[经管营销]cost accounting solutions_ Chap003.docVIP

3 Fundamentals of Cost-Volume-Profit Analysis Solutions to Review Questions Profit = TR – TC = PX – VX – F = (P – V)X – F where Profit = operating profit, TR = total revenue, TC = total costs, P = average unit selling price, V = average unit variable cost, X = quantity of units, F = total fixed costs for the period. Total costs = Total variable costs plus total fixed costs. Total contribution margin: Total selling price – Variable manufacturing costs expensed – Variable nonmanufacturing costs expensed = Total contribution margin. Gross margin: Total selling price – Variable manufacturing costs expensed – Fixed manufacturing costs expensed = Gross margin. Profit-volume analysis plots only the contribution margin line against volume, while cost-volume-profit analysis plots total revenue and total costs against volume. Profit-volume analysis is a simpler, but less complete, method of presentation.  Costs that are “fixed in the short run” are usually not fixed in the long run. In fact few, if any, costs are fixed over a very long time horizon, because managers can make decisions that change a firm’s cost structure. Operating leverage is the proportion of fixed costs in an organization’s cost structure. It is important for managers because it determines how an increase in volume affects the change in profits. The margin of safety is the excess of sales over the break-even volume. Managers can use the margin of safety to understand how far sales can fall before the firm is operating at a loss. Target volume (units) = Fixed costs + [Target profit/(1-t)] Unit contribution margin Income taxes do not affect the break-even equation because with zero income (breakeven), there are no income taxes to pay. It is common to assume a fixed sales mix when solving for break-even volumes with multiple products because the contribution margin depends on the relative quantities of the individual products sold. If the sales mix is not fixed, the break-even volume is indeter