Topik 7 - Cost-Volume-Profit Analysis

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Topic
Click to edit Master title style
Cost-Volume-
Profit Analysis
5e
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After studying this chapter, you should
be able to:
1. Classify costs by their behavior as
variable costs, fixed costs, or mixed
costs.
2. Compute the contribution margin, the
contribution margin ratio, and the
unit contribution margin, and explain
how they may be useful to managers.
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be able to:
3. Use the unit contribution margin,
determine the break-even point and
the volume necessary to achieve a
target profit.
4. Use a cost-volume-profit chart and a
profit-volume chart, determine the
break-even point and the volume
necessary to achieve a target profit. 3
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be able to:
5. Compute the margin of safety and
the operating leverage, and explain
how managers use these concepts
6. List the assumptions underlying cost-
volume-profit analysis.
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8-1
Objective
Objective 11
Classify costs by their
behavior as variable
costs, fixed costs, or
mixed costs.
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8-1
Cost Behavior
Cost behavior refers to the manner in

which a cost changes as a related
activity changes. Such activities are
called activity base (or activity
drivers). The range of activity over
which the changes in the cost are of
interest is called the relevant range.
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8-1
Variable Costs
Variable costs are

costs that vary in
proportion to
changes in the level
of activity.
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8-1
Syarikat Tan
Syarikat Tan produces stereo sound

systems under the brand name of
TS-12. The parts for the TS-12
stereos are purchased from outside
suppliers for RM10 per unit (a
variable cost) and assembled by
Syarikat Tan.
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8-1
Variable Cost Graphs
Total Variable Cost Graph

RM300,000
Materials Cost
RM250,000
Total Direct
RM200,000
RM150,000
RM100,000
RM50,000
0 10 20 30
Total Units (Model TS-12)
Produced (thousands) 99
(Continued)
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8-1
Unit Variable Cost Graph
RM20
Direct Materials
Cost per Unit
RM15
RM10
RM5
0 10 20 30
Total Units (Model TS-
12) Produced
(thousands) 10
10
(Concluded)
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8-1
Click to edit Master RM20
title style
Unit Cost Compared to Total Cost
RM300,000
Cost per Unit

Total Costs
RM250,000 RM15
RM200,000 RM10
RM150,000 RM5
RM100,000 0
RM50,000 10 20 30
Units Produced (000)
0 10 20 30
Units Produced (000)
Number of Direct
Units of Model Materials Cost Total Direct
JS-12 Produced per Unit Materials Cost
5,000 units RM10 RM 50,000

10,000 10 l00,000
15,000 10 150,000
20,000 10 200,000
25,000 10 250,000 11
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30,000 10 300,000
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8-1
Fixed Costs
Fixed costs are costs that

remain the same in total
dollar amount as the level
of activity changes.
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8-1
Syarikat Mon
The production supervisor for

Syarikat Mon’s is Siti Maimon.
She is paid RM75,000 per year.
The plant produces from 50,000
to 300,000 bottles of perfume.
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8-1
Fixed Versus Variable Cost of Siti
Maimon’s Salary
Number of Total Salary Salary per Bottle

Bottles of Perfume for Siti of Perfume
Produced Maimon Produced
50,000 bottles RM75,000 RM1.500

100,000 75,000 0.750
150,000 75,000 0.500
200,000 75,000 0.375
250,000 75,000 0.300
300,000 75,000 0.250
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8-1
Click
RM150,000
to edit Master title
RM1.50
style
Total Costs
RM125,000 RM1.25
Unit Cost
RM100,000 RM1.00
RM75,000 RM.75
RM50,000 RM.50
RM25,000 RM.25
0 100 200 300 0 100 200 300

Bottles Produced (000) Units Produced (000)
Number of Salary per Bottle

Bottles of Perfume Total Salary of Perfume
Produced for Siti Maimon Produced
50,000 bottles RM75,000 RM1.500

100,000 75,000 0.750
150,000 75,000 0.500
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15
200,000 75,000 0.375
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8-1
Mixed Costs
A mixed cost (sometimes called

semivariable or semifixed costs) has
characteristics of both a variable and
a fixed cost. Over one range of
activity, the total mixed cost may
remain the same. Over another
range of activity, the mixed cost may
change in proportion to changes in
level of activity.
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8-1
Syarikat Syed
Syarikat Syed manufactures

sails using rented equipment.
The rental charges are
RM15,000 per year, plus
RM1 for each machine hour
used over 10,000 hours.
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8-1
Mixed Cost Graph for Syarikat Syed
Equipment Rental Charges
RM45,000
RM40,000 Mixed costs are
RM35,000 usually separated into
RM30,000
Total Costs
RM25,000 their fixed and

RM20,000 variable components
RM15,000
RM10,000
for management
RM5,000 analysis.
0 10 20 30 40
Total Machine Hours (000)
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8-1
High-Low Method
The high-low method is a

simple cost estimate
technique that may be
used for separating mixed
costs into their fixed and
variable components.
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8-1
Estimating Variable Cost Using High-Low
Production Total
(Units) Cost Actual costs incurred
June 1,000 RM45,550

First, select the
July 1,500 52,000 highest and lowest
August 2,100 61,500 levels of activity.
September 1,800 57,500
October 750 41,250
Difference in Total cost

Variable Cost per Unit =
Difference in Production
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8-1
Production Total
(Units) Cost
June 1,000 RM45,550 Then, fill in the
July 1,500 52,000 formula.
August 2,100 61,500
September 1,800 57,500 RM61,500
October 750 41,250 41,250
RM20,250
Difference
RM20,250
in Total Cost
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8-1
Production Total
(Units) Cost
June 1,000 RM45,550 Then, fill in the
July 1,500 52,000 formula.
August 2,100 61,500
September 1,800 57,500 2,100
750
October 750 41,250
1,350
Difference
RM20,250
in total cost
1,350
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8-1
Production Total
(Units) Cost
June 1,000 RM45,550 Variable cost per
July 1,500 52,000 unit is RM15
August 2,100 61,500
October 750 41,250
RM20,250
Variable Cost per Unit = = RM15
1,350
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8-1
Estimating Fixed Cost Using High-Low
Production Total
(Units) Cost
June 1,000 RM45,550 Next, insert the
July 1,500 52,000 variable cost of RM15
August 2,100 61,500
into the formula.
October 750 41,250
Total Cost = (Variable Cost per Unit x Units of Production)

+ Fixed cost
Total cost = (RM15 x Units of Production) + Fixed cost
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8-1
Production Total
(Units) Cost Using the highest
June 1,000 RM45,550 level of production,
July 1,500 52,000 we insert the total cost
August 2,100 61,500
and units produced in
October 750 41,250 the formula.
Total Cost = (Variable Cost per Unit x Units of Production)

+ Fixed cost
Total cost = (RM15 x 2,100 units of Production) + Fixed Cost
RM61,500
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8-1
RM61,500 = (RM15 x 2,100 units) + Fixed cost

RM61,500 = RM31,500 + Fixed cost
RM61,500 – RM31,500 = Fixed cost
RM30,000 = Fixed cost
If the lowest level had been

chosen, the results of the
formula would provide the
same fixed cost of RM30,000.
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8-1

Example Exercise 8-1
The manufacturing cost of Perusahaan Alisa for
the first three months of the year are provided
below:
Total Cost Production
January RM80,000 1,000 units
February RM125,000 2,500
March RM100,000 1,800
Using the high-low method, determine the
(a) variable cost per unit, and (b) the total fixed
cost. 27
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8-1

Follow My Example 8-1
RM125,000 – RM80,000
a. RM30 per unit =
(2,500 – 1,000)
b. RM50,000 = RM125,000 – (RM30 x 2,500)

or RM80,000 – (RM30 x 1,000)
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For Practice: PE8-1
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8-1
Summary of Cost Behavior Concepts
Total costs
Total increase and
Total Costs
Variable decrease
Costs proportionately
with activity level.
Total Units Produced
Per Unit Cost
Unit Unit costs remain

Variable the same per unit
Costs regardless of
activity.
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8-1
Summary of Cost Behavior Concepts
Total Costs
Unit costs remain
Total
the same
Fixed Costs
regardless of
activity.
Total costs
increase and
Per Unit Cost
Unit
Fixed Costs decrease with
activity
level.
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8-2
Objective
Objective 22
Compute the contribution margin,
the contribution margin ratio,
and the unit contribution margin,
and explain how they may be
useful to managers.
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8-2
Cost-Volume-Profit Relationships
Cost-volume-profit analysis is the

systematic examination of the
relationships among selling prices,
sales and production volume,
costs, expenses, and profits.
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8-2
The contribution margin is the
excess of sales revenues over
variable costs. It contributes first
toward covering fixed costs, then
contributes to profit.
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8-2
4 Contribution Margin
Income Statement
Sales (50,000 units) RM1,000,000

Variable costs 600,000
Contribution margin RM 400,000
Fixed costs 300,000
Income from operations RM 100,000
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8-2
Contribution Margin Ratio
Sales (50,000 units) RM1,000,000 100%

Variable costs 600,000 60%
Contribution margin RM 400,000 40%
Fixed costs 300,000 30%
Income from operations RM 100,000 10%
Sales – Variable Costs

Contribution Margin Ratio =
Sales
RM1,000,000 – RM600,000
Contribution Margin Ratio =
RM1,000,000
Contribution Margin Ratio = 40%
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8-2
Unit Contribution Margin
The unit contribution margin

is also useful for analyzing the
profit potential of proposed
projects. The unit contribution
margin is the sales price less
the variable cost per unit.
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8-2
Using Contribution Margin per Unit
as a Shortcut- Syarikat Astana
50,000 65,000
units units
Sales (RM20) RM1,000,000 RM1,300,000
Variable costs (RM12) 600,000 780,000
Contribution margin (RM8)RM400,000 RM 520,000
Fixed costs 300,000 300,000
Income from operations RM 100,000 RM220,000
The increase in income from operations of

RM120,000 could have been determined quickly
by multiplying the increase in unit sales (15,000)
by the contribution margin per unit (RM8). 37
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8-2
RM2
Sales (50,000 units) RM1,000,000 100% 0
Variable costs 600,000 60% 12
Contribution margin RM 400,000 40% RM
Fixed costs 300,000 30% 8
Unit contribution margin

analyses can provide useful
information for managers. 38
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8-2
Review
Sales (50,000 units) RM1,000,000 100% RM20

Variable costs 600,000 60% 12
Contribution margin RM 400,000 40% RM 8
Fixed costs 300,000 30%
The contribution margin can be expressed three ways:

1. Total contribution margin in RM.
2. Contribution margin ratio (percentage).
3. Unit contribution margin (RM per unit).
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8-2

Syarikat Molly sells 20,000 units at RM12 per

unit. Variable costs are RM9 per unit, and
fixed costs are RM25,000. Determine the (a)
contribution margin ratio, (b) unit contribution
margin, and (c) income from operations.
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8-
2
a. 25% = (RM12 – RM9)/RM12 or (RM240,000 –

RM180,000)/RM240,000
b. RM3 per unit = RM12 – RM9
c. Sales RM240,000 (20,000 x RM12)
Variable costs 180,000 (20,000 x RM9)
Contribution margin RM 60,000 [20,000 x (RM12 –RM9)]
Fixed costs 25,000
Income from operations RM35,000
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For Practice: PE 8-2
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8-3
Objective
Objective 33
Using the unit contribution
margin, determine the break-even
point and the volume necessary to
achieve a target profit.
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8-3
Break-Even Point
The break-even point is

the level of operations at
which a business’s
revenues and expired costs
are exactly equal.
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8-3
Syarikat Bakar fixed costs are estimated to
be RM90,000. The unit contribution margin
is calculated as follows:
Unit selling price RM25
Unit variable cost 15
Unit contribution marginRM10
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8-3
The break-even point is calculated using the
following equation:
Fixed Costs
Break-Even Sales (units) =
RM90,000
Break-Even Sales (units) =
RM10
Break-Even Sales (units) = 9,000 units
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8-3
Proof of the Preceding
Computation
Sales (RM25 x 9,000) RM225,000

Variable costs (RM15 x 9,000) 135,000
Contribution margin RM 90,000
Fixed costs 90,000
Income from operations RM 0
Income from operations is zero when

9,000 units are sold—hence, break-
even is 9,000 units.
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8-3
Effect of Changes in Fixed Costs
Fixed
Fixed Break-
Break-
If Costs
Costs
Then Even
Even
Fixed
Fixed Break-
Break-
If Then
Costs
Costs Even
Even
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8-3
Increasing Fixed Costs
Syarikat Lazer is evaluating a

proposal to budget an additional
RM100,000 for advertising. Fixed
costs before the additional
advertising are estimated at
RM600,000, and the unit
contribution margin is RM20.
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8-3
Without additional advertising:
Fixed Costs
Break-Even in Sales (units) =
RM600,000 30,000
Break-Even in Sales (units) = =
RM20 units
With additional advertising:
RM700,000 35,000
RM20 units
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8-3
Effect of Changes in Unit
Variable Costs
Unit
Unit
If Then Break-
Break-
Variable
Variable Even
Even
Cost
Cost
Unit
Unit
If Variable Then Break-
Break-
Variable Even
Costs Even
Costs
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8-3
Syarikat Antah is evaluating a proposal to pay an
additional 2% commission on sales to its
salespeople (a variable cost) as an incentive to
increase sales. Fixed costs are estimated at
RM840,000. The unit contribution margin before
the additional 2% commission is determined as
follows:

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8-3
Without additional 2% commission:
Fixed Costs
RM840,000 8,000
RM105 units
With additional 2% commission:
RM840,000 8,400
RM100 units
RM250 – [RM145 + (RM250 x 2%)] = RM100 52

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8-3
Effect of Changes in the Unit
Selling Price
Break-
Break-
Unit
Unit Even
Even
If Selling Then
Selling
Price
Price
Unit
Unit
If Selling
Selling Then
Price
Price Break-
Break-
Even
Even
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8-3
Syarikat Jendi is evaluating a proposal to increase
the unit selling price of a product from RM50 to
RM60. The following data have been gathered:
Current Proposed
Unit selling price RM50 RM60
Unit variable cost 30 30
Unit contribution margin RM20 RM30
Total fixed costs RM600,000 RM600,000
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8-3
Without price increase:
Fixed Costs
RM600,000 30,000
RM20 units
With price increase:
RM600,000 20,000
RM30 units
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8-3
Summary of Effects of Changes
on Break-Even Point
Effect of Change
Direction of on Break-Even
Type of Change Change Sales (Units)
Fixed cost Increase Increase
Decrease Decrease
Variable cost per unit Increase Increase
Decrease Decrease
Unit sales price Increase Decrease
Decrease Increase
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8-3

Nih Enterprise sells a product for RM60 per unit. The
variable cost is RM35 per unit, while fixed costs are
RM80,000. Determine the (a) break-even point in sales
units, and (b) break-even point if the selling price were
increased to RM67 per unit.
a. 3,200 units = RM80,000/(RM60 – RM35)

b. 2,500 units = RM80,000/(RM67 – RM35)
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8-3
Target Profit
The sales volume required to earn a

target profit is determined by modifying
the break-even equation.
Fixed Costs + Target Profit
Sales (units) =
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8-3
Units Required for Target Profit
Fixed costs are estimated at RM200,000, and

the desired profit is RM100,000. Unit
contribution margin is RM30.
RM200,000 RM100,000
Fixed Costs + Target Profit
Sales (units) =
Unit Contribution
RM30 Margin
Sales (units) = 10,000 units 59
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8-3
Sales (10,000 units x RM75) RM750,000
Variable costs (10,000 x RM45) 450,000
Contribution margin (10,000
x RM30) RM300,000
Fixed costs 200,000
Income from operations RM100,000
Proof that sales of 10,000 units will

provide a profit of RM100,000.
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8-3

Syarikat Fika sells a product for RM140 per unit. The
variable cost is RM60 per unit, and fixed costs are
RM240,000. Determine the (a) break-even point in
sales units, and (b) break-even point in sales units if the
company desires a target profit of RM50,000.

a. 3,000 units = RM240,000/(RM140 – RM60)
b. 3,625 units = (RM240,000 + RM50,000)/(RM140 – RM60)
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8-4
Objective
Objective 44
Using a cost-volume-profit chart
and a profit-volume chart,
determine the break-even point
and the volume necessary to
achieve a target profit.
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8-4
Cost-Volume-Profit (Break-
Even) Chart
A cost-volume-profit
chart, sometimes called a
break-even chart, may
assist management in
understanding relationships
among costs, sales, and
operating profit or loss.
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8-4
The cost-volume-profit chart in Exhibit 5
(Slide 65) is based on the following data:
Unit selling price RM 50
Unit contribution margin RM 20
Total fixed costs RM100,000
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8-4
Click to edit Master title style Cost-Volume-Profit
Chart
RM500
Sales and Costs (in thousands) RM450
Dollar RM400
amounts RM350
are RM300
indicated RM250
along the RM200
vertical RM150
axis. RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Units of Sales (in thousands)
65
65
(Continued)
Volume
Volume isshown
is shownononthe
thehorizontal
horizontalaxis.
axis.
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8-4
Chart (Continued)
RM500 Point A
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
At sales of RM500,000 and knowing that each unit sells for RM50,
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we can find the values of the two axis. Where the horizontal sales
and costs line intersects the vertical 10,000 unit of sales line is Point
A.
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8-4
Cost-Volume-Profit
Chart (Continued)
RM500 Point A
Sales and Costs (in thousands)

RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Now, beginning at zero on the left corner of the graph, connect
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a straight line to the dot (Point A). Note: Point A could have
been plotted at any sales level because linearity is assumed.
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8-4
Cost-Volume-Profit
Chart (Continued)
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Fixed cost of RM100,000 is a horizontal line. 68

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8-4
Cost-Volume-Profit
Chart (Continued)
RM500
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Similar to the sales line, a point is determined on the cost 69

69
line (10,000 x RM30) + RM100,000 = RM400,000
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8-4
Cost-Volume-Profit
Chart (Continued)
RM500
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Beginning with the total fixed cost at the vertical axis 70

70
(RM100,000), draw a line to the red dot. This is the total cost
line.
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8-4
Chart (Continued)
RM500
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Horizontal and vertical lines are drawn at the
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71
intersection point of the sales line and the costs line,
which is the break-even point.
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8-4
Chart (Continued)
RM500
RM400
RM350
RM300
RM250
RM200
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
Break-even is sales of 5,000 units or RM250,000. 72

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73
8-4
Cost-Volume-Profit
Chart (Concluded)
RM500
RM450
RM400
RM350 Loss area
RM300
RM250
RM200 Profit area
RM150
RM100
RM 50
0 1 2 3 4 5 6 7 8 9 10
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8-4
Revised Cost-Volume-Profit Chart
Using the data in Slide 73, assume that

a proposal to reduce fixed cost by
RM20,000 is to be evaluated. A cost-
volume-profit chart can be created to
assist in this evaluation.
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8-4
Profit Chart
Revised Cost-Volume-
RM500
RM450
RM400
RM350
RM300
RM250
RM200
RM150
RM100 RM80,000
RM 50
0 1 2 3 4 5 6 7 8 9 10
If fixed costs can be reduced to RM80,000, the new 75
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break-even point is sales of RM200,000, or 4,000 units.
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8-4
Profit-Volume Chart
Another graphic approach to cost-volume-

profit analysis, the profit-volume chart,
plots only the difference between total
sales and total costs (or profits). Again, the
data from Exhibit 5 will be used.
Unit selling price RM 50
Unit contribution margin RM 20
Total fixed costs RM100,000
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8-4
The maximum operating loss is equal to the
fixed costs of RM100,000. Assuming that the
maximum unit sales within the relevant range is
10,000 units, the maximum operating profit is
RM100,000, computed as follows:
Sales (10,000 units x RM50) RM500,000
Variable costs (10,000 units x RM30) 300,000
Contribution margin (10,000 units x RM20) 200,000
Fixed costs 100,000
Operating profit RM100,000
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Maximum profit
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8-4
Profit-Volume Chart
RM100,000
Operating Profit (Loss)
RM75,000 Profit Line

RM50,000
Operating
RM25,000
profit
RM 0
RM(25,000) Operating
RM(50,000) loss Break-Even Point
RM(75,000)
RM(100,000)
1 2 3 4 5 6 7 8 9 10
Maximum loss is
RM100,000, the fixed costs.
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8-2
Objective
Objective 55
Compute the margin of safety and
the operating leverage, and
explain how managers use these
concepts.
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8-5
Operating Leverage
The relative mix of a business’s variable costs

and fixed costs is measured by the operating
leverage. It is computed as follows:
Contribution Margin
Operating Leverage = Income from Operations
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8-5
Operating Leverage Example
Syarikat Salam Syarikat Sinar

Sales RM400,000 RM400,000
Variable costs 300,000 300,000
Contribution margin RM100,000 RM100,000
Fixed costs 80,000 50,000
Income from operations RM 20,000 RM 50,000
Operating leverage ? ?
Both companies have the same
contribution margin.
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8-5
Sales RM400,000 RM400,000
Operating leverage ?5 ?
Contribution
RM100,000Margin
Syarikat Salam =5
Income RM20,000
from Operations
90
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8-5
Sales RM400,000 RM400,000
Operating leverage 5? ?2
Contribution
RM100,000Margin
Syarikat Sinar: =2
IncomeRM50,000
from Operations
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8-5
High Versus Low Operating Leverage
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8-5

Syarikat Tariq reports the following data:
Sales RM750,000
Variable costs RM500,000
Fixed costs RM187,500
Determine Syarikat Tariq’s operating leverage.
4.0 = (RM750,000 – RM500,000)/(RM750,000 – RM500,000 –

RM187,500) = RM250,000/RM62,500
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85
For Practice: PE8-5
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8-5
Margin of Safety
The difference between the

current sales revenue and the
sales revenue at the break-
even point is called the
margin of safety.
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8-5
If sales are RM250,000, the unit selling price is RM25,
and the sales at the break-even point are RM200,000, the
margin of safety is 20%, computed as follows:
Sales – Sales at Break-Even Point

Margin of Safety =
Sales
RM250,000 – RM200,000
Margin of Safety =
RM250,000
Margin of Safety = 20%
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8-5
The margin of safety may also be
stated in terms of units. In this
illustration, for example, the
margin of safety of 20% is
equivalent to RM50,000 in sales
(RM250,000 x 20%). In units, the
margin of safety is 2,000 units
(RM50,000/RM25).
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8-5

Syarikat Rariq has sales of RM400,000, and the break-

even point in sales RM is RM300,000. Determine the
company’s margin of safety.
25% = (RM400,000 – RM300,000)/RM400,000
97
89
For Practice: PE8-6
90
8-2
Objective
Objective 66
List the assumptions underlying
cost-volume-profit analysis.
90
91
8-6
Assumptions of Cost-Volume-Profit
Analysis
The primary assumptions are:

1. Total sales and total costs can be represented by a
straight line.
2. Within the relevant range of operating activity, the
efficiency of operations does not change.
3. Costs can be accurately divided into fixed and
variable components.
4. The sales mix is constant.
5. There is no change in the inventory quantities
during the period.
91

Topik 7 - Cost-Volume-Profit Analysis

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1

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Cost behavior refers to the manner in

Variable costs are

Syarikat Tan produces stereo sound

Total Variable Cost Graph

Cost per Unit

5,000 units RM10 RM 50,000

Fixed costs are costs that

The production supervisor for

Number of Total Salary Salary per Bottle

50,000 bottles RM75,000 RM1.500

0 100 200 300 0 100 200 300

Number of Salary per Bottle

50,000 bottles RM75,000 RM1.500

A mixed cost (sometimes called

Syarikat Syed manufactures

RM25,000 their fixed and

The high-low method is a

June 1,000 RM45,550

Difference in Total cost

Total Cost = (Variable Cost per Unit x Units of Production)

Total Cost = (Variable Cost per Unit x Units of Production)

RM61,500 = (RM15 x 2,100 units) + Fixed cost

If the lowest level had been

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b. RM50,000 = RM125,000 – (RM30 x 2,500)

Unit Unit costs remain

Cost-volume-profit analysis is the

Sales (50,000 units) RM1,000,000

Sales (50,000 units) RM1,000,000 100%

Sales – Variable Costs

The unit contribution margin

The increase in income from operations of

Unit contribution margin

Sales (50,000 units) RM1,000,000 100% RM20

The contribution margin can be expressed three ways:

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Syarikat Molly sells 20,000 units at RM12 per

a. 25% = (RM12 – RM9)/RM12 or (RM240,000 –

The break-even point is

Break-Even Sales (units) = 9,000 units

Sales (RM25 x 9,000) RM225,000

Income from operations is zero when

Syarikat Lazer is evaluating a

Unit selling price RM250

RM250 – [RM145 + (RM250 x 2%)] = RM100 52

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a. 3,200 units = RM80,000/(RM60 – RM35)

The sales volume required to earn a

Fixed costs are estimated at RM200,000, and

Proof that sales of 10,000 units will

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Follow My Example 8-4

Sales and Costs (in thousands)

Fixed cost of RM100,000 is a horizontal line. 68