Lecture Managerial accounting for managers (4e) - Chapter 3: Cost-volume-profit relationships
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PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
<i>Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.</i>
Cost-Volume-Profit Relationships
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Learning Objective 3-1
<b>Explain how changes in </b>
<b>activity affect </b>
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Analysis
Contribution Margin (CM) is the amount remaining from
sales revenue after variable expenses have been deducted.
Contribution Margin (CM) is the amount remaining from
sales revenue after variable expenses have been deducted.
<b>Sales (500 bicycles)</b> <b>$ 250,000</b>
<b>Less: Variable expenses</b> <b> 150,000</b>
<b>Contribution margin</b> <b> 100,000</b>
<b>Less: Fixed expenses</b> <b> 80,000</b>
<b>Net operating income</b> <b>$ 20,000</b>
<b>Racing Bicycle Company</b>
<b>Contribution Income Statement</b>
<b>For the Month of June</b>
The contribution income statement is helpful to managers in
judging the impact on profits of changes in selling price,
cost, or volume. The emphasis is on cost behavior.
The contribution income statement is helpful to managers in
judging the impact on profits of changes in selling price,
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Basics of Cost-Volume-Profit
Analysis
CM is used first to cover fixed expenses. Any
remaining CM contributes to net operating income.
CM is used first to cover fixed expenses. Any
remaining CM contributes to net operating income.
<b>Sales (500 bicycles)</b>
<b>$ </b>
<b>250,000</b>
<b>Less: Variable expenses</b>
<b> </b>
<b>150,000</b>
<b>Contribution margin</b>
<b> </b>
<b>100,000</b>
<b>Less: Fixed expenses</b>
<b> </b>
<b>80,000</b>
<b>Net operating income</b>
<b>$ </b>
<b>20,000</b>
<b>Racing Bicycle Company</b>
<b>Contribution Income Statement</b>
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<b>Total</b> <b>Per Unit</b>
<b>Sales (500 bicycles)</b> <b>$ 250,000</b> <b>$ 500</b>
<b>Less: Variable expenses</b> <b> 150,000</b> <b> 300</b>
<b>Contribution margin</b> <b> 100,000</b> <b>$ 200</b>
<b>Less: Fixed expenses</b> <b> 80,000</b>
<b>Net operating income</b> <b>$ 20,000</b>
<b>Racing Bicycle Company</b>
<b>Contribution Income Statement</b>
<b>For the Month of June</b>
The Contribution Approach
Sales, variable expenses, and contribution margin
can also be expressed on a per unit basis. If
Racing sells an additional bicycle, $200 additional
CM will be generated to cover fixed expenses and
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<b>Total</b> <b>Per Unit</b>
<b>Sales (500 bicycles)</b> <b>$ 250,000</b> <b>$ 500</b>
<b>Less: Variable expenses</b> <b> 150,000</b> <b> 300</b>
<b>Contribution margin</b> <b> 100,000</b> <b>$ 200</b>
<b>Less: Fixed expenses</b> <b> 80,000</b>
<b>Net operating income</b> <b>$ 20,000</b>
<b>Racing Bicycle Company</b>
<b>Contribution Income Statement</b>
<b>For the Month of June</b>
The Contribution Approach
Each month, RBC must generate at least
$80,000 in total contribution margin to
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<b>Total</b> <b>Per Unit</b>
<b>Sales (400 bicycles)</b> <b>$ 200,000</b> <b>$ 500</b>
<b>Less: Variable expenses</b> <b> 120,000</b> <b> 300</b>
<b>Contribution margin</b> <b> 80,000</b> <b>$ 200</b>
<b>Less: Fixed expenses</b> <b> 80,000</b>
<b>Net operating income</b> <b>$ </b>
<b>-Racing Bicycle Company</b>
<b>Contribution Income Statement</b>
<b>For the Month of June</b>
The Contribution Approach
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