Cost Volume Profit Analysis

Some costs change as the volume of sales increases or decreases. Other costs are not affected by changes in volume

Different types of costs are:

–Variable costs

–Fixed costs

–Mixed costs

Chapter 4 Learning Objectives

1.Determine how changes in volume affect costs

2.Calculate operating income using contribution margin and contribution margin ratio

3.Use cost-volume-profit (CVP) analysis for profit planning

4.Use CVP analysis to perform sensitivity analysis

5.Use CVP analysis to calculate margin of safety, operating leverage, and multiproduct breakeven points

A budget is a financial plan that managers use to coordinate a business’s activities.Managers use budgets to:

–Develop strategies

–Plan and budget for specific actions to achieve goals

–Implement plans

–Take corrective action

Chapter 5 Learning Objectives

1.Describe budgeting objectives, benefits, and procedures and how human behavior influences budgeting

2.Define budget types and the components of the master budget

3.Prepare an operating budget for a manufacturing company

4.Prepare a financial budget for a manufacturing company

Previously, we discussed how managers use budgets for planning andcontrolling business activities. The master budget focuses on theplanning step. In this chapter, we focus on the controlling step, as welook at the decisions managers make during and after the budgetingperiod, based on actual results. Managers may ask:

• Did my division meets its sales goals?
• Have costs increased?
• Sales have dropped, so how do we need to adjust spending?

Businesses often have to make difficult decisions. An economicdowntown or increased competition may cause a decrease in sales. In sucha situation, spending must also decrease in order for the company toremain profitable.

Chapter 6 Learning Objectives

1.Prepare flexible budgets and performance reports using static and flexible budgets

2.Identify the benefits of a standard cost system and understand how standards are set

3.Compute the standard cost variances for direct materials and direct labor

4..Compute the standard cost variances for manufacturing overhead

5.Describe the relationship among and responsibility for the product cost variances

^. Record transactions in a standard cost system and prepare a standard cost income statement