Chapter 3

Breakeven Point in Units

-At the breakeven point, the total contribution margin equals total fixed expenses. Total Fixed Expenses/Contribution Margin Per Unit

Margin of Safety

-The difference between current sales and breakeven sales. -It represents the volume of sales that can be lost before the company begins to lose money and can be measured in units or sales dollars.

Breakeven Graph

A graphical representation that shows the intersection of the total revenue line and the total cost line at the sales volume where the company breakseven

Margin of Safety in Units

Current Sales - Breakeven point in Units (Current Sales = Sales/Sales Price)

Breakeven Point in Dollars

If we know the breakeven point in units, we can simply multiply it by the sales price per unit, OR we can use this formula: Total Fixed Expenses/Contribution Margin Ratio (Contribution Margin Ratio = Contribution Margin Per Unit/Sales Price Per Unit)

Margin of Safety in Dollars

Sales - Breakeven Point in Dollars

Break Even Point

When sales volume or sales revenue is exactly equal to total expenses, and there is no profit or loss. To find breakeven point, set the profit equation to zero, and solve for x: Sales Revenue - Variable Expenses - Fixed Expenses = 0 (SPx - VCx - FC = $0)