lec 8 - cost volume profit analysis Flashcards
cost object
anything that can incur a cost
predictability of costs and revenues at diff levels is important for many
decisions
4 types of costs
fixed
variabel
semi fixed
semi variablef
vc
cost that vary in direct proportion to activity/output
unit variable costs are
equal
how do unit variable csots look on a ggrpah
horizontal
unit variable costs stay the same but waht increases
VC increase
fixed costs
costs remain constant over wide range of activity and output
what are semi fixed costs
costs fixed to a certian level then change by consistent amount at critical activity levels
e.g give instance of semi fixed costs
fc may change as max capacity of output is reached
so company ents new building increaseing fc to a higher number till max capacity reached again
what are semi vatiable costs
costs that increase with production of activity but the intercept begins at a certain amount of costs
even if cmpany produce 0 items still got to pay some
give example of semi variable costs
if company donot produce anything sitll got ot pay a fixed amount for telephone and the more they use it the more it increases
imporant note about classification of costs
classification depends on the time period
in the short term some costs fixed
but in the LT all costs change with level of activity
cost volume proit anlysis aka
break even
3 key assumptions in cost volume profit analysis
costs accuratley divided into FC and VC - no semis
VC and selling price are conostant per unit of ouptut
all other variables remain constant
break even point
total rev = total costs i.e 0 profit
p
price per unit
q
quanitty
v
varable cost per unit
FC
Fixed costs
rev
p x q
vc
v x q
profit =
pxq - v.q - fc
contribution is
profit after taking way vc only
shows us leevel of profit available for us to cover FC
profit before we takeaway fc
contribution equation
rev - vc
total = total rev - total vc
break even point
fc/sp-vc(contribution per unit)
equation if want to know sales required to achieve a target profit
q= x+fc/contribution per unit (sp-vc)
profit volume ratio
contribution per unit /revenue per unit x 100
margin of safety
expected sales - break even sales
% of margin of safety
margin of safety/expected sales x 100
who decides on the expected sales figure
accountatn
what does margin of safety show us
leeway expected sales can fall by before competition starts making a loss
margin of safety also represents extentto which
ES exceed BEP after the BE point is +ve
what does % of margin of safety show us
% sales can fall beforemaking a losst
the bigger hte margin of safety/ % of margin of safety
the better
how do we calculate profit
OR JUST TR- TC !!!!!!!!!!!
MAKE SURE YOU CALC TVC PROPERLY
