Lecture Fundamental accounting principles - Chapter 22: Master budgets and planning. This chapter describe the importance and benefits of budgeting and the process of budget administration, describe a master budget and the process of preparing it, analyze expense planning using activity-based budgeting, prepare each component of a master budget and link each to the budgeting process. | Cost-Volume-Profit Analysis Chapter 21 PowerPoint Editor: Beth Kane, MBA, CPA Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 21: Cost-Volume-Profit Analysis 21-C1: Fixed Costs 2 Identifying Cost Behavior Cost-volume-profit analysis is used to answer questions such as: How much does income increase if we install a new machine to reduce labor costs? What is the change in income if selling prices decline and sales volume increases? How will income change if we change the sales mix of our products or services? What sales volume is needed to earn a target income? C 1 3 Planning a company’s future activities and events is crucial to successful management. One of the first steps in planning is to predict the volume of activity, the costs to be incurred, sales to be made, and profit to be earned. An important tool in such planning is cost-volume-profit (CVP) analysis, which helps managers predict how changes in costs and sales levels affect profit. In its basic form, CVP analysis involves computing the sales level at which a company neither earns an income nor incurs a loss, called the break-even point. For this reason, this basic form of cost-volume-profit analysis is often called break-even analysis. Managers use variations of CVP analysis to answer questions like: How much does income increase if we install a new machine to reduce labor costs? What is the change in income if selling prices decline and sales volume increases? How will income change if we change the sales mix of our products or services? What sales volume is needed to earn a target income? Consequently, cost-volume-profit analysis is useful in a wide range of business decisions. Fixed Costs C 1 4 Fixed costs remain unchanged despite variations in the volume of activity within a relevant range. For example, $32,000 in monthly rent paid for a factory building remains the same whether the . | Cost-Volume-Profit Analysis Chapter 21 PowerPoint Editor: Beth Kane, MBA, CPA Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 21: Cost-Volume-Profit Analysis 21-C1: Fixed Costs 2 Identifying Cost Behavior Cost-volume-profit analysis is used to answer questions such as: How much does income increase if we install a new machine to reduce labor costs? What is the change in income if selling prices decline and sales volume increases? How will income change if we change the sales mix of our products or services? What sales volume is needed to earn a target income? C 1 3 Planning a company’s future activities and events is crucial to successful management. One of the first steps in planning is to predict the volume of activity, the costs to be incurred, sales to be made, and profit to be earned. An important tool in such planning is cost-volume-profit (CVP) analysis, which
