Cost-Volume-Profit Analysis Break Even Units Dollars of Sales Target Income Units Sales

Cost-Volume-Profit Analysis Multiple Products Assume constant sales mix CMU for each product Then calculate break even based on sales mix Apples CMU $1; Oranges CMU $.50 Fixed costs: $100 Sales mix: 40% apples, 60% oranges Breakeven units?

Cost-Volume-Profit Analysis Evaluating alternatives Increase in CM – Increase in Fixed Costs Margin of safety Sales – breakeven sales Can be in units or dollars Assume constant sales mix

Cost-Volume-Profit Analysis Operating leverage = CM/Operating Income Cost structure: variable versus fixed costs Higher fixed costs = more risk Higher fixed costs better = lower variable costs Higher fixed costs better = higher CMU Higher CMU = greater increase in income for each increase in units sold