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    Profit Sales VC + FC CM FC Can Be Computed In: Units

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    Hiraya Manawari
    This document discusses key concepts in cost-volume-profit (CVP) analysis including: 1) the relationship between costs, volume, and profit which can be shown in a CVP formula; 2) contribution margin ratio which measures contribution margin as a percentage of sales; 3) operating leverage which is the ratio of contribution margin to profit; and 4) important CVP formulas including break-even point, computation of desired profit, margin of safety, and sensitivity analysis which involves changing variables to analyze their effects on profit.

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    Profit Sales VC + FC CM FC Can Be Computed In: Units

    Uploaded by

    Hiraya Manawari
    4 views2 pages
    This document discusses key concepts in cost-volume-profit (CVP) analysis including: 1) the relationship between costs, volume, and profit which can be shown in a CVP formula; 2) contribution margin ratio which measures contribution margin as a percentage of sales; 3) operating leverage which is the ratio of contribution margin to profit; and 4) important CVP formulas including break-even point, computation of desired profit, margin of safety, and sensitivity analysis which involves changing variables to analyze their effects on profit.

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    Original Title

    Cost Acctg. Cha 4

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    This document discusses key concepts in cost-volume-profit (CVP) analysis including: 1) the relationship between costs, volume, and profit which can be shown in a CVP formula; 2) contribution margin ratio which measures contribution margin as a percentage of sales; 3) operating leverage which is the ratio of contribution margin to profit; and 4) important CVP formulas including break-even point, computation of desired profit, margin of safety, and sensitivity analysis which involves changing variables to analyze their effects on profit.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4 views2 pages

    Profit Sales VC + FC CM FC Can Be Computed In: Units

    Uploaded by

    Hiraya Manawari
    This document discusses key concepts in cost-volume-profit (CVP) analysis including: 1) the relationship between costs, volume, and profit which can be shown in a CVP formula; 2) contribution margin ratio which measures contribution margin as a percentage of sales; 3) operating leverage which is the ratio of contribution margin to profit; and 4) important CVP formulas including break-even point, computation of desired profit, margin of safety, and sensitivity analysis which involves changing variables to analyze their effects on profit.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 2

    CHAPTER 4- Cost-Volume-Profit Relationship

    CVP analysis – relationship among the cost (VC & FC), the volume (units sold & produced), and the profit (income)

    Sales
    −VC
    CM
    −FC
    Profit

    Contribution Margin Ratio - percentage of contribution margin to total sales


    CM
    CMR=
    Sales
    Operating Leverage – ratio of contribution margin to profit
    CM
    OL=
    Profit / Net Operating Income

    Important formulas:

    1.) Break- Even Point - there is neither profit or loss.


    Profit = ∅
    Sales = VC + FC
    CM = FC

    Can be computed in:


     Units :
    FC
    CM per unit
     Pesos :
    FC
    VC
    1−
    Sales

    2.) Computation of Desired Profit

     Units:
    FC + Desired Profit
    CM per unit
     Pesos:
    FC + Desired Profit
    CMR

    3.) Margin of Safety – the difference between sales (actual, planned or budgeted) and break-even sales

     Margin of Safety Ratio :

    Margin of Safety
    Sales
     Margin of safety:
    Sales−Break even

    4.) Sensitivity Analysis – where variables are being changed and seeing the effect to profit.

    Can be changed :

     Selling price
     Variable cost
     Fixed cost
     Volume (units produced or sold)
     Sales mix

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