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MANAGERIAL
ACCOUNTING
By: Edelwin Fajutagana
INTENDED LEARNING OUTCOME:

At the end of the topic, the student will be able to:

• Understand the different concept in Managerial Accounting;
• Identify the Cost Behavior; and
• Understand the Cost Volume Profit Analysis
Definition:
Management - the process of planning, organizing, and
controlling tasks to realize the objectives of an organization.

The functions of management are as follows:

Planning
Planning involves:
• Setting immediate and long-term objectives
• Deciding which alternative is best suited to attain the set
objectives
Management Accounting
Definition:
The functions of management are as follows:
Organizing
Organizing involves:
• Tackling activities necessary to achieve objectives such as staffing,
subordinating, directing and motivating
• Deciding how to utilize available resources as plans are carried out
Controlling
Controlling involves:
• Comparing actual performance with set plans or standards
• Deciding what corrective actions to take should there be any deviation
between actual and planned performance
Management Accounting
Management Accounting and Financial Accounting:
• Management accounting is the application of appropriate
techniques and concepts in processing historical and
projected economic data of an entity to assist management
in establishing a plan to meet economic objectives and in
making rational decisions with a view toward achieving
these objectives. (American Association of Accountants)
• Financial accounting is primarily concerned with
producing financial statements for external users, including
investors and creditors.

Management Accounting
 Management Accounting and Financial Accounting:
The following are the differences between management accounting and financial
accounting:

Management Accounting
Cost Behavior

Management Accounting
 Cost Behavior

Definition of Cost Behavior

Cost behavior is the indicator of how a cost will change in total when there is
any change in some activity. In cost accounting and managerial accounting,
three types of cost behavior are usually discussed:
• Variable costs. The total amount in variable cost increases with proportion to
the increase in an activity. The total amount of a variable cost on the other
hand, will decrease in proportion to the decrease in an activity.
• Fixed costs. The total amount of a fixed cost will not vary when an activity
increases or decreases.
• Mixed or semi-variable costs. These costs are partly fixed and partly
variable.

Management Accounting
 Cost Behavior

Fixed Costs
• Fixed costs remain the same as volume changes within the relevant range
• Fixed costs per units changes and varies inversely to change in activity
• Fixed costs are constant in "total" as activity changes

Management Accounting
 Cost Behavior

Variable Costs
• Costs that change is in direct proportional with a change in the volume within the relevant
range
• Variable costs change in "total" as activity changes.
• Variable costs per unit remain the same when activity changes within the relevant range

Management Accounting
 Cost Behavior

Semi-variable Costs
• Costs that have both fixed and at the same time have variable components
• Also known as mixed costs

Management Accounting
COST VOLUME PROFIT
ANALYSIS

Cost Volume Profit Analysis

Cost Volume Analysis:

Cost-volume profit analysis is an essential tool used to direct

managerial, financial and investment decisions.
The main objective of the cost-volume-profit analysis is to help
management making important decisions revealing the
interrelationship among the volume of the output and sales, cost and
profit.
In other words, cost-volume-profit analysis is an important tool in
which the management can have an insight into the effects on profit
due to variations in the cost and volume of sales for taking necessary
decisions.

Cost Volume Profit Analysis

Cost Volume Analysis:

What is Cost-Volume Profit Analysis???

SCENARIO!!!!

Variable costing
COST BEHAVIOR:
- FIXED COST
Sales XXX
- VARIABLE COST
Less: Variable Cost XXX
- SEMI-VARIABLE COST
Contribution Margin XXX
Less: Fixed Cost XXX
Net Income XXX

Cost Volume Profit Analysis

Format for preparation of Income Statement
Pro-Format Income Statement Pro-Format Income Statement
(Financial Reporting) (Financial Reporting)

Sales XXX
Less: Cost of goods sold XXX Sales XXX
Gross Profit XXX Less: Variable Cost XXX
Less: Selling, general and Contribution Margin XXX
administrative fee XXX Less: Fixed Cost XXX
Net Income XXX Net Income XXX

Absorption and Variable Costing

Cost Volume Analysis:

CVP analysis looks at the effect of sales volume variations on the costs and the
operating profit. The analysis is based on the classification of expenses as:
• variable (those that vary in direct proportion to sales volume) or
• fixed (those that remain unchanged over the long term, irrespective of the
sales volume)
Accordingly, operating income is defined as given:
Operating Income = Sales – Variable Costs – Fixed Costs
A CVP analysis is used to identify the sales volume required to achieve a
specified profit level. Therefore, the analysis shows the break-even
point where the sales volume yields a net operating income of zero and the
sales cutoff amount that generates the first pesos of profit.

Cost Volume Profit Analysis

Break-Even Point (BEP)

A company break-even for a given period when sales revenue and

costs incurred during that period are the same. Hence, the break-
even point is that level of operations at which there is no realized
income or loss.

TOTAL REVENUE = TOTAL COST

TOTAL COST = FIXED COST + VARIABLE COST

Cost Volume Profit Analysis

Break-Even Point (BEP)
This analysis is usually presented on a break-even chart. It helps us to
understand the behavior of profits in relation to its output. Also, among other
things, is significant in planning the financial structure of a company.

Cost Volume Profit Analysis

Break-Even Point (BEP)
It is important to understand that all costs are not created the same. Some are
fixed, and some varies. 
• Fixed Costs are expenses that are not dependent on the amount of goods or
services produced by the organization. They are things such as salaries or
utilities paid per month. If you own a house, then your house payment and
insurance premiums are fixed costs because you pay them per month
whether you stay or not.
• Variable Costs are volume that you paid per quantity or unit produced. For
your car, your variable costs are things like maintenance, gas, or tires
because you only incur these costs when you drive your own car. The more
miles you drive, the more you incur expenses for your gas —such costs
vary with the level of activity. 

Cost Volume Profit Analysis

 Break-Even Point (BEP)
The break-even sales (or break-even point) can be computed using
these methods:
• Contribution margin method or formula approach
BEP in units = Total Fixed Costs / CM per unit
BEP in pesos = Total Fixed Cost / CM ratio 

• Equation method or algebraic equation

BEP = Sales - Variable Costs - Fixed Costs 

Cost Volume Profit Analysis

Break-Even Point (BEP)
Example
Rapid Swab, Inc. is a sports footwear startup which currently sells just one shoe brand, A. The
sales price is P80.00, variable costs per unit is P50.00 and fixed costs are P2,400,000.00 per
annum (25% of the which are manufacturing overhead costs). During financial year 2019, the
company sold 200,000 units. Compute the company’s contribution margin for the period and
compute its breakeven point in both units and peso.
Solution

Sales P 80.00
Variable Cost P 50.00
Contribution Margin P 30.00

Contribution margin in Peso: (P30.00 x 200,000) = P6,000,000

Cost Volume Profit Analysis

Break-Even Point (BEP)
Contribution margin method or formula approach
BEP in units = Total Fixed Costs / CM per unit
BEP in pesos = Total Fixed Cost / CM ratio 

BEP in units = 2,400,000/ P30/unit

= 80,000 units

BEP in pesos = 2,400,000 / (30/80)

= P 6,400,000

Cost Volume Profit Analysis

 Break-Even Point (BEP)
Desired Profit After Tax
The profit figure in the formulas for above is understood to be profit before tax. In this case, the
desired after-tax profit should be converted to profit before tax. To do so, the tax rate must be
known. Since this tax rate is based on profit before tax (which is now represented by 100%), then
profit after tax is equal to 100% - Tax Rate. The after tax profit can therefore be converted to
profit before tax by dividing the former by 100% - Tax Rate. This may arrive on below formula:

Cost Volume Profit Analysis

 Break-Even Point (BEP)
During March, Adam’s company had sales of P5,000,000 variable costs of P3,000,000 and fixed
costs of P1,500,000 for product M. Assume that cost behavior and unit selling price remain
unchanged during April. In order for Adams to realize operating income of P300,000 from
product M for April after tax of 25%, sales would have to be?

Answer:
Sales 5,000,000
VC 3,000,000 100% 4,750,000
CM 2,000,000 60% 2,850,000
40% 1,900,000
1,500,000
Less: Tax of 25% 400,000
(100,000)
300,000
BEP sales = [P1,500,000 + (P300,000/100%-30%) / 40%
= P 4,750,000
Cost Volume Profit Analysis
 Break-Even Point (BEP)
During March, Adam’s company had sales of P5,000,000 variable costs of P3,000,000 and fixed
costs of P1,500,000 for product M. Assume that cost behavior and unit selling price remain
unchanged during April. In order for Adams to realize operating income of P300,000 from
product M for April, sales would have to be?

Answer:
Sales 5,000,000
100% 4,500,000
VC 3,000,000
60% 2,700,000
CM 2,000,000
40% 1,800,000
1,500,000

BEP sales = (P1,500,000 + P300,000) / 40%300,000

= P 4,500,000

Cost Volume Profit Analysis

Break-Even Point (BEP)
Example:
Calculate the break-even point in units and in sales dollars when sales price per
unit is P35, variable cost per unit is P28 and total fixed cost is P7,000.

Solution:
Contribution Margin (CM) per Unit = ( P35 − P28 ) = P7
Contribution Margin Ratio (CMR) = P7 ÷ P35 = 20%
Break-even Point (BEP) in Units = P7,000 ÷ P7 = 1,000
Break-even Point (BEP) in Sales Pesos = 1,000 × P35 or P7,000 ÷ 20% = P35,000

Cost Volume Profit Analysis

END
“To persist with a goal, you must treasure
the dream more than the costs of sacrifice
to attain it.”
― Richelle E. Goodrich
Thank you
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