USE OF DIFFERENTIAL ACCOUNTING

INFORMATION IN SHORT-TERM PROFIT

PLANNING

GROUP 1
E F I S E T I A N I N G S I H ( 2 0 1 9 111 4 3 )
U L LYA K U R N I S A ( 2 0 1 9 11 5 9 0 )
DIFFERENTIAL ACCOUNTING
Differential Accounting
INFORMATION
Information consists of :
Differential Accounting Information is o Differential Cost
accounting information that used by
management to take decisions o Differential Revenue
regarding alternative selection the best
o Differential Asset
course of action among alternatives
available.
SHORT-TERM PROFIT PLANNING

 Short-term profit planning is carried out as part of the company’s

budgetting process.

 In short-term profit planning, management requires differential

accounting information consisting of differential revenue
information and differential cost information, to consider the impact
of changes in sales volume, selling price, and cost on company
profit.
SHORT-TERM PROFIT PLANNING

 In short-term profit planning, management needs differential

accounting information in the form of :
- Estimated of differential revenue
- Estimated of differential cost that impact on net profit

 The impact on net profit becomes one of the considerations in

deciding proprosed activities in the budgetting planning process.
Parameters of Budgetting
Process
o Break-even
o Margin of safety
o Shut-down point
o Degree of operating leverage
o Contribution profit per unit
Break-even  Break-even is a state of business that is not make a
profit and do not suffer a loss or a condition where
revenue is the same with total cost.

 In short-term planning process, management needs

break-even information to consider various
proposed activities. This differential revenues and
differential cost have an effect on break-even.

 The lower of break-even means that the company

has the opportunity to earn a profit.
 There are 2 method to determine break-even :

Equation Technique Approach Graphic Approach

Profit is sales revenue minus cost.  Break-even calculations can also be done by
The formula : determining the meeting point between the
sales revenue line and the cost line in a graph
y = cx – bx – a  The point where the sales revenue line meets
the cost line is called the break-even point.
y = profit  To be able to determine the break-even point,
c = selling price per unit a graph must be made with the flat axis
x = number of product sold showing sales volume, while the vertical axis
b = variable cost per unit showing costs and revenues.
a = fixed cost
Margin Of Safety
 Margin of safety is indicates the maximum number of drops
revenue targets that may occur so the decrease does not cause loss.

 The greater margin of safety, the greater company’s opportunity to

earn profit.

 The number of margin of safety :

>> budgeted sales volume minus break-even sales volume.
 Shut-Down Point

 Shut-down point is a business must be discontinued if the revenue

earned can’t be cover cash cost (out of pocket cost).

 The Formula :
>> Shut down point = cash fixed cost : contribution margin ratio
 Degree of Operating Leverage
 Degree of operating leverage is shows the percentage change in profit
net as a result of sales revenue change.

 The formula :
>> Degree of operating leverage = contribution profit : net profit
Contribution profit per unit
 Contribution profit is the excess of sales revenue over variable cost. Profit contribution information
provides an overview of the amount available to cover fixed cost and to generate profit.

 The greater contribution profit, the greater opportunity for the company to cover fixed cost and to
generate profits.

 Contribution profit per unit is contribution profit divided with sales volume.
Cost – Volume – Laba Analysis

>> Cost-volume-profit analysis produces information

on the impact of changes in selling prices,costs, and
sales volumes on net revenue.
>> In preparing the budget, various possible options
for selling prices, sales volume, and costs are always
faced by management.
>> With cost-volume-profit analysis, management
will quickly find out the impact of planned changes
in selling price, sales volume, and costs individually
or collectively on the company’s net profit in the
fiscal year.
THANK
YOU. . .