Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit...
Transcript of Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit...
![Page 1: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/1.jpg)
16 -1
CostCost –– VolumeVolume --
Profit Profit
RelationshipsRelationships
![Page 2: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/2.jpg)
16 -2
1. Determine the number of units that must be
sold to break even or earn a target profit.
2. Calculate the amount of revenue required to
break even or to earn a targeted profit.
3. Apply cost-volume-profit analysis in a
multiple-product setting.
4. Prepare a profit-volume graph and a cost-
volume-profit graph, and explain the meaning
of each.
ObjectivesObjectives
After studying this After studying this
chapter, you should chapter, you should
After studying this After studying this
chapter, you should chapter, you should
be able to:be able to:
![Page 3: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/3.jpg)
16 -3
5. Explain the impact of risk, uncertainty, and
changing variables on cost-volume-profit
analysis.
6. Discuss the impact of activity-based costing
on cost-volume-profit analysis
ObjectivesObjectives
![Page 4: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/4.jpg)
16 -4
Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis
Narrative Equation
Sales revenue
– Variable expenses
– Fixed expenses
= Operating income
![Page 5: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/5.jpg)
16 -5
Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis
Sales (1,000 units @ $400) $400,000
Less: Variable expenses 325,000
Contribution margin $ 75,000
Less: Fixed expenses 45,000
Operating income $ 30,000
![Page 6: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/6.jpg)
16 -6
Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis
$400,000 ÷
1,000
$325,000 ÷
1,000
0 = ($400 x Units) – ($325 x Units) – $45,000
Break Even in Units
![Page 7: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/7.jpg)
16 -7
Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis Using Operating Income in CVP AnalysisUsing Operating Income in CVP Analysis
Break Even in Units
0 = ($400 x Units) – ($325 x Units) – $45,000
0 = ($75 x Units) – $45,000
$75 x Units = $45,000
Units = 600 Proof Proof
Sales (600 units) $240,000
Less: Variable exp. 195,000
Contribution margin $ 45,000
Less: Fixed expenses 45,000
Operating income $ 0
![Page 8: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/8.jpg)
16 -8
Achieving a Targeted ProfitAchieving a Targeted Profit Achieving a Targeted ProfitAchieving a Targeted Profit
Desired Operating Income of $60,000
$60,000 = ($400 x Units) – ($325 x Units) – $45,000
$105,000 = $75 x Units
Units = 1,400 Proof Proof
Sales (1,400 units) $560,000
Less: Variable exp. 455,000
Contribution margin $105,000
Less: Fixed expenses 45,000
Operating income $ 60,000
![Page 9: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/9.jpg)
16 -9
Desired Operating Income of
15% of Sales Revenue
0.15($400)(Units) = ($400 x Units) – ($325 x Units) – $45,000
$60 x Units = ($400 x Units) – $325 x Units) – $45,000
Units = 3,000
Targeted Income as a Percent of Sales RevenueTargeted Income as a Percent of Sales Revenue
$60 x Units = ($75 x Units) – $45,000
$15 x Units = $45,000
![Page 10: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/10.jpg)
16 -10
Net income = Operating income – Income taxes
= Operating income – (Tax rate x Operating income)
AfterAfter--Tax Profit TargetsTax Profit Targets
= Operating income (1 – Tax rate)
Or
Operating income = Net income
(1 – Tax rate)
![Page 11: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/11.jpg)
16 -11
$48,750 = Operating income – (0.35 x Operating income)
$48,750 = 0.65 (Operating income)
AfterAfter--Tax Profit TargetsTax Profit Targets
$75,000 = Operating income
If the tax rate is 35 percent and a firm wants
to achieve a profit of $48,750. How much is
the necessary operating income?
![Page 12: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/12.jpg)
16 -12
AfterAfter--Tax Profit TargetsTax Profit Targets
How many units would have to be sold to
earn an operating income of $48,750?
Units = ($45,000 + $75,000)/$75
Units = $120,000/$75
Units = 1,600 Proof Proof
Sales (1,600 units) $640,000
Less: Variable exp. 520,000
Contribution margin $120,000
Less: Fixed expenses 45,000
Operating income $ 75,000
Less: Income tax (35%) 26,250
Net income $ 48,750
![Page 13: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/13.jpg)
16 -13
BreakBreak--Even Point in Sales DollarsEven Point in Sales Dollars BreakBreak--Even Point in Sales DollarsEven Point in Sales Dollars
First, the contribution margin
ratio must be calculated.
Sales $400,000 100.00%
Sales $400,000 100.00%
Less: Variable
expenses 325,000 81.25%
Contribution
margin $ 75,000 18.75%
Less: Fixed exp. 45,000
Operating income $ 30,000
![Page 14: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/14.jpg)
16 -14
BreakBreak--Even Point in Sales DollarsEven Point in Sales Dollars BreakBreak--Even Point in Sales DollarsEven Point in Sales Dollars
Given a contribution margin ratio of 18.75%, how
much sales revenue is required to break even?
Operating income = Sales – Variable costs – Fixed costs
$0 = Sales – (Variable costs ratio x Sales)
– $45,000
Sales = $240,000
$0 = Sales (1 – 0.8125) – $45,000
Sales (0.1875) = $45,000
![Page 15: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/15.jpg)
16 -15
Relationships Among Contribution
Margin, Fixed Cost, and Profit
Contribution MarginContribution Margin
Total Variable CostTotal Variable Cost
Revenue
Fixed CostFixed Cost
Fixed Cost = Contribution Margin
![Page 16: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/16.jpg)
16 -16
Relationships Among Contribution
Margin, Fixed Cost, and Profit
Contribution MarginContribution Margin
Total Variable CostTotal Variable Cost
Revenue
Fixed CostFixed Cost
Fixed Cost < Contribution Margin
ProfitProfit
![Page 17: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/17.jpg)
16 -17
Relationships Among Contribution
Margin, Fixed Cost, and Profit
Contribution MarginContribution Margin
Total Variable CostTotal Variable Cost
Revenue
Fixed CostFixed Cost
Fixed Cost > Contribution Margin
LossLoss
![Page 18: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/18.jpg)
16 -18
Profit Targets and Sales Revenue Profit Targets and Sales Revenue
How much sales revenue must a firm generate to
earn a before-tax profit of $60,000. Recall that
fixed costs total $45,000 and the contribution
margin ratio is .1875.
Sales = ($45,000 + $60,000)/0.1875
= $105,000/0.1875
= $560,000
![Page 19: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/19.jpg)
16 -19
MultipleMultiple--Product AnalysisProduct Analysis MultipleMultiple--Product AnalysisProduct Analysis
Mulching Riding
Mower Mower Total
Sales $480,000 $640,000 $1,120,000
Less: Variable expenses 390,000 480,000 870,000
Contribution margin $ 90,000 $160,000 $ 250,000
Less: Direct fixed expenses 30,000 40,000 70,000
Product margin $ 60,000 $120,000 $ 180,000
Less: Common fixed expenses 26,250
Operating income $ 153,750
![Page 20: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/20.jpg)
16 -20
Income Statement: B/E SolutionIncome Statement: B/E Solution Income Statement: B/E SolutionIncome Statement: B/E Solution
Mulching RidingMulching Riding
Mower Mower TotalMower Mower Total
Sales $184,800 $246,400 $431,200
Less: Variable expenses 150,150 184,800 334,950
Contribution margin $ 34,650 $ 61,600 $ 96,250
Less: Direct fixed expenses 30,000 40,000 70,000
Segment margin $ 4,650 $ 23,600 $ 26,250
Less: Common fixed expenses 26,250
Operating income $ 0
![Page 21: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/21.jpg)
16 -21
The profit-volume graph portrays
the relationship between profits
and sales volume.
![Page 22: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/22.jpg)
16 -22
Example
The Tyson Company produces a single product
with the following cost and price data:
Total fixed costs $100
Variable costs per unit 5
Selling price per unit 10
Total fixed costs $100
Variable costs per unit 5
Selling price per unit 10
![Page 23: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/23.jpg)
16 -23
Profit-Volume Graph
Profit
or Loss
Loss
(40, $100) I = $5X - $100
Break-Even Point
(20, $0)
$100—
80—
60—
40—
20—
0—
- 20—
- 40—
-60—
-80—
-100—
5 10 15 20 25 30 35 40 45 50 | | | | | | | | | |
Units Sold
(0, -$100)
![Page 24: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/24.jpg)
16 -24
The cost-volume-profit graph
depicts the relationship among
costs, volume, and profits.
![Page 25: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/25.jpg)
16 -25
Cost-Volume-Profit Graph
Revenue
Units Sold
$500 --
450 --
400 --
350 --
300 --
250 --
200 --
150 --
100 --
50 --
0 -- 5 10 15 20 25 30 35 40 45 50 55 60 | | | | | | | | | | | |
Total Revenue
Total Cost
LossLoss
Break-Even Point
(20, $200)
Fixed Expenses ($100)
Variable Expenses
($5 per unit)
![Page 26: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/26.jpg)
16 -26
Assumptions of CAssumptions of C--VV--P AnalysisP Analysis Assumptions of CAssumptions of C--VV--P AnalysisP Analysis
1. The analysis assumes a linear revenue function and a
linear cost function.
2. The analysis assumes that price, total fixed costs, and
unit variable costs can be accurately identified and
remain constant over the relevant range.
3. The analysis assumes that what is produced is sold.
4. For multiple-product analysis, the sales mix is assumed
to be known.
5. The selling price and costs are assumed to be known
with certainty.
![Page 27: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/27.jpg)
16 -27
$
Units
Total Cost
Total Revenue
Relevant Range
Relevant Range
![Page 28: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/28.jpg)
16 -28 Alternative 1: If advertising expenditures increase by
$8,000, sales will increase from 1,600 units to 1,725 units.
BEFORE THEBEFORE THE WITH THEWITH THE
INCREASEDINCREASED INCREASEDINCREASED
ADVERTISINGADVERTISING ADVERTISINGADVERTISING
Units sold 1,600 1,725
Unit contribution margin x $75 x $75
Total contribution margin $120,000 $129,375
Less: Fixed expenses 45,000 53,000
Profit $ 75,000 $ 76,375
DIFFERENCE IN PROFITDIFFERENCE IN PROFIT
Change in sales volume 125
Unit contribution margin x $75
Change in contribution margin $9,375
Less: Change in fixed expenses 8,000
Increase in profits $1,375
![Page 29: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/29.jpg)
16 -29
BEFORE THEBEFORE THE WITH THEWITH THE
PROPOSED PROPOSED PROPOSEDPROPOSED
CHANGESCHANGES CHANGESCHANGES
Units sold 1,600 1,900
Unit contribution margin x $75 x $50
Total contribution margin $120,000 $95,000
Less: Fixed expenses 45,000 45,000
Profit $ 75,000 $50,000
Alternative 2: A price decrease from $400 to $375 per
lawn mower will increase sales from 1,600 units to 1,900
units.
DIFFERENCE IN PROFITDIFFERENCE IN PROFIT
Change in contribution margin $ -25,000
Less: Change in fixed expenses --------
Decrease in profits $ -25,000
![Page 30: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/30.jpg)
16 -30
BEFORE THEBEFORE THE WITH THEWITH THE
PROPOSED PROPOSED PROPOSEDPROPOSED
CHANGESCHANGES CHANGESCHANGES
Units sold 1,600 2,600
Unit contribution margin x $75 x $50
Total contribution margin $120,000 $130,000
Less: Fixed expenses 45,000 53,000
Profit $ 75,000 $ 77,000
Alternative 3: Decreasing price to $375and increasing
advertising expenditures by $8,000 will increase sales from
1,600 units to 2,600 units.
DIFFERENCE IN PROFITDIFFERENCE IN PROFIT
Change in contribution margin $10,000
Less: Change in fixed expenses 8,000
Increase in profit $ 2,000
![Page 31: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/31.jpg)
16 -31
Margin of SafetyMargin of Safety
Assume that a company has the following projected income statement:
Sales $100,000
Less: Variable expenses 60,000
Contribution margin $ 40,000
Less: Fixed expenses 30,000
Income before taxes $ 10,000 Break-even point in dollars (R):
R = $30,000 ÷ .4 = $75,000
Safety margin = $100,000 - $75,000 = $25,000
![Page 32: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/32.jpg)
16 -32
Degree of Operating Leverage (DOL)
DOL = $40,000/$10,000 = 4.0
Now suppose that sales are 25% higher than projected. What is
the percentage change in profits?
Percentage change in profits = DOL x percentage change in
sales
Percentage change in profits = 4.0 x 25% = 100%
![Page 33: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/33.jpg)
16 -33
Proof:
Sales $125,000
Less: Variable expenses 75,000
Contribution margin $ 50,000
Less: Fixed expenses 30,000
Income before taxes $ 20,000
Degree of Operating Leverage (DOL)
![Page 34: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/34.jpg)
16 -34
CVP and ABC CVP and ABC
Assume the following:
Sales price per unit $15
Variable cost
Fixed costs (conventional) $180,000
Fixed costs (ABC)
Other Data:
Sales price per unit $15
Variable cost 5
Fixed costs (conventional) $180,000
Fixed costs (ABC) $100,000 with $80,000 subject to ABC analysis
Other Data:
Unit Level of
fixed Activity
Activity Driver Costs Driver
Setups $500 100
Inspections 50 600
![Page 35: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/35.jpg)
16 -35
BEP = $180,000 ÷ $10
= 18,000 units
CVP and ABC CVP and ABC
1. What is the BEP under conventional
analysis?
![Page 36: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/36.jpg)
16 -36
CVP and ABC CVP and ABC
2. What is the BEP under ABC analysis?
BEP = [$100,000 + (100 x $500) + (600 x
$50)]/$10
= 18,000 units
![Page 37: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/37.jpg)
16 -37
BEP = [$100,000 + (100 x $450) + (600 x $40)]/$10
= 16,900 units
3. What is the BEP if setup cost could be reduced to
$450 and inspection cost reduced to $40?
CVP and ABC CVP and ABC
![Page 38: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/38.jpg)
16 -38
The EndThe End The EndThe End
Chapter SixteenChapter Sixteen
![Page 39: Cost Volume - Profit Relationships - NELY BACHSIN BLOG · PDF fileCost – Volume - Profit Relationships. ... chapter, you should be able to: 16-3 ... 16-6 Using Operating Income in](https://reader034.fdocuments.net/reader034/viewer/2022042515/5a75cde57f8b9aea3e8ccdc4/html5/thumbnails/39.jpg)
16 -39