Simple Cost Volume Profit Problem

This video walks through a typical CVP problem, looking at the fixed costs and variable costs for a fictional barbershop.

[pathosolives]

thank you for the video. The variable costs per unit, it includes the variable costs such as distribution costs + the cost of the actual products, or just the distribution cost. So we get to the contribution margin.

[russelljacobus]

Good question. Distribution costs are considered "period" costs and pursuant to FASB can't be included in the cost of the product. So they would be treated as variable Selling, General and Administrative expenses and subtracted from Contribution Margin, but not included in our cost per unit. However, if we are using Activity Based Costing (only allowed for internal purposes) we could include distribution costs to get an idea of the true cost of our products. But generally, distribution costs are not included in the unit cost. Hope that helps!