Cost Volume Profit Analysis
Break Even Point: -
o Where Contribution = Fixed Costs in Marginal Costing.
o Break Even Point (in units) = Fixed Cost/Contribution per unit.
o Level of Activity = (Required Profit + Fixed Cost) / Contribution per unit.
o Margin of Safety = Budgeted Level – Break Even Level of Activity.
o Margin of Safety % = Margin of Safety / Budgeted Sales Actual * 100.
o Break Even Point in Sales Revenue = Fixed Cost / C/S Ratio.
o Sales Revenue Required to earn a target profit = (Required Profit + Fixed Costs)/ C/S
Ratio.
Management Information Systems & Data Analytics
1. Operational
Programming decisions with specific inputs & outputs. Transactions Processing Systems (TPS)
used.
2. Tactical
Use variety of data from different sources – emphasis on exception reporting. Management
Information System (MIS) used.
3. Strategic
Varied information needs – sometimes difficult to predict. MIS & Executive Information
Systems (EIS) used.
Transaction Processing System (TPS)
A TPS Records all the daily transactions of the organisation & summarises them so that they
can be reported on a routine basis. They are mainly used by operational managers to make
basic decisions.
Decision Support Systems (DSS)
A DSS is a computer system that helps decision makers deal with semi – or unstructured
decisions, where there is high degree of uncertainty, or unknown factors that may affect the
decision.
The DSS draws on both internal information about the organisation (from the TPS) and
external information (about the market, economic growth, etc).
A DSS will be tailor made to the requirements of the organisation.
Executive Information Systems (EIS)
These systems provide strategic managers with flexible access to information from the entire
business, as well as relevant information from the external environment.
The EIS enables senior management to easily model the entire business by turning its data
into useful summarised reports. This information can then easily be distributed to key staff
members.
Planning with Limiting Factors
If there is one limiting factor, then the problem is best solved using key factor analysis: Step 1:
identify the scarce resource. Step 2: calculate the contribution per unit for each product. Step 3:
calculate the contribution per unit of the scarce resource for each product. Step 4: rank the products
in order of the contribution per unit of the scarce resource. Step 5: allocate resources using this
ranking and answer the question. If there is one limiting factor, then the problem is best solved using
key factor analysis: Step 1: identify the scarce resource. Step 2: calculate the contribution per unit for
each product. Step 3: calculate the contribution per unit of the scarce resource for each product.
Step 4: rank the products in order of the contribution per unit of the scarce resource. Step 5: allocate
resources using this ranking and answer the question.
Variances
Fixed overhead variances
Total fixed overheads variance
Marginal costing system
With a marginal costing system, no overheads are absorbed, the amount spent
is simply written off to the Statement of Profit or Loss.
So with marginal costing the only fixed overhead variance is the difference
between what was budgeted to be spent and what was actually spent, i.e. the
fixed overhead expenditure variance.
Absorption costing system
Under absorption costing we use an overhead absorption rate to absorb
overheads. Variances will occur if this absorption rate is incorrect (just as we
will get over/under-absorption).
So with absorption costing we calculate the fixed overhead expenditure
variance and the fixed overhead volume variance.