PP For Chapter 8 - Cost Volume Profit - Final

1
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Cost
Behaviour
and CostVolume-Profit
Analysis
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After studying this chapter, you should be able to:
1. Classify costs by their behavior as variable costs,
fixed costs, or mixed costs.

2. Compute the contribution margin, the contribution
margin ratio, and the unit contribution margin, and

explain how they may be useful to managers.

3.
Use the unit contribution margin, determine the

break-even point and the volume necessary to
achieve a target profit.
4.
Use a cost-volume-profit chart and a profitvolume chart, determine the break-even point
and the volume necessary to achieve a target
profit.
3

5.
6.
Compute the margin of safety and the operating

leverage, and explain how managers use these
concepts
List the assumptions underlying cost-volumeprofit analysis.

Objective
Objective 11
8-1
Classify costs by their

behavior as variable
costs, fixed costs, or
mixed costs.
5
Cost Behavior
8-1
Cost behavior refers to the manner in

which a cost changes as a related
activity changes. Such activities are
called activity base (or activity
drivers). The range of activity over
which the changes in the cost are of
interest is called the relevant range.
6
Variable Costs
8-1
Variable costs are

costs that vary in
proportion to
changes in the level
of activity.
7
Syarikat Tah
8-1
Syarikat Tah produces stereo sound systems

under the brand name of T-Sound. The parts for
the T-Sound stereos are purchased from outside
suppliers for RM10 per unit (a variable cost) and
assembled in Syarikat Tahs Sintok plant.

Variable Cost Graphs
8-1
Total Direct
Materials Cost
Total Variable Cost Graph

RM300,000
RM250,000
RM200,000
RM150,000
RM100,000
RM50,000
10
20
30
Total Units (Model TS-12)

Produced (thousands)
(Continued)
99
10
8-1
Unit Variable Cost Graph

Direct Materials
Cost per Unit
RM20
RM15
RM10
RM5
0
10
20
30
Total Units (Model TS12) Produced (thousands)

10
(Concluded)
11
Click to edit Master RM20

title style
RM300,000
RM250,000
RM200,000
RM150,000
RM100,000
RM50,000
Cost per Unit
Total Costs
Unit Cost Compared to Total Cost
0
10
20
30
Units Produced (000)
Number of
Units of Model
JS-12 Produced
5,000 units
10,000
15,000
20,000
25,000
30,000
8-1
RM15
RM10
RM5
0
10
20
30
Direct
Materials Cost
per Unit
Total Direct
Materials Cost
RM10
10
10
10
10
10
RM 50,000
l00,000
150,000
200,000
250,000
300,000
11
11
12
Fixed Costs
8-1
Fixed costs are costs that

remain the same in total
dollar amount as the level
of activity changes.
12
13
Syarikat Mons Jitra Plant
8-1
The production supervisor for Syarikat

Mons Jitra plant is Siti Maimon. She is
paid RM75,000 per year. The plant
produces from 50,000 to 300,000 bottles of
La Fleur Perfume.
13
14
Fixed Versus Variable Cost of Siti

Maimons Salary
Number of
Bottles of Perfume
Produced
50,000 bottles
100,000
150,000
200,000
250,000
300,000
8-1
Total Salary for Salary per Bottle

of Perfume
Siti Maimon
Produced
RM75,000
75,000
75,000
75,000
75,000
75,000
RM1.500
0.750
0.500
0.375
0.300
0.250
14
15
Unit Cost
Total Costs
Click to edit MasterRM1.50

title style
RM150,000
RM125,000
RM100,000
RM75,000
RM50,000
RM25,000
0 100 200 300

Bottles Produced (000)
Number of
Bottles of Perfume
Produced
8-1
RM1.25
RM1.00
RM.75
RM.50
RM.25
0
100 200 300
Salary per Bottle

of Perfume
Total Salary
for Siti Maimon Produced
50,000 bottles RM75,000

100,000
75,000
150,000
75,000
200,000
75,000
RM1.500
0.750
0.500
0.375
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16
Mixed Costs
8-1
A mixed cost (sometimes called

semivariable or semifixed costs) has
characteristics of both a variable and
a fixed cost. Over one range of
activity, the total mixed cost may
remain the same. Over another
range of activity, the mixed cost may
change in proportion to changes in
level of activity.
16
17
Syarikat Syed Example
8-1
Syarikat Syed manufactures sails using

rented equipment. The rental charges
are RM15,000 per year, plus RM1 for
each machine hour used over 10,000
hours.
17
18
Total Costs
Mixed Cost Graph for Syarikat Syed

Equipment Rental Charges
RM45,000
RM40,000
RM35,000
RM30,000
RM25,000
RM20,000
RM15,000
RM10,000
RM5,000
8-1
Mixed costs are

usually separated into
their fixed and
variable components
for management
analysis.
0
10 20
30
40
Total Machine Hours (000)
18
19
High-Low Method
8-1
The high-low method is a

simple cost estimate
technique that may be
used for separating mixed
costs into their fixed and
variable components.
19
20
Estimating Variable Cost Using High-Low
Production Total
(Units)
Cost
June
July
August
September
October
1,000 RM45,550
1,500
52,000
2,100
61,500
1,800
57,500
750
41,250
8-1
Actual costs incurred
First, select the

highest and lowest
levels of activity.
Difference in Total cost

Variable Cost per Unit = Difference in Production
20
21
8-1
Production Total
(Units)
Cost
June
July
August
September
October
1,000 RM45,550
1,500
52,000
2,100
61,500
1,800
57,500
750
41,250
Then, fill in the

formula.
RM61,500
41,250
RM20,250
RM20,250
Difference
in Total Cost
821
22
8-1
Production Total
(Units)
Cost
June
July
August
September
October
1,000 RM45,550
1,500
52,000
2,100
61,500
1,800
57,500
750
41,250
Then, fill in the

formula.
2,100
750
1,350
RM20,250
Difference
in total cost
1,350
22
23
8-1
Production Total
(Units)
Cost
June
July
August
September
October
1,000 RM45,550
1,500
52,000
2,100
61,500
1,800
57,500
750
41,250
Variable Cost per Unit =
Variable cost per

unit is RM15
RM20,250
1,350
= RM15
23
24
Estimating Fixed Cost Using High-Low
8-1
Production Total
(Units)
Cost
June
July
August
September
October
1,000 RM45,550
1,500
52,000
2,100
61,500
1,800
57,500
750
41,250
Next, insert the

variable cost of RM15
into the formula.
Total Cost = (Variable Cost per Unit x Units of Production)

+ Fixed cost
Total cost = (RM15 x Units of Production) + Fixed cost
24
25
Production Total
(Units)
Cost
June
July
August
September
October
1,000 RM45,550
1,500
52,000
2,100
61,500
1,800
57,500
750
41,250
8-1
Using the highest

level of production,
we insert the total cost
and units produced in
the formula.
Total Cost = (Variable Cost per Unit x Units of Production)

+ Fixed cost
RM61,500
2,100 of
units)
Total cost = (RM15 x Units
Production) + Fixed Cost
25
26
8-1
RM61,500 = (RM15 x 2,100 units) + Fixed cost

RM61,500 = RM31,500 + Fixed cost
RM61,500 RM31,500 = Fixed cost
RM30,000 = Fixed cost
If the lowest level had been
chosen, the results of the
formula would provide the
same fixed cost of RM30,000.
26
27
8-1
Example Exercise 8-1
The manufacturing cost of Perusahaan Alisa for

the first three months of the year are provided
below:
Total Cost Production
January RM80,000 1,000 units
February RM125,000 2,500
March RM100,000 1,800
Using the high-low method, determine the

(a) variable cost per unit, and (b) the total fixed
cost.
27
28
8-1

Follow My Example 8-1
a. RM30 per unit = RM125,000 RM80,000

(2,500 1,000)
b. RM50,000 = RM125,000 (RM30 x 2,500)
or RM80,000 (RM30 x 1,000)
28
For Practice: PE8-1
29
Total
Variable
Costs
Total Costs
Summary of Cost Behavior Concepts
8-1
Total costs
increase and
decrease
proportionately
with activity level.
Unit
Variable
Costs
Per Unit Cost
Total Units Produced
Unit costs remain

the same per unit
regardless of
activity.
29
30
Total
Fixed Costs
Total Costs
Summary of Cost Behavior Concepts
8-1
Unit costs remain

the same
regardless of
activity.
Unit
Fixed Costs
Per Unit Cost
Total costs
increase and
decrease with
activity
level.
30
31

Objective
Objective 22
8-2
Compute the contribution

margin, the contribution margin
ratio, and the unit contribution
margin, and explain how they
may be useful to managers.
31
32
Cost-Volume-Profit Relationships
8-2
Cost-volume-profit analysis is the systematic

examination of the relationships among selling
prices, sales and production volume, costs,
expenses, and profits.
32
33
8-2
The contribution margin is the excess of sales

revenues over variable costs. It contributes
first toward covering fixed costs, then
contributes to profit.
33
34

4 Contribution Margin
8-2
Income Statement
Sales (50,000 units)

RM1,000,000
Variable costs
600,000
Contribution margin
RM 400,000
Fixed costs
300,000
Income from operations RM 100,000
34
35
Contribution Margin Ratio

RM1,000,000
Variable costs
600,000
Contribution margin
RM 400,000
Fixed costs
300,000
8-2
100%
60%
40%
30%
10%
Sales Variable Costs

Contribution Margin Ratio =
Sales
RM1,000,000 RM600,000
Contribution Margin Ratio =
RM1,000,000
Contribution Margin Ratio = 40%
35
36
Unit Contribution Margin
8-2
The unit contribution margin

is also useful for analyzing the
profit potential of proposed
projects. The unit contribution
margin is the sales price less
the variable cost per unit.
36
37
Using Contribution Margin per

Unit as a Shortcut
50,000
units
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
Income from operations RM 100,000 RM220,000
The increase in income from operations of

RM120,000 could have been determined quickly
by multiplying the increase in unit sales (15,000)
by the contribution margin per unit (RM8).
37
38

RM1,000,000
Variable costs
600,000
Contribution margin
RM 400,000
Fixed costs
300,000
100%
60%
40%
30%
10%
Unit contribution margin

analyses can provide useful
information for managers.
8-2
RM20
12
RM 8
38
39
Review

RM1,000,000
Variable costs
600,000
Contribution margin
RM 400,000
Fixed costs
300,000
100%
60%
40%
30%
10%
8-2
RM20
12
RM 8
The contribution margin can be expressed three ways:

1. Total contribution margin in dollars.
2. Contribution margin ratio (percentage).
3. Unit contribution margin (dollars per unit).
39
40
8-2
Syarikat Molly sells 20,000 units at RM12 per

unit. Variable costs are RM9 per unit, and
fixed costs are RM25,000. Determine the (a)
contribution margin ratio, (b) unit contribution
margin, and (c) income from operations.
40
41
82

a. 25% = (RM12 RM9)/RM12 or (RM240,000
RM180,000)/RM240,000
b. RM3 per unit = RM12 RM9
c. Sales
RM240,000 (20,000 x RM12)
Variable costs
180,000 (20,000 x RM9)
Contribution margin RM 60,000 [20,000 x (RM12 RM9)]
Fixed costs
25,000
Income from operationsRM 35,000
41
41
For Practice: PE 8-2
42

Objective
Objective 33
8-3
Using the unit contribution

margin, determine the break-even
point and the volume necessary to
42
43
Break-Even Point
8-3
The break-even point is the level of

operations at which a businesss
revenues and expired costs are
exactly equal.
43
44
8-3
Syarikat Bakar fixed costs are estimated to

be RM90,000. The unit contribution margin
is calculated as follows:
Unit selling price
RM25
Unit variable cost
15
Unit contribution marginRM10
44
45
8-3
The break-even point is calculated using the

following equation:
Fixed Costs
Break-Even Sales (units) =
Break-Even Sales (units) =
RM90,000
RM10
Break-Even Sales (units) = 9,000 units

45
46
Proof of the Preceding

Computation
8-3
Sales (RM25 x 9,000)

RM225,000
Variable costs (RM15 x 9,000) 135,000
Contribution margin
RM 90,000
Fixed costs
90,000
Income from operations RM
0
Income from operations is zero when

9,000 units are soldhence, breakeven is 9,000 units.
46
47
Effect of Changes in Fixed Costs
If
Fixed
Fixed
Costs
Costs
Then
BreakBreakEven
Even
If
Fixed
Fixed
Costs
Costs
Then
BreakBreakEven
Even
8-3
47
48
Increasing Fixed Costs
8-3
Syarikat Lazer is evaluating a

proposal to budget an additional
RM100,000 for advertising. Fixed
costs before the additional
advertising are estimated at
RM600,000, and the unit
contribution margin is RM20.
48
49
8-3
Without additional advertising:

Fixed Costs
Break-Even in Sales (units) =
RM600,000
= 30,000
RM20
units
With additional advertising:
RM700,000
=
RM20
35,000
units
49
50
Effect of Changes in Unit

Variable Costs
If
Unit
Unit
Variable
Variable
Cost
Cost
If
Unit
Unit
Variable
Variable
Costs
Costs
Then
BreakBreakEven
Even
Then
BreakBreakEven
Even
8-3
50
51
8-3
Syarikat Antah. is evaluating a proposal to pay an

additional 2% commission on sales to its
salespeople (a variable cost) as an incentive to
increase sales. Fixed costs are estimated at
RM840,000. The unit contribution margin before
the additional 2% commission is determined as
follows:
Unit selling price
RM250
Unit variable cost
145
51
52
8-3
Without additional 2% commission:

Fixed Costs
RM840,000
RM105
= 8,000 units
With additional 2% commission:

RM840,000
=
RM100
RM250 [RM145 + (RM250 x 2%)]
= RM100
8,400 units
52
53
Effect of Changes in the Unit

Selling Price
If
Unit
Unit
Selling
Selling
Price
Price
If
Unit
Unit
Selling
Selling
Price
Price
Then
8-3
BreakBreakEven
Even
Then
BreakBreakEven
Even
53
54
8-3
Syarikat Jendi is evaluating a proposal to increase

the unit selling price of a product from RM50 to
RM60. The following data have been gathered:
Current Proposed
Unit selling price
RM50
RM60
Unit variable cost
30
30
Unit contribution margin RM20
RM30
Total fixed costs
RM600,000RM600,000
54
55
8-3
Without price increase:

Fixed Costs
RM600,000
RM20
30,000
=
units
With price increase:

RM600,000
RM30
20,000
=
units
55
56
Summary of Effects of Changes

on Break-Even Point
Type of Change
8-3
Effect of Change
Direction of on Break-Even
Change
Sales (Units)
Fixed cost
Increase
Decrease
Increase
Decrease
Variable cost per unit
Increase
Decrease
Increase
Decrease
Unit sales price
Increase
Decrease
Decrease
Increase
56
57
8-3
Nik Enterprise sells a product for RM60 per unit. The

variable cost is RM35 per unit, while fixed costs are
RM80,000. Determine the (a) break-even point in sales
units, and (b) break-even point if the selling price were
increased to RM67 per unit.
a. 3,200 units = RM80,000/(RM60 RM35)
b. 2,500 units = RM80,000/(RM67 RM35)
57
58
Target Profit
8-3
The sales volume required to earn a target profit is

determined by modifying the break-even equation.
Fixed Costs + Target Profit

Sales (units) =
58
59
Units Required for Target Profit
8-3
Fixed costs are estimated at RM200,000, and

the desired profit is RM100,000. Unit
contribution margin is RM30.
Unit selling price
RM75
Unit variable cost
45
RM200,000
RM100,000
Fixed Costs + Target
Profit
Sales (units) =
Unit
Contribution Margin
RM30
Sales (units) = 10,000 units
59
60
8-3
Sales (10,000 units x RM75) RM750,000

Variable costs (10,000 x RM45) 450,000
Contribution margin (10,000
x RM30)
RM300,000
Fixed costs
200,000
Income from operations
RM100,000
Proof that sales of 10,000 units will provide a
profit of RM100,000.
60
61
8-3
Syarikat Fika sells a product for RM140 per unit. The

variable cost is RM60 per unit, and fixed costs are
RM240,000. Determine the (a) break-even point in
sales units, and (b) break-even point in sales units if the
company desires a target profit of RM50,000.
a. 3,000 units = RM240,000/(RM140 RM60)
b. 3,625 units = (RM240,000 + RM50,000)/(RM140 RM60)
61
62

Objective
Objective 44
8-4
Using a cost-volume-profit chart

and a profit-volume chart,
determine the break-even point
and the volume necessary to
62
63
Cost-Volume-Profit (BreakEven) Chart
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.
63
64
8-4
The cost-volume-profit chart in Exhibit 5 (Slide 65) is

based on the following data:
Unit selling price
Unit variable cost
Unit contribution margin
RM 50
30
RM 20
Total fixed costs
RM100,000
64
65

Dollar
amounts
are
indicated
along the
vertical
axis.
Sales and Costs (in thousands)
Cost-Volume-Profit
Chart
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
(Continued)
Volume
is
Volume isshown
shownon
onthe
thehorizontal
horizontalaxis.
axis.
65
66

Cost-Volume-Profit
Chart (Continued)
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
8-4
Point A
2
3
4
5
6
7
8
9 10
At sales of RM500,000 and knowing that each unit sells for RM50, we
66
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.
67

Cost-Volume-Profit
Chart (Continued)
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
Point A
8-4
2
3
4
5
6
7
8
9 10
Now, beginning at zero on the left corner of the graph, connect

a straight line to the dot (Point A). Note: Point A could have
been plotted at any sales level because linearity is assumed.
67
68

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
Fixed cost of RM100,000 is a horizontal line.
9 10
68
69

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
9 10
Similar to the sales line, a point is determined on the cost

line (10,000 x RM30) + RM100,000 = RM400,000
69
70

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
9 10
Beginning with the total fixed cost at the vertical axis

(RM100,000), draw a line to the red dot. This is the total cost
line.
70
71

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
9 10
Horizontal and vertical lines are drawn at the

intersection point of the sales line and the costs line,
which is the break-even point.
71
72

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
Break-even is sales of 5,000 units or RM250,000.
9 10
72
73

Cost-Volume-Profit
Chart (Concluded)
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0
8-4
Loss area
Profit area
2
3
4
5
6
7
8
9 10
73
74
Revised Cost-Volume-Profit Chart
8-4
Using the data in Slide 73, assume that

a proposal to reduce fixed cost by
RM20,000 is to be evaluated. A costvolume-profit chart can be created to
assist in this evaluation.
74
75

Revised Cost-Volume-
8-4
Profit Chart
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
RM80,000
0
2
3
4
5
6
7
8
9 10
If fixed costs can be reduced to RM80,000, the new breakeven point is sales of RM200,000, or 4,000 units.
75
76
Profit-Volume Chart
8-4
Another graphic approach to cost-volumeprofit analysis, the profit-volume chart,

plots only the difference between total
sales and total costs (or profits). Again, the
data from Exhibit 5 will be used.
Unit selling price
RM 50
Unit variable cost
30
Unit contribution margin RM 20
Total fixed costs
RM100,000
76
77
Click
to
edit
Master
title
style
The maximum operating loss is equal to the
8-4
fixed costs of RM100,000. Assuming that the

maximum unit sales within the relevant range is
10,000 units, the maximum operating profit is
RM100,000, computed as follows:
Sales (10,000 units x RM50)
RM500,000
Variable costs (10,000 units x RM30)
300,000
Contribution margin (10,000 units x RM20) 200,000
Fixed costs
100,000
Operating profit
RM100,000
Maximum profit
77
78

Profit-Volume Chart
8-4
Operating Profit (Loss)
RM100,000
RM75,000
Profit Line
RM50,000
Operating
RM25,000
profit
RM 0
RM(25,000) Operating
RM(50,000) loss
Break-Even Point
RM(75,000)
RM(100,000)
1
2
3
4
5
6
7
8
9 10
Maximum loss is
RM100,000, the fixed costs.
78
79

Objective
Objective 55
8-2
Compute the margin of safety and

the operating leverage, and
explain how managers use these
concepts.
79
80
Operating Leverage
8-5
The relative mix of a businesss variable costs

and fixed costs is measured by the operating
leverage. It is computed as follows:
Contribution Margin
Operating Leverage = Income from Operations
80
81
Operating Leverage Example
8-5
Syarikat Salam Syarikat Sinar

Sales
RM400,000
RM400,000
Variable costs
300,000
300,000
Contribution margin
RM100,000
RM100,000
Fixed costs
80,000
50,000
RM 20,000
RM 50,000
Operating leverage
?
?
Both companies have the same

contribution margin.
89
81
82

Sales
Variable costs
Contribution margin
Fixed costs
Operating leverage
8-5

RM400,000
RM400,000
300,000
300,000
RM100,000
RM100,000
80,000
50,000
RM 20,000
RM 50,000
?5
?
RM100,000
Syarikat Salam Contribution Margin
=5
RM20,000
Income
from Operations
90
82
83
8-5

Sales
RM400,000
RM400,000
Variable costs
300,000
300,000
Contribution margin
RM100,000
RM100,000
Fixed costs
80,000
50,000
RM 20,000
RM 50,000
Operating leverage
?2
5?
Syarikat Sinar:
Contribution
RM100,000 Margin
=2
RM50,000
Income from Operations
91
83
84
High Versus Low Operating Leverage
8-5
92
84
85
8-5
Syarikat Tariq reports the following data:

Sales
Variable costs
Fixed costs
RM750,000
RM500,000
RM187,500
Determine Syarikat Tariqs operating leverage.

4.0 = (RM750,000 RM500,000)/(RM750,000 RM500,000
RM187,500) = RM250,000/RM62,500
For Practice: PE8-5
93
85
86
Margin of Safety
8-5
The difference between the current sales

revenue and the sales revenue at the
break-even point is called the margin of
safety.
86
87
8-5
If sales are RM250,000, the unit selling price is RM25,

and the sales at the break-even point are RM200,000, the
margin of safety is 20%, computed as follows:
Margin of Safety =
Margin of Safety =
Sales Sales at Break-Even Point

Sales
RM250,000 RM200,000
RM250,000
Margin of Safety = 20%

95
87
88
8-5
The margin of safety may also be stated in

terms of units. In this illustration, for example,
the margin of safety of 20% is equivalent to
RM50,000 in sales (RM250,000 x 20%). In
units, the margin of safety is 2,000 units
(RM50,000/RM25).
88
89
8-5
Syarikat Rafiq has sales of RM400,000, and the breakeven point in sales dollars is RM300,000. Determine
the companys margin of safety.
25% = (RM400,000 RM300,000)/RM400,000
For Practice: PE8-6
97
89
90

Objective
Objective 66
8-2
List the assumptions underlying

cost-volume-profit analysis.
90
91
Assumptions of Cost-Volume-Profit
Analysis
8-6
The primary assumptions are:

1. Total sales and total costs can be represented by a
straight line.
2. Within the relevant range of operating activity, the
efficiency of operations does not change.
3. Costs can be accurately divided into fixed and
variable components.
4. The sales mix is constant.
5. There is no change in the inventory quantities
during the period.
91

PP For Chapter 8 - Cost Volume Profit - Final

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1

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After studying this chapter, you should be able to:

1. Classify costs by their behavior as variable costs,

fixed costs, or mixed costs.

margin ratio, and the unit contribution margin, and

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After studying this chapter, you should be able to:

Use the unit contribution margin, determine the

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After studying this chapter, you should be able to:

Compute the margin of safety and the operating

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Classify costs by their

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Cost behavior refers to the manner in

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Variable costs are

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Syarikat Tah produces stereo sound systems

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Total Variable Cost Graph

Total Units (Model TS-12)

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Unit Variable Cost Graph

Total Units (Model TS12) Produced (thousands)

Click to edit Master RM20

Cost per Unit

Unit Cost Compared to Total Cost

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Fixed costs are costs that

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Syarikat Mons Jitra Plant

The production supervisor for Syarikat

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Fixed Versus Variable Cost of Siti

Total Salary for Salary per Bottle

Click to edit MasterRM1.50

0 100 200 300

Salary per Bottle

50,000 bottles RM75,000

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A mixed cost (sometimes called

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Syarikat Syed Example

Syarikat Syed manufactures sails using

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Mixed Cost Graph for Syarikat Syed

Mixed costs are

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The high-low method is a

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Estimating Variable Cost Using High-Low

Actual costs incurred

First, select the

Difference in Total cost

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Estimating Variable Cost Using High-Low

Then, fill in the

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Estimating Variable Cost Using High-Low

Then, fill in the

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