Profit Planning: An Overview Chapter 2 Managerial Accounting Concepts and Empirical Evidence

Basics of Profit Planning Profit Price Variable Unit Costs Fixed Costs Units

Basics of Profit Planning

Cost-Volume-Profit Relationship $ Quantity ‘X’ FC Fixed Costs

Cost-Volume-Profit Relationship $ X TVC = VC  X FC Total Variable Cost Variable Cost / Unit

Cost-Volume-Profit Relationship $ X TC = TVC + FC TVC FC Total Costs

Cost-Volume-Profit Relationship X BE $ X TR = P  X TC TVC FC Breakeven Units Total Revenues Price

Profit Line -FC X BE  Profits  = TR  TC = PXPX -VC  X - FC

Contribution Margin Analysis Revenue - TVC = CM 1,250, ,000 = 630,000

Contribution Margin Analysis CM  FC = Profits 50,000  100,000 =  50,000

Contribution Margin Analysis

Non-Linear Cost-Volume-Profit Analysis Total Revenue X $

Non-Linear Cost-Volume-Profit Analysis Total Revenue X $ Total Costs X3X3 X2X2 X1X1

Relevant Range Concept X BE $ X TR TC TVC FC X U X L X L = Lower Bound X U = Upper Bound

Relevant Range Concept X BE $ X TR TC TVC FC X U X L Relevant Range

Profit Line & Uncertainty -FC X BE  Profits  X  = (P  -VC)  X - FC Mean profit Mean Units