WEEK 5
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Concordia University *
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217
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Communications
Date
Feb 20, 2024
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My Dear Student
I hope you did well on the midterm exam.
Please read, study, and practice the material for week 5 (chapter 6) until you understand the subject matter very well.
Below are the main points of chapter 6.
1.
List the five components of cost-volume-profit analysis and describe the essential features of a
cost-volume-profit income statement.
The five components of CVP analysis are (1) volume or level of activity, (2) unit selling prices, (3) variable cost per unit, (4) total fixed costs, and (6) sales mix. The CVP income statement classifies costs as variable or fixed and calculates a contribution margin.
2.
Explain what the contribution margin is and how it can be expressed.
Contribution margin is the amount of revenue remaining after deducting variable costs. It is identified in a CVP income statement, which classifies costs as variable or fixed. It can be expressed as a per-unit amount or as a ratio.
3.
Identify the three ways to determine the break-even point. The break-even point can be (a) calculated with a mathematical equation, (b) calculated by using a contribution margin technique, or (c) derived from a CVP graph.
4.
State the formulas for determining the sales required to earn the target operating income before and after tax.
Target NI before tax
:
.
.
Target NI after tax
:
.
.
6.
Define margin of safety, and state the formulas for calculating it.
Margin of safety is the difference between actual or expected sales and sales at the break-even point. The formulas for margin of safety are actual (expected)
.
6.
Understand how to apply basic cost-volume-profit concepts in a changing business environment. CVP can be used to respond to business changes by calculating the break-even sales point, such as when deciding whether to match a competitor's discount, whether to invest
in new equipment, and when determining how many units must be sold in order to achieve a target operating income.
7.
Explain the term sales mix and its effect on break-even sales. The sales mix is the relative proportion in which each product is sold when a company sells more than one product. For a multi-product company, a break-even sale in units is determined by using the weighted-
average unit contribution margin of all the products. If the company sells many different products, calculating the break-even point using unit information is not practical. Instead, the company calculates the break-even sales in dollars using the weighted-average contribution margin ratio.
8.
Understand how cost structure and operating leverage affect profitability (Appendix 6A
). Operating leverage is how much a company's operating income reacts to a change in sales. Operating leverage is determined by a company's relative use of fixed versus variable costs. Companies with high fixed costs relative to variable costs have a high operating leverage. A company with a high operating leverage will experience a sharp increase (decrease) in operating income with an increase (decrease) in sales. A company can measure the degree of operating leverage by dividing the contribution margin by operating income.
9. Please review these videos
http://video.wileyaccountingupdates.com/2011/03/09/cost-behavior-and-cost-volume-profit-
analysis/
http://video.wileyaccountingupdates.com/2011/08/23/cost-volume-profit-calculations/
WEEK 5 PRACTICE
Dear Student
I would like for you to do well in this course. So, please read the following carefully and
take it as a guideline for your week 5 studying. Keep yourself motivated and aim to have A+
under any challenges.
Please review the following on the COMM 305 Moodle All Sections site:
1.
PPT Lecture 5
2.
Do the posted exams for any question that deals with week 5 content.
Please review the following at WileyPLUS:
3.
Audio Review Chapter 6
4.
Applied Skills Videos
Applied Skills Video: How to Prepare a CVP Income Statement, Compute Break-Even Point, Contribution Margin Ratio, Margin of Safety Ratio, and Sales for Target Net Income
5.
Flash Cards Chapter 06 you will select Glossary or Cards or Quiz with MC questions
6.
Walkthrough Videos
Solution Walkthrough Video: Like Exercise 6.22
Solution Walkthrough Video: Like Exercise 6.29
Solution Walkthrough Video: Like Exercise 6.30
Solution Walkthrough Video: Like Exercise 6.31
Solution Walkthrough Video: Like Exercise 6.33
Solution Walkthrough Video: Like Exercise 6.37
Solution Walkthrough Video: Similar to Problem 6.43A
Solution Walkthrough Video: Similar to Problem 6.46A
Solution Walkthrough Video: Similar to Problem 6.49A
Solution Walkthrough Video: Similar to Problem 6.52A
Solution Walkthrough Video: Similar to Problem 6.64B
7.
Interactivity Activities:
Interactivity: Breakeven, selling price, target profit with price and cost changes
Interactivity: Breakeven, target profit, ROI target profile
Interactivity: Cost function, breakeven
Interactivity: Costing Framework
Interactive Demonstration Problem: Cost-Volume-Profit Analysis
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Interactive Demonstration Problem: C-V-P Analysis: Additional Issues
8.
Chapter 06 Practice Assignment: it has MC questions and Do it Review practice.
9.
Now you can work the selected exercises and problems from the course outline. Please do not look at the provided solutions until you do them first to learn from your mistakes if you have any.
10.
Now you will be ready to do the weekly WileyPLUS assignment. Check the course outline for the due date.
I wish you the best and keep hope alive. Dr. Aly