Accounting Chapter 18
required sales in dollars equation
(fixed costs + target net income) / contribution margin ratio = required sales in dollars
required sales in units equation
(fixed costs + target net income) / unit contribution margin= required sales in units
changes in _____ are the only factors that affect costs
activity
margin of safety in dollars equation
actual (expected) sales - break even sales
target net income
an income objective set by managers
mixed costs
change in total but not proportionately with changes in activity level.
at break even point, _____ = fixed costs
contribution margin
fixed costs
costs that remain the same in total regardless of changes in the activity leel
variable costs
costs that vary in total directly and proportionately with changes in the activity level.
examples of fixed costs
depreciation, propety taxes, insurance and rent
examples of variable costs
direct materials; direct labor
break even point in units
fixed costs / unit contribution margin = bep units
break even point in dollars
fixed costs/ contribution margin ration = bep ratio
break even analysis
total revenue = total cost
fixed cost per unit cost vary ________ with activity.
inversely as volumes increases, unit cost ______ and vice versa
margin of safety
is the difference between actual or expected sales and sales at the break even point.
margin of safety ratio
margin of safety in dollars / actual (expected sales
target net income equation
required sales-variable costs- fixed costs= target net income
break even equation
required sales-variable costs-fixed costs=net income
CVP income statement equation
sales-variable cost= contribution margin CM-fixed costs=net income *for internal use only
variable costs remain the ____ at every level of activity
same per unit
CVP Analysis
the study of the effects of changes in coast and volume on a companys profit. critical factor in settling: selling prices, determining product mix and maximizing use of production facilities
contribution margin ratio
unit cost margin/unit selling price