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Cost-Volume-Profit Analysis

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

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Cost-Volume-Profit Analysis

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

  2. 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?

  3. 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

  4. 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

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