Break Even Point and CostVolume-Profit Analysis

Chapter 9

Cost Behavior

Variable cost
Fixed cost
Mixed cost
Step cost

Absorption costing vs. Marginal costing

Absorption
costing
Sale
-Production cost

Marginal costing
Sale
- Variable cost

= Gross profit
= Contribution margin
- Nonproduction cost - Fixed cost
= profit
= profit

Cost-volume-profit analysis

Sale
quanti
ty

Sale
value

Break-even

Target profit

Required
contribution

Fixed cost

Fixed cost + target

profit

Contribution
margin
per unit

Contribution
margin
per unit

Contribution margin
per unit

Required
contribution

Fixed cost

Fixed cost + target

profit

Contribution
margin ratio

Contribution
margin ratio

Contribution margin
ratio

Margin of safety
Margin of safety in units
= Actual (Expected) sales Breakeven sales
Margin of safety %
= Actual (expected) sales Breakeven sales 100
Actual (expected) sales
The calculation of the margin of safety provides a
comparison between the sales needed to
cover costs and the expected sales.

Assumptions of CVP
Analysis
1. Selling price and variable cost per
unit are constant.
2. Total fixed cost is constant.
3. Sales and production are equal.
4. In a multiproduct firm, the sales mix
remains constant.

Midterm Revision
Managerial accounting
Cost terminology: manufacturing
cost, COGS
Cost classification: function,
direct/indirect, behavior
Job cost: DM, DL, Applied OH
CVP: Contribution margin ratio,
break-even, target profit, margin of
safety