6: Cost Behavior and Cost-Volume-Profit Analysis
- Page ID
- 65715
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 6.1: Chapter 5 Study Plan
- This page discusses a study plan for Cost-Volume-Profit (CVP) Analysis, detailing knowledge, reasoning, and skill targets. Key terms such as contribution margin and break-even point are defined. Reasoning focuses on recognizing fixed and variable costs, the impact of volume changes, and margin of safety relevance. Skill targets include calculating contribution margin, break-even points, and necessary sales for desired income. A printable reference copy is provided.
- 6.2: Introduction to Budgeting and Budgeting Processes
- This page emphasizes the importance of budgeting as a managerial tool for resource planning and control in organizations, highlighting various budget types and the master budget's role. Effective budgeting requires support from management, employee involvement, clear communication, flexibility, and continuous monitoring. Participatory budgeting can improve employee buy-in, though its success varies based on organizational dynamics.
- 6.3: Master Budgets
- This page discusses the master budget, which encompasses a projected income statement and balance sheet tied to organizational goals. It details the budgeting process, focusing on management's plans, sales forecasting, and the calculation of sales budgets through projected sales units and prices. Additionally, it highlights the significance of the planned operating budget and its supporting budgets, particularly the sales budget, for effective financial planning.
- 6.4: Operating Budgets
- This page discusses the components of an Operating Budget, focusing on the Sales and Production Budgets, which forecast product demand and align with inventory policies, respectively. It highlights the importance of the Cost of Goods Sold Budget for expense planning, illustrated by an example from Leed Company.
- 6.5: Manufacturing Budgets
- This page discusses the budgeting process for a manufacturing company, highlighting three key budgets: materials, direct labor, and manufacturing overhead. The materials budget assesses required raw materials, accounting for inventory levels. The direct labor budget estimates necessary labor hours based on production units and rates. The manufacturing overhead budget allocates variable and fixed costs related to labor overhead.
- 6.6: Cash Budgets
- This page outlines Leed Company's cash budget preparation, detailing cash receipts from credit sales collected at 60% in the current quarter and 40% the next, alongside cash outflows. Despite a cash flow issue in the first quarter, Leed plans to cover a $6,750 shortfall through a credit line, maintaining a $10,000 ending balance. The company intends to repay the borrowed amount with interest in the second quarter, reflecting these financial adjustments to manage cash flow effectively.
- 6.7: Budgeted Balance Sheet
- This page discusses the process of preparing a projected balance sheet by analyzing prior balances while factoring in planned financial activities. It highlights the need for detailed schedules for items such as accounts receivable and inventory.
- 6.8: Budgeting in a Merchandising Company
- This page discusses budgeting for merchandising companies, highlighting its similarities to manufacturing budgeting. However, it focuses on a merchandise purchases budget instead of production and material budgets. Companies estimate inventory needs based on expected costs of goods sold and desired ending inventory.
- 6.9: Other Budgeting Methods
- This page discusses budgeting in service companies, emphasizing project income statements and balance sheets that reflect past performance. It presents a budget example for Windy Weather Company, forecasting a 5% sales increase and detailing changes in expenses to calculate net income. The chapter also introduces zero-based budgeting, which demands thorough justification of all expenses without reliance on historical costs.
- 6.10: The Performance Report
- This page discusses the benefits of flexible budgets that adjust based on actual production levels for accurate performance analysis and variance highlighting. It shows how budget variances can reveal inefficiencies, particularly in costs related to direct materials and overhead. Despite some expenses exceeding expectations, the overall outcome was favorable, with net income exceeding projections by $6,000 from sales of 19,000 units.
- 6.11: Flexible Budgets
- This page discusses flexible budgeting using Leed Company's manufacturing overhead costs as an example. It explains how flexible budgets adjust for changes in operational levels, highlighting the distinction between variable costs, which fluctuate with output, and fixed costs, which remain constant. The technique enables clearer comparisons between actual results and budgets, emphasizing cost variances over volume variances in performance reports.
- 6.12: Chapter 5 Key Points
- This page explains key concepts of Cost-Volume-Profit (CVP) analysis, noting that fixed costs are constant in total but vary per unit, while variable costs remain constant per unit but vary in total. It defines contribution margin as sales minus variable costs and the contribution margin ratio as the contribution margin per unit divided by sales price per unit.
- 6.13: Glossary
- This page provides a glossary of key terms for cost and profit analysis, covering concepts like break-even point, margin of safety, and cost-volume-profit analysis. It outlines methods for cost analysis, including the high-low method and scatter diagrams, and addresses cost behavior within the relevant range and short-term decision-making in business. Overall, it serves as a comprehensive reference for understanding financial metrics in a business environment.
- 6.14: Chapter 5- Exercises
- This page discusses short-answer questions and exercises related to cost behavior, break-even analysis, and financial decision-making in business. It covers topics such as cost behavior patterns and break-even calculations, alongside hypothetical scenarios for application.