...Bridgestone Behavioral Health Center (Course Ebook, pp. 93-100) Case Questions 1.* Using the budget data in Exhibit 1, determine Bridgestone’s projected weighted average contribution margin ratio for next year. Using the budget data in Exhibit 1, determine Bridgestone’s projected breakeven point for next year in terms of revenue. Using the budget data in Exhibit 1, determine the revenue that Bridgestone will expect to generate from Individual Counseling services if the company achieves the projected breakeven revenue (see item 2 above) for next year. Using the budget data in Exhibit 1, determine Bridgestone’s projected margin of safety for next year in terms of revenue and a percentage. Using the budget data in Exhibit 1, determine Bridgestone’s projected income or loss if total organization revenue is 10% higher than the projected $5,000,000. Exhibit 1 assumes a certain revenue mix among the 10 service categories (e.g., that Individual Counseling will generate 21.8% [$1,090,000/$5,000,000] of total organization revenues and that Ambulatory Detoxification will generate 10.86% [$543,000/$5,000,000] of total organization revenues). Discuss whether the projected breakeven point you computed in item 2 above would increase or decrease if budgeted organization revenue remained $5,000,000, but the assumed revenue mix was changed so that Individual Counseling generates 10.86% of revenues and Ambulatory Detoxification generates 21.8% of revenues. An important aspect of cost-volume-profit...
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...CVP ANALYSIS When we consider about an accounting, there two kinds of accounting practices in business environment which are known as financial accounting and managerial accounting. The financial accounting specially prepared for external users such as shareholders, creditors, investors and government authorities. The managerial accounting is consider and focus on internal operations and it is being used by managers to prepare budgets, evaluate operation performances and pre-organized to face for new trends in the business environment. The cost-volume-profit analysis does vital role in managerial accounting as the CVP analysis can be used both products and services, and answers various questions pertaining to profitability of the company products or services. Its deals with three elements. The first factors is cost which incurred to make product or services, the second factors is volume which focus on number of units of product sold in a specific period of time The third factors is profit which basically selling price minus cost (materials, labor, overhead etc.). As a new business entrepreneur, cost-volume-profit analysis will help to determine and forecast important business factors as discuss below. The CVP analysis is very crucial tool for business entrepreneurs and managers as it can analyses a single product, a group of products with fixed cost or with a variable cost. Finally, it can evaluate the entire business as a whole. Though, it provides many advantages to...
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...–AMMAN –JORDAN FALL-2011. Key words :managerial accounting , cost accounting , CVP. o "USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL CONCEPT" 1 DR.MOADE SHUBITA "USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL Concept" By samya Alakhdar , Dr . Moade Shubita , NYIT –AMMAN –JORDAN FALL-2011. Key words :managerial accounting , cost accounting , CVP. TOPICS TO COVER: ABSTRACT INTRODUCTION PROBLEM ASSUMPTION UNDERLYING CVP ANALYSISI THE CONTRIBUTION MARGIN. CONTRIBUTION MARGIN INCOME STATEMENT DEFINE THE BREAKEVEN POINT WHAT IS THE C.M RATIO. THE IMPORTANCE of UNIT CONTRIBUTION MARGINE DETERMINATI SOME APPLICATIONS OF CM “WHAT IF “ANALYSIS ON OF TARGET INCOME AND TAXES MOS- MARGINE OF SAFETY CHOOSING THE COST STRUCTURE TO DECREASE COST ULTIMATELY DEGREE OF OPERATING LEVERAGE DEGREE OF OPERATING LEVERAGE IMPORTANCE FOR MANAGERS SALES MIX . CASE TO STUDY. LIMITATION OF CVP CONCLOUSION REFERENCES 2 DR.MOADE SHUBITA "USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL Concept" By samya Alakhdar , Dr . Moade Shubita , NYIT –AMMAN –JORDAN FALL-2011. Key words :managerial accounting , cost accounting , CVP. ABSTRACT: In order to cope with many planning decisions managers use cost volume profit analysis , They find it an extremely useful measurement in a variety of ways . The present paper aimed to: Increase the understanding of usefulness of CVP concept. Increase the understanding of budgets...
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...Nedunchezhiyan, and Judy Robertson ACC/561 Accounting November 11, 2013 Grace Kalil Managerial accounting is key part of manager's jobs. Part of it is that managers need to forecast monthly, quarterly and yearly expenses, tracking their actual expenses at the end of each cycle and determine if they stayed within their budget. Typically managers in several departments need to report their expenses to an accounting department and managerial account will be maintaining these information. Business can use this information to find out their operational cost such as labor, raw material, manufacturing, advertisement, distribution and miscellaneous and will help them to stay in with their budgets, incase if they are over the budget it will help managers to make an educative decision on where to cut the cost and tally the budget. The expenses can be classified into two parts fixed cost and other as variable cost. Managers need the skills to identify them and manage them. Cost-Volume-Profit analysis, CVP analysis, helps in understanding the relationship of these two costs, volume of product sales required to cover manufacturing or servicing cost, and net profit. CVP analysis is used in managerial accounting to use the relationships between cost, volume and profit quickly to calculate metrics that provide insight into the current and future performance of a business. Small-business owners can find CVP analysis useful, as it is mathematically...
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...CVP Analysis Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a company's operating income and net income. As an entrepreneur, your goal in creating a new business is to satisfy a set of customers profitably and to sell enough goods or services to satisfy your ongoing fixed costs as well as recover your initial investment. Cost-volume-profit analysis is critical for an entrepreneur to use when starting a new business. Through cost-volume-profit analysis, an entrepreneur can set prices, determine if he or she wants to add another product line, or see if the company is spending too much producing its products. Cost-Volume-Profit (or "CVP") analysis is a way to understand a business opportunity in simplified terms to help you zero in on the right set of customers to serve while minimizing risk by keeping your costs and investment as low as possible. This will help you understand if your opportunity can reach breakeven and how long it will take to recover your sunk investment. . The following paper will share the cost volume profit concept and how this practice can help the entrepreneur when they establish a new business. Concept of CVP Analysis The CVP or cost volume profit analysis is a professional accounting technique that is related to the effect of sales volume and product costs on operating profit of a business. This analysis is used to determine the break-even point of the business in addition to provides a great help to...
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...Cost-Volume-Profit (CVP) Analysis Shanica N. Todd-Higgins ACC/561 - ACCOUNTING Instructor: DAVID DUREN Schedule: 06/29/2015 - 08/03/2015 Campus: COLUMBIA SOUTH CAROLINA CAMPUS Group ID: SCMBA0914 CVP - What If Analysis Through research, according to Diane Wicks (2015), “Cost-volume-profit (CVP) analysis is used to assess the impact of potential changes in costs and volume on a company's operating profit and net profit. CVP analysis is also useful in making decisions regarding pricing of products, selection of product lines and utilization of production equipments. Additionally, CVP is at the heart of methods used for calculating the break-even point and sales levels necessary to attain targeted income levels.” The break-even point according to W.D Adkins (2015) is, “the point at which revenues are just enough to cover expenses so there in no profit and no loss.” For instance Calculating Breaking-Even Analysis There are many steps in finding the break even analysis. According to Zari Ballard of Ehow (2015, ), First, calculate the total fixed costs by adding together each of the company's fixed costs. For example, a small company with annual fixed costs of $7,000 in rental payments, $3,000 in equipment leases and $30,000 in administrative salaries would have TFC of $40,000. Next, calculate the contribution margin per unit by subtracting the variable cost per unit from the sales price per unit. For example, if a small company's product sells for $60 per unit with...
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...assign costs, two important elements must be identified: a cost pool and a cost driver. A cost pool is a grouping of costs that must be allocated. Hence the value of Cost pool for the above question is $100,000. 2) What is the allocation rate if: a. Patient services revenue is used as the cost driver? Sol) Allocation rate = Cost pool/patient services revenue = $ 100,000/$5,000,000 = $0.02 per dollar of patient services revenue. b. Hours of housekeeping services is used as the cost driver? Sol) Allocation rate = Cost pool/hours of housekeeping services = $100,000/5000 = $20 per hour consumed for housekeeping services. 3) What is a cost-volume-profit (CVP) analysis and why is it useful to health services managers? Sol) Profit analysis is an analytical technique typically used to analyze the effects of volume changes on profit. The same procedures can be used to assess the effects of volume changes on costs, so this type...
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...states that Cost-Volume-Profit (CVP) is the examination of numbers and values or more specifically the study of the effects of changes in costs and volume on a company's profits, it is at its most basic level so much more; it is essentially the study of relationships. It explores the production of a particular item along with its associated costs and production volumes and evaluates the relationship shared with a company’s ultimate goal; profit. Within this, “study of relationships,” it also examines the effects of change on the relationships between cost, volume and profit. Utilized properly, a CVP analysis can be a company’s greatest tool (Kimmel, Weygandt, & Kieso, 2011) The Components of CVP In order for CVP to be accurate, it makes certain assumptions, all of which must remain true and accurate for the CVP analysis also to remain true and accurate. To this end, the costs and resulting revenue must remain linear throughout the life of a product or more specifically, a particular production line. Costs are established as fixed or variable and are affected only by changes in activity. Finally, if a product or product line consists of two or more items, the relationship of all items involved must remain consistent. A thorough and proper CVP analysis considers the relationships shared among the components involved in production such as volume, level of activity, unit selling price, variable cost per unit, total fixed costs and sales mix. CVP becomes a determining factor...
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...Chapter-9 1. Budget: A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. Budget is a plan of action for achieving quantified objectives, standard for measuring performance and device for coping with foreseeable adverse situations. 2. Budgeting: The act of preparing a budget is called budgeting. Budgeting is the process of creating plan to spend money. It is simply balancing expenses with income. 3. Zero Budget: A method of budgeting in which all expenses must be justified for each new period. It requires managers to justify all budgeted expenditures, not just changes in the budget from the prior year. 4. Muster Budget: A set of interconnected budgets of sales, production costs, purchases, incomes etc. is called Master Budget. It also includes pro-forma financial statements. It serves as a planning and control tool of the organization. 5. Cash Budget: Estimation of cash inflows and out flows for a business or individual for a specific period of time is called Cash Budget. 6. Advantage of sell impose Budget: i. Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management. ii. Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers. iii. Motivation is generally higher when individuals participate in setting their own goals than when...
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...What is management accounting? Management accounting or managerial accounting is the process of identifying, analyzing, recording and presenting financial information that is used for internally by the management for planning, decision making and control. In contrast to financial accounting, managerial accounting is concerned with providing helpful information and reports to internal users such as managers and entrepreneurs, so that they can control and plan the business activities. According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities". For fulfilling the purpose of management accounting there are already many techniques and tools prevail in the market. The first management accounting tools and techniques contribute to the attainment of organizational objective is standard costing. Standard costing is an accounting system designed to properly allocate costs of direct labor, indirect labor, materials, overhead, and selling / general / administrative accounts on a unit basis for the purpose of accurately...
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...ON CVP ANALYSIS IN BANK Submitted to Dr. Harunur Rashid Professor Department of Accounting and Information Systems University of Chittagong Submitted by Md. Ariful Hoque B.B.A. (Hons.): 4th Year. Class Roll: 4541 Exam Roll: 2004 /42 Session: 2003-2004 Department of Accounting and Information Systems University of Chittagong Date of submission: August 25, 2009 Letter of Submission To Dr. Harunur Rashid Professor Department of Accounting and Information Systems University of Chittagong. Subject: Submission of Term Paper report on “CVP analysis in Bank.” Sir, With the greatest pleasure, I would like to submit my report on “CVP analysis in Bank” I have tried my best to gain practical experience and also tried to reflect the same in report with my limited scope and knowledge. I wish your hearty consideration, if there is any deviation in my report. I wish to thank for your friendly co-ordination to make the program success. Yours truly, ____________________ (Md. Ariful Hoque) B.B.A. (Hons.): 4th Year. Class Roll: 4541 Exam Roll: 2004 /42 Session: 2003-2004 Department of Accounting and Information Systems University of Chittagong PREFACE The Term Paper is a program that is common for the B.B.A. student. As students of the Commerce Faculty we got adventurous touch of the program under our department of AIS. The program...
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...CVP analysis: A tool for business decision making Introduction Cost-Volume-Profit Analysis (CVP), in managerial economics is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run Cost-volume-profit (CVP) analysis expands the use of information provided by breakeven analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this breakeven point (BEP), a company will experience no income or loss. This BEP can be an initial examination that precedes more detailed CVP analyses.Cost-volume-profit analysis employs the same basic assumptions as in breakeven analysis. Cost-volume-profit analysis (CVP), or break-even analysis, is used to compute the volume level at which total revenues are equal to total costs. When total costs and total revenues are equal, the business organization is said to be “breaking even.” The analysis is based on a set of linear equations for a straight line and the separation of variable and fixed costs. Total variable costs are considered to be those costs that vary as the production volume changes. In a factory, production volume is considered to be the number of units produced, but in a governmental organization with no assembly process, the units produced might refer, for example, to the number of welfare cases processed. There are a number of costs that vary or change, but if the variation is not due to volume changes, it is not considered...
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...making strategies through CVP analysis Standard Costing and Variance analysis: concept and objectives of standard costing, advantages and limitations, variance analysis (Material, labour, overheads and sales variance), practical applications Budgeting and budgetary control mechanism Activity based costing, Responsibility Accounting Target costing Objective Objective of this course is to help student understand: 1. The essence of management accounting-effective use of the accounting information for planning, control and business decision making. 2. To use cost accounting as a managerial tool for business strategy and implementation. 3. To understand analyse the costing tools and their business application for enhancing revenue and profitability of a firm,. 4. To analyse various aspects of costing such as, marginal costing, absorption costing, allocation of costs, standard costing and variance analysis, activity based costing, target costing etc. 5. To understand the process of decision making, planning and budgeting in a business organisation. Pedagogy Lectures Discussions on case studies Term Projects and presentations Discussion and presentation on published research papers on related topics. Text book: Management Accounting: Paresh Shah, OXFORD UNIVERSITY Press, Edition, Eighth impression 2012. Reference Books: 1. Managerial Accounting, by James Jiambalvo, third edition, pub. Wiley 2. Management Accounting, M Y Khan & P K Jain, Pub....
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...MARGINAL COSTING Introduction This paper explores the use of cost accounting information for decision-making purposes. DEFINITION OF KEY TERMS Marginal cost: This is the cost of a unit of a product or service, which would be avoided if that unit or service was not produced or provided Break-even point: This is the volume of sales where there is neither profit nor loss. 1 9 6 COST ACCOUNTING S T U D Y T E X T Margin of safety: This is the excess of sales over the break-even volume in sales. It states the extent to which sales can drop before losses begin to be incurred in a firm Contribution: This is the difference between sales value and the marginal cost of sales. To understand this topic, you need to understand the topic on cost behavior first. Marginal costing is built on cost behavior and terms. Of key importance are product costs, period costs, variable costs and fixed cost. Product costs are costs identified with goods produced or purchased for resale. Such costs are initially identified as part of the value of stock and only become expenses when the stock is sold. In contrast, period costs are costs that are deducted as expenses during the current period without ever being included in the value of stock held. We saw how product costs are absorbed into the cost of units of output. Now we describe marginal costing and compare it with absorption costing. Whereas absorption costing recognizes fixed costs (usually fixed production costs) as part of the...
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...ISSUES IN ACCOUNTING EDUCATION Vol. 19, No. 4 November 2004 pp. 555–565 The ALLTEL Pavilion Case: Strategy and CVP Analysis Edward Blocher and Kung H. Chen ABSTRACT: The ALLTEL Pavilion case is intended for the undergraduate management accounting or cost accounting course and the M.B.A. management accounting course. It provides an excellent context in which to examine strategic issues in using cost volume profit (CVP) in a service business. Based on an actual entertainment pavilion, the case develops many factors unique to a service business and illustrates how pavilion management can use CVP analysis to determine which artists to attract and what kinds of contracts to have with these performers. The Pavilion has two types of customers (paying ticket holders and free ticket holders) and earns profits from three types of revenues (ticket revenues, concession revenues, and parking fees). The case requires you to identify the best strategy for different types of artists, conduct cost-volume-profit analyses, consider the strategic issues related to operating leverage and how this affects the choice of performer and contract, and assess pricing strategies. O ne day in early November, Pam Berg, Manager of the ALLTEL Pavilion, was reviewing the operating results for the year just completed in preparation for the executive board meeting the following Friday. While the year ended in the black, she was disappointed that the ALLTEL Pavilion failed to earn the budgeted...
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