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Chapter Summary

Section 19.1: Calculate a Break-Even Point in Units and Dollars​

  • Costs behave as variable, fixed, or mixed
  • Variable costs change with volume; fixed costs remain constant
  • Contribution margin = Selling price - Variable cost
  • Break-even point is where revenue equals total costs
  • Break-even (units) = Fixed costs ÷ Contribution margin per unit
  • Break-even (dollars) = Fixed costs ÷ Contribution margin ratio
  • Margin of safety shows how much sales can drop before loss

Section 19.2: Apply Cost-Volume-Profit Analysis for Single-Product Companies​

  • CVP analysis helps with decision-making
  • CVP income statement shows contribution format
  • What-if analysis evaluates different scenarios
  • Operating leverage measures sensitivity to volume changes
  • High operating leverage = high risk, high reward
  • Tax considerations affect target profit calculations

Section 19.3: Apply Cost-Volume-Profit Analysis for Multiple-Product and Service Companies​

  • Sales mix is the proportion of different products sold
  • Weighted average contribution margin accounts for sales mix
  • Break-even analysis requires considering sales mix
  • Changes in sales mix affect break-even point
  • Service companies can use CVP analysis
  • Different VAT rates may apply to different products

Section 19.4: Explain and Use Variable Costing and Absorption Costing​

  • Variable costing includes only variable manufacturing costs
  • Absorption costing includes all manufacturing costs
  • Net income differs when production ≠ sales
  • Variable costing better for internal decisions
  • Absorption costing required for external reporting
  • Both methods have their uses

Section 19.5: Luxembourg SME Break-Even Analysis​

  • VAT must be handled consistently in analysis
  • Luxembourg has high operating costs
  • Social charges are significant
  • Break-even points may be higher than other countries
  • Consider all Luxembourg-specific costs
  • Use appropriate tools and professional help

Section 19.6: Luxembourg Cost Structure Examples​

  • Different industries have different cost structures
  • Retail: High variable costs (COGS)
  • Service: High labor costs
  • Manufacturing: Mix of fixed and variable
  • Strategies to improve cost structure
  • Regular review and update needed