CVP Analysis Using Published Financial Statements

Condensed data in millions of dollars from Microsofts 2019 and 2018 income statements follow:

2019 2018

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,843 $110,360

Total cost of revenues and operating expenses . . . . . . . . . . . . . . . . 82,884 75,302

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,959 $ 35,058

REQUIRED

a. Develop a cost-estimation equation for Microsofts annual cost of revenues and operating expenses using revenues as the activity.

b. Determine Microsofts annual break-even point.

c. Predict operating profit for 2020, assuming 2020 sales of $150,000 million.

d. Identify the assumptions required to use the equations and amounts computed above.