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Cost Accounting - Midterm

The document discusses Cost-Volume-Profit (CVP) analysis, focusing on the break-even point (BEP) where profit equals zero. It outlines key concepts such as fixed and variable costs, margin of safety, and operating leverage, which help companies make informed decisions regarding pricing and sales volume. Additionally, it explains the contribution margin as the difference between selling price and variable cost per unit.

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reezielayne
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19 views1 page

Cost Accounting - Midterm

The document discusses Cost-Volume-Profit (CVP) analysis, focusing on the break-even point (BEP) where profit equals zero. It outlines key concepts such as fixed and variable costs, margin of safety, and operating leverage, which help companies make informed decisions regarding pricing and sales volume. Additionally, it explains the contribution margin as the difference between selling price and variable cost per unit.

Uploaded by

reezielayne
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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COST ACCOUNTING – MIDTERM BREAK EVEN POINT (BEP)

COST -VOLUME - PROFIT ANALYSIS


The break‐even point represents the level of sales where profit
Estimates how changes in costs (variable and fixed), equals zero. Profit = 0
sales volume and price affect a company’s profit. no profit or losses have been made
CVP analysis requires that all the company's costs,
including manufacturing, selling, and administrative FORMULA:
costs, be identified as variable or fixed.
Budget planning: To make decisions regarding pricing
and sales volume.
Used by companies to determine the break-even point.

ELEMENTS OF CVP ANALYSIS

MARGIN OF SAFETY

TERMS The margin of safety is the units sold or revenue earned


above the BEP volume. It represents the number of
FIXED COSTS units or amount of sales revenue that the company can
Costs that remain constant regardless of the level of absorb before incurring a loss.
activity.
These costs are independent of output.

VARIABLE COST

Cost which vary directly, in total, in relation to volume


of production.
When production increases, variable costs increase;
when production decreases, variable costs decrease. SALES AND UNITS WITH DESIRED PROFIT

FACTORY OVERHEAD

Cannot be classified as direct materials or direct labor


(Indirect cost)

SELLING AND ADMINISTRATIVE EXPENSE

Includes all non-production expenses incurred by a


company OPERATING LEVERAGE
Also known as period costs
a measure of how sensitive operating income is to
ABSORPTION COSTING VARIABLE COSTING percentage changes in sales.
INCOME STATEMENT INCOME STATEMENT
(TRADITIONAL FORMAT) (CM FORMAT)
Sales xx Sales xx
(COGS) xx (Var.Cost) xx
Gross Profit xx CM xx
(OPEX) xx Fx Cost xx ** With high operating leverage, even a small percentage
Profit xx Profit xx increase (decrease) in sales can cause a large percentage
increase (decrease) in operating income.

CONTRIBUTION MARGIN

Is the amount remaining after deducting the variable


cost per unit from the selling price per unit.

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