Cost Volume Profit Analysis Mba Finance Project Report

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Blocher,Stout,Cokins,Chen:Cost Management, 4e 7-1 ©The McGraw-Hill Companies, Inc., 2008 CHAPTER 7: COST-VOLUME-PROFIT ANALYSIS QUESTIONS 7-1 The underlying relationship in cost-volume-profit analysis is that costs, revenues, and profits all change in a predictable way as the volume of activity changes. 7-2 It is more practical to find the breakeven point in sales dollars for companies having thousands of individual items. Finding the breakeven point for each item would be laborious and meaningless. 7-3 The contribution margin ratio is: price - variable costs price The contribution margin ratio (CMR) represents the net contribution per sales dollar. The CMR tells us the change in profit associated with a given change in sales dollars. It…show more content…
The contribution margin ratio uses the dollar change in sales to predict the dollar change in profits. 7-14 Step costs cause a difficulty in the calculation of breakeven because of the discontinuities in the cost line. This usually requires some trial and error to identify the one unique breakeven point. Exhibit 7-10 illustrates how the breakeven point is determined when there are step costs. 7-15 One over one minus the tax rate. (1/(1-t))Blocher,Stout,Cokins,Chen:Cost Management, 4e 7-3 ©The McGraw-Hill Companies, Inc., 2008 7-16 In order to use the CVP model to find the breakeven point for multiple products, one must assume that the sales of the products will continue at the present sales mix. (Each product will continue to comprise the same proportion of total sales.) The constant sales mix permits two or more products to be treated as one, by computing a weighted-average price, unit variable cost, and contribution margin.Blocher,Stout,Cokins,Chen:Cost Management, 4e 7-4 ©The McGraw-Hill Companies, Inc., 2008 BRIEF EXERCISES 7-17 Unit Contribution Margin = price – variable cost = $25 – $18 = $7 per bearing 7-18 Total Contribution Margin = (price – variable cost) x units sold = ($100 – $80) x 500,000 = $20 x 500,000 = $10,000,000 7-19 Contribution Margin Ratio = (price – variable cost) / price = ($25 – $15) / $25 = $10 / $25 = 40% 7-20 Break Even Point – P x Q = F + (v x Q) $30

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