Cost-Volume-Profit Relationships CVP & Breakeven point

    Cards (50)

    • Contribution Margin
      amount of remaining from sales revenue after variable expenses have been deducted
      amount available to cover fixed expenses and then provide profits for the period
    • Contribution Margin Formula
      sales revenue - variable expenses
    • Contribution Margin Ratio
      contribution margin as a percentage of sales
    • Contribution Margin Ratio Formula
      contribution margin / sales revenue
    • Variable Expense Ratio
      variable expenses as a percentage of sales
    • Variable expense Ratio Formula
      variable expense / sales revenue
    • Contribution Margin Income Statement
      separates costs on the income statement by cost behavior (variable and fixed)
    • Contribution Margin Income Statement (part 2)
      sales revenue
      less: variable expenses (product and period)
      Contribution Margin
      less: fixed expenses (product and period)
      Net Operating Income
    • Break Even Point
      the level of sales the company's profit equals zero
      bare minimum level to just cover cost -> everything after is profit
    • Equation Method
      cm / unit (x) - fixed expenses
    • Formula Method
      fixed expenses + target profit / cm/unit
    • Equation and Formula method find
      break-even point in units
    • Break-Even Dollar Sales
      fixed expense + target profit / cm ratio
    • Break Even Sales in Dollar Sales finds
      break-even point in sales dollars (revenue)
    • Selling price increases
      break-even point decreases
      contribution margin increases
    • sell price decreases
      break-even increases
      contribution margin decreases
    • variable or fixed cost increases
      break-even increases
    • variable or fixed costs decreases
      break-even decreases
    • Fixed cost doesn't effect
      contribution margin
    • variable cost increases
      contribution margin decreases
    • variable cost decreases
      contribution margin increases
    • Indicator of risk uses
      margin of safety
    • Margin of Safety
      excess of budgeted or actual sales dollars over the break-even sales dollars
      Safety net for error
      Want more space between margin of risk and breakeven so you don't lose profit
    • Margin of Safety in dollars
      actual or expected total sales - breakeven sales
    • Margin of Safety Percentage
      margin of sales / actual or expected sales
    • Admission ticket per person: $35Variable cost per person: $22Fixed costs: $6,000
      what is the CM per unit
      $13/unit
    • The Hartford Guild has a break-even point of 462 guests for its charity dinner. What is the margin of safety in dollars, and the margin of safety percentage, if they are expecting 1,600 guests and admission ticket per person $35
      margin of safety in dollars = $39,830
      margin of safety percentage = 71%
    • Standard Admission VIP AdmissionSales $44,800 $19,200Variable Costs $28,160 $11,520Contribution Margin $16,640 $7,680Fixed Costs $6,000Step 1: Find the overall CM ratio
      38%
    • Sales Mix
      relative proportions in which a company's products are sold. The goal is to achieve the combination or mix that will yield the greatest profits
    • Standard Admission VIP AdmissionSales $44,800 $19,200Variable Costs $28,160 $11,520Contribution Margin $16,640 $7,680Fixed Costs $6,000Step 2: Calculate the break-even point in sales dollars
      $15,790
    • Standard Admission VIP AdmissionSales $44,800 $19,200Variable Costs $28,160 $11,520Contribution Margin $16,640 $7,680Fixed Costs $6,000Step 3: Calculate sales at the break-even point for each product
      Standard = $11,053
      VIP = $4,737
    • least-squares regression estimates the fixed and variable elements of a mixed cost
    • Least-Squares Regression Method
      determines the line and cost equation that best fits all the data points in the data set
      More accurate than the high-low method because it uses all the data points
      can calculate with Excel
    • R^2 ( R-squared)

      it is the measure of "goodness of fit"
      how accurately is the volume able to predict that variable cost
    • Excel Steps to Find R^2
      enter data unto an Excel worksheet with volume in one column and cost in another
      "Charts" group in the "Insert" tab click the "Scatter"
      right-click on any data point in the graph and select "Add Trendline"
      under "Trendline Options" select "Linear"
      under "Trendline Name" select ' Automatic"
      next to the word "Backward" input the lowest volume from the data
      check the two boxes " Display equation on chart" and "Display R-squared value on chart"
    • .7589x + 3430.9
      the variable cost/unit is .7589
      the total fixed cost is 3430.9
      the volume is x
    • The Hartford Guild is planning a fundraising event to benefit a local charitable organization. They are expecting 1,500 guests to attend. Below is the admission and cost information:Admission ticket per person: $35Variable cost per person: $22Fixed costs: $6,000
      1. What is the contribution margin per unit?
      $13/unit
    • The Hartford Guild is planning a fundraising event to benefit a local charitable organization.They are expecting 1,500 guests to attend. Below is the admission and cost information:Admission ticket per person: $35Variable cost per person: $22Fixed costs: $6,000
      2. What is the contribution margin ratio?
      .37 or 37%
    • The Hartford Guild is planning a fundraising event to benefit a local charitable organization. They are expecting 1,500 guests to attend. Below is the admission and cost information:Admission ticket per person: $35Variable cost per person: $22Fixed costs: $6,0003.
      How many tickets must be sold to break even?
      462 tickets
    • The Hartford Guild is planning a fundraising event to benefit a local charitable organization. They are expecting 1,500 guests to attend. Below is the admission and cost information:Admission ticket per person: $35Variable cost per person: $22Fixed costs: $6,000
      4. How much revenue must be earned if The Hartford Guild wants to earn a target profit of $10,000?
      $43,244