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Published on Feb 23, SlideShare Explore Search You. Submit Search. Successfully reported this slideshow. We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads.
You can change your ad preferences anytime. Upcoming SlideShare. Like this document? Why not share! Embed Size px. Start on. Show related SlideShares at end. WordPress Shortcode. Signeew Follow. Published in: Education. Full Name Comment goes here. Are you sure you want to Yes No. No Downloads. Views Total views. Actions Shares. Embeds 0 No embeds. No notes for slide. Changes in the level of revenues and costs arise only because of changes in the number of product or service units sold.
Total costs can be separated into a fixed component that does not vary with the units sold and a variable component that changes with respect to the units sold.
When represented graphically, the behaviors of total revenues and total costs are linear represented as a straight line in relation to units sold within a relevant range and time period. The selling price, variable cost per unit, and fixed costs are known and constant. Chapter 3 assumes nonoperating revenues and nonoperating costs are zero.
Contribution margin per unit is the difference between selling price and variable cost per unit. Contribution-margin percentage is the contribution margin per unit divided by selling price. The first two methods are most useful for analyzing operating income at a few specific levels of sales. The graph method is useful for visualizing the effect of sales on operating income over a wide range of quantities sold.
Cost-volume-profit relationship is a more comprehensive term than breakeven analysis. Whether these assumptions make it simplistic depends on the decision context.
In some cases, these assumptions may be sufficiently accurate for CVP to provide useful insights. The examples in Chapter 3 the software package context in the text and the travel agency example in the Problem for Self-Study illustrate how CVP can provide such insights.
In more complex cases, the basic ideas of simple CVP analysis can be expanded. Operating income at the breakeven point is zero, and no income taxes are paid at this point. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions at minimal cost. CVP is one of the most widely used software applications in the management accounting area.
Marketing——changing a sales force compensation plan from a percent of sales dollars to a fixed salary. Customer service——hiring a subcontractor to do customer repair visits on an annual retainer basis rather than a per-visit basis. Marketing——changing a sales compensation plan from a fixed salary to percent of sales dollars basis.
Customer service——hiring a subcontractor to do customer service on a per-visit basis rather than an annual retainer basis. Knowing the degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating incomes.
One extreme is a very short-time horizon. One day prior to a cruise, most costs are fixed. The other extreme is several years. Here, a much higher percentage of total costs typically is variable. What happens is that many items classified as fixed in the short run may become variable costs with a longer time horizon.
Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis.
CVP computations. The management would consider other factors before making the final decision. It is likely that product quality would improve as a result of using state of the art equipment. Due to increased automation, probably many workers will have to be laid off. CVP analysis, changing revenues and costs. CVP exercises. CVP analysis, income taxes. CVP analysis, sensitivity analysis. CVP analysis, margin of safety. Operating leverage. The calculations in requirement 3 indicate that when sales are units, a percentage change in sales and contribution margin will result in 1.
The degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating incomes. CVP analysis, international cost structure differences. Hence, for a given selling price, Brazil will always have a higher operating income or a lower operating loss than Singapore or the U. The U. Requirement 1 Requirement 2 Sales mix, new and upgrade customers. Sales mix, three products. The addition of the new marketing director would require the Music Society to hold at least 74 concerts in order to breakeven.
Contribution margin, decision making. Contribution margin, gross margin and margin of safety. Uncertainty and expected costs. Foodmart should consider the impact of the different systems on its relationship with suppliers. This could cause some suppliers to raise the cost of their merchandise. Foodmart may also want to consider other factors such as the reliability of different systems and the effect on employee morale if employees have to be laid off as it automates its systems.
CVP analysis, service firm. CVP, target operating income, service firm. CVP analysis. Since fixed costs remain the same, any incremental increase in sales will increase contribution margin and operating income dollar for dollar. CVP, sensitivity analysis.
Choosing alternative 1 will give Brown a There is no reason, however, for Brown to think of these alternatives as being mutually exclusive. For example, Brown can combine actions 1 and 2, automate the machining process and advertise. This will result in a CVP analysis, shoe stores.
CVP analysis, shoe stores continuation of See preceding table. The new store will have the same operating income under either compensation plan when the volume of sales is 54, pairs of shoes. When sales volume is above 54, pairs, the higher-fixed-salaries plan results in lower costs and higher operating incomes than the salary-plus-commission plan. So, for an expected volume of 55, pairs, the owner would be inclined to choose the higher-fixed-salaries-only plan.
But it is likely that sales volume itself is determined by the nature of the compensation plan. The salary-plus-commission plan provides a greater motivation to the salespeople, and it may well be that for the same amount of money paid to salespeople, the salary-plus-commission plan generates a higher volume of sales than the fixed-salary plan.
For instance, the salary plan offers the same operating income at 58, units as the commission plan offers at 58, units. Alternative cost structures, uncertainty, and sensitivity analysis.
Instructor Solutions Manual for Cost Accounting, 14th Edition
Click Here to Download Now! Table of Contents. Chapter 1. Cost-Volume-Profit Analysis Chapter 4. Job Costing Chapter 5. Master Budget and Responsibility Accounting Chapter 7.
Cost Accounting 14th Edition Solutions Manual by Horngren
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