Cost Volume Profit - Lesson 2

Описание: In the video, (4.08) Cost Volume Profit - Lesson 2, Roger Philipp, CPA, CGMA, shows how to calculate the breakeven point. As Roger states in the video, "Is breaking even gonna get you friends, dates and fun weekends? I don’t think so.”

On the whiteboard Roger works through the formulas explained in Cost Volume Profit Lesson 1, but uses them to find the sales dollars (or units sold) required to achieve a given amount of profit (or loss). Roger briefly reviews Cost Volume Profit analysis and its use by management to make profitability estimates at all levels of production within the relevant range as part of the decision-making process regarding new products or services. Roger then defines the margin of safety, which is the difference or ‘cushion’ between total sales and breakeven sales. This difference is also described as the excess of sales volume over breakeven point.

Finally, Roger reviews the following breakeven analysis and cost volume profit analysis formulas:

• Breakeven in sales units is fixed costs over contribution margin per unit
• Fixed costs + desired profit over contribution margin per unit yields unit sales needed for desired profit
• Fixed costs – loss over contribution margin per unit yields unit sales at given loss

To find sales dollars, the denominator will be in non-dollars so the breakeven point in dollars is fixed costs over the contribution margin ratio.

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Video Transcript Sneak Peek:

Now, in life, do we really want to break even? As I said, is breaking even going to get you friends, dates, and fun weekends? I don't think so. Let's do the same example, but now I want to make a profit of 20,000 bucks. If I want to make a profit of $20,000, then working through the formula, sales price, that's sales price times x, total revenue equals total costs. Or total revenue equals, yeah, total cost. So that's breakeven.

But now, total revenue equals total cost plus profit. So this plus profit. Or, in the numerator top, I'm going to add plus profit, or minus loss. Why do I say minus loss? Because they have asked questions, how much do you have to sell to only lose $20,000? So it's plus profit or minus loss in the numerator.