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Management Accounting (ACCT603) Week 5 Lecture 5 Notes

Sandra Watson
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Auckland University of Technology

Management Accounting (ACCT603)

Week 5 Lecture 5 (Textbook + Lecture Slides) Notes

Week 5 Lecture 5 – Chapter 5: Cost-Volume-Profit Analysis
Basics of Cost-Volume-Profit (CVP) Analysis
Bob Luchinni’s preparation for his forthcoming meeting with Prem begins with the
contribution income statement
 The contribution income statement emphasizes the behaviour of costs and therefore
is extremely helpful to managers in judging the impact on profits of changes in selling
price, cost, or volume. Bob will base his analysis on the following contribution income
statement he prepared last month:
Notice that sales, variable expenses, and contribution margin are expressed on a per unit
basis as well as in total on this contribution income statement.
 The per unit figures will be very helpful to Bob in some of his calculations.
 Note that this contribution income statement has been prepared for management’s
use inside the company and would not ordinarily be made available to those outside
the company.
Contribution Margin
Contribution margin is the amount remaining from sales revenue after variable expenses
have been deducted
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 Thus, it is the amount available to cover fixed expenses and then to provide profits
for the period. Notice the sequence here – contribution m



Management Accounting (ACCT603) Week 5 Lecture 5  Notes

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