Cost-Volume-Profit Analysis

After completing this chapter, you should be able to:

1. Compute a break-even point using the contribution-margin approach and the equation approach.

2. Compute the contribution-margin ratio and use it to find the break-even point in sales dollars.

3. Prepare a cost-volume-profit (CVP) graph and explain how it is used.

4. Apply CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume.

5. Compute the break-even point and prepare a profit-volume graph for a multiproduct enterprise.

6. List and discuss the key assumptions of CVP analysis.

7. Prepare and interpret a contribution income statement.

8. Explain the role of cost structure and operating leverage in CVP relationships.

9. Understand the implications of activity-based costing for CVP analysis.

10. Be aware of the effects of advanced manufacturing technology on CVP relationships.

11. Understand the effect of income taxes on CVP analysis (appendix).