Cost Volume Profit (CVP) Analysis Cost ANALYSIS Cost Volume Profit (CVP) Analysis

Cost Volume Relationship Cost Behavior Analysis COST BEHAIVOR VARIABLE FIXED MIXED Semi-Variable Semi-Fixed

Determining Variable or Fixed Base Cost Volume Relationship Determining Variable or Fixed Base Determining Variable or Fixed Base Account Analysis Engineering Approach Mathematical and Statistical Approach The Scatter Graph Method The High-Low Method Semi-Average Method Least-Squares Regression Method

Engineering (Analytical) Approach 5-4 Cost Volume Relationship Determining Variable or Fixed Base Engineering (Analytical) Approach The engineering approach classifies costs based upon an industrial engineer’s evaluation of production methods, material, labor and overhead requirements. This approach is particularly useful when no past experience is available concerning activity and costs.

Engineering (Analytical) Approach 5-5 Cost Volume Relationship Determining Variable or Fixed Base Engineering (Analytical) Approach It is the methodology which calculates the relationship primarily between the cost and the quantity by using amount and then cost subsequently.

Cost Volume Relationship-Determining Variable/Fixed Base 5-6 Cost Volume Relationship-Determining Variable/Fixed Base Engineering Analysis-Illustration Ex: The maximum annual production capacity of ABC Co. is 15.600 unit furniture. Minimum production unit is 800 unit. The engineer’s evaluation of production, material, labor and other expenses are as follows: Direct Material: 2 m3 wood material for each production is been consumed and the unit cost of material is 3 TL. Direct Labor: Employees work 1,5 hours for each product and the unit cost of labor is 2 TL. Depending on the production unit, company uses spare part (yedek parça) for each machinery. For production range 1-999 unit the indirect material cost is 100 TL, for 1.000- 1.999 unit, 200 TL. Company pays 1.800 TL annual premium (ikramiye) for each worker and 2 TL product efficiency premium (indirect labor) for each product. Indirect labor working hour is 0,5 hour. The annual depreciation cost is 3.000 TL and rent cos is 2.400 TL. The production range (amounts) for first half of the year are as follows: January February March April May June Total Production Unit 800 900 1.000 1.100 1.300 6.000

Cost Volume Relationship-Determining Variable/Fixed Base 5-7 Cost Volume Relationship-Determining Variable/Fixed Base Engineering Analysis-Illustration Direct Material: 2 m3 wood material for each production is been consumed and the unit cost of material is 3 TL. 𝑌 𝐷𝑀 = 2 𝑚 3 𝑥 3 𝑇𝐿 𝑥 → 𝒀 𝑫𝑴 =𝟔𝒙 (𝑥=𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑢𝑛𝑖𝑡) Direct Labor: Employees work 1,5 hours for each product and the unit cost of labor is 2 TL. 𝑌 𝐷𝐿 = 1,5 ℎ 𝑥 2 𝑇𝐿 𝑥 → 𝒀 𝑫𝑳 =𝟑𝒙 𝑥=𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑢𝑛𝑖𝑡

Cost Volume Relationship-Determining Variable/Fixed Base 5-8 Cost Volume Relationship-Determining Variable/Fixed Base Engineering Analysis-Illustration Other Expenses (Overheads) Indirect Material: Depending on the production unit, company uses spare part (yedek parça) for each machinery. For production range 1-999 unit the indirect material cost is 100 TL, for 1.000- 1.999 unit, 200 TL. Indirect Labor: Company pays 1.800 TL annual premium (ikramiye) for each worker and 2 TL product efficiency premium (indirect labor) for each product. Indirect labor working hour is 0,5 hour. 𝑌 𝐼𝐿 = 0,5 ℎ 𝑥 2 𝑇𝐿 𝑥+1.800→ 𝒀 𝑰𝑳 =𝒙+𝟏.𝟖𝟎𝟎 (𝑥=𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑢𝑛𝑖𝑡) Depreciation: 𝒀 𝑫𝑬𝑷 =𝟑.𝟎𝟎𝟎 Rent: 𝒀 𝑹𝑬𝑵𝑻 =𝟐.𝟒𝟎𝟎 𝒂= ∆𝒀 ∆𝑿 →= 200−100 800−1300 = 100 500 =0,2→ 𝒀 𝑰𝑴 =𝟎,𝟐𝒙 (𝑥=𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑢𝑛𝑖𝑡)

Cost Volume Relationship-Determining Variable/Fixed Base 5-9 Cost Volume Relationship-Determining Variable/Fixed Base Engineering Analysis-Illustration Direct Material: 𝒀 𝑫𝑴 =𝟔𝒙 Direct Labor: 𝒀 𝑫𝑴 =𝟑𝒙 Other Expenses: Indirect Material: 𝒀 𝑰𝑴 =𝟎,𝟐𝒙 Indirect Labor: 𝒀 𝑰𝑳 =𝒙+𝟏.𝟖𝟎𝟎 - Depreciation: 𝒀 𝑫𝑬𝑷 =𝟑.𝟎𝟎𝟎 Rent: 𝒀 𝑹𝑬𝑵𝑻 =𝟐.𝟒𝟎𝟎 𝑻𝑪 𝑨𝒏𝒏𝒖𝒂𝒍 =𝟏𝟎,𝟐𝒙+𝟕𝟐𝟎𝟎 𝑻𝑪 𝑴𝒐𝒏𝒕𝒉𝒍𝒚 =𝟏𝟎,𝟐𝒙+𝟔𝟎𝟎

Mathematical and Statistical Methods Cost Volume Relationship Determining Variable or Fixed Base Mathematical and Statistical Methods 0 1 2 3 4 * 10 20 X Y The Scatter-Graph Method The High-Low Method Semi-Average Method Least-Squares Regression Method .

The Scatter-Graph Method 5-11 Determining Variable or Fixed Base Mathematical And Statistical Methods The Scatter-Graph Method A scatter-graph is a quick and easy way to isolate the fixed and variable components of a mixed cost. The first step is to identify the cost, which is referred to as the dependent variable, and plot it on the Y axis. The activity, referred to as the independent variable, is plotted on the X axis. 0 1 2 3 * Total Cost 10 20 Volume X Y

The Scatter-Graph Method 5-12 Determining Variable or Fixed Base Mathematical And Statistical Methods The Scatter-Graph Method The second step is to analyze the data points on the scatter-graph to see if they are linear, such that a straight line can be drawn that approximates the relation between cost and activity. 0 1 2 3 * Total Cost 10 20 Volume X Y If the plotted data points do not appear to be linear, do not analyze the data any further. If there appears to be a linear relationship between the volume and cost, we will continue our analysis. Plot the data points on a graph (total cost vs. activity).

Determining Variable or Fixed Base Mathematical And Statistical Methods The third step is to draw a straight line where an equal number of points reside above and below the line. Make sure that the straight line goes through at least one data point on the scatter-graph. 0 1 2 3 4 * 10 20 X Y . Draw a line through the data points with about an equal numbers of points above and below the line.

* Determining Variable or Fixed Base Mathematical And Statistical Methods Use one data point to estimate the total level of activity and the total cost. 0 1 2 3 4 * 10 20 X Y Total cost = 11 The fourth step is to identify the Y intercept. This is where the straight line crosses the Y axis and is equal to the estimate of total fixed costs. In this case, the fixed costs are 10. x= 0,8 Fixed cost: 10

* Determining Variable or Fixed Base Mathematical And Statistical Methods The fifth step is to estimate the variable cost per unit of the activity (volume), which in this example is the cost per volume. In our case, we used the first data point that was on the straight line. 0 1 2 3 4 * 10 20 X Y Total cost = 11 x= 0,8 Fixed cost: 10

The Scatter-Graph Method Slope= Change in Cost Change in Volume →a= ∆Y ∆X Horizontal distance is the change in activity. 0 1 2 3 4 * Total Cost 10 20 Volume X Y Vertical distance is the change in cost.

Cost Volume Relationship-Determining Variable/Fixed Base 5-17 Cost Volume Relationship-Determining Variable/Fixed Base Scatter-Graph-Illustration EX (KB A.9-5): The machine hours (volume) and the total cost occurred in a year are as follows. Required: Ascertain the annual total cost function according to Scatter-Graph Method . MOUNTHS MACHINE HOURS TOTAL COST January 100 80.000 February 60 60.000 March 120 100.000 April 160 110.000 May 180 120.000 June 200 150.000 July 140 August September 40 50.000 October November 70.000 December 80

𝑎= ∆Y ∆x = (140. 000−60. 000) (200−40) = 80. 0000 160 =500 Y= ax+b →60 𝑎= ∆Y ∆x = (140.000−60.000) (200−40) = 80.0000 160 =500 Y= ax+b →60.000=500∗40+b b=40.000 TC=500x + 40.000 B(200;140.000) A(40;60.000)

The High and Low Method Determining Variable or Fixed Base 5-19 Determining Variable or Fixed Base Mathematical And Statistical Methods The High and Low Method 0 1 2 3 * Total Cost 10 20 Volume X Y The high-low method can be used to analyze mixed costs if a scatter- graph plot reveals an approximately linear relationship between the X and Y variable.

The High and Low Method Determining Variable or Fixed Base 5-20 Determining Variable or Fixed Base Mathematical And Statistical Methods The High and Low Method The first step in the process is to identify the high volume and its related total cost and the low volume (level of activity) with its related total cost. Secondly ascertain the unit variable cost with change in high and low level. 0 1 2 3 * Total Cost 10 20 Volume X Y

Cost Volume Relationship-Determining Variable/Fixed Base 5-21 Cost Volume Relationship-Determining Variable/Fixed Base High and Low Method-Illustration EX (KB A.9-5): The machine hours (volume) and the total cost occurred in a year are as follows. Required: Ascertain the annual total cost function according to High and Low Method. If there is same high or low level for different periods, calculate the average cost of high or low periods. Months Machıne Hours Total Cost January 100 80.000 February 60 60.000 March 120 100.000 April 160 110.000 May 180 120.000 June 200 150.000 High Volume July 140 August September 40 50.000 Low Volume October November 70.000 December 80 Average Cost = 50.000+70.000 2 =60.000

The High and Low Method Determining Variable or Fixed Base 5-22 Determining Variable or Fixed Base Mathematical And Statistical Methods The High and Low Method According to the given data the high and low volume and cost will be used to calculate the unit variable cost. X L =40 X H =200 Y L =60.000 Y H =150.000 a= ∆Y ∆x = Y H − Y L X H − X L = 150.000−60.000 200−40 = 90.000 160 =562,5 Y= ax+b → 60.000=562,5∗40+b b=37.500 TC Monthly =562,5x+37.500 TC Annual =562,5x+450.000 X=200 →TC=562,5∗200+37.500= 150.000

The High and Low Method Determining Variable or Fixed Base 5-23 Determining Variable or Fixed Base Mathematical And Statistical Methods The High and Low Method H(200; 150.000) Y= 562,5x+37.500 L(40;60.000)

Semi-Average Method Determining Variable or Fixed Base Mathematical And Statistical Methods Semi-Average Method For this method the given data is divided into two parts, preferably with the same number of years. After the data have been divided into two parts depending on low and high volumes. Finally , the average (arithmetic mean) of each part is obtained. We thus get two points including low volume average and high volume average. Each point is plotted at the mid-point of the class interval covered by the respective part and then the two points are joined by a straight line which gives the required trend line.

Semı-Average Method Determining Variable or Fixed Base Mathematical And Statistical Methods Semı-Average Method For example if we are given data from January to December over a period of 12 months the two equal parts will be each 6 months. In case of odd number of periods like 9, 13, 17, etc., two equal parts can be made simply by volumes. If the volume of middle period is close to low volumes period it will be a part of low volume periods or vise versa.

Cost Volume Relationship-Determining Variable/Fixed Base 5-26 Cost Volume Relationship-Determining Variable/Fixed Base Semi-Average Method-Illustration EX (KB A.9-5): The machine hours (volume) and the total cost occurred in a year are as follows. Required: Ascertain the annual total cost function according to Semi- Average Method. Months Machıne Hours Total Cost January 100 80.000 February 60 60.000 March 120 100.000 April 160 110.000 May 180 120.000 June 200 150.000 July 140 August September 40 50.000 October November 70.000 December 80

Semi-Average High Volumes 5-27 Cost Volume Relationship-Determining Variable/Fixed Base Semi-Average Method-Illustration Period Months Machıne Hours Total Cost 1 September 40 50000 Group of Low Volume 2 November 70000 3 February 60 60000 4 October 80000 5 December 80 6 January 100 Semi-Average Low Volumes 63,33 70.000 7 March 120 100000 Group of High Volume 8 August 110000 9 July 140 120000 10 April 160 11 May 180 12 June 200 150000 Semi-Average High Volumes 153,33 118.333,33

Semı-Average Method Determining Variable or Fixed Base 5-28 Determining Variable or Fixed Base Mathematical And Statistical Methods Semı-Average Method According to the given data the high and low volume and cost will be used to calculate the unit variable cost. X L =63,33 X H =153,33 Y L =70.000 Y H =118.333,33 a= ∆Y ∆x = Y H − Y L X H − X L = 118.333,33−70.000 153,33− 63,33 = 48.333,33 90 ≅537 Y= ax+b → 70.000=537∗63,33+b b=35.988 TC Monthly =537x+35.988 TC Annual =537x+431.852

Semi-Average Method Determining Variable or Fixed Base 5-29 Determining Variable or Fixed Base Mathematical And Statistical Methods Semi-Average Method Y= 562,5x+37.500 H(153,33; 118.333,33) Y= 537x+35.988 L(63,33;70.000)

Least-Squares Regression Method Determining Variable or Fixed Base Mathematical And Statistical Methods Least-Squares Regression Method The least-squares regression method is a more sophisticated approach to isolating the fixed and variable portion of a mixed cost. The least-squares method uses all the data points instead of just a few. This a statistical technique that may be used to estimate the total cost at the given level of activity (units, labor/machine hours etc.) based on historical cost data.

Least-Squares Regression Method Determining Variable or Fixed Base Mathematical And Statistical Methods Least-Squares Regression Method The term least-squares regression implies that the ideal fitting of the regression line is achieved by minimizing the sum of squares of the distances between the straight line and all the points on the graph.

Mathematical And Statistical Methods Least-Squares Regression Method 5-32 Mathematical And Statistical Methods Least-Squares Regression Method The formulas that are used for least-squares regression are complex. To simplify the method, linear equations are used to determine a and b parameters. Y = ax + b Y= Total Cost a= Unit Variable Cost x= volume b= Total Fixed Cost n=given period Y = a x + b n x.y =a x 2 +b x 𝑎= 𝑛 𝑥𝑦− 𝑥 𝑦 𝑛 𝑥 2 − 𝑥 2 𝑏= 𝑦−𝑎 𝑥 𝑛

Cost Volume Relationship-Determining Variable/Fixed Base 5-33 Cost Volume Relationship-Determining Variable/Fixed Base Least Squares Regression Method-Illustration EX (KB A.9-5): The machine hours (volume) and the total cost occurred in a year are as follows. Required: Ascertain the annual total cost function according to Least Squares Regression Method. Months Machıne Hours Total Cost January 100 80.000 February 60 60.000 March 120 100.000 April 160 110.000 May 180 120.000 June 200 150.000 July 140 August September 40 50.000 October November 70.000 December 80

Cost Volume Relationship-Determining Variable/Fixed Base 5-34 Cost Volume Relationship-Determining Variable/Fixed Base Least Squares Regression Method-Illustration Months (n) Machıne Hours (x) Total Cost (y) XY X2 January 100 80.000 8.000.000 10.000 February 60 60.000 3.600.000 3.600 March 120 100.000 12.000.000 14.400 April 160 110.000 17.600.000 25.600 May 180 120.000 21.600.000 32.400 June 200 150.000 30.000.000 40.000 July 140 16.800.000 19.600 August 13.200.000 September 40 50.000 2.000.000 1.600 October 4.800.000 November 70.000 2.800.000 December 80 6.400.000 6.400 Total 1300 1.130.000 138.800.000 173.200 Y = a x + b n →1.130.000=1300 ∗ a + 12b x.y =a x 2 +b x→138.800.000=173.200 ∗ a + 1.300b

Least-Squares Regression Method 5-35 Determining Variable or Fixed Base Mathematical And Statistical Methods Least-Squares Regression Method -108,3333/1.130.000=1300 ∗ a + 12b 138.800.000=173.200 ∗ a + 1.300b −122.416.667=−140.833 a − 1300 b 16.383.333=32.367 a→a= 16.383.333 32.367 ≅506,18 1.130.000=1.300 ∗ a + 12b→ 1.130.000= 1.300(506,18) + 12b b= 1.130.000−658.034 12 =39.331 Y=506,18 a + 39.331

Least-Squares Regression Method 5-36 Determining Variable or Fixed Base Mathematical And Statistical Methods Least-Squares Regression Method Months (n) X Y January 100 80.000 February 60 60.000 March 120 100.000 April 160 110.000 May 180 120.000 June 200 150.000 July 140 August September 40 50.000 October November 70.000 December 80

* * * * * * * * * * Mathematical And Statistical Methods 5-37 Mathematical And Statistical Methods Least-Squares Regression Method Y Least-squares regression also provides a statistic, called the R2, that is a measure of the goodness of fit of the regression line to the data points. 20 * * * * * * * * * * 10 R2 varies from 0% to 100%, and the higher the percentage the better fit. X 0 1 2 3 4 Output from the regression analysis can be used to create the equation that enables us to estimate total costs at any activity level. The key statistic to examine when evaluating regression results is called R squared, which is a measure of the goodness of fit.

Comparing Results From the Three Methods 5-38 Determining Variable or Fixed Base- Mathematical And Statistical Methods Comparing Results From the Three Methods The three methods for isolating the fixed and variable portions of a mixed cost yield slightly different results. Because these methods provide slightly different estimates of the fixed and variable cost components of the mixed cost. The most accurate estimate is provided by the least-squared regression method. Less accurate results are usually associated with the scatter- graph. The high-low method provides results that fall somewhere in the middle of the other two methods (Blue Line).

Cost-Volume-Profit (CVP) Analysis Definition Cost–volume–profit (CVP) is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions. CVP analysis looks the relationship between selling price, selling volume, cost and profit.

Cost-Volume-Profit (CVP) Analysis Definition CVP, is a planning process that management uses to predict the future volume of activity, costs incurred, sales made, and profits received.

Cost-Volume-Profit (CVP) Analysis Definition CVP analysis is the study of the effects of changes of costs and volume on a company’s profits. CVP analysis is important in profit planning. It also is a critical factor in management decisions. The CVP analysis classifies all costs as either fixed or variable. CVP analysis uses these two costs to plot out production levels and the income associated with each level.

Cost-Volume-Profit (CVP) Analysis Profit Function CVP analysis is a mathematical equation that computes how changes in costs and sales will affect profit in future periods.  𝑷𝒓𝒐𝒇𝒊𝒕=𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆−𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆=𝒇 ∗𝒙 →𝒙=𝒗𝒐𝒍𝒖𝒎𝒆, 𝒇=𝒖𝒏𝒊𝒕 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕=𝒂𝒙+𝒃 𝑷𝒓𝒐𝒇𝒊𝒕=𝒇𝒙−𝒂𝒙 −𝒃 𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒙 −𝒃 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅

Cost-Volume-Profit (CVP) Analysis Break-Even Point Sales level at which operating income is zero Sales above breakeven result in a profit Sales below breakeven result in a loss

Cost-Volume-Profit (CVP) Analysis Breakeven Point Breakeven point is the sales level at which operating income is zero X Breakeven = Total Fixed Cost Contribution Margin x=units sold Unit Contribution Margin = fx−ax x = f-a X Breakeven = Total Fixed Contribution Margin Ratio x= Sales TL. Unit Contribution Margin Ratio= fx−ax fx = f−a f

Cost-Volume-Profit (CVP) Analysis Income Statement Approach The «Contribution Margin» will be used to compute the breakeven point on the base of units (sales quantity). The «Contribution Margin Ratio» will be used to compute the breakeven point on the base of sales TL (sales amount). 𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 (𝒇−𝒂) x=units sold 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐= 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔−𝑻𝒐𝒕𝒂𝒍 𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝑪𝒐𝒔𝒕 𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔 𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐 x=units sold

Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach The «Contribution Margin» will be used to compute the breakeven point on the base of units (sales quantity). The «Contribution Margin Ratio» will be used to compute the breakeven point on the base of sales TL (sales amount). 𝑷𝒓𝒐𝒇𝒊𝒕=𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆−𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆=𝒇 ∗𝒙 →𝒙=𝒗𝒐𝒍𝒖𝒎𝒆, 𝒇=𝒖𝒏𝒊𝒕 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕=𝒂𝒙+𝒃 𝑷𝒓𝒐𝒇𝒊𝒕=𝒇𝒙−𝒂𝒙 −𝒃 𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒙 −𝒃 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 𝑷𝒓𝒐𝒇𝒊𝒕= 𝒇−𝒂 𝒇 𝒙 −𝒃 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳 𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑼𝒏𝒊𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 (𝒇−𝒂) = 𝒃 𝒇−𝒂 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑼𝒏𝒊𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 𝑹𝒂𝒕𝒊𝒐 = 𝒃 𝒇−𝒂 𝒇 →𝒙=𝒔𝒂𝒍𝒆𝒔 𝑻𝑳

Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach -Target Profit-Example Example (K.B A.10.2): Total fixed cost of ABC Co. is 1.000.000 TL and unit variable cost is 80 TL. The unit price is 100 TL. Tax rate is 20% and the net profit after tax for the year 20X1 640.000 TL. Required: Compute breakeven point in units and the sales unit for the year 20X1. 𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝑻𝒐𝒕𝒂𝒍 𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝑼𝒏𝒊𝒕 𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝑴𝒂𝒓𝒈𝒊𝒏 (𝒇−𝒂) = 𝒃 𝒇−𝒂 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 𝑿 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏 = 𝟏.𝟎𝟎𝟎.𝟎𝟎𝟎 (𝟏𝟎𝟎−𝟖𝟎) =𝟓𝟎.𝟎𝟎𝟎 𝒖𝒏𝒊𝒕 →𝒙=𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃= 𝒇−𝒂 𝒙 𝑷𝒓𝒐𝒇𝒊𝒕 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙=𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕+𝑻𝒂𝒙 𝑷𝒓𝒐𝒇𝒊𝒕 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙=𝟔𝟒𝟎.𝟎𝟎𝟎+(𝑷𝒓𝒐𝒇𝒊𝒕 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙∗𝟎,𝟐) 𝑷𝒓𝒐𝒇𝒊𝒕 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙= 𝟔𝟒𝟎.𝟎𝟎𝟎 𝟎,𝟖𝟎 =𝟖𝟎𝟎.𝟎𝟎 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃= 𝒇−𝒂 𝒙 𝒙= 𝑷𝒓𝒐𝒇𝒊𝒕+𝒃 (𝒇−𝒂) 𝒙= 𝟖𝟎𝟎.𝟎𝟎𝟎+𝟏.𝟎𝟎𝟎.𝟎𝟎𝟎 (𝟏𝟎𝟎−𝟖𝟎) =𝟗𝟎.𝟎𝟎𝟎 𝒖𝒏𝒊𝒕𝒔

Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach-Example 5-48 Cost-Volume-Profit (CVP) Analysis Contribution Margin Approach-Example EX (KB. A.10.1): The production unit and the costs occurred in the first half of the year are as follows: Mounts Production Unit Total Cost January 1.800 2.400 February 3.800 2.700 March 1.000 2.200 April 1.500 2.300 May 2.500 June 4.000 2.800 Required: Compute the total cost function according to High and Low Method. The unit selling price is 1,2 TL. Compute the monthly breakeven point both in units and TL. In the case of 3.000 units sold in a month, compute the profit. To gain 2.000 TL profit at actual selling price for a month, ascertain the sales in TL occurred in a month. In the case of 50.000 units sold in a year, compute the profit and margin of safety.