Kế toán, kiểm toán - Chapter 17: Cost volume profit analysis

Chapter 17Cost volume profit analysis1Cost volume profit (CVP) analysisA technique used to determine the effects of changes in an organisation’s sales volume on its costs, revenue and profitCan be used in profit-seeking and not-for profit organisations2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithThe break-even pointThe volume of sales where the total revenues and expenses are equal, and the operation breaks evenCan be calculated for an entire organisation or individual projects or activities3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFormulas4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTerminologyContribution margin (or variable costing) statementA reporting format where costs are reported by cost behaviour and a contribution margin is calculatedTotal contribution marginThe difference between the sales revenue and the variable costsThe amount available to cover fixed costs and then contribute to profitscontinued5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTerminologyUnit contribution marginThe difference between the sales price per unit and variable cost per unit Contribution margin ratioThe unit contribution margin divided by the unit sales priceThe proportion of each sales dollar available to cover fixed costs and earn a profitcontinued6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTerminologyContribution margin percentageThe unit contribution margin ratio multiplied by 100The percentage of each sales dollar available to cover fixed costs and earn a profit7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost volume profit (CVP) graphShows how costs, revenue and profits change as sales volume changesFive stepsDraw the fixed expense lineDraw the total expense lineDraw the total revenue lineBreak-even point—where the total revenue and total expense lines intersect8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProfit volume (PV) graphShows the total amount of profit or loss at different sales volumesThe graph intercept the vertical axis at the amount equal to the fixed costsThe break-even point is the point at which the line crosses the horizontal axis10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTarget net profitA desired profit level determined by management Can be used within the break-even formula12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCVP analysis and management decision makingCommon applications includeSafety marginChanges in fixed expensesChanges in the unit contribution marginMultiple changes in key variables13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSafety marginDifference between the budgeted sales revenue and the break-even sales revenueGives a feel for how close projected operations are to the break-even point14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithChanges in fixed expensesWhen estimates of fixed costs are revised, the break-even point will changePercentage change in fixed expenses will lead to similar increase in the break-even point (in units or dollars)Different fixed costs may apply to different levels of sales/production volumeMore than one break-even point15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithChanges in the unit contribution marginChange in unit variable expensesChanges the unit contribution marginA new break-even pointAn increase in unit variable expenses will increase the break-even pointcontinued16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithChanges in the unit contribution marginChange in sales priceChanges the unit contribution marginA new break-even pointAn increase in unit price will lower the break-even point17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMultiple changes in key variablesMay involveIncreasing unit prices Undertaking an advertising campaignHiring a new storage facilityAn incremental approachFocuses on the difference in the total contribution margin, fixed expenses and profits under the two alternatives18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCVP analysis with multiple productsSales mixThe relative proportions of each type of product sold by the organisationWeighted average unit contribution margin The average of the products’ unit contribution margins, weighted by the sales mix19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithIncluding income taxes20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithAssumptions underlying CVP analysisThe behaviour of total revenue is linearThe behaviour of total costs is linear over a relevant rangeCosts can be categorised as fixed, variable or semivariableLabour productivity, production technology and market conditions do not changeThere are no capacity changes during the period under considerationcontinued21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithAssumptions underlying CVP analysisFor both variable and fixed costs, sales volume is the only cost driverThe sales mix remains constant over the relevant rangeIn manufacturing firms, levels of inventory at the beginning and end of the period are the same22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCVP analysis and long-term decisionsCVP analysis is usually regarded a short-term or tactical decision toolClassification of costs as variable or fixed is usually based on cost behaviour over the short-termThe financial impact of long-term decisions best analysed using capital budgeting techniques23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTreating CVP analysis with cautionCVP analysis is merely a simplified modelThe usefulness of CVP analysis may be greater in less complex smaller firms, or stand-alone projectsFor larger firms, CVP analysis can be valuable as a decision tool for the planning stages of new projects and ventures24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithAn activity-based approach to CVP analysisABC categorises activities as facility, product, batch or unit costsFacility, product and batch activities are non-volume activity costs25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithLimiting assumption of using activity-based costsBatch costs are based on likely production levelsNew planned production levels lead to changes in the number of production batches, and changes in total non-volume activity costs -> new break-even or target profit volume26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSensitivity analysis and CVP analysis Sensitivity analysisAn approach which examines how an outcome may change due to variations in the predicted data or underlying assumptionsCan be run using spreadsheet software, such as Excelcontinued27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smithcontinued28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithSensitivity analysis and CVP analysisGoal seeking approachesAllows the analyst to specify the outcome, so that software can specify the necessary inputsWhat-if analysisThe analyst specifies changes in assumptions to examine the effect of these changes on the output29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith