Describe Three Methods That Managers Can Use to Express Cvp Relationships.
EA
3-1
CHAPTER 3
COST–Volume– Profit Analysis
Notation USED IN CHAPTER 3 SOLUTIONS
SP: Selling toll
VCU: Variable price per unit
CMU: Contribution margin per unit
FC: Fixed costs
TOI: Target operating income
iii-1 Define cost –volume–turn a profit assay.
Cost-book-turn a profit (CVP) assay examines the behavior of total revenues, total costs, and
operating income every bit changes occur in the units sold, selling price, variable cost per unit of measurement, or fixed
costs of a product.
3-ii Describe the assumptions underlying CVP analysis.
The assumptions underlying the CVP ana50ysis outlined in Chapter 3 are
1. Changes in the level of revenues and costs arise but because of changes in the number
of product (or service) units sold.
2. Total costs can be separated into a fixed component that does not vary with the unit of measurements sold
and a variable component that changes with the number of units sold.
3. When represented graphically, the behaviors of total revenues and total costs are linear
(represented as a directly line) in relation to number of units sold inside a relevant range
and time period.
4. The selling toll, variable cost per unit, and fixed costs are known and constant.
3-3 Distinguish between operating income and net income.
Operating income is total revenues from operations for the bookkeeping menstruation minus price of
goods sold and operating costs (excluding income taxes):
Operating income = Full revenues from operations –
Costs of goods sold and operating, costs (excluding income taxes)
Net income is operating income plus nonoperating revenues (such equally interest revenue)
minus nonoperating costs (such equally interest cost) minus income taxes. Chapter 3 assumes
nonoperating revenues and nonoperating costs are zero. Thus, Affiliate iii computes net income
as:
Net income = Operating income – Income taxes
3-4 Ascertain contribution margin, contribution margin per unit, and contribution margin
per centum.
Source: https://www.studocu.com/row/document/sveuciliste-u-zagrebu/cost-accounting/chapter-3-costvolumeprofit-analysis/18519731
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