ACCTG 211 1st Edition Lecture 22Outline of Last Lecture II. Methods for Splitting mixed costsa. Visual Fit Methodb. High-low Method c. Least Squares Regression Method III. Contribution Margin IV. CVP Analysis Outline of Current Lecture V. CVP Analysis Continue a. Contribution Margin Approach VI. CVP With Multiple ProductsVII. Examples a. High Low Method b. Single Product CVPCurrent LectureI. CVP Analysis Continued a. Contribution Margin Approach i. Sales Dollars = (Total FC + Total VC)/ (Contribution Margin Ratio)II. CVP Using multiple productsa. Weighted Average CM (WACM)i. = Total Units Sold per each bundle / Total number of Units in each bundleb. Number of (All Products) Units Required to Cover Fixed Costs and Desired Profit = (Total FC + Desired Profit)/ (WACM) III. High-Low Method Example These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.a. Provide the mixed cost equation i. High: Feb1. Miles 17,7002. Cost: 5,705ii. Low: Jul1. Miles: 14,1002. Cost: 4,805iii. Equation = (High $ - Low $) / (High Units – Low Units)1. (5,705 – 4,805) / (17,700 – 14,100)a. .25 VC/Unitiv. TFC = TVC -TC1. Can use either the high or the low activity (we will use high)a. 5,705 – (.25 X 17,700) = 1,280 = TFC IV. Single Product CVP analysis Examplea. A single-product firm sells its product for $80 per unit and has calculated its variable costs per unit to be $40. The firm has Total Fixed Costs of $100,000 for the period being analyzed. The firm wishes to calculate the number of units it needs to sell in order to break even on the production of its product.i. # of Units to Cover FC and Desired Profit = (TFC + Desired Profit) / ( CM PER UNIT) 1. CM = Revenue –VC a. 80-40 = 40 CM per unit 2. # Units to Cover FC and Desired Profit = (100,000 + 0)/(40)a. 2,500 Units to Break evenii. Now the firm wishes to calculate the total sales dollars needed 1. Sales Dollars to Cover FC and Desired Profit = (TFC + Desired Profit) / ( CM Ratio) a. CM Ratio = (CM per Unit) / (Unit Sales Price)i. 40/80 = .52. Sales $ to Cover FC & Desired Profit = (100,000 + 0) / (.5) =
View Full Document
Unlocking...