BUS108 Ch 3

Assume a sales price per unit of $20, variable cost per unit $16, and total fixed costs of $168,000. What is the breakeven point? A. $10,500 B. 42,000 units C. 10,500 units D. $42,000

B. 42,000 units

Which of the following formulas is used to calculate the breakeven point in sales dollars? -Total fixed costs divided by total contribution margin. -None of these formulas calculates the breakeven point in sales dollars. -Total fixed costs divided by contribution margin ratio. -Total fixed costs divided by contribution margin per unit.

Total fixed costs divided by contribution margin ratio.

Variable Cost per Unit

VE/amount of units sold

Breakeven in units

FC / (CM/unit)

Breakeven in sales $

FC / CMR

At the breakeven point -operating income equals total sales. -sales revenue equals total costs. -operating income equals total costs. -sales revenue equals zero.

sales revenue equals total costs.

Cost Behavior

the way total cost changes in response to changes in the level of activity

Breakeven definition

when sales revenue = total expenses no profit loss

Breakeven short

(CM/unit x units sold) - FC = $0

Target Income Eqn

(FC + target income) / (cm/unit) *use CMR preferrably

Breakeven long

(SP x units sold) - (VC x units sold) - FC = $0 [(SP - VC) x (units sold)] - FC = $0

Variable Cost Ratio

1-CMR

If a product's variable cost per unit increases while the selling price and fixed costs remain constant, what will happen to the breakeven point? A. It will increase. B. It will decrease. C. It will remain the same. D. It may increase or decrease, depending on how much the variable cost per unit changes.

A. It will increase.

Which of the following formulas is used to calculate the breakeven point in sales dollars? A. Total fixed costs divided by contribution margin ratio. B. None of these formulas calculates the breakeven point in sales dollars. C. Total fixed costs divided by contribution margin per unit. D. Total fixed costs divided by total contribution margin.

A. Total fixed costs divided by contribution margin ratio.

At the breakeven point, which of the following is not true? A. Operating income equals zero. B. Contribution margin is equal to total variable costs. C. Sales revenue is equal to total costs. D. Contribution margin is equal to total fixed costs.

B. Contribution margin is equal to total variable costs.

Target Income

How much do i have to sell to make $$ amount

Contribution Margin Ratio

Contribution Margin / Sale Price

At the breakeven point, which of the following is not true? -Operating income equals zero. -Contribution margin is equal to total fixed costs. -Sales revenue is equal to total costs. -Contribution margin is equal to total variable costs.

Contribution margin is equal to total variable costs.

Calculating Price using Markup %

Cost + (Cost x Markup %) = Price

Calculating Price Using Markup %

Cost+(Cost x Markup%)= Price

Margin in Safety

Current Sales - Breakeven Sales If current sales are above breakeven sales you're good!

At the breakeven point A. operating income equals total sales. B. operating income equals total costs. C. sales revenue equals zero. D. sales revenue equals total costs.

D. sales revenue equals total costs.

If a product's variable cost per unit increases while the selling price and fixed costs remain constant, what will happen to the breakeven point?

It will increase.

Cost-Plus Pricing

Product Cost + Markup ----------------------- =Sales Price

Cost Plus Pricing

Product Cost + Markup = Sales Price

Operating Income

SP(x)-VC(x)-FC

Contribution Margin per Unit

Sale Price-Variable Cost

Sales Volume

Sale Revenue/Sale Price

Tax Income Eqn

Total FC + (Target net income / (1 - tax rate)) / (CM/unit)

Required Sales Volume

Total FC + Target Net Income ____________________________ 1 - tax rate ---------------------------------- CM/Unit

If CM decreases what happens to the breakeven point

increases b/c you have to account for more sales in order to cover fixed expenses