Cost-Volume-Profit Analysis

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## Cost-Volume-Profit Analysis

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**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