Accounting Chapter 19

weighted average unit contribution marign

(Product 1 unit contribution margin x sales mix percentage) + (Product 2 unit contribution margin x sales mix percentage) =

weighted average contribution margin ratio

(product one contribution margin ratio x sales mix percentage) + (product two contribution margin ratio x sales mix percentage) =

lower break even point in dollars

An increase in sales for a division with a higher contribution ratio results in a higher weighted average contribution ratio and consequently a ______________________.

will be greater

At any level of units sold, net income___________________if higher contribution margin units are sold, rather than lower contribution margins.

weighted average

Companies can compute break even sales for a mix of two or more products by determining the ___________________ unit contribution margin of all the products.

total contribution margin per division

Contribution margin per unit of limited resource x limited resource amount =

total dollar sales

For companies with larger product lines compute sales mix as a percentage of ________________(rather than units sold). Also compute the contribution margin ratio(rather than contribution margin in units).

amount of contributed sales

For each division, multiply the sales mix percentage of each by total sales. This tells you how much of the total break even sales comes from each division.

dollars

Since the weighted average is hard to calculate for companies with many types of products they will instead calculate break even point in terms of __________ rather than units, by using sales information for divisions or product lines(rather than individual products).

Sales mix

The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. If 80% of HP's unit sales are printers and the other 20% are PCs.

decline

a shift from low margin sales to high margin sales may increase net income even though there is a _________ in total units sold.

margin of safety ratio

actual sales - break even sales / actual sales

degree of operating leverage

contribution margin / net income =

contribution margin per unit of limited resource

contribution margin per unit / limited resource (ex. machine hrs.) =

operating leverage

extent to which a company's net income reacts to a given change in sales. Companies with higher fixed costs relative to variable costs have higher ______________________. good when profits are increasing rapidly, bad when profits are low(volatility risk).

Break even in point in units

fixed Costs / weighted average unit contribution margin =

break even point in dollars

fixed costs / weighted average contribution margin ratio =

cost structure

how a company uses variable costs versus fixed costs to perform its operations is called __________________and has a significant impact on profitability.

theory of constraints

is a approach to identify and manage company constraints in order to achieve company's goals by reducing or eliminating them where appropriate.

contribution margin ratio

total contribution margin / total sales =