A good understanding of cost and revenue behavior is critical for decision makers to understand the financial risks of many decisions. At a minimum, knowing the point at which revenues will cover all costs establishes a floor for new products and service introductions. Taken further, modeling the impact of changes to revenue and costs can greatly increase the short-term and long-term profitably of all products and services.
Cost volume profit (CVP) analysis use the concepts of variable and fixed costs to identify the profitability associated with various levels of activity.
The course starts with a discussion of contribution margin and how to calculate the break-even point in units and revenue. Determining units and revenue to achieve target operating and target net income is reviewed, followed by how to use CVP analysis for multiple products and services. The use of sensitivity analysis and CVP is reviewed, followed by a discussion of how variable and fixed costs fluctuate as output changes and how variable, fixed, and total costs change over the short and long run.
The course content covers cost volume profit topics tested in the Certified Management Accountant (CMA) Part 2 examination.
Topics include:
- Contribution margin.
- Contribution margin ratio.
- Break-even analysis.
- Using cost volume profit (CVP) to determine target operating and net income.
- Margin of safety
- Using CVP with multiple products or services
- Cost volume profit sensitivity analysis.
- The relevant range for variable and fixed costs.
- Cost behavior over the short and long run.
Course Key Contents: Contribution margin, contribution margin (per unit), contribution margin (total), contribution margin ratio, break-even point, break-even units, break-even revenue, target net income, target operating income, relevant range, economies of scale, cost behavior, margin of safety, margin of safety ratio, sales mix, sensitivity analysis, cost volume profit, CVP.
Learning Objectives
- Identify the differences between gross margin and contribution margin.
- Explore how to calculate contribution margin and contribution margin ratio.
- Explore how to calculate the break-even point in units and revenue.
- Recognize how fixed and variable costs change with respect to levels of output.
- Explore how to use Cost Volume Profit (CVP) analysis to calculate units and dollars needed to achieve target operating income and target net income.
- Explore how to develop a sales mix, and use CVP analysis to analyze the impact of changes in sales mix.
- Explore how to perform CVP sensitivity analysis for changes in unit prices, variable costs, and fixed costs.
- Explore how to calculate margin of safety and margin of safety %.
- Identify the relationships of total revenues and total costs with respect to output within a relevant range.
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Prerequisites
- No advanced preparation or prerequisites are required for this course.
Education Provider Information
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