MGM222H5 Lecture Notes - Lecture 6: Contribution Margin, Fixed Cost, Income Statement
Resources for the preparation of the midterm
1) Rapid review
2) MC text
3) Ed of chapter Do it
4) Pop Quiz
5) Past term test
6) Wiley Plus
7) Class discussion
8) Tutorial questions
Cost-Volume-Profit (C-V-P) Analysis
- Looks at the relationship of how much is produced and how much cost was incurred and how it
will affect profits
- “tudy of the effects of chages of costs ad volue o a copay’s profits
- Change in acticity----effects on CM (Contribution margins) and OI
Who would use?
- Hotels
- Restaurants
o How many meals to be served to make profits
- Airlines
Assumptions underlying CVP analysis (memorize)
- Normal operating range
- Both costs and revenues is linear
- All costs are classified as either variable or fixed with reasonable accuracy
- Changes in activity are the only factors that affect costs
- Not producing for inventories
- When one is sold, the sales mix will remain constant
o Sales mix = HP sells computers and printers (3:1)
CVP income statement
- For internal use
- CM = SALES – VC
o Amount of revenue remaining after deducting variable costs
- So:
o Revenue – VC = CM – FC = OI
- OI = 0 means break-even
- B/E in units = Fixed costs / CM per unit
- B/E in dollars = fixed costs / CM ratio
o Contribution margin ratio = contribution margin per unit / unit selling price
o Can be calculated also from a mathematical equation, or from a CVP graph
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Resources for the preparation of the midterm: rapid review, mc text, e(cid:374)d of chapter (cid:862)do it(cid:863, pop quiz, past term test, wiley plus, class discussion, tutorial questions. Looks at the relationship of how much is produced and how much cost was incurred and how it will affect profits. Tudy of the effects of cha(cid:374)ges of costs a(cid:374)d volu(cid:373)e o(cid:374) a co(cid:373)pa(cid:374)y"s profits. Change in acticity----effects on cm (contribution margins) and oi. Restaurants: how many meals to be served to make profits. All costs are classified as either variable or fixed with reasonable accuracy. Changes in activity are the only factors that affect costs. When one is sold, the sales mix will remain constant: sales mix = hp sells computers and printers (3:1) Cm = sales vc: amount of revenue remaining after deducting variable costs. So: revenue vc = cm fc = oi. B/e in units = fixed costs / cm per unit.
