breakeven point

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11-14-1

Es un método de cálculo de costos que se puede utilizar para separar los costos mixtos en sus componentes fijos y variables.

Método Punto alto Punto bajo

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Producción Costo(Unidades) Total

Junio 1,000 $45,550Julio 1,500 52,000Agosto 2,100 61,500Septiembre 1,800 57,500Octubre 750 41,250

Rellene la fórmula por diferencia de costos.

$61,500 41,250$20,250

Costo Variable por Unidad =Diferencia en ProducciónDifference in Total cost$20,250

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Estimación de costo variable

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Difference in total cost

2,100 750

1,350

A continuación, rellene la fórmula para la diferencia en la producción.

Producción Costo(Unidades) Total

Junio 1,000 $45,550Julio 1,500 52,000Agosto 2,100 61,500Septiembre 1,800 57,500Octubre 750 41,250

Difference in Production

$20,250

1,350

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Estimación de costo variable

Costo Variable por Unidad =

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= $15

Costo variable por unidad es $15

Producción Costo(Unidades) Total

Junio 1,000 $45,550Julio 1,500 52,000Agosto 2,100 61,500Septiembre 1,800 57,500Octubre 750 41,250

Costo Variable por Unidad =$20,250

1,350

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Estimación de costo variable

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Es el primer paso para determinar el costo fijo insertar el costo variable de $ 15 en la siguiente fórmula:

Coste total = ($ 15 × unidades de producción) + costo fijo

Estimación de costos fijos mediante punto alto-bajo

Costo total = (costo de variable por unidad × unidades de producción) + costos fijos

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11-64-6

Using the highest level of production, we insert the total cost and units produced in the formula.

Total cost = ($15 × Units of Production) + Fixed Cost$61,500 2,100 units)

June 1,000 $45,550July 1,500 52,000August 2,100 61,500September 1,800 57,500October 750 41,250

Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost

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Producción Costo(Unidades) Total

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$61,500 = ($15 × 2,100 units) + Fixed cost$61,500 = $31,500 + Fixed cost

$61,500 – $31,500 = Fixed cost

$30,000 = Fixed cost

If the lowest level had been chosen, the results of the formula would provide the same fixed cost of $30,000.

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11-84-8

With fixed costs and variable costs estimated at $30,000 and $15 per unit, a formula is in place to estimate production at any level. If the company is expected to produce 950 units in November, the estimated total overhead would be calculated as follows:

Total Cost = (Variable Cost per Unit × Units of Production) + Fixed cost

Total Cost = $15 (950) + $30,000

Total Cost = $44,250

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2

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

4-19

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Cost-Volume-Profit Relationships

Cost-volume-profit analysis is the examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits.

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11-114-11

The contribution margin is the excess of sales revenues over variable costs. It is especially useful because it provides insight into the profit potential of a company.

Contribution Margin

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Contribution Margin Ratio (in dollars)

The contribution margin ratio is most useful when the increase or decrease in sales volume is measured in sales dollars. In this case, the following formula is used to determine change in income from operations.

Change in Income from Operations

Change in Sales Dollars ×

Contribution Margin Ratio

=

2

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Contribution Margin Ratio

100% 60%

Contribution Margin Ratio =40%

Contribution Margin Ratio =

Sales – Variable CostsSales

$1,000,000 – $600,000$1,000,000

Contribution Margin Ratio =

40% 30%10%

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11-144-14

Using Contribution Margin per Unit as a Shortcut

Lambert Inc.’s sales could be increased by 15,000 units from 50,000 to 65,000 units. Lambert’s income from operations would increase by $120,000 (15,000 × $8) as shown below.

Change in Income from Operations

Changes in Sales Units × Unit Contribution Margin

=

Change in Income from Operations 15,000 ×

$8=

Change in Income from Operations $120,000=

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11-154-15

3

Determine the break-even point and sales necessary to achieve a target profit.

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11-164-16

Baker Corporation’s fixed costs are estimated to be $90,000. The unit contribution margin is calculated as follows:

Unit selling price $25Unit variable cost 15Unit contribution margin $10

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11-174-17

The break-even point (in units) is calculated using the following equation:

Break-Even Sales (units) =

Fixed CostsUnit Contribution

Margin

Break-Even Sales (units) =$90,000

$10

Break-Even Sales (units) = 9,000 units

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11-184-18

The break-even point (in dollars) is calculated using the following equation:

Break-Even Sales (dollars) =Fixed Costs

Contribution Margin Ratio

Break-Even Sales (dollars) = $225,000

$90,000.40

Break-Even Sales (dollars) =Unit

Contribution Margin

Unit Selling Price

$10

$25

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11-194-19

Park Co. 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 $840,000. The unit contribution margin before the additional 2% commission is determined below.

Unit selling price $250Unit variable cost 145Unit contribution margin $105

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Without additional 2% commission:

$250 – [$145 + ($250 × 2%)] = $100

Break-Even in Sales (units) =$840,000

$105=

8,000 units

With additional 2% commission:

Break-Even in Sales (units) =$840,000

$100=

8,400 units

Break-Even in Sales (units) =Fixed Costs

Unit Contribution Margin

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Target Profit

The sales volume required to earn a target profit is determined by modifying the break-even equation.

Sales (units) = Fixed Costs + Target ProfitUnit Contribution Margin

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Units Required for Target Profit

Fixed costs are estimated at $200,000, and the desired profit is $100,000. Unit contribution margin is $30.

Unit selling price $75Unit variable cost 45Unit contribution margin $30

Sales (units) =

Fixed Costs + Target ProfitUnit Contribution Margin$30

Sales (units) = 10,000 units

$200,000 $100,000

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Contribution Margin Ratio =

Unit Contribution MarginUnit Selling Price

Contribution Margin Ratio =

$30 $75

from Slide 32

Contribution Margin Ratio =

40%

Sales (dollars) =Fixed Costs + Target ProfitContribution Margin Ratio

Sales (dollars) =$200,000 + $100,000

40%=

$750,000

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Target Profit

Necessary sales to have a $100,000 target profit

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4

Using a cost-volume-profit chart and a profit-volume chart, determine the break-even point and sales necessary to achieve a target profit.

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Unit selling price $ 50Unit variable cost 30Unit contribution margin $ 20

Total fixed costs $100,000

The cost-volume-profit chart in Slides 36 to 48 is based on Exhibit 5. Exhibit 5 was constructed using the following data:

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0Units of Sales (in thousands)

$500

$450

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$350

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$200

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$ 50

Dollar amounts are indicated along the vertical axis.

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(continued)Volume is shown on the horizontal axis.

Cost-Volume-Profit Chart

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Exhibit 5

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Using maximum sales of $500,000 and knowing that each unit sells for $50, we 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 in Slide 38.

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Point A

Cost-Volume-Profit Chart (continued)

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Exhibit 5

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Units of Sales (in thousands)

Point A could have been plotted at any sales level because linearity is assumed.

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Point A

Cost-Volume-Profit Chart (continued)

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Exhibit 5

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Beginning at zero on the left corner of the graph, connect a straight line to the dot (Point A).

11-304-30Fixed cost of $100,000 is a horizontal line.

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Cost-Volume-Profit Chart (continued)Exhibit 5

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A point on the chart is needed to establish the revenue line. An arbitrary sales amount is picked of 10,000 units. At this sales level, the cost should be $400,000, calculated as follows: [(10,000 × $30) + $100,000] = $400,000.

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11-324-32A line is drawn between fixed cost ($100,000) and the point.

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Cost-Volume-Profit Chart (continued)Exhibit 5

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The line would be the same if another point had been picked. For example, assume that 8,000 units had been chosen. At this sales level, the cost should be $400,000 [(8,000 × $30) + $100,000 = $340,000].

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Break-Even Point

Cost-Volume-Profit Chart (continued)Exhibit 5

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$500

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11-354-35Break-even is sales of 5,000 units or $250,000.

Break-Even Point

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Cost-Volume-Profit Chart (continued)Exhibit 5

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$500

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Operating Loss Area

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Cost-Volume-Profit Chart (continued)Exhibit 5

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$500

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Operating Profit Area

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Cost-Volume-Profit Chart (continued)Exhibit 5

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Cost-Volume-Profit Chart (concluded)

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Exhibit 5

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Revised Cost-Volume-Profit Chart

Break-even in sales would be reduced from $250,000 to $200,000 (5,000 to 4,000 in units).

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Exhibit 6

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Sales (10,000 units × $50) $500,000 Variable costs (10,000 units × $30) 300,000 Contribution margin (10,000 units × $20) $200,000 Fixed costs 100,000 Operating profit $100,000

The maximum operating loss is equal to the fixed costs of $100,000. Assuming that the maximum unit sales within the relevant range is 10,000 units, the maximum operating profit is $100,000, computed as follows:

Maximum Profit

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5

Compute the break-even point for a company selling more than one product, the operating leverage, and the margin of safety.

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11-424-42

Cascade Company sold 8,000 units of Product A and 2,000 units of Product B during the past year. Cascade Company’s fixed costs are $200,000. Other relevant data are as follows:

Unit Unit Unit SalesSelling Variable Contribution Mix

Product Price Cost Margin %

A $ 90 $70 $20 80%B 140 95 45 20%

Cascade Company Example

5

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It is useful to think of the individual products as components of one overall enterprise product. For Cascade Company, the overall enterprise product is called E.

Unit selling price of E: ($90 × 0.8) + ($140 × 0.2) = $100

Unit variable cost of E: ($70 × 0.8) + ($95 × 0.2) = 75

Unit contribution margin of E: $ 25

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Break-Even Sales (units) =

Fixed CostsUnit Contribution

Margin

Break-Even Sales (units) =

$200,000$25

Break-Even Sales (units) = 8,000 units

Break-Even Point of 8,000 Units of E

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11-454-45

Both companies have the same contribution margin.

Jones Inc. Wilson Inc.

Sales $400,000 $400,000Variable costs 300,000 300,000Contribution margin $100,000 $100,000Fixed costs 80,000 50,000Income from operations $ 20,000 $ 50,000

Operating leverage ? ?

Operating Leverage Example

5

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Contribution Margin

Income from Operations$100,000

$20,000= 5 Jones Inc.:

Jones Inc. Wilson Inc.

Sales $400,000 $400,000Variable costs 300,000 300,000Contribution margin $100,000 $100,000Fixed costs 80,000 50,000Income from operations $ 20,000 $ 50,000

Operating leverage ? ?

Operating Leverage Example

5

5

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Jones Inc. Wilson Inc.

Sales $400,000 $400,000Variable costs 300,000 300,000Contribution margin $100,000 $100,000Fixed costs 80,000 50,000Income from operations $ 20,000 $ 50,000

Operating leverage ? ?

Operating Leverage Example

5 2

Contribution Margin

Income from Operations$100,000

$50,000= 2 Wilson Inc.:

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Margin of Safety

The margin of safety indicates the possible decrease in sales that may occur before an operating loss results.

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