Presentation1.Pptx Week 4 Bep

7/23/2019 Presentation1.Pptx Week 4 Bep

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Program :

Faculty :

Course :

Trimester :

Session/s :

Week : 4

PGDM - 02

Pro!Dr!P!"!"amakris#nan

$ntro%uction toManagerial&ccounti

2

9


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Cost-Volume-Profit Analysis


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Learning objective

To understand the costing tool of marginalcosting

To comprehend BREAK EVE AAL!"#"

To be familiar $ith cost volume anal%sis

To understand the practical relevance ofcost volume anal%sis for decision ma&ing

To understand fi'ed and variable costing


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(lanning )o$ man% units of input do # need to support a

budgeted output*

+ontrol Are operations effective and efficient*

,ecision ma&ing

)o$ do $e decide on a price- and choose.uantit% given constraints*


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/i'ed cost and variable cost

Variable +osts0 +osts $hich change directl% in proportion to

changes in .uantit% or activit%

/i'ed +osts0 +osts $hich do not change $hen .uantit% or

activit% volume changes


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+osts that change in proportion to changes involume or activit%

0An automobile manufacturer $ill need 122 tires

to ma&e 322 cars- but 1-222 tires to ma&e3-222 cars

0A ba&er% $ill need 4 eggs to ma&e 3 ca&e and42 eggs to ma&e 32 ca&es

#f activit% increases b% 325- cost increasesb% 325


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+osts that change in proportion to changes in volume or activit%0An automobile manufacturer $ill need 122 tires to ma&e 322 cars-

but 1-222 tires to ma&e 3-222 cars

0A ba&er% $ill need 4 eggs to ma&e 3 ca&e and 42 eggs to ma&e 32ca&es

#f activit% increases b% 325- cost increases b% 325+osts that change in proportion to changes in volume or activit%

0An automobile manufacturer $ill need 122 tires to ma&e 322 cars-but 1-222 tires to ma&e 3-222 cars

0A ba&er% $ill need 4 eggs to ma&e 3 ca&e and 42 eggs to ma&e 32ca&es

#f activit% increases b% 325- cost increases b% 325


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+osts that change in proportion to changes in volume or activit%0An automobile manufacturer $ill need 122 tires to ma&e

322 cars- but 1-222 tires to ma&e 3-222 cars

0A ba&er% $ill need 4 eggs to ma&e 3 ca&e and 42 eggs to

ma&e 32 ca&es#f activit% increases b% 325- cost increases b% 325

+osts that change in proportion to changes in volume or activit%

0An automobile manufacturer $ill need 122 tires to ma&e322 cars- but 1-222 tires to ma&e 3-222 cars

0A ba&er% $ill need 4 eggs to ma&e 3 ca&e and 42 eggs toma&e 32 ca&es

#f activit% increases b% 325- cost increases b% 325


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Variable cost

A company has decided that direct labor costsare 100% variable. Last month total direct laborcosts were $125,000 and total direct labor hoursworked were 10,000

1. What is the direct labor cost per hour?

$125!!! " 1!!!! hours # $12.5! per hour

2. Predict labor costs in a month hen 12!!! labor hours are or%ed

$12.5! per hour & 12!!! hours # $15!!!!


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Variable cost


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/i'ed cost

,o not change in response to changes inactivit% level

T%pical fi'ed costs are depreciation-

supervisor% salaries- and buildingmaintenance

Rent for a ba&er% $ill not double if output

increases from 322 to 422 ca&es Activit% increases b% 325- costs remain

unchanged


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/i'ed cost


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,iscretionar% /i'ed +osts0 6anagement can easil% change

0Advertising- research and development

6an% companies cut bac& on these costs $hensales drop7 This can be shortsighted7 8h%*

+ommitted /i'ed +osts

0+annot be easil% changed0 Rent- insurance


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6i'ed cost

+ontain both variable and fi'ed cost elements

+an separate mi'ed costs into variable and

fi'ed components0 "alesperson $ith base salar% fi'ed: and

commission on sales variable:

0 Base salar% included $ith fi'ed costs0 +ommission included $ith variable costs


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"tepcost

/i'ed cost for a specific range

#ncreases to higher level $hen upper boundof range is e'ceeded

;se correct cost $hen budgeting for aparticular relevant range

+ompan% adds third production shift- costincrease includes supervisor% salar%


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Total cost ' ()*+!,0 aria.le cost er unit 1nits ro%uce% 3)+02000 Fi5e% costs

65ecte% cost o 2,00 units ' ()*+!,0 2,00 3 )+02000 ')70,8,0


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)igh lo$ cost method

;tili


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Total costat highactivit%level

Total cost atlo$ activit%

level


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)igh lo$ cost method


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"tatistical techni.ue Estimates the slope and intercept of a cost

e.uation

/inds the best straight line fit to theobservations

T%picall% statistical soft$are pac&ages are

utili


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Range of activit%

Range of activit% for $hich estimates andpredictions are e'pected to be accurate

> Accurac% e'pected onl% for production levels

$ithin range ,ifficult to assess costs outside the relevant

range


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+ost volume

The (rofit E.uation

(rofit ? "(x: 0 V+x: 0 T/+

8here@ x? uantit% of units produced and sold "( ? "elling price per unit

V+ ? Variable cost per unitT/+ ? Total fi'ed cost

/undamental to +V( anal%sis


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+ost volume profit anal%sis

The (rofit E.uation

(rofit ? "(x: 0 V+x: 0 T/+

8here@ x? uantit% of units produced and sold "( ? "elling price per unit

V+ ? Variable cost per unitT/+ ? Total fi'ed cost

/undamental to +V( anal%sis


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Brea&>Even (oint2 ? "(x: 0 V+x: 0 T/+

2 ? C422722 x)D C927Fx:D3G2-4H

2 ? C422722 $90.83)x)D3G2-4H

2 ? 32973Ix) 3G2-4H

32973Ix) =3G2-4H

x? 3G2-4H J 32973I

x = 1,468.21 unitsBreak-even point is 1,469 units (a!a"s roun# up)


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Revie$

abb%s 8edding +a&es creates elaborate$edding ca&es7 Each ca&e sells for H227 Thevariable cost of ba&ing the ca&es is 422 andthe fi'ed cost per month is G-222

1. Calculate the brea%-e'en point in units

$(!!! " )$5!! - $2!!* # 2! ca%es

2. +o many ca%es must be sold to earn a profit of $,!!!?

)$,!!! $(!!!* " )$5!! - $2!!* # 5! ca%es


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revie$

17 At 8inford +orp7- the selling price per la$nmo$er is 342- variable cost per la$n mo$er isHH7 /i'ed costs are 3F2-2227 E'pected salesare 1-422 units7 8hat is profit e'pected to be*

Ans$er here@ MMMMMMMMMMMMMMMMM

6argin of safet% in units ? 1-422 0 4-222 ? 4-422

4-422 units N GH unit +6 ? 31F-222


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+ontribution

,ifference bet$een revenue and variablecosts

0 +ontribution margin ?

Total revenue minus total variable costs0 ;nit contribution margin ?

"elling price minus variable cost per unit

> The unit contribution margin measures theamount of incremental profit generated b%selling an additional unit


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hetori/ 0nc. produces stereo spea%ers. hesellin price per pair of spea%ers is $3!!. he'ariable cost of production is $4!! and the

fi/ed cost per month is $5!!!!.

1. Calculate the unit contribution marin associated ith a pair ofspea%ers

$3!! $4!! # $5!!2. Calculate the contribution marin ratio for hetori/ associated ith

a pair of spea%ers

)$3!! $4!!* " $3!! # !.(25


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+ontribution margin

;sing the contribution margin and the contributionmargin ratio

"( ? 422722- V+ ? 927F- +6 ? 422 0 927F ? 32973I- T/+ ?3G2-4H- profit ? 12-222

;nits to produce ?(rofit O T/+: J ;nit contribution margin

12-222 O 3G2-4H: J 32973I ? 3-FH units

"ales re.uired in dollars: ?

(rofit O T/+: J +ontribution margin ratio

+6 ratio ? 32973I J 422722 ? 27H1H9

12-222 O 3G2-4H: J 27H1H9 ? FGG-92


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Rhetori'- #nc7 produces stereo spea&ers7 The selling price per pair of spea&ers is 227 The

variable cost of production is F22 and the fi'ed cost per month is H2-22271. 0f the company sells fi'e more spea%ers than planned hat is the e/pected effect on profit of sellin the

additional spea%ers?

5 spea%ers & $5!! unit C6 # $25!! profit

2. 0f the company has sales that are $5!!! hiher than e/pected hat is the e/pected effect on profit?

$5!!! & !.(25 # $4125


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Learning outcome

At the end of the chapter student can havea clear idea of

/i'ed-variable cost

Brea& even anal%sis +ontribution margin

(rofit volume ratioand cost volume profit

anal%sis $ith illustrations

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Presentation1.Pptx Week 4 Bep