Managerial Accounting for Business Professionals ACC 330 UNIT 3 Dr. Doug Letsch

Wiley Plus Instructions Fixed, Variable, and Mixed Costs What is CVP Break Even Questions

WILEY PLUS How do we find these assigned problems?

COST BEHAVIOR Kick Starting the Cost Discussions?

COST BEHAVIOR Variable, Fixed, or Mixed Costs Variable: These costs follow revenues everywhere they go Direct costs, sales commissions, eBooks for universities, or instructors paid per student. – Revenues are the tractor and variable costs are the trailer.

COST BEHAVIOR Variable, Fixed, or Mixed Costs Fixed: These costs do not change within the relevant range Rent, salaries of managers, some depreciation, taxes, insurance, LMS (rent), or software. – Fixed costs are like a tight rope – rigid line until you move it to another location

COST BEHAVIOR Variable, Fixed, or Mixed Costs Mixed: These costs share the behaviors of both fixed and variable costs. They change in total –not in proportion. Rent at shopping malls is a good example. There is a fixed portion of rent plus a percentage of store sales. – Mix costs are like our iphones- the promised bill is never the same!

Which of the following is not a variable cost? a.Warehouse rent. b. CEO salary. c. All of the above. d. None of the above is correct Poll Question Select your answer on the poll question. Remember to get credit you must answer all poll questions during a session.

Which of the following is not a variable cost? a.Warehouse rent. b. CEO salary. c. All of the above. d. None of the above is correct Poll Question

COST VOLUME PROFIT The purpose behind the analysis !

COST VOLUME PROFIT - CVP Behavioral Analysis & its Effect on Profit Jacobs, Inc., produces and sales a single product. Here is a copy of their most recent income statement. What can you tell me by analyzing these number? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales Price Variable Cost Per Unit Contribution Margin Per Unit Contribution Margin Percentage Break Even in Dollars Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales Price Sales$/SalesUnits Variable Cost Per Unit Contribution Margin Per Unit Contribution Margin Percentage Break Even in Dollars Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per Unit Contribution Margin Percentage Break Even in Dollars Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin Percentage Break Even in Dollars Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in Dollars Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% Break Even in Units

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% Break Even in UnitsFixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits $ Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% Break Even in UnitsFixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units $ Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% Break Even in UnitsFixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units $ Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% Break Even in UnitsFixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars44% Break Even in DollarsFixed/CM% Break Even in UnitsFixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% $ 90,909 Break Even in UnitsFixed/Cmunit

COST VOLUME PROFIT – CVP – WHAT DO WE KNOW? Sales Units 5,000 Sales Dollars $ 125,000 Variable expenses $ 70,000 Contribution margin $ 55,000 Fixed expenses $ 40,000 Net Income $ 15,000 Unit Sales PriceSales$/SalesUnits Variable Cost Per UnitVariable$/Units Contribution Margin Per UnitCM/Sales Units Contribution Margin PercentageCM/Sales Dollars Break Even in DollarsFixed/CM% Break Even in UnitsFixed/Cmunit 3,636.4

COST VOLUME PROFIT – CVP – POLL QUESTION Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: a.What is the breakeven point in batteries? This is your final Poll Question for the week. Calculate this – I will give you a few minutes to determine the answer. When I open the poll question, please respond.

COST VOLUME PROFIT – CVP – POLL QUESTION Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: a.What is the breakeven point in batteries? N = Breakeven units $50N -$40N -$10,000 -$8,000 = 0 $10N -$18,000 = 0 N = $18,000/$10 = 1,800 batteries Unit CM

COST VOLUME PROFIT – CVP Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: b. What is the margin of safety, assuming projected sales are $100,000?

COST VOLUME PROFIT – CVP Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: b. What is the margin of safety, assuming projected sales are $100,000? Margin of safety = $100,000 -($50 ×1,800) = $10,000 B/E Units

COST VOLUME PROFIT – CVP Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: c. What is the breakeven level in batteries, assuming variable costs increase by 20% and sales price increases by 14%?

COST VOLUME PROFIT – CVP Dover Auto, Inc., sells batteries to their auto repair customers for an average of $50 each. The variable cost of each battery is $40 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: c. What is the breakeven level in batteries, assuming variable costs increase by 20% and sales price increases by 14%? N = Breakeven units $57N -$48N -$10,000 -$8,000 = 0 $9N -$18,000 = 0 N = $18,000/$9 = 2,000 batteries

Are there any questions? Our next networking opportunity is Monday at 11am EST for the AIM Chat. See you there!