Responsibility Accounting System Q Responsibility accounting budgets d are prepared prior to each accounting period Q Responsibility accounting performance reports n compare actual costs and expenses to budgeted amounts Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
11 Responsibility Accounting System ⧫Responsibility accounting budgets are prepared prior to each accounting period ⧫Responsibility accounting performance reports compare actual costs and expenses to budgeted amounts
Cost-Volume-Profit Analysis(CVP) A CVP analysis is used to answer: o How much must I sell to earn my desired Income n How will income be affected if I reduce selling prices to increase sales volume n How will income be affected if I change the sales mix of my products Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 12
12 Cost-Volume-Profit Analysis (CVP) ⧫CVP analysis is used to answer: How much must I sell to earn my desired income? How will income be affected if I reduce selling prices to increase sales volume? How will income be affected if I change the sales mix of my products? ……?
Assumptions of CVP Analysis O CVP analysis assumes relations can be expressed as straight lines within the relevant range n Unit selling price remains constant. D Unit variable costs remain constant n Total fixed cost remain constant Q If the expected cost and revenue behaviour is different from the assumptions, then the results of CVP analysis are of limited use. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 13
13 Assumptions of CVP Analysis ⧫CVP analysis assumes relations can be expressed as straight lines within the relevant range. Unit selling price remains constant. Unit variable costs remain constant. Total fixed cost remain constant. ⧫ If the expected cost and revenue behaviour is different from the assumptions, then the results of CVP analysis are of limited use
Scatter Diagram Unit Variable Cost Slope Change in cost Change in units 20 大 大 Vertical distance is the 10 change in cost Horizontal distance is the change in activity 0 2 34 Activity, 1,000s of Units Produced Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 14
14 Scatter Diagram Vertical distance is the change in cost. Horizontal distance is the change in activity. 0 1 2 3 4 * Total Cost in 1,000’s of Dollars 10 20 0 * * * * * * * * * Activity, 1,000’s of Units Produced Unit Variable Cost = Slope = Change in cost Change in units
High- Low Meth。d Unit Variable Cost = 30-20 = $2.50unit 5-1 G30 Vertical 大 distance 20 is the change Horizontal distance is 10 in cost the change in activity (5-1) (30-20) 0 01 2 34 5 Activity 1,000s of Units Sold Task Team of fundamentalaccounting Business sehool. Sun Yaf sen University 15
15 High-Low Method 0 1 2 3 4 5 * Total Cost in 1,000’s of Dollars 10 20 0 * * * * * * * * * Activity, 1,000’s of Units Sold 30 Vertical distance is the change in cost. (30 - 20) Horizontal distance is the change in activity. (5 - 1) Unit Variable Cost = 30 - 20 5 - 1 = $2.50/unit