中央财经大学会计专业英语教程Chapter 8.ppt

Profit-Volume Charts A slight variant of the break-even chart is the profit-volume (PV) chart. A typical PV chart is shown in Illustration 8-8. O Volume of Activity (units of output) LOSS (￡) The sloping line is profit (loss) plotted against activity. As activity increases, so does total contribution (sales revenue less variable costs). At zero activity there are no contributions, so there will be a loss equal in amount to the total fixed costs. Break-even point LOSS PROFIT Fixed costs Illustration 8-8. Profit-Volume Chart Marginal Analysis and Decision For many decisions that involve:1.Relatively small variations from existing practice, and/or2.Relatively limited periods of time,Fixed costs are not relevant to the decision , becausethey will be the same regardless of the decision made.This is because:1. Fixed costs tent to be impossible to alter in the short term, or2. Managers are reluctant to alter in the short term. In marginal analysis we concern ourselves with only costs and revenues hat vary with the decision, so this usually means that fixed costs are ignored. Marginal analysis is the additional cost of producing one more unit of output. Marginal Analysis and Decision Marginal analysis may be used in four key areas of decision-making: Accepting or rejecting special contracts, Determining the most efficient use of scarce resources, Making-or-buying decisions, and Closing or continuation decisions Marginal Analysis and Decision Accepting/Rejecting special Contracts Example 8.5 In the case of Cottage Industries Ltd.’s decision on the overseas customer, these factors could include the following: There might be another potential customer who will offer a high price Selling the same product, but at a different price, could lead to a loss of customer goodwill It might be better, in the long run, to reduce capacity and make fixed cost savings. On a more positive note, the business may see this as a way of breaking into the overseas market. Accepting/Rejecti