AnalysisofCost,Volume,andPricingtoIncreaseP.pptx

Analyzing Cost,Volume,and Pricing to Increase Profitability lChapter 3Operating LeverageHow a small percentage increase in sales volume can produce a significantly higher percentage increase in profitability.Determining the Contribution Margin Per UnitContribution margin(CM)is the difference between the sales revenue and the variable costs.CM is a measure of the amount available to cover fixed costs and profits for an enterprise.Determining the Contribution Margin Per Unit For each additional K6 unit Jeff sells,$200 more in contribution margin will help to cover fixed expenses and profit.Determining the Contribution Margin Per UnitDetermining the Contribution Margin Per UnitEach month Jeff must generate at least$80,000 in CM to break even.Determining the Contribution Margin Per UnitIf Jeff sells 400 units in a month,it will be operating at the break-even point.Determining the Contribution Margin Per UnitIf Jeff sells one additional unit above the break-even point,net income increases by the amount of the contribution margin.Determining the Break-Even PointThe break-even point is where total revenue is equal total costs.Determining the Break-Even PointThe break-even point in units can be determined using the following equation:Break-Even Volumein Units=Fixed Costs Contribution Margin Per UnitDetermining the Break-Even PointThe break-even point in units can be determined using the following equation:Break-Even Volumein Units=Fixed Costs Contribution Margin Per UnitFor Jeffs K6 model computer the break-even volume in units is:$80,000$200=400 computersEstimating the Sales Volume Necessary to Attain a Target ProfitAt the break-even point profits equal zero.Sales Volumein Units=Fixed Costs+Desired Profit Contribution Margin Per UnitEstimating the Sales Volume Necessary to Attain a Target ProfitJeff wants to know how many K6 computers must be sold to earn a profit of$100,000.Estimating the Sales Volume Necessary to Attain a Target Profit Calculate volume in units:Sales Volumein Units=Fixed Costs+Desired Profit Contribution Margin Per UnitSales Volumein Units=$80,000+$100,000$200Sales Volumein Units=900 unitsEstimating the Sales Volume Necessary to Attain a Target Profit Heres the proof:Estimating the Effects of Changes in Sales PriceCompetition is forcing Jeff to consider a drop in selling price of the K6 model.What is the impact on break-even of a drop in selling price from$500 to$460 per unit?Estimating the Effects of Changes in Sales PriceThe new contribution per unit would be$160($460-$300).Break-Even Volumein Units=Fixed Costs Contribution Margin Per UnitBreak-Even Volumein Units=$80,000$160Break-Even Volumein Units=500 unitsEstimating the Effects of Changes in Sales PriceHere is the proof.Changes in Fixed Costs and Sales VolumeJeff is currently selling 500 K6 computers per month.The sales manager believes that an increase of$10,000 in the monthly advertising budget would increase sales to 540 units.lShould Jeff authorize the requested increase in the advertising budget?Changes in Fixed Costs and Sales VolumeSales increased by$20,000,but net income decreased by$2,000.$80,000+$10,000 advertising=$90,000Changes in Fixed Costs and Sales VolumeThe Shortcut SolutionCost-Volume-Profit GraphViewing CVP relationships in a graph gives managers a perspective that can be obtained in no other way.Consider the following information for Jeff:Cost-Volume-Profit GraphFixed expensesUnitsDollarsTotal ExpensesTotal SalesDollarsCost-Volume-Profit GraphBreak-even pointUnitsProfit AreaLoss AreaThe Margin of SafetyThe number of units(or sales dollars)by which actual sales can fall below budgeted sales before a loss is incurred.Margin of safety=Lets calculate the margin of safetyfor Jeffs K6 model.Budgeted Sales -Break-even salesBudgeted SalesThe Margin of SafetyJeff has a break-even point of$200,000.If budgeted sales are$250,000,the margin of safety is$50,000 or 100 units.The Margin of SafetyThe margin of safety can be expressed as 20 percent of sales.Margin of safety=Budgeted Sales -Break-even salesBudgeted SalesMargin of safety=$250,000 -$200,000$250,000Margin of safety=20%Using Contribution to Assess the Effect of Simultaneous Changes in CVP VariablesJeff believes that by cutting the price of the K6 model by$25,sales will increase to 550 units.Using Contribution to Assess the Effect of Simultaneous Changes in CVP VariablesJeff believes that by cutting the price of the K6 model by$25,sales will increase to 550 units.Profits will be reducedfrom$20,000 to$16,250.CVP Analysis Using the Contribution Margin RatioThe contribution margin is expressed as a percentage of sales price.CVP Analysis Using the Contribution Margin RatioWe can calculate the break-even point in total sales dollars as follows:Fixed expenses Fixed expenses CM ratio CM ratio=Break-even point inBreak-even point intotal sales dollarstotal sales dollars$80,000$80,000 40%40%=$200,000=$200,000Break-even point inBreak-even point intotal sales dollarstotal sales dollars=CVP Analysis Using the Equation MethodSelling Price Per Unit Number of Units SoldVariable Cost Per Unit Number of Units Sold+Fixed Cost=If we let X equal the number of units,we can expressJeffs break-even equation as:$500X =$300X +$80,000CVP LimitationsSelling price is constant throughout the entire relevant range.Costs are linear throughout the entire relevant range.In multi-product companies,the sales mix is constant.In manufacturing companies,inventories do not change(units produced=units sold).End of Chapter 3We madeit!谢谢观看/欢送下载BY FAITH I MEAN A VISION OF GOOD ONE CHERISHES AND THE ENTHUSIASM THAT PUSHES ONE TO SEEK ITS FULFILLMENT REGARDLESS OF OBSTACLES.BY FAITH I BY FAITH