- Cost/volume/profit analysis
a. Breakeven analysis
b. Profit performance and alternative operating levels
c. Analysis of multiple products - Marginal analysis
a. Sunk costs, opportunity costs, and other related concepts
b. Marginal costs and marginal revenue
c. Special orders and pricing
d. Make vs. buy
e. Sell or process further
f. Add or drop a segment
g. Capacity considerations - Pricing
a. Pricing methodologies
b. Target costing
c. Price elasticity of demand
d. Product life-cycle considerations
e. Market structure considerations
Part 2 – Section C.1. Cost/volume/profit analysis
The candidate should be able to:
- a. demonstrate an understanding of how cost/volume/profit (CVP) analysis (breakeven analysis) is used to examine the behavior of total revenues, total costs, and operating income as changes occur in output levels, selling prices, variable costs per unit, or fixed costs
- b. calculate operating income at different operating levels
- c. differentiate between costs that are fixed and costs that are variable with respect to levels of output
- d. explain why the classification of fixed vs. variable costs is affected by the time frame being considered
- e. calculate contribution margin per unit and total contribution margin
- f. calculate the breakeven point in units and dollar sales to achieve targeted operating income or targeted net income
- g. demonstrate an understanding of how changes in unit sales mix affect operating income in multiple-product situations
- h. calculate multiple-product breakeven points given percentage share of sales and explain why there is no unique breakeven point in multiple-product situations
- i. define, calculate, and interpret the margin of safety and the margin of safety ratio
- j. explain how sensitivity analysis can be used in CVP analysis when there is uncertainty about sales
- k. analyze and recommend a course of action using CVP analysis
- l. demonstrate an understanding of the impact of income taxes on CVP analysis
Part 2 – Section C.2. Marginal analysis
The candidate should be able to:
- a. identify and define relevant costs (incremental, marginal, or differential costs), sunk costs, avoidable costs, explicit and implicit costs, split-off point, joint production costs, separable processing costs, and relevant revenues
- b. explain why sunk costs are not relevant in the decision-making process
- c. demonstrate an understanding of and calculate opportunity costs
- d. calculate relevant costs given a numerical scenario
- e. define and calculate marginal cost and marginal revenue
- f. identify and calculate total cost, average fixed cost, average variable cost, and average total cost
- g. demonstrate proficiency in the use of marginal analysis for decisions
- h. calculate the effect on operating income of a decision to accept or reject a special order when there is idle capacity and the order has no long-term implications
- i. identify and describe qualitative factors in make-or-buy decisions, such as product quality and dependability of suppliers
- j. calculate the effect on operating income of a make-or-buy decision
- k. calculate the effects on operating income of a decision to sell or process further or to drop or add a segment
- l. identify the effects of changes in capacity on production decisions
- m. demonstrate an understanding of the impact of income taxes on marginal analysis
- n. recommend a course of action using marginal analysis
Part 2 – Section C.3. Pricing
The candidate should be able to:
- a. identify different pricing methodologies, including market comparables, costbased, and value-based approaches
- b. differentiate between a cost-based approach and a market-based approach to setting prices
- c. calculate selling price using a cost-based approach
- d. demonstrate an understanding of how a company’s pricing of a product or service is affected by the demand for and supply of the product or service, as well as the market structure within which the company operates
- e. demonstrate an understanding of the impact of cartels on pricing
- f. demonstrate an understanding of the short-term equilibrium price for the company in (i) pure competition, (ii) monopolistic competition, (iii) oligopoly, and (iv) monopoly using the concepts of marginal revenue and marginal cost
- g. identify techniques used to set prices based on understanding customers’ perceptions of value and competitors’ technologies, products, and costs
- h. define and demonstrate an understanding of target pricing and target costing, and identify the main steps in developing target prices and target costs
- i. define value engineering
- j. calculate the target operating income per unit and target cost per unit
- k. define and distinguish between a value-added cost and a nonvalue-added cost
- l. define the pricing technique of cost plus target rate of return
- m. calculate the price elasticity of demand using the midpoint formula
- n. define and explain elastic and inelastic demand
- o. estimate total revenue given changes in prices and demand as well as elasticity
- p. discuss how pricing decisions can differ in the short term and in the long term
- q. define product life cycle, identify and explain the four stages of the product life cycle, and explain why pricing decisions might differ over the life of a product
- r. evaluate and recommend pricing strategies under specific market conditions