Managerial Acct Chapter 5

Margin of safety in dollars

Total budgeted (or actual) sales − Break-even sales

Total contribution margin equals

fixed expenses plus net operating income

Profit

(Contribution margin ratio × Sales) − Fixed expenses

Unit sales to attain a target profit

(Target profit + Fixed expenses) ÷ Unit contribution margin

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was

53% ($100,170/189,00)

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals

564,000 + 800,000 / 0.62 =

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is

90 - 35 = 55

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is

982,000 - 932,200 = 49,800

Contribution margin ratio

Contribution margin ÷ Sales

Dollar sales to break even

Fixed expenses ÷ Contribution margin ratio

Margin of safety percentage

Margin of safety in dollars ÷ Total budgeted (or actual) sales

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales Variable expenses

Selling price per unit

Sales ÷ Quantity sold

Contribution margin

Sales − Variable expenses

Unit contribution margin

Selling price per unit − Variable expenses per unit

Total Contribution Margin

Unit contribution margin × Quantity sold

Variable expenses per unit

Variable expenses ÷ Quantity sold