Cost Equation y vx f Total cost variable fixed Total Unit Fixed Constant Changes Variable Changes Constant High Low Method Find Slope v Change in cost H L change in volume H L Find f f Y v x use both H or L Create cost equation add in x Regression Analysis use coefficients Y X Variable x Intercept R square closer to 1 the better over 80 Contribution Margin Income Statement Sales Variable Costs Contribution Mg Fixed Costs Operating Income Traditional Income Statement Sales COGS Gross Profit Operating Expenses Operating Income Margin of Safety in Units Expected Sales in Units Breakeven Sales in Units Incremental Analysis Expected increase in revenues Expected increase in expenses Variable manufacturing cost Fixed manufacturing cost 0 usually Total expected increase in expenses Expected increase decrease in op income PRODUCT MIX DECISION RULE Emphasize product w high CM per unit Maximize Operating Income Sales Price Per Unit Var Costs Per Unit CM Per Unit x Sales Mix CM machine Sell As Is Process Further Sales Rev per Unit Less Addit costs per unit packaging Less Addit costs per unit add fruit Net benefit per unit x Number of units produced Net benefit per batch Contribution Margin Ratio unit Unit Contribution Margin Sales Price Per Unit Contribution Margin Ratio gross Contribution Margin Sales Revenue Breakeven Point units Units Sold Fixed Expenses Operating Income 0 Contribution Margin PER UNIT Breakeven Point dollars Sales in Fixed Expenses Operating Income 0 Contribution Margin RATIO Sub in CM ratio to find dollars Find Volume for Target Units Sold Fixed Expenses Target Oper Income Contribution Margin PER UNIT Operating Leverage Factor Contribution Margin Operating Income High operating leverage higher fixed costs lower variable costs Higher CM ratios Higher risk higher reward Target Costing Price Taker Revenue at market price Less Desired Profit Target Cost total cost Cost Plus Pricing Price Setter Total Cost Variable Fixed Desired Profit Target Revenue of Units Actual cost Target cost Okay accept Actual cost Target cost Change it Margin of Safety as a Percentage Margin of Safety in Units Expected Sales in Units If variable costs increase contribution margin decrease breakeven increase Margin of Safety as a Percentage Margin of Safety in Dollars Expected Sales in Dollars If fixed costs change CM not affected and break even will change proportional Multi Product Breakeven Per Unit Sales Mix Sales price per unit Variable cost per unit CM per unit x Sales Mix CM weighted Add total CM for each product then divide by total sales mix to get per unit value Units Sold Fixed Expenses Operating Income 0 weighted average contribution margin per unit Divide total units sold by product sales mix Margin of Safety in Dollars Expected Sales in Breakeven Sales in Considering Discontinuing a Product Does product provide positive CM Use Incremental Analysis Expected decrease in revenues Expected decrease in expenses var fixed Decrease in 2nd product sales if given Expected decrease in operating income Decrease in expenses decrease in revenue increase in operating income Outsourcing Incremental Analysis Variable Cost Per Unit To Make Direct Materials Direct Labor Variable Overhead Var cost per unit To Buy Purchase Price Outsourcing if you can buy cheaper outsource If you can make cheaper make If buying reduces fixed costs subtract total fixed costs from amount reduced Product Mix Considerations 2 categories of products Dollars Find CM then find CM ratio Units of Units x CM per unit CM per machine x Available Capacity Total CM at full capacity How much willing to pay to outsource Var cost Fixed cost Var cost fixed cost Var per unit of units Fixed Cost to make x of units fixed costs to buy
View Full Document
Unlocking...