Profit Planning: An Overview

1. Profit Planning:An Overview Chapter 2 Managerial Accounting Concepts and Empirical Evidence

2. Profit Units Fixed Costs Price Variable Unit Costs Basics of Profit Planning Costs Revenues

3. Basics of Profit Planning

4. Cost-Volume-Profit Relationship $ Fixed Costs FC Quantity ‘X’

5. Variable Cost / Unit Total Variable Cost Cost-Volume-Profit Relationship $ TVC = VC*X FC X

6. Cost-Volume-Profit Relationship $ Total Costs TC = TVC + FC TVC FC X

7. Price Total Revenues Breakeven Units Cost-Volume-Profit Relationship $ TR = P*X TC TVC FC X X BE

8. Profit Line p Profits p = TR - TC = P*X-VC*X - FC X BE -FC

9. Contribution Margin Analysis Revenue - TVC = CM 1,250,000 - 620,000 = 630,000

10. Contribution Margin Analysis CM - FC = Profits 50,000 - 100,000 = - 50,000

11. Contribution Margin Analysis

12. Non-Linear Cost-Volume-Profit Analysis $ Total Revenue X

13. TotalCosts X2 X3 X1 Non-Linear Cost-Volume-Profit Analysis $ Total Revenue X

14. Relevant Range Concept $ XU= Upper Bound TR TC XL = Lower Bound TVC FC X L X BE X U X

15. Relevant Range Relevant Range Concept $ TR TC TVC FC X L X BE X U X

16. Mean profit Mean Units Profit Line & Uncertainty Profits p = (P-VC)*X - FC p p X BE X -FC