ch 5
becomes a profit after fixed expenses are covered
contribution margin
net operating income
contribution margin - fixed expenses
contribution margin ratio formula
contribution margin per unit / selling price per unit
CVP analysis allow companies to easily identify the change in profit due to changes in
cost, volume, selling price
breakeven point
fixed costs/(price-variable costs)
the amount by which sales can drop before losses are incurred is the
margin of safety
contribution margin format income statement
sales variable expenses contribution margin fixed expenses net income
profit
(selling price per unit x quantity sold)-(variable expense per unit x quantity sold)-fixed expenses contribution margin x sales volume - total fixed costs
variable expense per chair is 85.05, chairs sell for 189.00. whats variable expense ratio
45%
sales total $500,000, fixed cost $300,000, CM ratio 68% Profit???
500,000 x .68 - 300,000
margin of safety
actual sales - break even sales cm/net operating income
to simplify CVP calculations, what remains constant?
selling price
832000 in sales, 265000 in fixed expenses. Contribution margin ratio is 72%. chrissys profit is
Cm ratio x sales -fixed expenses
when a company sells one unit above the number required to break-even, the company's net operating income will:
change from zero to a net operating income
contribution margin is first used to cover
fixed expenses
once the break-even point has been reached, contribution margin becomes
profit
when preparing a CVP graph, the horizontal axis represents
sales volume
company has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. CM ration is 62%.
sales= (564,000/800,000)/.62 = $2,200,000
to simplify CVP calculations, which of the following is assumed to remain constant?
selling price
CVP analysis focuses on how profits are affected by
selling price mix of products sold unit variable cost total fixed costs sales volume
the higher the margin of safety
the lower the risk of incurring a loss
at the break-even point
total revenue equals total cost net operating income is zero
variable expense ratio
total variable expenses / total sales
variable expense ratio
variable expenses/sales
Cm margin is 77%, fixed expenses are $240,400. To achieve a target profit of $930,000, sales rounded to the nearest whole dollar must be
(240,400 + 930,000)/.77 = 1,520,000
a company's break even point is 17,000 units, contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be
(26,000-17,000) x $22 = $198,000
a company sold 750 units with CM of $120 per unit. Has break even of 450 units, what is Net op income?
(750-450) x 120 = 36,000
144,000 of fixed costs per year, CM ratio =59%
144,000/.59 = $244,068
Degree of Operating Leverage
Contribution Margin / Net Operating Income
CM ratio
Contribution Margin / Sales
changes in contribution margin
cm ratio x change in sales sales increase, cm increases
after reaching the break-even point, a company's net operating income will increase by the
contribution margin per unit for each additional unit sold.
which of the following are assumptions of cvp analysis
costs are linear and can be accurately divided into variable and fixed elements in multi product companies, the sales mix is constant
according to the cvp analysis model and assuming all else remains the same, profits would be increased by
decrease in the unit variable cost
when the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision being made using
incremental