I need a project done that is very similar to the one you did for this previous customer.

the only thing is I get the assignment at 6pm CST and I only have until 8:30pm CST to complete it. So 2 and a half hours…

90% of the class finishes their test within a hour and it frustrates me lol so if you are an expert this should only take you 30 minutes at most.

The assignment is 30 something questions long.

All Multiple Choice. No major Calculations.

attached are two powerpoints that is the material that will be covered

and of course don’t pay attention to the price I will be willing to pay more for this lol

just let me know if you could do this during that specific time period. or maybe someone else or some place I could find that one on one help.

thanks for considering this either way. I appreciate your time.

Cost-Volume-Profit

Relationships

Chapter 05

PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPA

Charles W. Caldwell, D.B.A., CMA

Jon A. Booker, Ph.D., CPA, CIA

Cynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin

Copyright ? 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objective 1

Explain how changes in

activity affect

contribution margin and

net operating income.

5-2

Basics of Cost-Volume-Profit

Analysis income statement is helpful to managers

The contribution

The contribution income statement is helpful to managers

in judging the impact on profits of changes in selling price,

in judging the impact on profits of changes in selling price,

cost, or volume. The emphasis is on cost behavior.

cost, or volume. The emphasis is on cost behavior.

Contribution Margin (CM) is the amount remaining from

Contribution Margin (CM) is the amount remaining from

sales revenue after variable expenses have been deducted.

sales revenue after variable expenses have been deducted.

5-3

Basics of Cost-Volume-Profit

Analysis

CM is used first to cover fixed expenses. Any

remaining CM contributes to net operating income.

5-4

The Contribution Approach

Sales, variable expenses, and contribution margin can

also be expressed on a per unit basis. If Racing sells

an additional bicycle, $200 additional CM will be

generated to cover fixed expenses and profit.

5-5

The Contribution Approach

Each month, RBC must generate at least

$80,000 in total contribution margin to break-even

(which is the level of sales at which profit is zero).

5-6

The Contribution Approach

If RBC sells 400 units in a month, it will be

operating at the break-even point.

5-7

The Contribution Approach

If RBC sells one more bike (401 bikes), net

operating income will increase by $200.

5-8

The Contribution Approach

We do not need to prepare an income statement to

estimate profits at a particular sales volume. Simply

multiply the number of units sold above break-even

by the contribution margin per unit.

If Racing sells

If Racing sells

430 bikes, its net

430 bikes, its net

operating income

operating income

will be $6,000.

will be $6,000.

5-9

CVP Relationships in Equation

Form

The contribution format income statement can

be expressed in the following equation:

Profit = (Sales ? Variable expenses) ? Fixed expenses

5-10

CVP Relationships in Equation

Form

This equation can be used to show the profit

RBC earns if it sells 401. Notice, the answer of

$200 mirrors our earlier solution.

Profit = (Sales ? Variable expenses) ? Fixed expenses

$80,000

$80,000

401 units ? $500

401 units ? $500

401 units ? $300

401 units ? $300

Profit = ($200,500 ? $120,300) ? $80,000

$200 = ($200,500 ? $120,300) ? $80,000

5-11

CVP Relationships in Equation

Form

When a company has only one product, we can

further refine this equation as shown on this slide.

Profit = (Sales ? Variable expenses) ? Fixed expenses

Profit = (P ? Q ? V ? Q) ? Fixed expenses

5-12

CVP Relationships in Equation

Form

This equation can also be used to show the

$200 profit RBC earns if it sells 401 bikes.

Profit = (Sales ? Variable expenses) ? Fixed expenses

Profit = (P ? Q ? V ? Q) ? Fixed expenses

Profit = ($500 ? 401 ? $300 ? 401) ? $80,000

Profit = ($500 ? 401 ? $300 ? 401) ? $80,000

$200 = ($500 ? 401 ? $300 ? 401) ? $80,000

$200 = ($500 ? 401 ? $300 ? 401) ? $80,000

5-13

CVP Relationships in Equation

Form useful to express the simple profit equation in

It is often

terms of the unit contribution margin (Unit CM) as follows:

Unit CM = Selling price per unit ? Variable expenses per unit

Unit CM = P ? V

Profit = (P ? Q ? V ? Q) ? Fixed expenses

Profit = (P ? V) ? Q ? Fixed expenses

Profit = Unit CM ? Q ? Fixed expenses

5-14

CVP Relationships in Equation

Form

Profit = (P ? Q ? V ? Q) ? Fixed expenses

Profit = (P ? V) ? Q ? Fixed expenses

Profit = Unit CM ? Q ? Fixed expenses

Profit = ($500 ? $300) ? 401 ? $80,000

Profit = $200 ? 401 ? $80,000

This equation

Profit = $80,200 ? $80,000

can also be used

Profit = $200

to compute

RBC?s $200 profit

if it sells 401

bikes.

5-15

Learning Objective 3

Use the contribution

margin ratio (CM ratio) to

compute changes in

contribution margin and

net operating income

resulting from changes

in sales volume.

5-16

Contribution Margin Ratio (CM

Ratio)CM ratio is calculated by dividing the total

The

contribution margin by total sales.

$100,000 ? $250,000 = 40%

5-17

Contribution Margin Ratio (CM

Ratio)

The contribution margin ratio at Racing Bicycle is:

CM per unit

=

CM Ratio =

SP per unit

$200

$500

= 40%

The CM ratio can also be calculated by

dividing the contribution margin per unit by

the selling price per unit.

5-18

Contribution Margin Ratio (CM

Ratio)

If Racing Bicycle increases sales from 400 to 500 bikes ($50,000),

contribution margin will increase by $20,000 ($50,000 ? 40%).

Here is the proof:

A $50,000 increase in sales revenue results in a $20,000

increase in CM ($50,000 ? 40% = $20,000).

5-19

Quick Check

Coffee Klatch is an espresso stand in a downtown

office building. The average selling price of a cup of

coffee is $1.49 and the average variable expense per

cup is $0.36. The average fixed expense per month is

$1,300. An average of 2,100 cups are sold each

month. What is the CM Ratio for Coffee Klatch?

a. 1.319

b. 0.758

c. 0.242

d. 4.139

5-20

Quick Check

Coffee Klatch is an espresso stand in a downtown

office building. The average selling price of a cup of

coffee is $1.49 and the average variable expense per

cup is $0.36. The average fixed expense per month is

$1,300. An average of 2,100 cups are sold each

month. What is the CM Ratio for Coffee Klatch?

a. 1.319

Unit contribution margin

CM Ratio =

Unit selling price

b. 0.758

($1.49 – $0.36)

c. 0.242

=

$1.49

d. 4.139

$1.13

=

= 0.758

$1.49

5-21

Contribution Margin Ratio (CM

Ratio)

The relationship between profit and the CM ratio

can be expressed using the following equation:

Profit = (CM ratio ? Sales) ? Fixed expenses

If Racing Bicycle increased its sales volume to 500

bikes, what would management expect profit or net

operating income to be?

Profit = (40% ? $250,000) ? $80,000

Profit = $100,000 ? $80,000

Profit = $20,000

5-22

Learning Objective 4

Show the effects on net

operating income of

changes in variable

costs, fixed costs,

selling price, and

volume.

5-23

The Variable Expense Ratio

The variable expense ratio is the ratio of variable

expenses to sales. It can be computed by dividing the total

variable expenses by the total sales, or in a single product

analysis, it can be computed by dividing the variable

expenses per unit by the unit selling price.

5-24

Changes in Fixed Costs and

Sales Volume

What is the profit impact if Racing Bicycle

can increase unit sales from 500 to 540 by

increasing the monthly advertising budget

by $10,000?

5-25

Changes in Fixed Costs and

Sales Volume

$80,000 + $10,000 advertising = $90,000

$80,000 + $10,000 advertising = $90,000

Sales increased by $20,000, but net operating

Sales increased by $20,000, but net operating

income decreased by $2,000..

income decreased by $2,000

5-26

Changes in Fixed Costs and

Sales Volume

A shortcut solution using incremental analysis

5-27

Change in Variable Costs and

Sales Volume

What is the profit impact if Racing

Bicycle can use higher-quality raw

materials, thus increasing variable costs

per unit by $10, to generate an increase

in unit sales from 500 to 580?

5-28

Change in Variable Costs and

Sales Volume

580 units ? $310 variable cost/unit = $179,800

580 units ? $310 variable cost/unit = $179,800

Sales increase by $40,000 and net operating income

Sales increase by $40,000 and net operating income

increases by $10,200..

increases by $10,200

5-29

Change in Fixed Cost, Sales Price,

and Volume

What is the profit impact if RBC (1) cuts its

selling price $20 per unit, (2) increases its

advertising budget by $15,000 per month,

and (3) increases sales from 500 to 650

units per month?

5-30

Change in Fixed Cost, Sales Price,

and Volume

650 units ? $480 = $312,000

650 units $480 = $312,000

Sales increase by $62,000, fixed costs increase by

Sales increase by $62,000, fixed costs increase by

$15,000, and net operating income increases by $2,000..

$15,000, and net operating income increases by $2,000

5-31

Change in Variable Cost, Fixed

Cost, and Sales Volume

What is the profit impact if RBC (1) pays a

$15 sales commission per bike sold instead

of paying salespersons flat salaries that

currently total $6,000 per month, and (2)

increases unit sales from 500 to 575 bikes?

5-32

Change in Variable Cost, Fixed

Cost, and Sales Volume

575 units ? $315 = $181,125

575 units ? $315 = $181,125

Sales increase by $37,500, fixed expenses decrease by

Sales increase by $37,500, fixed expenses decrease by

$6,000, and net operating income increases by $12,375.

$6,000, and net operating income increases by $12,375.

5-33

Change in Regular Sales Price

If RBC has an opportunity to sell 150

bikes to a wholesaler without disturbing

sales to other customers or fixed

expenses, what price would it quote to

the wholesaler if it wants to increase

monthly profits by $3,000?

5-34

Change in Regular Sales Price

$ 3,000 ? 150 bikes

$ 3,000 ? 150 bikes

Variable cost per bike

Variable cost per bike

Selling price required

Selling price required

=

=

=

=

=

=

$ 20 per bike

$ 20 per bike

300 per bike

300 per bike

$ 320 per bike

$ 320 per bike

5-35

Learning Objective 5

Determine the level of

sales needed to achieve

a desired target profit.

5-36

Target Profit Analysis

We can compute the number of units

that must be sold to attain a target

profit using either:

(1) Equation method, or

(2) Formula method.

5-37

Equation Method

Profit = Unit CM ? Q ? Fixed expenses

Our goal is to solve for the unknown ?Q? which

represents the quantity of units that must be sold

to attain the target profit.

5-38

Target Profit Analysis

Suppose RBC?s management wants to know how

many bikes must be sold to earn a target profit

of $100,000.

Profit = Unit CM ? Q ? Fixed expenses

$100,000 = $200 ? Q ? $80,000

$200 ? Q = $100,000 ? $80,000

Q = ($100,000 + $80,000) ? $200

Q = 900

5-39

The Formula Method

The formula uses the following equation.

Unit sales to attain

Target profit + Fixed expenses

=

the target profit

CM per unit

5-40

Target Profit Analysis in Terms of

Unit Sales

Suppose Racing Bicycle Company wants to

know how many bikes must be sold to earn

a profit of $100,000.

Unit sales to attain

Target profit + Fixed expenses

=

the target profit

CM per unit

$100,000 + $80,000

Unit sales =

$200

Unit sales = 900

5-41

Target Profit Analysis

We can also compute the target profit in terms of

sales dollars using either the equation method or

the formula method.

Equation

Method

Method

OR

Formula

Method

Method

5-42

Equation Method

Profit = CM ratio ? Sales ? Fixed expenses

Our goal is to solve for the unknown

?Sales,? which represents the dollar

amount of sales that must be sold to

attain the target profit.

Suppose RBC management wants to know the

sales volume that must be generated to earn a

target profit of $100,000.

$100,000 = 40% ? Sales ? $80,000

40% ? Sales = $100,000 + $80,000

Sales = ($100,000 + $80,000) ? 40%

Sales = $450,000

5-43

Formula Method

We can calculate the dollar sales needed to

attain a target profit (net operating profit) of

$100,000 at Racing Bicycle.

Dollar sales to attain

Target profit + Fixed expenses

=

the target profit

CM ratio

$100,000 + $80,000

Dollar sales =

40%

Dollar sales = $450,000

5-44

Quick Check

Coffee Klatch is an espresso stand in a downtown office

building. The average selling price of a cup of coffee is

$1.49 and the average variable expense per cup is

$0.36. The average fixed expense per month is $1,300.

Use the formula method to determine how many cups of

coffee would have to be sold to attain target profits of

$2,500 per month.

a. 3,363 cups

b. 2,212 cups

c. 1,150 cups

d. 4,200 cups

5-45

Quick Check

Coffee Klatch is an espresso stand in a downtown office

building. The average selling price of a cup of coffee is

$1.49 and the average variable expense per cup is

$0.36. The Unit sales

average fixed expense per + Fixedis $1,300.

Target profit month expenses

to attain =

Use the formula method to determineUnit CM

how many cups of

target profit

coffee would have to be sold to attain target profits of

$2,500 + $1,300

$2,500 per month.

= $1.49 – $0.36

a. 3,363 cups

b. 2,212 cups

$3,800

=

$1.13

c. 1,150 cups

d. 4,200 cups

= 3,363 cups

5-46

Quick Check

Coffee Klatch is an espresso stand in a downtown office

building. The average selling price of a cup of coffee is

$1.49 and the average variable expense per cup is

$0.36. The average fixed expense per month is $1,300.

Use the formula method to determine the sales dollars

that must be generated to attain target profits of $2,500

per month.

a. $2,550

b. $5,013

c. $8,458

d. $10,555

5-47

Quick Check

Coffee Klatch is an espresso stand in a downtown office

building. The average selling price of a cup of coffee is

$1.49 and the average variable expense per cup is

$0.36. The average fixed expense per month is $1,300.

Use the formula method to determine the sales dollars

Sales $

Target profit of $2,500

that must be generated to attain target profits + Fixed

to attain =

expenses

per month.

target profit

CM ratio

a. $2,550

$2,500 + $1,300

=

($1.49 ? 0.36) ? $1.49

b. $5,013

$3,800

c. $8,458

=

0.758

d. $10,555

= $5,013

5-48

Learning Objective 6

Determine the breakeven point.

5-49

Break-Even Analysis

The equation and formula methods can be used to

determine the unit sales and dollar sales needed to

achieve a target profit of zero. Let?s use the RBC

information to complete the break-even analysis.

5-50

Break-Even in Unit Sales:

Equation Method

Profits = Unit CM ? Q ? Fixed expenses

Suppose RBC wants to know how many

bikes must be sold to break-even

(earn a target profit of $0).

$0 = $200 ? Q + $80,000

Profits are zero at the break-even point.

5-51

Break-Even in Unit Sales:

Equation Method

Profits = Unit CM ? Q ? Fixed expenses

$0 = $200 ? Q + $80,000

$200 ? Q = $80,000

Q = 400 bikes

5-52

Break-Even in Unit Sales:

Formula Method

Let?s apply the formula method to solve for

the break-even point.

Unit sales to

=

break even

Fixed expenses

CM per unit

$80,000

Unit sales =

$200

Unit sales = 400

5-53

Break-Even in Dollar Sales:

Equation Method

Suppose Racing Bicycle wants to compute

the sales dollars required to break-even (earn

a target profit of $0). Let?s use the equation

method to solve this problem.

Profit = CM ratio ? Sales ? Fixed expenses

Solve for the unknown ?Sales.?

5-54

Break-Even in Dollar Sales:

Equation Method

Profit = CM ratio ? Sales ? Fixed expenses

$ 0 = 40% ? Sales ? $80,000

40% ? Sales = $80,000

Sales = $80,000 ? 40%

Sales = $200,000

5-55

Break-Even in Dollar Sales:

Formula Method

Now, let?s use the formula method to calculate the

dollar sales at the break-even point.

Dollar sales to

Fixed expenses

=

break even

CM ratio

$80,000

Dollar sales =

40%

Dollar sales = $200,000

5-56

Quick Check

Coffee Klatch is an espresso stand in a downtown

office building. The average selling price of a cup of

coffee is $1.49 and the average variable expense per

cup is $0.36. The average fixed expense per month is

$1,300. An average of 2,100 cups are sold each

month. What is the break-even sales dollars?

a. $1,300

b. $1,715

c. $1,788

d. $3,129

5-57

Quick Check

Coffee Klatch is an espresso stand in a downtown

office building. The average selling price of a cup of

coffee is $1.49 and the average variable expense per

cup is $0.36. The average fixed expense per month is

$1,300. An average of 2,100 cups are sold each

month. What is the break-even sales dollars?

a. $1,300

Fixed expenses

Break-even

=

b. $1,715

CM Ratio

sales

$1,300

c. $1,788

=

0.758

d. $3,129

= $1,715

5-58

Quick Check

Coffee Klatch is an espresso stand in a downtown

office building. The average selling price of a cup of

coffee is $1.49 and the average variable expense per

cup is $0.36. The average fixed expense per month is

$1,300. An average of 2,100 cups are sold each

month. What is the break-even sales in units?

a. 872 cups

b. 3,611 cups

c. 1,200 cups

d. 1,150 cups

5-59

Quick Check

Coffee Klatch is an espresso stand in a downtown

office building. The average selling price of a cup of

coffee is $1.49 and the average variable expense per

cup is $0.36. The average fixed expense per month is

$1,300. An averageBreak-even = are sold each

of 2,100 cups Fixed expenses

CM per

month. What is the break-even sales in units?Unit

$1,300

a. 872 cups

=

$1.49/cup – $0.36/cup

b. 3,611 cups

$1,300

c. 1,200 cups

=

$1.13/cup

d. 1,150 cups

= 1,150 cups

5-60

End of Chapter 05

5-61