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-it is a cost that varies, in total, in direct proportion to changes in the level of
activity. (Table A)
Cost classification for predicting Cost Behavior
-is a constant per unit. (Table B)
COST BEHAVIOR
Variable Cost
Table A Table B
CLASSIFICATION: Fixed Cost
Unit Variable Cost
Total Variable Cost
Mixed Cost
Quantity Quantity
FACTORS AFFECTING PROFIT:
1. Functional
Manufacturing, selling and administrative.
2. Behavioral
Variable, Fixed and Mixed.
3. Nature of Expense
TFC
FIXED COST STEP FIXED COST
-Fixed cost that is constant at a given level or period but significantly
-It is a cost which is constant within the relevant rang increases beyond that level or period.
Q TFC
IN TOTAL
BREAK-EVEN ANALYSIS
Q
IN UNITS I. METHOD OF COMPUTING BREAK-EVEN POINT
UNTIS TR = TC
2. CONTRIBUTION MARGIN METHOD OR FORMULA APPROACH D. CONTRIBUTION MARGIN RATIO (CMR)
PROFIT
C. CONTRIBUTION MARGIN PER UNIT (CMU) MOS PESOS
SP / unit - VC / unit
CHANGE IN FC
CHANGE IN BEP PESOS
TCM
TOTAL SALES UNITS
E. FIXED COST
FIXED COST
BEP UNITS TCM - PROFIT BEP UNITS X CMU
PROFIT
TOTAL COST - TVC BEP PSOS X CMR
MOS units
CHANGE IN FC
CHANGE IN BEP UNITS
F. VARIABLE COST RATIO ( VCR)
VC / unit SENSITIVITY ANALYSIS
SP / unit -is very important in determining factors that will significantly affect profits.
% CHANGE IN OUTPUT
TVC
% CHANGE IN INPUT
TOTAL SALES
1-CMR
SALES MIX IN MULTI-PRODUCT COMPANIES
G. TOTAL SALES PESOS OR AMOUNT OF SALES TO EARN A DESIRED -The proportion of two or more products sold.
PROFIT
ASSUMPTIONS:
TOTAL FIXED COSTS + DESIRED PROFIT AFTER TAX (1-TAX RATE) 1. The proportion of sales mix must be predetermined.
2. The sales mix must not change within the relevant time period.
CMR
BEP PESOS + MOS SALES A. MIX BEP PESOS TOTAL FIXED COST
COMPOSITE CMR
H. TOTAL SALES UNITS OR NUMBER OF UNITS TO BE SOLD TO EARN A
DESIRED PROFIT B. MIX BEP UNITS
TOTAL FIXED COST
COMPOSITE CMU
TOTAL FIXED COSTS + DESIRED PROFIT AFTER TAX (1-TAX RATE)
C. COMPOSITE CMR
CMU (CMR a X Mix Ratio a) + (CMR b X Mix Ratio b) + (CMR nth X Mix Ration nth)
PROFIT / CMR
MSUxCMU
MSPxCMR
BENEFITS: