After studying this chapter, you will know: Explain cost-volume-profit (CVP) analysis, the CVP model, and the strategic role of CVP analysis; apply CVP analysis for breakeven planning; apply CVP analysis for profit planning; apply CVP analysis using activity-based costing (ABC); | Short-Term Profit Planning: Cost-Volume-Profit (CVP) Analysis Chapter Nine McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Explain cost-volume-profit (CVP) analysis, the CVP model, and the strategic role of CVP analysis Apply CVP analysis for breakeven planning Apply CVP analysis for profit planning Apply CVP analysis using activity-based costing (ABC) Learning Objectives 9-2 9-3 Learning Objectives (continued) Understand different approaches for dealing with risk and uncertainty in CVP analysis Adapt CVP analysis for multiple products/ services Apply CVP analysis in not-for-profit organizations Identify the assumptions and limitations of CVP analysis 9-4 CVP analysis is a planning tool for analyzing how operating decisions and marketing decisions affect short-term operating profit CVP relies on an understanding of the relationship between variable costs, fixed costs, unit selling price, and output level (volume) CVP Analysis 9-5 CVP analysis can be used in: Setting prices for products and services Determining whether to introduce a new product or service Replacing a piece of equipment Determining breakeven point Making “Make-or-buy” (., sourcing) decisions Determining the best product mix Performing strategic “what-if” (sensitivity) analysis CVP Analysis (continued) The CVP model is as follows: CVP Analysis (continued) 9-6 CVP Analysis (continued) For convenience, the (single-product) model is commonly shown in symbolic form: πB = (p × Q) − (v × Q) − F Where: Q = units sold (., sales volume) p = selling price per unit F = total fixed cost v = variable cost per unit πB = operating profit (before tax) 9-7 Three additional concepts regarding the CVP model: 1. Contribution margin: Unit contribution margin (cm) = Unit sales price (p) – Unit variable cost (v) Unit contribution margin (cm) = the increase in operating profit for a unit increase in sales = (p – v) Total contribution margin (CM) = Unit contribution margin . | Short-Term Profit Planning: Cost-Volume-Profit (CVP) Analysis Chapter Nine McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Explain cost-volume-profit (CVP) analysis, the CVP model, and the strategic role of CVP analysis Apply CVP analysis for breakeven planning Apply CVP analysis for profit planning Apply CVP analysis using activity-based costing (ABC) Learning Objectives 9-2 9-3 Learning Objectives (continued) Understand different approaches for dealing with risk and uncertainty in CVP analysis Adapt CVP analysis for multiple products/ services Apply CVP analysis in not-for-profit organizations Identify the assumptions and limitations of CVP analysis 9-4 CVP analysis is a planning tool for analyzing how operating decisions and marketing decisions affect short-term operating profit CVP relies on an understanding of the relationship between variable costs, fixed costs, unit selling price, and output level (volume) CVP Analysis 9-5 CVP analysis
