
9 10
If fixed costs can be reduced to RM80,000, the new breakeven point is now at sales of RM200,000, or 4,000 units.
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Profit-Volume
Chart
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8-4
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The maximum operating loss is equal to the
8-4
Maximum profit
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Chart title
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8-4
RM100,000
RM75,000
Profit Line
RM50,000
Operating
RM25,000
profit
RM 0
RM(25,000) Operating
Break-Even Point
RM(50,000) loss
RM(75,000)
RM(100,000)
1 2
3 4 5
6 7 8 9 10
Units of Sales (in thousands)
Maximum loss is
RM100,000, the fixed costs.
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Margin
ClickoftoSafety
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8-5
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Margin
(MOS) title style
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8-5
Estimated sales
= ___% of sales
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If estimated sales are RM250,000, the unit selling price
8-5
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8-2
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Assumptions
of Cost-VolumeClick
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Profit Analysis
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8-6
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