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ch06 - CVP Analysis Additional Issues
ch06 - CVP Analysis Additional Issues
8th Edition
Weygandt Kimmel Kieso
Chapter 6
Cost-Volume-Profit
Analysis: Additional Issues
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter Outline
Learning Objectives
LO 1 Apply basic CVP concepts.
LO 2 Explain the term sales mix and its effects on break-
even sales.
LO 3 Determine sales mix when a company has limited
resources.
LO 4 Indicate how operating leverage affects
profitability.
Basic Concepts
Solution
a. Assuming no changes to sales price or costs:
Break-even point in units = 4,167 units (rounded) ($100,000 ÷ $24)
Break-even point in sales dollars = $250,000 ($100,000 ÷ .40a)
Margin of safety in dollars = $50,000 ($300,000 − $250,000)
a
$24 ÷ $60
a: 18 =(60-10%x60)-36 = 54-36=$18
b: 18 ÷ 54 = 33,33%
c: (5,000+ 25%x5,000) x 54 = 6,250x54= $337,500
ILLUSTRATION 6.15
Break-Even
Weighted-Average Unit Point in
Fixed Cost ÷ Contribution Margin = Units
ILLUSTRATION 6.19
Contribution margin ratio
ILLUSTRATION 6.20
Second,
Weighted-Average Break-even
calculate Fixed Cost ÷ Contribution = Point in
break-even Margin Ratio Dollars
Break-even
Fixed Contribution Point in
÷ =
Costs Margin Ratio Dollars
Vargo $200,000 ÷ .40 = $500,000
New Wave $520,000 ÷ .80 = $650,000
Degree of
Contribution Operating
÷ Net Income =
Margin Leverage
Vargo $320,000 ÷ $120,000 = 2.67
New Wave $640,000 ÷ $120,000 = 5.33
ILLUSTRATION 6.29
ILLUSTRATION 6.A2
LO 5 Copyright ©2017 John Wiley & Son, Inc. 59
Absorption vs. Variable Costing (2 of 2)
Per unit manufacturing cost under each approach. ILLUSTRATION 6A.3